Update: May,
2013
In April, total non-farm jobs increased by 165,000 while March’s
first estimate of 88,000 was revised up to 138,000 and February’s
268,000 revised up to 332,000. This good news from the private
sector shows the recovery, even if weak, is still on track. This
is despite continued losses of government jobs. The official
unemployment rate is at 7.5% with a slight decline in the civilian
labor force at 63.3% from January’s 63.6%, with 835,000
discouraged workers in April, down by 113,000 from a year
earlier. The end of the payroll tax cut and the first effects of
the sequester started to cut demand while 11,000 government jobs
were cut in April, 16,000 cut in March and 13,000 cut in February
2013. The some ten percent of Americans who gained from the stock
markets rise were doing well; the rest who rely on jobs for their
income had their spending constrained. While hard to find in the
BLS statistics, the total of state and local government jobs in
April was 21,844,000. Let us remember when looking at employment
in the
USA,
that as of December 2011, 21,950,00 jobs were those in government
at all levels. By January 2013, job cuts reduced this total to
21,858,000. Q1 of 2013 GDP-growth of 2.5% was better than the
revised 0.4% for Q4 of 2012. Cuts in government jobs (mostly in
the Pentagon) should remind Congress of the consequences of budget
cutting and the sequester – just as we have witnessed in Europe.
Since December 2008, over 6.3 million jobs in government were
lost. Congress still debates the spending cuts they mandated
across the board in the sequester and how they fall on our most
vulnerable, politically les-influential citizens. We will need to
balance further
government job
cuts with hopefully more gains in the private sector. Ethical
Markets
Green Transition Scoreboard®
now shows $4.1 trillion of private investment in green sectors
worldwide since 2007. As more cuts in government jobs are deemed
necessary, the need to continue growing new jobs in renewable
energy, smarter infrastructure and cities, as well as in R&D and
education will be critical. The official unemployment rate is 7.5%
with labor force participation edged lower at 63.3 % with the
number of unemployed persons at 11.7 million. Climbing
out of the 2008 financial crisis where GDP dropped by 9% has
proved to be the long climb back most analysts expected. For
2012, the private sector added 2.2 million new jobs. The
re-election of President Obama was a vote of confidence, even
though few can acknowledge a key problem: the US domestic money
supply which is created by banks lending has collapsed. Since our
money is created by private banks when they make loans, after
2008, lending dried up and securitization of loans which had
ballooned during the housing bubble also collapsed.
Recognizing the problem in the 2009 $789 billion stimulus (mostly
individual tax cuts, infrastructure and help to states) did create
and save over 1 million jobs along with 1.1 million saved in the
auto company bailouts as reported in The
New New Deal.
The money supply shortfall remained which Fed Chair Ben Bernanke
recognized in his QE1, QE2 and other unusual measures of taking
toxic assets onto the Fed's balance sheet. The problem was that
his reliance on the textbook "trickle down" model of giving almost
free money to the big banks at the Fed's discount window, never
trickled down to Main Street. Instead, the old theory failed to
account for the globalization of finance and that the banks sent
most of the QE's new money offshore, some creating jobs
in China and Brazil, while most ended up in speculation on
European bonds, derivatives, commodity ETFs, rising food prices
and unwanted asset bubbles in BRIC countries. A new computer
model now links speculation to food price spikes, (“The
Economics of Curbing Speculation in Food”).
The lack of progress at the UN COP 18 Climate Conference in Doha
unfortunately augers more mega-storms like Sandy and Bohpa which
hit the Philippines in early December.
While with the Fed’s continuing QE3 bond purchases help the US
economy give a better showing compared with many other countries
in Europe which are now in recession, the USA faces
continued global uncertainty and unresolved issues in Europe.
European leaders, after getting banks to take a 75% haircut on
their Greek debt narrowly avoided these write-downs which might
have triggered payment on credit default swaps. This is the
underlying danger to the euro area, with Greece a minor
pawn in this larger game.
The ECB,
May 1, 2013, lowered its interest
rate to 0.5% and began its own brand of quantitative easing
– to the delight of global markets. Spain appears to need a
bailout. Italy’s inconclusive election illustrated the limits of
austerity. Cyprus is the latest problem and produced the most
radical bail-out plan, focused on haircuts to bank depositors as
well as their equity-holders (“It
Can Happen Here: the Confiscation Scheme Planned for US and UK
Depositors”).
This has resulted in a 2-tier euro – as well as the flight to
bitcoins and many other alternative investments.
Britain’s
central bank increased its support of its banks following ECB’s hefty
support of EU banks in December, but these banks are hoarding the
new cash rather than the hoped-for lending to the real economy.
Lord Adair Turner, Britain’s preeminent financial regulator called
for an end to allowing private banks to create the nation’s money
supply at interest and recommended this vital function should be
returned to Britain’s public treasury (video).
A similar story in the USA shows stock markets, consumer
confidence and spending rising while jobs and incomes stagnate and
companies continue to hoard cash. Will central banks, including
Ben Bernanke, rethink their "trickle down" policies and focus on
the real economies? Deeper reforms of finance are needed as
exposed in Broken
Markets, Dark
Pools and Bailout. These
were discussed at a conference, “Fixing
the Banking System for Good”
at the Philadelphia Federal Reserve, April 2013.
Former US FDIC chair Sheila Bair, author of Bull by the Horns,
joined UN Secretary General Ban Ki-moon in announcing support for
a financial transactions tax of well below 1%, to help curb
high-frequency trading, echoing growing calls in eleven EU
countries, including Germany, France and pension funds in France
and Holland. In January 2013, the European Union approved a 0.1%
financial transaction tax for member countries. The focus will be
as a “cancellation fee” since high frequency traders place
thousands of orders each millisecond then cancel most of them
immediately. These taxes will curb this speculation and help
raise some $400 billion annually for public needs. Pushback by
banks and the mainstream financial press continues.
The global recovery has weakened, leaving unemployment at
unacceptable levels, especially in Europe, while the LIBOR scandal
and others in financial markets have increased and commodity price
swings have put growth at risk. Nowhere in the G-20'sMexico deliberations
was there any definition of "growth" although it was mentioned
countless times in the final Communiqué.
Yet mis-measurement of "growth" perpetuated by GDP still
causes mis-pricing of sovereign bonds, energy, food and most goods
due to externalizing of social and environmental costs and
business models still based on "profits" based on passing on such
unrecorded costs to taxpayers and future generations.
Measuring societies' "progress" beyond GDP became a hot topic at
Rio+20, and Ethical Markets’ 2013 “Beyond GDP” survey by Globescan
in eleven countries, co-sponsored by the Institute for Chartered
Accountants of Britain and Wales (ICAEW) and Tomorrow’s Company (www.tomorrowscompany.com)
followed the 2007 and 2010 results in continued finding of wide
majorities favoring addition of indicators of health, education
and environment (www.ethicalmarkets.com)
to be released late May 2013. The Inclusive
Wealth Index (IWI)
devised by the UN University, the International Human Development
Program and UNEP, while advancing considerably beyond GDP, suffers
from too much baggage from obsolete economics: relying on prices
and willingness-to-pay, while acknowledging their inaccuracies due
to "externalities." The economics team fail to examine the deeper
problems with price systems, inflation, money-printing and the
politics of money-creation and credit allocation – arguably deeper
sources of un-sustainability in global financial systems (see the
Transforming Finance statement).
However, IWI is a step forward.
Another effort is London-based new economics foundation's Happy
Planet Index (HPI),
which has garnered much publicity and helped focus on the need to
correct GDP. Launched in 2006, it capitalizes on the Gross
National Happiness
measured in Bhutan which
has captured the imagination of millions and received widespread
publicity, including at the UN and Rio+20.
However, "happiness" is open to widely different definitions, is
subjective and culturally-biased while being appropriate for a
small Buddhist nation. The approach chosen by the
Canadian Index of Wellbeing (CIW)
(I serve on its Advisory Board) measures outcomes, an approach we
take as well as avoiding aggregation of the many "apples" and
"oranges" aspects of well-being into a single index. The Ecological
Footprint,
a well-researched, science-based approach used by the WWF in its
Living Planet Index is
now the pre-eminent measure of ecological systems and is employed
in the HPI along with official life-expectancy statistics. Our
Ethical Markets Quality of Life Indicators, pioneered by Calvert
and Hazel Henderson cover 12 unbundled indicators "dashboard"
mounted on web-platforms which were launched in 2000. This
“dashboard” model is now the preferred approach of the OECD's
Better Life Index and in measuring progress toward the UN
Millennium Development Goals (MDGs), pioneered by statistician
Jochen Jesinghaus.
The G-20's Mexico Communiqué recognized
the need to go beyond GDP, grow a greener world economy, curb the 20
too-big-to-fail banks and
commodity speculation; examined high-frequency trading and the now
widespread support for global financial transaction taxes ("FTT:
The Commonsense Approach"),
as well as phasing out subsidies on fossil fuels. These still
unfairly compete against the development of the "Green Economy"
which was endorsed by the G20. These cleaner, renewable energy
companies are covered by Ethical Market's research (see the
Green Transition Scoreboard®
and video). In
the US election, polls show large majorities of all voters
favoring solar and renewable energy. While the Obama
Administration agrees, Republicans support coal, oil, the XL
pipeline and more drilling in shale for gas and oil – with most of
their campaign donors from the fossil fuel, nuclear and financial
sectors.
While US stock
markets have gained since 2008, deep structural problems in the US economy
remain: millions of expected foreclosures, millions of mortgages
still under water, while the US Treasury is failing to use its
mandate to help homeowners as explained by Ethical Markets expert Sarah
Stranahan.
All this is reflected in the Occupy Wall Street protests still
spreading across the country and worldwide. Clearly,
former Treasury Secretary Geithner misunderstood the housing
crisis as the key macro-economic issue still unaddressed. The
debacles at JP Morgan Chase reinforced the need for higher capital
reserves and deeper reforms at the TBTF banks as I and D. Wayne
Silby, founder of the Calvert Group remark in our "End
TBTF: Some Skin Please!"
Congress continued it’s wrangling over deficits v. jobs and
increasingly mindless skirmishes in Congress over the debt ceiling
by the scare-mongering “fiscal cliff” campaigners. The many jobs
bills of the Obama administration are still encountering
Republican resistance while markets push the Fed for even more
easing. Bi-partisan passage of the Jumpstart Our Business
Startups (JOBS Act) which was devised to democratize access to
capital through crowdfunding on websites by small investors was
marred by Wall Street lobbyists. Patrick T. McHenry (R-NC), who
has also held useful hearings on how to keep the
Crowdfunding
provisions of the 2012 JOBS Act from being hijacked by powerful
incumbent market players. Jobs, while trending upward, are still
key in the sluggish economy, plagued by the unaddressed problem
of foreclosures. Cutbacks in the US Postal Service of 5,000
people in November 2012 and 2,000 in January 2013 lead to a new
debate to relieve it from onerous financial burdens imposed by
Congress in 2006. Without these burdens, the US Postal Service
actually shows a profit and is up-dating its services. Many
groups support allowing the Post
Office to
expand its services to include savings accounts as in many OECD
countries. Government job losses will continue unless
sequestration is repealed. The official unemployment rate is
improving at 7.5%.
Back on October
6th, 2011, President Obama indicated that the explanation for the
Occupy Wall Street 99% movement which has spread across the
country was due to Americans' frustration. The group's manifesto is
a call for corporate social responsibility, fairness and political
reforms. Their issues of inequality, unfairness and Wall Street's
irresponsibility have received more media driven by Occupy, now a
national movement. (OWS
NEWS)
Student debt has reached an unrepayable $1 trillion while
graduates are jobless while facing bleak futures. Lawyer
Ellen Brown's plan to
stimulate recovery by a special Fed bailout found broad support
and Obama responded with a limited version. OWS released
its Debt
Resistors' Operations Manual in
September 2012, and I participated, along with economists Dean
Baker, Randall Wray, Jeffrey Madrick, Michael Hudson, Ellen Brown
and others in the OWS day-long audio teach-in on
their September 17th anniversary.
The dispiriting Congressional wrangling, the still anemic job
numbers and stock market rises andvolatility signal much
uncertainty over the debt problems in Europe and a global slowdown
in 2013. The Congressional
Budget Office now
shows the deficit is decreasing and
forecasts estimate for fiscal
years 2012-2022 that the US
deficit would have continued to shrink further if all the Bush tax
cuts had expired, with revenues rising from 16.3% of GDP in
2012 to 20% in 2014 and 21% in 2022. Policy makers on both sides
of the Atlantic are caught between the conservative "debt
vigilantes" and their "austerity" demanding more cuts in budgets
without increasing revenues versus the Keynesians warning that
such cuts may tip the US into another recession. This deep
ideological struggle caused the 12-person Congressional "Super
Committee" deadlock and continues with the “Fix the Deficit” and
other campaigns funded by billionaire former hedge fund magnate
Pete Peterson. The sequester’ s mandatory cuts meant that the
Keynesians lost the first round of this debate. President Obama’s
handy election victory has now re-invigorated the calls for more
investments in our US future, education, renewing infrastructure
and long term prosperity. This may revive the proposal for a
national infrastructure bank.
The Obama administration, with few fiscal policy options to create
those long-promised jobs, may push for additional stimulus to
avoid a recession. The $60 billion for Hurricane Sandy rebuilding
passed in January 2013. Retired TV host Dylan Ratigan, author of
best-seller Greedy
Bastards,
focused his short-lived crusade for 30 million new jobs on the
need for structural reforms and his Get Money Out campaign to
overturn the Supreme Court's 2010 Citizens
United decision ("Supreme
Court Shocker").
All these "catch 22" problems signify the need for the economic
paradigm shift I have advocated since my The Politics of the
Solar Age, reviewed in the New York Times in 1981.
As we at Ethical
Markets have
been advocating, a new re-structuring of trade agreements and our
economy is needed: to end subsidies and close tax loopholes for
the incumbent fossil-fueled sectors still in control of Congress.
At least a start has been made with cuts
to ethanol subsidies.
We urge policies that follow the lead of private investors who
have already, since 2007, invested over $4.1 trillion in the
cleaner, greener more energy-efficient 21st century
economy (www.greentransitionscoreboard.com).
Stock markets received another bailout of past failures, with the
Fed delivering Q3 many call “a sugar high”. Ethical Markets
focuses on the new green sectors growing unnoticed by Wall Street
and mainstream media's fossilized
asset allocation models. The
idea of returning to plain vanilla "public utility" style banking
is promoted by the Public
Banking Institute,
and the model of state-owned banks like the Bank of North Dakota
is catching hold in 14 states. The oil-shale boom in North Dakota
is now requiring huge public spending on schools, services and
infrastructure, while its earlier sound performance was due to its
public bank ("North
Dakota Economic Miracle: It's Not Oil").
President Obama's jobs bill is in addition to seeking passage of
the infrastructure bank bill and his FY 2013 budget proposes
continuing to invest in education, R&D and an independent, clean
energy future. Meanwhile, the real unemployment rate is still some
15% when discouraged workers and involuntary part time workers are
included. The official 7.5% unemployment rate gives a distorted
picture of the real pain still experienced by so many in our
economy. While Congress is still gridlocked on the ideological
divide between cutting spending and the need for investments in
the next economy, hopefully, the focus will shift to cutting
subsidies and closing tax loopholes to cut the deficit. The
2011Green Scissors report identifies $380 billion of cuts to both
reduce the deficit and save environmental assets from future
depletion.
Gasoline prices reflect
demand worldwide and are still subject to speculation.
President Obama appointed a Commission to look at these prices,
including the role of "speculators," which Common Cause past estimates showed adding some
70¢ to a gallon of gas. As I have pointed out, speculation by
hedge funds and institutional investors drives up the price of oil
and all commodities - but has not been curbed yet by the CFTC ("A
Closer Look at Oil Speculators").
CFTC’s rules to limit the positions of large investors and raising
margin requirements from 5% to 50% were struck down in October by
the Washington, DC appellate court. This speculation can now
continue - ironically fueled by the Fed's $600 billion QE2 andQE3
monthly bond-buying, as noted by China at
the G-20 in Cannes.
Bernanke acknowledges that joblessness remains too high and vowed
to keep rates low until unemployment rates drop below 6.5%.
Formerly, he threw the ball to policy makers, adding "Central
bankers alone cannot solve the world's economic problems." We
agree, since our economy needs restructuring. Yet, the September
QE 3 showed Bernanke's faith in continuing his money creation
efforts for the foreseeable future. Washington policymakers
are still beholden to Wall Street and other incumbent industrial
sectors while the paradigm war between neo-Keynesians stimulus
advocates and deficit hawks led by billionaire Peter Peterson
contribute to policy paralysis.
My interview on Jan. 31, 2010, with John Williams, pre-eminent
expert on deconstructing US official statistics at www.shadowstats.com,
confirmed my distrust of GDP which continues to need an overhaul,
as the Ethical Markets Media Beyond
GDP Surveys with Globescan show.
Williams agrees with us that "GDP is the worst quality information
from the US government.” GDP becomes an ever less reliable
measure. The 2011 update of the 2007 Beyond GDP Survey compiled
for the European Commission shows that large majorities in 12
countries (2 more than in 2007's survey) still favor adding
indicators of health, education, poverty gaps and environment to
all national measures of progress. Our
latest Beyond GDP survey with Globescan will be released later in
May 2013 along with my forthcoming “Transitioning to the Solar
Age: from Economism to Earth Systems Science (www.icaew.com).
As new measures, including the IWI,
OECD's Better Life Index, Canada's
Index of Wellbeing and others are gaining
ground, The
Economist also improved its "Big
Mac" Index of
purchasing power parity by including data on wages in GDP per
person (July 2011).
Those critiquing the current narrow debate point, as we do, to
deeper issues for US malaise: from "free trade" ideologies
favoring large multi-national corporations and finance in trade
and globalization, technological unemployment, off-shoring of US
jobs, de-regulation of global finance fleeing to tax havens, as
contributing to US unemployment and further inequality in wealth
and income distribution (see my review of Treasure
Islands).
My reviews (Bailout, Dark
Pools)
and recent editorial "Global
Finance Lost in Cyberspace!"
and Ethical Markets research points to the need to re-structure
finance (www.transformingfinance.net
and our TV series for college use at www.films.com). New
investment in a 21st century infrastructure can
accelerate the transition from the fossil-fueled Industrial Era to
the cleaner, greener, information-rich Solar Age (seewww.greentransitionscoreboard.com).
I have long explored the entire range of distortions that make GDP a
perverse measure of US progress, and TIME's article
agrees, pointing to our Ethical Markets Quality of Life Indicators
and others including the United Nations Human Development Index (HDI).
In CSRWire "Grossly
Distorted Picture: GDP Still Misleading Governments" (January
23, 2011), I show how GDP can mis-price sovereign bonds of Greece, Ireland and Portugal by
omitting their real wealth: educated workforces, efficient
infrastructure and productive ecosystems … all count for zero in
GDP.
As mentioned, better measures of human progress are gaining
mainstream media attention: the excellent Canadian
Index of Wellbeing (CIW)
at www.ciw.ca and
the new report Spirit Level (2010) by British researchers
Richard Wilkinson and Kate Pickett linking equality with quality
of life within and across countries. They find that countries
with the most equal income distribution (by GINI) have the largest
socially and politically prosperous middle class while unequal
countries do worse on most quality of life indicators (www.equalitytrust.org.uk).
The USA scores poorly and confirms John Williams' and our view
that a massive overhaul of GDP,
unemployment, inflation, money supply and other US statistics is
now urgent if we are to address the need for more jobs.
Why has the weak US recovery still produced so few jobs? The BLS
"Establishment Survey" differs from the broader "Household Survey"
which records the civilian labor force in small companies often
failing or unable to obtain financing, which the Establishment
Survey cannot detect. For 20 years, I have pointed to reasons
the USA has experienced "jobless growth" - rooted in the
abstractions of macroeconomics theories and methods. The faith in
"free trade" has prevented government agencies from making use of
futurists' broader forecasting and planning methods used by most
global corporations. Their economic advisors' market
fundamentalism warned against "industrial policy" except for that
covertly practiced by the Department of Defense and activities in
the name of "national security." Thus, the "hollowing out" of US
manufacturing has continued for two decades at the behest of
global corporations and their investment bankers. President
George H. W. Bush famously held that it did not matter whether the US manufactured
computer chips or potato chips, while President Bush II's chair of
the Council of Economic Advisors, Gregory Mankiw, maintained that
outsourcing was good for American workers who could take their
severance pay and 401Ks and become day traders on the stock
markets. In spite of the growing protests in America's
streets, most politicians, corporate leaders and their academic
advisers didn't get it.
Add to these idiocies the stout denials by economists that
increasing capital-intensive technological change, automating
manufacturing and services would result in the structural
unemployment we see today. Conventional measures of output per
capita masked this technological unemployment as beneficial
"increases in productivity" for decades, as we have pointed out.
Unfortunately, Obama administration economic advisors are mostly
steeped in conventional theories and models which continue to
serve Wall Street and corporate interests at the expense of
workers and individuals (see the excellent reports atwww.prospect.org).
Happily, the movie "Inside Job," documenting economists' conflicts
of interest won an Oscar and the University
of Massachusetts now
exposes these ethical lapses.
The US recovery
is still slow and will be fragile until housing further stabilizes
and job creation picks up. This may not get big banks to step up
lending to domestic companies since they make more money with
proprietary trading, hoarding their bailout funds or sending them
offshore. The anemic GDP numbers underline
what most Americans have experienced for the past years. States
facing their new fiscal year are wrestling with budget shortfalls
by scape-goating teachers, firefighters and police in Wisconsin, Ohio and Indiana.
State and local governments have cut over 700,000 jobs since
2009. California's budget gap of $24 billion has been closed with
a tax increase and further cuts. North Dakota still stars with
continuing budget surpluses, but with public services and
infrastructure heavily stressed by their oil and gas boom. While
markets and politicians all cry for more GDP growth,
we need to remember that growth must be redefined with the new
scorecards to know what is dying, what needs to grow and to
maintain key infrastructure.
President Obama's original 2009 $787 billion Economic Recovery and
Reinvestment plan did prevent layoffs, bolstering states' finances
and investing in infrastructure prevented a deeper recession and
allowed the modest GDP improvement.
Bloomberg estimates that the Fed added another $7.7
trillion to
keep banks afloat. Deeply entrenched ideologies and
special-interest politics are battling over the budget with
deficit hawks gaining the upper hand. Cutting the Pentagon's
weapons procurement and subsidies for nuclear power, fossil fuels
and big farmers as recommended in the $380 billion of cuts
outlined over 5 years in the Green
Scissors report
would boost investments in education, health care, efficiency and
renewable energy. At least the President's 30,000 troop surge
was reduced by 10,000 and costed transparently in the budget, and
with a pledge to end our war in Afghanistan
in 2014. Military expenditures are now on the agenda for US debate
since sequester. The oversight reported on TARP, July 21st that
US taxpayers are liable for up to $23.7 trillions of bailouts (www.sigtarp.gov).
All this shows that the great transition from the fossil-fueled,
unsustainable Industrial Era to the green economy of the Solar Age
(see my The Politics of the Solar Age, 1981) is now well
underway.
The Fed's job with so many new tasks is now harder -- trying to
steer between recession, deflation and inflation. Low interest
rates continue to punish savers and are actually negative when
corrected for inflation. The role of the Fed, a private
institution owned by its 12 regions' banks, came under scrutiny by
Bloomberg, Fox Business News and other media for its secrecy.
Their Freedom of Information Act suit earlier released initial
data showing some $3 trillion given to bail out companies and even
some European banks. Over 300 Congress members co-sponsored Ron
Paul's bill, passed in July 2012, to audit the Fed and account for
Bloomberg's new total of $7.7 trillion. State-owned banks like
the Bank of North Dakota could expand local lending. It provides
funds to local banks for low-cost credit directly to North
Dakota's infrastructure, education and services, as well as
businesses (see "Monetize
This!"
and "Escape
from Pottersville"
by Ellen
Brown at www.ethicalmarkets.com).
Opponents to advocates of public utility style banking, claim
that North
Dakota's economy is boosted by Bakken oil, but this new bubble is
unsustainable and its role is refuted in "North
Dakota Economic Miracle: It's Not Oil." While
triumphant fossil fuel interests claim the USA is the new “Saudi
Arabia,” the International Energy Agency is more cautious on these
new oil and gas supplies, citing water shortages and climate
change as limiting factors (IEA 2012). A report by HSBC finds
that fossil fuel reserves of Shell, Statoil and others are now
“sub-prime assets,” unburnable due to the CO2 emissions
(“HSBC:
BP, Shell, Statoil at risk from ‘unburnable’ reserves”).
Standard & Poor’s also is concerned over these “carbon
constrained” assets and Carbon Tracker’s latest report received
widespread publicity (Bloomberg). .
A revealing look at these issues is A Demon of Our Own Design (2007)
by former hedge fund manager Richard Bookstaber and Fools Gold by
Gillian Tett of the Financial Times showing how financial
engineering of ever-more exotic swaps, derivatives, options, etc
are themselves adding to market instabilities worldwide. Another
market institution, the Depository Trust and Clearing Corporation
(DTCC) has a backlog in handling the huge volume of derivatives
trading. Much of the volatility on Wall
St. is due to
high-frequency trading and the failure of these exotic "quant"
models and the need for hedge fund managers to sell assets to
cover margin calls from their bankers. Yet other challenges to
Wall Street's conventional wisdom are the best-seller, The
Black Swan, by veteran options trader and mathematician Nassim
Nicholas Taleb, and Lecturing Birds on Flying by Paulo
Triana, who critique risk assessment models used by investors and
banks. I made similar critiques of such models as Value At Risk
(VAR) used so widely that unanticipated events could lead to
system-wide crises in The UN: Policy & Financing Alternatives which
I co-edited (Elsevier Scientific, UK, 1995, 1996).
Inflation must keep the Fed on alert longer term, despite new
fears that collapsing demand may mean deflation. The core rate
(excluding food and energy) is suspect. A scathing editorial in The
Economist called this use of the core index "highly
misleading" since most people eat and drive! (June 23, 2007, p.16)
We have made this same point for many years. Meanwhile, behind
all the headline numbers, average wages for non-supervisory
workers have remained stagnant for decades, foreclosures continue,
house prices stagnate, and many deeper structural problems in
the USA go
unaddressed. The $787 stimulus has repaired some USA infrastructure
and provided some green jobs. The growing
green economy worldwide is
overlooked by Wall Street's obsolete asset-allocation models
dominated by the fossil fueled sectors (see my The
Sustainability Sector at www.seekingalpha.com).
The growing gap between rich and less affluent citizens is
worrying Democrats and Republicans - but their concerns offered
the familiar remedy: more GNP-based economic growth. Economist
Joseph Stiglitz now estimates the Iraq occupation
will total $3 trillion in his The Three Trillion Dollar War (2008).
For more on the current trends in US and global finance and
economics, visit www.ethicalmarkets.com and
browse the categories on Beyond
GDP, Reforming
Global Finance, Green
Prosperity and Trendspotting.
For discussion of solutions, visit
www.ethicalmarkets.tv and
browse the Ethical Markets series Transforming
Finance.
Our move to the new website and updating of Ethical
markets Quality of Life Indicators is proceeding apace! |