Category Archives: Economy

New financial crisis is ‘certain’ without reform of banks

February 29, 2016Economy, Energy and Climate Change, News, Reviews and CommentTrevor Larkum

The former Bank of England governor says in his new book that imbalances in the global economy makes a crash inevitable

Mervyn King: ‘Failure to tackle the disequilibrium in the world economy makes it likely that a crisis will come sooner rather than later.’ (Image: Philip Toscano/PA) — Mervyn King: ‘Failure to tackle the disequilibrium in the world economy makes it likely that a crisis will come sooner rather than later.’ (Image: P. Toscano/PA)

Another financial crisis is “certain” and will come sooner rather than later, the former Bank of England governor has warned.

Mervyn King, who headed the bank between 2003 and 2013, believes the world economy will soon face another crash as regulators have failed to reform banking.

He has also claimed that the 2008 crisis was the fault of the financial system, not individual greedy bankers, in his new book, The End Of Alchemy: Money, Banking And The Future Of The Global Economy, serialised in The Telegraph.

“Without reform of the financial system, another crisis is certain, and the failure … to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later,” Lord King wrote.

He added that global central banks were caught in a “prisoner’s dilemma” – unable to raise interest rates for fear of stifling the economic recovery, the newspaper reported.

A remark from a Chinese colleague who said the west had not got the hang of money and banking was the inspiration for his book.

Lord King, 67, said without understanding what caused the crash, politicians and bankers would be unable to prevent another, and lays the blame at the door of a broken financial system.

He said: “The crisis was a failure of a system, and the ideas that underpinned it, not of individual policymakers or bankers, incompetent and greedy though some of them undoubtedly were.”

Spending imbalances both within and between countries led to the crisis in 2008 and he believes a current disequilibrium will lead to the next.

To solve the problem, Lord King suggests raising productivity and boldly reforming the banking system.

He said:

“Only a fundamental rethink of how we, as a society, organise our system of money and banking will prevent a repetition of the crisis that we experienced in 2008.”

Lord King was in charge of the Bank of England when the credit crunch struck in 2007, leading to the collapse of Northern Rock and numerous other British lenders, including RBS, and has been criticised for failing to see the global financial crisis coming.

Source: The Guardian

World Bank issues ‘perfect storm’ warning for 2016

January 26, 2016Economy, Energy and Climate Change, News, Reviews and CommentTrevor Larkum

Simultaneous slowdown in Brics economies would jeopardise chances of pick-up in global growth this year, report says

London Climate March - passing the Palace of Westminster (Image: T. Larkum) — London Climate March – times they are a changing (Image: T. Larkum)

The risk of the global economy being battered by a “perfect storm” in 2016 has been highlighted by the World Bank in a flagship report that warns that a synchronised slowdown in the biggest emerging markets could be intensified by a fresh bout of financial turmoil.

The Bank said the possibility that Brazil, Russia, India, China and South Africa – the so-called Brics economies – could all face problems simultaneously would put in jeopardy the chances of a pick-up in growth in the coming year.

It added that the impact would be heightened by severe financial market stress of the sort triggered in 2013 by the announcement by the Federal Reserve that it was considering reducing the stimulus it was then providing to the US economy.

Launching its annual Global Economic Prospects, the Bank said activity in 2015 had failed to live up to its expectations – the fifth year in a row that growth has undershot the forecasts made by the Washington-based institution, which lends to the world’s poorest countries.

2016: a year of living dangerously

January 20, 2016Economy, Energy and Climate Change, OpinionTrevor Larkum

As oil prices fall further, China slows and Brazil risks collapse, cracks will be papered over and the scene set for a new implosion

Economic forecasting is a mug’s game. One thing that has been learned from the financial crisis and Great Recession is that even those equipped with the most sophisticated models get it wrong, sometimes spectacularly.

So it is with both humility and trepidation that I will try to fulfil a promise made last week and make predictions for what is going to happen in 2016. In all honesty, the future is unknowable and anybody who says otherwise is lying.

So, with that caveat, here’s what I think might happen. At some point, a recovery built on booming asset prices, weak growth in earnings and rising personal debt is going to lead to another huge financial crisis – but not in the next 12 months.

Instead, 2016 will be a year of living dangerously, papering over cracks and buying time before all the old problems resurface.

The great train wreck of 2016

January 12, 2016Economy, Energy and Climate Change, OpinionTrevor Larkum

Today we are going to review irrefutable evidence that a slow motion train wreck is already well underway across global markets, that will end with the last wagons on the train, the S&P500 index and the Dow Jones Industrials, disappearing into the abyss right after their immediate predecessors.

There are still a remarkable number of investors out there, and an even more remarkable percentage of mainstream financial journalists, who seem to think that everything is alright just because the flagship indices like the Dow Jones Industrials and the S&P500 haven’t caved in yet, but as we will now see they are probably just about to.

The Defining Myth of Our Culture

November 28, 2015Economy, Energy and Climate Change, OpinionTrevor Larkum

Many people view the word myth as almost synonymous with ‘story’ or ‘fairy-tale’. This sells myth appallingly short, for it is much more that that, a trope that can give meaning and context to a whole culture.

Myths can define a culture, giving a people a shared world-view, a common set of assumptions from which to experience the world. We may sneer and say the myths were wrong, for instance the view that the Earth is at the centre of the universe, requiring byzantine wheels within wheels to explain the movement of the planets in the sky. And yet even such a world-view is good enough to farm successfully, it was good enough for Ptolemy to be able to predict planetary motion reasonably well.

Religion is often a defining myth, indeed Christianity has probably been the defining myth of the West for much of its written history.

We believe, of course, that we are more sophisticated. We don’t need a myth. But we have one

Our myth is continual growth

Like Ptolemy’s geocentricity, it needs to be true enough to explain many observations. From where I’m standing it explains most things. I grew up in a world of coal fires, frost on the inside of windows in winter and pipes that froze up in the cold and vacuum tubes in the radio.

We now have central heating, iPods and a bewildering choice of all sorts of things. That’s growth for you, and pretty much continual growth at that. I’m not complaining, but I don’t think I’ll see another 30 years of it at the same rate.

So the myth of continual growth is a good myth for our times. Our economic system appears to be predicated on it, and until now it has worked pretty well. However, most natural systems have limits, beyond which they won’t go. Draw too much water from a well, and you don’t have any any more.

The gathering financial storm

November 26, 2015Economy, Energy and Climate Change, OpinionTrevor Larkum

Governments are liberating global corporations from the rule of law and leaving them to rip the world apart

‘Step back a pace and you see that all these crises arise from the same cause.’ (Image: S. Thibault)

What have governments learned from the financial crisis? I could write a column spelling it out. Or I could do the same job with one word: nothing.

Actually, that’s too generous. The lessons learned are counter-lessons, anti-knowledge, new policies that could scarcely be better designed to ensure the crisis recurs, this time with added momentum and fewer remedies. And the financial crisis is just one of the multiple crises – in tax collection, public spending, public health and, above all, ecology – that the same counter-lessons accelerate.

Step back a pace and you see that all these crises arise from the same cause. Players with huge power and global reach are released from democratic restraint. This happens because of a fundamental corruption at the core of politics. In almost every nation the interests of economic elites tend to weigh more heavily with governments than do those of the electorate. Banks, corporations and landowners wield an unaccountable power, which works with a nod and a wink within the political class. Global governance is beginning to look like a never-ending Bilderberg meeting.

Global Trade Is Collapsing As The Worldwide Economic Recession Deepens

November 14, 2015Economy, Energy and Climate Change, OpinionTrevor Larkum

When the global economy is doing well, the amount of stuff that is imported and exported around the world goes up, and when the global economy is in recession, the amount of stuff that is imported and exported around the world goes down.

It is just basic economics. Governments around the world have become very adept at manipulating other measures of economic activity such as GDP, but the trade numbers are more difficult to fudge. Today, China accounts for more global trade than anyone else on the entire planet, and we have just learned that Chinese exports and Chinese imports are both collapsing right now. But this is just part of a larger trend. As I discussed the other day, British banking giant HSBC has reported that total global trade is down 8.4 percent so far in 2015, and global GDP expressed in U.S. dollars is down 3.4 percent. The only other times global trade has plummeted this much has been during other global recessions, and it appears that this new downturn is only just beginning.

How come another economic crash is on its way?

David Cameron says a second financial crash is imminent. If he’s right, it’s because the government bailed out the wrong industry, argues Renegade Economist host Ross Ashcroft. He says the last recession was brought on by too much debt. Today private debt is at the greatest level in recorded human history. By ignoring this and instead focusing on the banks, we are heading for economic armageddon.

Source: The Guardian

Tipping Points and Civilizational Survival

October 25, 2015Economy, Energy and Climate Change, Oil, Opinion, Peak OilTrevor Larkum

In mid-August, TomDispatch’s Michael Klare wrote presciently of the oncoming global oil glut, the way it was driving the price of petroleum into the “energy subbasement,” and how such a financial “rout,” if extended over the next couple of years, might lead toward a new (and better) world of energy. As it happens, the first good news of the sort Klare was imagining has since come in. In a country where the price of gas at the pump now averages $2.29 a gallon (and in some places has dropped under $1.90), Big Oil has begun cutting back on its devastating plans to extract every imaginable drop of fossil fuel from the planet and burn it. Oil companies have also been laying off employees by the tens of thousands and deep-sixing, at least for now, plans to search for and exploit tar sands and other “tough oil” deposits worldwide.

In that context, as September ended, after a disappointing six weeks of drilling, Royal Dutch Shell cancelled “for the foreseeable future” its search for oil and natural gas in the tempestuous but melting waters of the Alaskan Arctic. This was no small thing and a great victory for an environmental movement that had long fought to put obstacles in the way of Shell’s exploration plans. Green-lighted by the Obama administration to drill in the Chukchi Sea this summer, Shell has over the last nine years sunk more than $7 billion into its Arctic drilling project, so the decision to close up shop was no small thing and offers a tiny ray of hope for what activism can do when reality offers a modest helping hand.

As Klare makes clear today, when it comes to the burning of fossil fuels, reality — if only we bother to notice it — is threatening to offer something more like the back of its hand to us on this embattled planet of ours. He offers a look at a future in which humanity, like various increasingly endangered ecosystems including the Arctic, may be approaching a “tipping point.”

Climate scientist hits out at IPCC projections

October 24, 2015Economy, Energy and Climate Change, News, Reviews and CommentTrevor Larkum

As a new chairman is appointed to the Intergovernmental Panel on climate Change (IPCC) a University of Manchester climate expert has said headline projections from the organisation about future warming are ‘wildly over optimistic.’

A composite image of the Western hemisphere of the Earth (Image: NASA)

In an article published today in Nature Geoscience Professor Kevin Anderson says that IPCC claims that “global economic growth would not be strongly effected” are unrealistic and that if we are to meet the 2C warming target wealthy and high emitting individuals will need to make dramatic cuts in the energy they use and in the material goods they consume – they will have to accept immediate and fundamental changes to their way of life – at least until the transition away from fossil fuels is complete

Professor Anderson also says that many climate scientists are censoring their own work in order for their results to be more politically palatable, something that does society a “grave disservice.”

Professor Anderson’s claims are a wake-up call to Professor Hoesung Lee, who was installed at the new IPCC chair last week and are well timed in the lead-up to the climate negotiations in Paris, which take place later this year.

A statement last year from the Intergovernmental Panel on Climate Change (IPCC) said that “to keep a good chance of staying below 2 °C, and at manageable costs, our emissions should drop by 40–70 per cent globally between 2010 and 2050, falling to zero or below by 2100”, and that mitigation costs would be so low that “global economic growth would not be strongly affected.”

Professor Anderson notes:

“If the IPCC’s up-beat headlines are to be believed, reducing emissions in line with a reasonable-to-good chance of meeting the 2 °C target requires an accelerated, but still evolutionary, move away from fossil fuels; they notably do not call for an immediate and revolutionary transition in how we use and produce energy. Yet, in my view, the IPCC’s own carbon budgets make it abundantly clear that only a revolutionary transition can now deliver on 2°C.”

According to Anderson, the IPCC’s positive outcomes are:

“Delivered through unrealistically early peaks in global emissions, or through the large-scale rollout of speculative technologies intended to remove CO2 from the atmosphere.

“In stark contrast, I conclude that the carbon budgets associated with a 2 °C threshold demand profound and immediate changes to the consumption and production of energy.

“The complete set of 400 IPCC scenarios for a 50% or better chance of meeting the 2 °C target work on the basis of either an ability to change the past, or the successful and large-scale uptake of negative-emission technologies. A significant proportion of the scenarios are dependent on both. That is unrealistic.”

According to IPCC research, it is cumulative emissions of CO2 that matter in determining how much the planet warms by 2100. The IPCC concludes that no more than 1,000 Gt of CO2 can be emitted between 2011 and 2100 for a 66% chance, or better, of remaining below a 2 °C rise.

However, between 2011 and 2014 CO2 emissions from energy production alone amounted to about 140 Gt of CO2. To limit warming to no more than 2 °C, the remaining 860 Gt of CO2 (out to 2100) must be considered in relation to the three major sources of CO2; those released in cement manufacture, changes in land-use and, most importantly, energy production.

Anderson concludes:

“The severity of such cuts would probably exclude the use of fossil fuels, even with carbon capture and storage (CCS), as a dominant post-2050 energy source. If we are to meet the 2C target, us wealthier high emitting individuals, whether in industrial or industrialising nations, will have to accept radical changes to how we live our lives – that or we’ll fail on 2°C.”