Archive for arnold

Is the Irish recovery in Jeopardy ?

The Irish economy is probably one of the  most studied in the world.  Despite it’s size – estimated at less than 0.5% of the Worlds economy, it’s quoted and studied by economists across the planet.  Only last week I read several articles in the Chinese press reporting on the Housing Boom/Bust and the effects of Brexit on the Irish economy.

One of the reasons is that the Irish have a cultural reach far beyond it’s tiny size and a high profile in many of the world’s biggest economies. Most British and Americans for example where well aware of the rise and subsequent fall of the Irish economy  in the first decade of this century.  It’s often covered in the US and UK media and during the boom year a decade ago the success of the Irish economy was well covered on the BBC News (check here for access via a VPN).

However another reason for it’s popularity with economists is that the Irish economy is often seen as a microcosm for advanced western style democratic nations.  They have targeted and in many senses succeeded in attracting high value/high tech businesses through offering competitive corporate tax rates.  Indeed many companies like Dell and Microsoft sell good s and service to the much larger UK market just across the sea.

However although the Irish economy was successful, expanding much quicker than most European countries  -it’s over investment and huge housing boom led to a spectacular crash in 2008. It’s taken a long time and many sacrifices by the population for the economy to recover, and in recent years has started to experience more modest growth.  However many worry that history is about to repeat itself.

That gentle recovery fueled by several austerity budgets has started to gain speed.  In 2017 the Irish economy grew by over 5%, the highest growth in the Euro-Zone for the fourth successive year.  It looks great news yet as we know, GDP rises are not the only indicator of an economy’s success.

There are problems, for example Ireland has one of the highest per-capita GDP figures in the world, much higher than  the UK or Germany for example.  Yet despite this high level of productivity, wages are still quite subdued and the property prices are rapidly approaching the high levels of the previous boom years.  The result a hugely successful economy where it’s citizens can’t afford to buy property is always a cause for concern.

Some of the success is indeed slightly artificial due to the relative undervalue of the single currency.  It is the same reason that Germany has always been so successful, a German Mark or Irish Punt would have a much higher value than the Euro does.  This is often a criticism of the single currency where the highly competitive and efficient economies benefit from the low valuation of the Euro where as less competitive countries like Greece always struggle.  There are full lists of these in the economic data sections of the BBC website, check out also some of the content on BBC News which you can access here from abroad.

The Irish recovery has been impressive although it has taken many years,. so why are we worried?  Well the economic success doesn’t always seem to be filtering through to the Irish people and budgets.  Some of that is due to the fact that much of the success is merely on ‘the books’ where foreign firms are allocating profits to Irish branches in order to benefit from the low corporation tax.  The level of unemployment is still much higher than across in the UK – most countries with high growth levels do not tend to have 9% of the population unemployed.

The worry is that the Irish economy overheats again under the rising prices of property.  The problem is that the main instrument to control this is higher interest rates but as these are set in Germany then there’s a lack of control there.  Cyclical boon and bust scenarios are extremely damaging to ordinary citizens who often end up paying the price.

South African Cryptocurrency Debts

Although many think that cryptocurrency may be the way to solve African debt and investment problems, there seems to be scant evidence that this is happening.  Like most areas of the world, the crypto craze looks to have little real world benefits. Sure some people are making huge profits betting on the enormous swings of Bitcoin and it’s rivals, but this is of little help to real world issues.

Certain African countries seem to be really keen on the new cryptocurrencies predictably Nigeria and South Africa where there’s intensive trading and speculation on both formal and informal trading networks.  Indeed in South Africa, there are many reports of people getting into financial trouble betting on the wild swings of various cryptocurrencies.

Much like the day trading crazes of the 1990’s, buying and selling these currencies in the short term is extremely risk but of course can be incredibly lucrative.  Many are investing money from second mortgages and credit card debt hoping to profit from the boom in prices.  Of course, the volatility goes both ways with Bitcoin trading in a range of around $8000 – $20000 in just a few weeks. Any of these currencies can easily rise or fall by over 30% in a single day and possibly much more than that.  One individual in cape Town was reported as selling his car just to invest in the cryptocurrency Ethereum after getting a tip on it’s imminent rise.

For ever investor who is losing money on investments in crypto speculation  there are a couple who have simply been scammed.  There are numerous Ponzi and MLM schemes operating in the African continent which supposedly invest in cryptocurrencies.  The schemes offer guaranteed returns and also referral schemes designed to draw in more victims. It should be noted that if there’s one thing for certain with regards investing in bitcoin or similar that’s uncertainty is guaranteed.  There is no way anyone can predict the long term prices of bitcoin as it doesn’t have any underlying value. Bitcoin is always going to be extremely volatile and as such no scheme could ever guarantee anything at all.

South Africans are not the only Africans embracing Bitcoin however, as a recent report from Citibank has indicated. Apparently Kenya, are the fifth highest bitcoin holders in the world just behind Nigeria.  There’s certainly a real appetite for investing in the digital currency on the African continent.

How important is this? Well the countries like Kenya who are investing large proportions of their private wealth in cryptocurrency are obviously very vulnerable to a collapse in prices.  What’s worse is that every cent invested in this digital world is not invested in traditional projects in the country.  More developed countries would cope with this investment drain better than most African nations.

Most financial institutions are very positive about blockchain the technology behind the currencies so this could have a beneficial effect in the long term on African economies.  The hype on cryptocurrencies however rises daily, you can see lots of reports and coverage on mainstream media – try watching UK TV abroad for some insight in their financial sections.

Much will depend on how cryptocurrencies fair in the long term, it may be that they turn out to be a valuable wealth generation tools.  African’s perhaps see these currencies as a way of investing in Western economies in a simple way.What is certain is that Africa’s economic success will be much more certain if the world of the cryptocurrency develops further in the coming years.

Steven (BBC News) Baker

Improvements in Eurozone Growth

A strong performance from the German economy in the 3rd quarter of the year aided the Eurozone to sustain its remarkable momentum. This was in accord with the latest national figures released today. Gross domestic product expanded by 0.8 percent in Germany, Europe’s largest economic area throughout the 3rd quarter. These figures were verified by the German Federal Statistical Office and represents a vast improvement from the 0.6 percent growth in the second quarter. Over the last year the German economy has grown by an impressive 2.8%, while Italy and Portugal both contributed to the broader growth in Eurozone economics. From previous recession they are now both growing by just over 0.5 percent during the 3rd quarter. The European economic area has gathered pace in the course of 2017, leading to surging customer assurance since unemployment has continued to fall steadily.

The unemployment figures are perhaps the most important in a political context. High growth levels are important for GDP and funding services, but all this can be undone with accompanying levels of high unemployment. The improvement in employment figures suggests that part of this growth has been fueled in the manufacturing sectors where high levels of labour are required.

Another important sector which is showing signs of growth is the digital economy. If you watch the UK news through a BBC live VPN then you’ll see how important it is to the UK economy. However it’s becoming increasingly developed in other European nations too partly due to some innovative legislation provided by the EU. Their aim is to create a single European digital market in line with the full single market and provide cross border support for purchases, distribution and transactions.

The advancement has buoyed European Central Bank president Mario Dragh who has diverted criticisms of an accommodating fiscal policy, saying it is essential to sustain the strong momentum. The improved prognosis has helped investor confidence, which rose additional in the previous month, in accord with this ZEW indicator of economic sentiment for Germany.

The widely followed measure climbed to 88.8 points up 1.8 points from October and progressively moving towards the longterm mean degree. Achim Wambach, Zew president, said: The prospects for the German economics stay encouragingly positive. Total high levels of growth across Europe from the third quarter are encouraging further growth in Germany and fostering expectations for the coming six months. The broader European economics grew by 0.6 percent in the 3rd quarter, based on a slight upward revision of growth printed today by the European Commission.

James Williams

UK Proxy and Technology Blogger.

Is Economics a Masculine Subject

It sounds a strange question, yet it is in fact a very relevant one.  We’ve probably all heard of the shortages of women in subjects like maths, science and technology but the surprising fact is that there are even less women in the fields of economics.   For instance if you take academic economics posts in the US, only about 12% are help by women.  It’s not particularly a geographic thing either, the UK has only 15% women in similar posts.

If you look at other measures, perhaps the lists for potential noble prizes for economics – there is not a single woman on the last list won by economist Richard Thaler.  In fact, there has only ever been one woman who has won this prize – Elinor Ostrom in 2009.  What could be causing this, why such a huge imbalance in what is an important field of study?

When I think back to my undergraduate days, it’s probably at a very similar level.  Sure the culture on economic courses was definitely male orientated and at least in my experience focused on a significant amount of alcohol and political discussion.  Yet there were plenty of females on other courses who fitted into to much more masculine environment.  It was very similar to other sciences like maths and Physics, it was just a subject that women didn’t seem that interested in.

Some people say it’s just a natural choice, and to put it in economic terms women are acting ‘rationally’.  The implication being that other subjects are more suited to women’s temperament and skills – again that’s hard to comprehend.  There is little in the subject matter on most undergraduate economic courses that should mean it’s  more suited to men than women.  In fact broader degree subjects like PPE (Politics, Philosophy and Economic degrees in Oxford are extremely popular with female students.

So if it’s not the content and courses themselves what else can be responsible for this huge imbalance?   Also why does no-one really talk about this issue, as it’s potentially a very serious issue.   After all having a wholly masculine viewpoint in a large, important subject like economics can have enormous impact on our everyday lives.  It means that few women will end up in economic posts and influencing factors which potentially could affect all our lives.  It’s almost certain that women would have a slightly different approach to the subject than men, and very likely would be a much fairer one!

Some studies have suggested that there might be an inherent bias in the subject itself and how the subject is portrayed.  One study found that language in economic focused forums could be more sexist that is average.  It’s sad to think that it may be the economists themselves who may be responsible for this bias.  It should be said that this is not a mainstream view and one that most economists would disagree with completely.

There are other studies though which suggest some sexism in the sector.  One found that if a male economist published a paper he was 8% more likely to get a tenured post as opposed to only a 2% increase for women.  Obviously such studies should be approached with caution as the sheer numeric imbalance could also explain some of these findings.

yet other studies are slightly more difficult to dismiss.  Why should a female economist’s paper take on average six months longer to peer review than a mans?  Why do women in economics tend to receive less in salary for similar jobs than men.  If an employment sector is perceived to be sexist it is unlikely to attract enough female applicants.

It’s an interesting and contentious subject which should be a real worry for economists everywhere.  The fact is that it doesn’t seem to be improving either, if you look at UK Universities the proportion of women on economics related courses was about 30% and now it’s fallen to nearly 25% – a significant downward trend.

Further Reading: BBC News Site

(Accessible by VPN check this story)

The Rise of the Eastern Euro Nations

The beginning of 2017 has seen some impressive growth in the eastern economies of the European Union. These countries have benefited from development money and an increase in demand in the Eurozone economies has helped too.

The leading economy is definitely Romania, their growth has risen to nearly 6% more than forecasted.The Polish economy, the largest economy in the Eastern sector of the EU grew by 4%.Even the slowest performing Eastern economy – the Czech Republic posted growth figures of 2.9% still outpacing the Euro area.

Much of the increased activity can be predicted from a growth in construction which has increased across Europe.Although this has been created by a improvement in the economic conditions across the Eurozone.

These former socialist nations are in some senses rising the growth of their western neighbours. The relative weaknesses in their economies are more easily stimulated by demand across the Eurozone.Even unemployment which has often been the problem for these nations has fallen to record lows. Hungary’s currency in particular and the other Eastern European currencies are all performing strongly.  There is a sense of optimism in these countries not seen before, you can see by investing in a VPN or Smart DNS service and watching their local TV and radio broadcasts online.

The growth figures are impressive almost across the board, places like Hungary and Bulgaria have exceed all forecasts in their growth. Some of the growth is not entirely unexpected, the previous years had seen cutbacks in public investment in many of these countries. There had been much pressure to get rid of these reductions and for Governments to start investing more – it seems that resulted in increased growth.The predictions for the developing European nations look good too, the IMF forecast that Eastern European countries will grow double the rate of the developed Euro countries.

Although the Western countries are lagging behind their Eastern neighbours these figures represent great news for all the EU nations. The investment and development funds which have been spent in these countries was intended to advance their economies quickly. It was a long term strategy for the EU designed to build strength across the member nations, investing in the developing nations has not always been popular. In places like France, Italy and the UK there was some resentment at European money being diverted to these nations in times of struggling.


Americans Start Borrowing Again

Debt can be a scary concept, although if you spend time with economists they’re certainly generally a little more accepting.  Financial shocks though tend to make people much more wary and over the last decade Americans have severely reduced the levels of debt they incur.

That’s seems to be changing, there are many signs that with memories of the recession fading they are starting to borrow again.  The numbers in the US are as always somewhat frightening, US consumers now owe nearly $13 trillion on things like mortgages, loans and credit cards.  The number is large and in fact exceeds the total that preceded the last financial meltdown.

Our economists look at increased borrowing as a sign of economic growth, of a confident financial future and there is some merit in that opinion.  Yet consumer debt can quickly change from being a positive economic indicator to being deemed unsustainable just as before the housing crash.

Debt at a push can be seen as a short term indicator of a recover but it’s not something to build a healthy economy on. You can see the change on US mainstream TV, consumerism and credit is growing.  Check out the adverts and feelings on local stations, international viewers can buy a US proxy to view the channels online.

Debt undoubtedly is not something which you want in the long term, healthy economies are rarely built on high levels of debt. One of the issues is the lack of stability, you might think a certain level of debt is manageable but if interest rates rise or economic circumstances alter that might change very quickly indeed.

One of the best ways to assess debt is to consider what it has been incurred for.  Credit card debt built up simply on consumerism might boost short term economic indicators but the benefits are short lived.  Mortgages and things like student loans are perhaps more positive, with people actively improving their lives.

This doesn’t mean they are safe either though, as we saw with the mortgage crisis in the US which precipitated the financial crash. This time it is perhaps student loans which are the worry for the US economy.  US students have risen markedly as college costs have gone up and now stands at an amazing $1.34 trillion. What’s more, over 10% of that is more than 90 days past due – a rate that has almost doubled in the last decade.

Debt is safest when you have a stable job and a decent income, but many factors can alter this very quickly. Job loss, economic changes or something like ill health can cause chaos to even a high earner who has high levels of debt.  It doesn’t have to be something this dramatic, interest rates are starting to rise and this can increase the cost of servicing debt very quickly.

Consumers may get use to maintaining high levels of debt to purchase cars, own bigger homes, electronic goods, US Netflix subscriptions and other luxuries yet if these are bought on credit there could be problems in the future.

Safe from ‘Frexit’ but is Italy Next?

You can almost hear the huge Eurozone sigh of relief as the possibilities of Frexit seem to be diminishing.  The reason is of course, the predicted outcome of the French Presidential elections with most polls suggesting Emmanuel Macron is almost certain to win.  Of course it would be foolish to completely rule out Marine Le Pen, it wouldn’t take much to swing opinion towards the anti-euro party.  Many French voters dislike both candidates which is normally a recipe for a shock.

The next big Euro worry is likely to be from Italy where anti-Euro sentiment is much stronger that France.  Italy has also suffered more than most in the recent financial storms, look at the performance of the various Euro-bonds and you’ll find that Italy’s are among the very worst performing out of all the Eurozone countries.

Take for example an Italian 10 year old bond yield and compare it with a German equivalent and you’ll see a huge spread in the relative values. The Italian bond is rated significantly lower in value than the German ones which represent the political and economic risk the country faces.

This situation is made worse by the potential result in the forthcoming Italian election.  Dubbed by many to be the most dangerous event in Europe, the markets are scared that Italy could vote to leave the Eurozone.  The ant-Euro party, 5-Star are now the highest rated party in Italian opinion polls.  You can see the sort of populist support by merely watching Italian TV for a few hours, try the method in this post entitled – RAI Streaming esturo for a cross section.

They are not alone in Italy many of the other Eurosceptic parties are also doing well which doesn’t bode well if any referendum was help.  It is widely believed that if there was an election in Italy now – the 5 Star party would almost certainly win.

Would this create the ‘QuItaly’ situation that European leaders dread is difficult to guess?  There is no doubt that political populism is on the rise in many European countries and Italy is simply one of many.  There is also the feeling that the Italians are much less pro-Euro than the French.

Even without this actually happening, the political and financial damage of uncertainty is bound to effect the markets.  Italian debt is being downgraded which further decreases the value of Government bonds.  The ultimate effect is that the huge Italian debt becomes more and more expensive to service.

John Francisco


South Africa’s Debt Downgrade

There seems to be little that can stop the momentum which is propelling South Africa towards the lowest credit rating possible on the international markets.  The latest setback involves S&P (Standard and Poor) reported by the BBC (use a VPN for access) who have downgraded the country’s credit rating to junk status after the finance minister was dismissed suddenly.

The global ratings department of S&P brought South Africa’s sovereign debt rating down because it considered the sacking of the respected finance minister, Pravin Gordhan a risk to the implementation of the country’s fiscal policy.

Needless to say this had a negative effect on the markets as the Rand plummeted by nearly 2% against the dollar while the value of Government bonds dropped sharply too.   The depreciation fall was the worse in nearly two years and came in response to the sacking of the finance minister and also other cabinet members.

The credit rating is important to all countries as it has a serious effect on the interest rates the country pays when borrowing on the international markets.   It has surprised many that the President risked this turmoil when he knew that the agency was going to be announcing an assessment on his country’s prospects.

The country has not reached the ‘junk’ status that most countries fear but currently are only two points above that rating.  However there is a real possibility that the other major agencies will similarly cut their ratings too for the country.  If South Africa does end up with ‘junk’ ratings there will be profound effects for the economy as a whole.  Many pension and investment funds for example will automatically sell their bonds if they reach this status which will cause further pressure on their value.  This will mean that the government’s borrowing costs will rise sharply which as they are running a large deficit will be substantial.

This is not the first of the emerging economies to suffer such a downgrade, Russia and Brazil both were downgraded to junk status in 2015 due to their struggling economies.   It will certainly add to the pressure on President Zuma and you can see on the local TV broadcasts that this is rising substantially.  You may need to use a good vpn service like this to access some of the African only broadcasts on local Television channels.