Tuesday, January 7, 2014

Bad luck, not policy, is the scourge of the young - Financial Times

Bad luck, not policy, is the scourge of the young


http://www.ft.com/intl/cms/s/0/2d38f48e-749a-11e3-9125-00144feabdc0.html?siteedition=intl#axzz2pin28U6t


January 6, 2014 5:23 pm

Bad luck, not policy, is the scourge of the young

By Janan Ganesh
Baby boomers enjoyed almost miraculously benign circumstances that will not be repeated
Anyone who believes Britain is a uniquely class-bound society should try France, India or, if it comes to that, the east coast of America. Nor is race quite so incendiary a subject here as in many other parts of the world; after all, it is the arrival of other white Europeans that has upset the natives over the past decade. As for religion, there is a limit as to how rancorously it can divide a people whose faith is tepid or non-existent.
The real faultline in Britain is, increasingly, generational. The old are seen to have done well from the economy and the state during their lives; the young are perceived victims. And this inequity is aggravated by the fiscal consolidation of recent years, with its exemptions for the elderly. On Sunday, Prime Minister David Cameron said the state pension would continue to rise by at least 2.5 per cent a year until 2020 and boasted that perks such as winter-fuel payments remain untouched. The next day George Osborne, his chancellor, identified housing benefit for people under 25 as a good place to begin the next round of spending cuts. The contrast was not lost on the young.
If they resent the baby boomers, it is with some reason. A typical person born in 1950 will have little memory of postwar austerity. They grew up under a newly minted welfare state. If they were of an academic bent, a free university education beckoned. If not, gainful employment in industry was there for the taking. Either way, their working life was a story of gradually improving living standards. Perhaps they bought their first home in their 20s; if it was in the southeast of England, the subsequent capital gain may have been enough to live off in retirement, even before their “triple locked” pensions kicked in. Their sheer number and propensity to vote encourage politicians to crawl to them. The silver-tongued chase the grey-haired.
The problem is that we have come to regard the baby-boomer experience as somehow the natural way of things, a kind of British birthright that must be passed on to the next generation as a matter of “fairness”. All we want – say the young, or at least their champions – is the lifestyle our parents had.
But that lifestyle was actually a historical aberration, the product of almost miraculously benign circumstances that are not going to repeat themselves. During the cold war, Britain was in economic competition with North America, western Europe, bits of east Asia and not much else. China, India, Russia, eastern Europe and much of Latin America were locked out by their own communism or national protectionism. It is no trick to deliver steadily rising wages to the average British worker when the world’s most populous nations are not part of the global labour supply.
The favourable circumstances did not stop there. Automation was yet to diminish the human element in the manufacturing process. And the baby boomers did not have a teeming cohort of elders to pamper with lavish pensions.
They are a generation of unique good fortune, preceded by parents who never knew Keynesian full employment and followed by heirs who have not been cocooned from global wage competition. To think of their experience as something replicable with the right mix of government policies and good intentions is a superbly efficient way of bankrupting a country.
Surveys of social attitudes suggest that the young know this better than those who simper and protest on their behalf. People born after 1979 are more hostile to higher taxes to pay for welfare benefits than the baby-boomers or the generation before them. They are also more supportive of fiscal deficit-reduction, less enamoured of the National Health Service and generally questioning of the state – as you would be if you were about to spend your working life paying down a public debt accrued by other people.
The government can soften the predicament of youth, of course. A looser planning policy would, in time, turn home-ownership into an attainable prospect for people who are presently resigned to a life as tenants. A different distributional profile for austerity could make a marginal difference too: less money for pensioners and more for education and investment.
But no serious person can believe the mid-20th century good life will come back if only young people vote in sufficient numbers and “get organised”. The structural conditions that gave rise to postwar prosperity across the west are not in any government’s gift to recreate.
There is no law of the universe that says each generation must be more prosperous than the last. History is about shocks, reversals and declines as much as about metronomic progress. The present generation’s hardship is not exceptional; the previous generation’s comfort was. Politicians’ duty to the young is to be candid about this, help them where possible and chip away at old debts that will hang over them for as long as they live.

Time Travel: Physicists Search Facebook and Twitter for Time Travelers - TIME

Physicists Are Spending Way Too Much Time Hunting Time Travelers on Facebook

Read more: Time Travel: Physicists Search Facebook and Twitter for Time Travelers | TIME.com http://newsfeed.time.com/2014/01/06/physicists-are-spending-way-too-much-time-hunting-time-travelers-on-facebook/#ixzz2phpryBQI


If you traveled back in time, you'd take a selfie, too.
Back to the Future
Universal / Everett Collection
This explains why the DeLorean fad never caught on.
If you were a modern physicist on the hunt for time travelers, a phenomenon that has intrigued cultures dating back to the Indian Mahabharata in 9th century BC, how would you do it? According to two experts from Michigan Technological University: Check Facebook, obvi.
In a study titled “Searching the Internet for evidence of time travelers,” Drs. Robert Nemiroff (see incredible photo here) and Teresa Wilson chronicle their exhaustive search through Twitter, Facebook, Google Plus, and Bing in search of signs that people from the future came, selfied, and conquered.
The physicists scoured the social networks for “digital signatures” in the form of posts including prescient information that only someone from the future would know. The two terms they searched for: mentions of Comet ISON and Pope Francis before they became public knowledge. This involved extensive hashtag searches.
Unfortunately, this methodology has some problems:
1. While the implication that people in the distant future still use Twitter and Facebook must be very comfortable for stock holders, it seems a little short sighted to just assume we use not only the same social media but the same form of Internet as well. (Sidenote: If hashtags are still a thing in 3127, I’m moving to Jupiter.)
2. Time travelers don’t have time for social media when they have to prevent THE APOCALYPSE.
3. Okay, even if there’s no pending apocalypse — why Facebook? Even though Nemiroff and Wilson acknowledge that there are three types of time travelers (those who advertise their presence, hide their presence, and are indifferent), wouldn’t the ones who don’t care if people find out about them make their presence known in a bigger way?
4. If they did decide to go on social media, wouldn’t it be to poke an ex girlfriend instead of talk about the Pope? 
By the end of the study, the researchers found that even if there were time travelers, which “could be transformative not only to physics but humanity” although also “possibly catastrophic,” they couldn’t find them online. Those sneaks.


Read more: Time Travel: Physicists Search Facebook and Twitter for Time Travelers | TIME.comhttp://newsfeed.time.com/2014/01/06/physicists-are-spending-way-too-much-time-hunting-time-travelers-on-facebook/#ixzz2phqIv7oQ

Monday, January 6, 2014

Era of renminbi dawns as China’s influence grows - Financial Times

Era of renminbi dawns as China’s influence grows


http://www.ft.com/intl/cms/s/0/f5ba27d2-67f9-11e3-8ada-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_us%2Ffeed%2F%2Fproduct&siteedition=intl#axzz2pbhEB0JZ

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By Patrick Zweifel
Chinese currency set to gain international status in three years
“The Chinese currency, the renminbi, is not terribly well known at the moment, but over my lifetime it’s going to become almost as familiar as the US dollar.” So said George Osborne during a recent visit to Shanghai.
At first glance, this might seem unrealistic. The renminbi is hardly a global investment currency and barely registers on central bank balance sheets. So any change would require a profound shift in the financial landscape.
Yet the renminbi is evolving at a remarkable pace. As a medium of exchange and unit of account, it is on course to acquire international status in three years; in 10, it may unseat the dollar as the world’s reserve currency.
The renminbi’s growing stature is visible on many fronts. The first is trade. History shows the currencies of countries that play an important role in the global economy have developed into major players on the world stage. And with China now the globe’s biggest trading nation, the renminbi has momentum in its favour. It is already the world’s ninth most-traded currency and recently replaced the euro as the second most heavily-used currency in international trade finance.
The conditions are therefore ripe for the renminbi to become a major trading currency over the next three years. By then it should account for around 5 per cent of global trade, a fivefold increase on the 2012 figure.
Its transformation into a global investment currency is also progressing rapidly. Here, the catalysts are financial reform and capital market expansion. Under plans recently unveiled by President Xi Jinping, China aims to extend the yield curve for government bonds and create a capital market that serves the needs of a broad range of borrowers and investors, domestic and foreign. This development, alongside a prospective widening of the renminbi’s trading band, should boost the currency’s credentials as an international investment vehicle.
China’s renminbi-denominated debt market is already the largest in emerging markets. The volume of international bonds outstanding has expanded by some 800 per cent over the past three years and the market has played host to foreign issuers such as McDonald’s and Caterpillar.
While the market is largely off limits to international investors, Mr Xi’s reforms suggest this situation will soon reverse. So, over five years, the renminbi should become a top three issuing currency in the international bond market alongside the euro and dollar.

Ground to make up

It is as an international reserve currency that the renminbi has most ground to make up. Currently only 0.01 per cent of world central bank foreign exchange reserves are held in renminbi. That compares to 60 per cent in dollars and 25 per cent in euros. But this tiny percentage masks an underlying reorientation towards the renminbi – a process that began in 2005 when China abandoned fixed exchange rates.
Before then, the dollar was the only reference point for developing world central banks. By some distance the largest constituent of policy makers’ foreign exchange assets, it exerted a major influence on the behaviour of emerging market currencies.
Since 2005, however, a new pattern has emerged. The dollar’s pull on emerging market currencies – or the co-movement between the dollar and other units – has waned. Previously, when the dollar moved 1 per cent, emerging market currencies would head in the same direction by an average of 0.8 per cent. Today, the co-movement is closer to 0.5 per cent.

Scene is set

The dollar’s loss has been the renminbi’s gain. Where it once had no influence at all, a 1 per cent move in the renminbi now causes a 0.1 to 0.2 per cent shift in other emerging currencies. As China’s economic influence grows, this tendency can only strengthen. Should present trends persist, the currency could account for 30 per cent of central bank foreign exchange reserves by 2025, when it begins to threaten the dollar’s reserve currency status.
An obstacle on the path to renminbi dominance is China itself. It has shown reluctance to open up its capital account, while its export-dependent economy and huge holdings of US Treasuries means policies that lead to currency appreciation are not necessarily favoured by policy makers.
But the benefits of an international currency – low borrowing costs and reduced exchange rate risk – should eventually prove too alluring for the Chinese authorities to ignore. The scene is set, then, for the Chinese unit to come of age and for renminbi-denominated securities to evolve into core holdings for global investors, probably at the expense of US dollar assets. The era of the renminbi is upon us.
Patrick Zweifel is chief economist at Pictet Asset Management

Sunday, January 5, 2014

The Mint countries: Next economic giants? - BBC NEWS

The Mint countries: Next economic giants?


http://www.bbc.co.uk/news/magazine-25548060

Ikea store in Jakarta under constructionBuilding an Ikea for the 28 million people living in greater Jakarta
In 2001 the world began talking about the Bric countries - Brazil, Russia, India and China - as potential powerhouses of the world economy. The term was coined by economist Jim O'Neill, who has now identified the "Mint" countries - Mexico, Indonesia, Nigeria and Turkey - as emerging economic giants. Here he explains why.
So what is it about the so-called Mint countries that makes them so special? Why these four countries?
A friend who has followed the Bric story noted sardonically that they are probably "fresher" than the Brics. What they really share beyond having a lot of people, is that at least for the next 20 years, they have really good "inner" demographics - they are all going to see a rise in the number of people eligible to work relative to those not working.
This is the envy of many developed countries but also two of the Bric countries, China and Russia. So, if Mexico, Indonesia, Nigeria and Turkey get their act together, some of them could match China's style double-digit rates between 2003 and 2008.
GDP in 2012 and 2050
Something else three of them share, which Mexican Foreign Minister Jose Antonio Meade Kuribrena pointed out to me, is that they all have geographical positions that should be an advantage as patterns of world trade change.

Find out more

Jim O'Neill
  • Listen to the first episode of MINT: The Next Economic Giants on BBC Radio 4 on Monday 6 January from 09:00 GMT
For example, Mexico is next door to the US, but also Latin America. Indonesia is in the heart of South-east Asia but also has deep connections with China.
And as we all know, Turkey is in both the West and East. Nigeria is not really similar in this regard for now, partly because of Africa's lack of development, but it could be in the future if African countries stop fighting and choose to trade with each other.
This might in fact be the basis for the Mint countries developing their own economic-political club just as the Bric countries did - one of the biggest surprises of the whole Bric thing for me. I can smell the possibility of a Mint club already.
What I also realised after talking to Meade Kuribrena, is that the creation of the Mint acronym could spur pressure for Nigeria to become a member of the G20, as the other Mints already are.
This was something the charismatic Nigerian finance minister, Ngozi Okonjo-Iweala was keen to talk about: "We know our time will come," she said. "We think they are missing something by not having us."
Meade Kuribrena went so far as to suggest that, as a group of four countries, the Mints have more in common than the Brics. I am not sure about that, but it is an interesting idea.
Economically three of them - Mexico, Indonesia and Nigeria - are commodity producers and only Turkey isn't. This contrasts with the Bric countries where two - Brazil and Russia - are commodity producers and the other two - China and India - aren't.
In terms of wealth, Mexico and Turkey are at about the same level, earning annually about $10,000 (£6,100) per head. This compares with $3,500 (£2,100) per head in Indonesia and $1,500 (£900) per head in Nigeria, which is on a par with India. They are a bit behind Russia - $14,000 (£8,500) per head - and Brazil on $11,300 (£6,800), but still a bit ahead of China - $6,000 (£3,600).

Projected growth in average income (thousands $)

200020122050 (projected)
SOURCES: IMF, GOLDMAN SACHS
Mexico
7.0
10.6
48.0
Indonesia
0.8
3.6
21.0
Nigeria
0.2
1.4
12.6
Turkey
4.1
10.6
48.5
A big question that guided my thinking on visits to these countries for the BBC was - "How do these countries actually feel on the ground, compared to my own expectations and the general consensus of opinion?"
When expectations are low - as one might generally say about Nigeria for example (although not in recent years among specialist investors in Africa) - it is easier to be positively surprised.
But the opposite is also true - and this could be a problem for Mexico, which financial investors are really quite excited about.
Oil rigs in the Gulf of MexicoMexico owes much of its rising wealth to the oil which it sits on, especially offshore oil
I returned from my travels thinking it won't be so difficult for Nigeria and Turkey to positively surprise people, as many put far too much weight on the negative issues that are well-known - crime and corruption in Nigeria, for example, or heavy-handed government in Turkey.
Indonesia, I am less sure about. The country's challenges are as big as I thought and I didn't hear too many things that made me go "Wow" in terms of trying to deal with them. The country needs more of a sense of commercial purpose beyond commodities, and has to improve its infrastructure.
In Turkey, visits to white goods manufacturer Beko and Turkish Airlines, the world's fastest growing airline, definitely made me go "Wow", and in Nigeria, I was saying it all the time.
Turkish airline jet landing in GenevaTurkish Airlines: The world's fastest-growing airline
The creativity in that place is so easy to get enthused about, at least it was for me, and I returned full of excitement about different personal investments I might follow up on.
In Mexico I was all set to be disappointed, as expectations are so high, but the young president and his equally young colleagues are full of determination to change the place.
If you thought Maggie Thatcher stood for serious reforms, these guys make her seem like a kitten. They are reforming everything from education, energy and fiscal policy to the institution of government itself.
What about all the challenges and things that usually scare people? Well corruption is obviously one topic that all four would seem to share, and I had many interesting discussions about it in each country.
In Nigeria, Central Bank Governor Lamido Sanusi argued that corruption rarely prevents economic development - and that the growth of the economy, accompanied by improvements in education, will lead to better governance and greater transparency.
Such views are important to listen to, as an alternative to our often simplistic Western way of thinking. For many credible people in the Mint countries, corruption is a consequence of their weak past, not a cause of a weak future, and certainly not the number one challenge. It falls way down a list compared with the costs of energy and the breadth of its availability and, of course, infrastructure.
Generators on sale in LagosGenerators are much in demand in Lagos
Sorting out energy policy was seen in both Mexico and Nigeria as a top priority and each country has launched a major initiatives this year, which if implemented, will accelerate growth rates significantly.
Here is an amazing statistic. About 170 million people in Nigeria share about the same amount of power that is used by about 1.5 million people in the UK. Almost every business has to generate its own power. The costs are enormous.
"Can you imagine, can you believe, that this country has been growing at 7% with no power, with zero power? It's a joke." says Africa's richest man, Aliko Dangote.

More from BBC News

He's right. I reckon Nigeria could grow at 10-12% by sorting out this problem alone. That would double the size of its economy in six or seven years.
In Indonesia, the fourth largest country in the world, I would say leadership and infrastructure are the major challenges, though there are many more too. But challenges and opportunities sit side by side.
In one of Jakarta's slum areas, Pluit, the land is sinking by 20cm per year because of over-extraction of water, but property prices elsewhere in the city are rocketing.
I talked to a man building the country's first Ikea store, who reckons a third of greater Jakarta's population of 28 million (the third biggest conurbation in the world) would have sufficient disposable income to shop at his store. As he said: "We just know it's going to work."
In Turkey of course, its politics and the combination of a Muslim faith with some kind of desire to do things the Western way is a unique sort of challenge. Some might argue the same challenge exists for Indonesia but I returned thinking this was not the case. In Jakarta at least, the Western way of doing things seems to be generally accepted - in striking contrast with Turkey.
So can the Mints join the top 10 largest economies in the world, after the US, China, the rest of the Brics and maybe Japan?
I think so, though it may take 30 years.
I look forward to going back to each of them more regularly now I am helping to put them on the map, just as happened with the Bric countries 12 years ago.

Why Economists Are Right to Hate on Bitcoin - TIME

Why Economists Are Right to Hate on Bitcoin

Read more: Bitcoins -- Why Paul Krugman is Right to Hate Them | TIME.com http://business.time.com/2014/01/03/bitcoin-paul-krugman-is-right-to-hate-them/#ixzz2pZyZ9Yfw


Nobel Prize winning economist Paul Krugman speaks during the World Business Forum in New York
Nobel Prize winning economist Paul Krugman
Economist Paul Krugman is not one to shy away from a good fight, but he may have vexed his most passionate opponents yet last week with a blog post titled “Bitcoin is Evil.”
Krugman’s title is tounge-in-cheek. He doesn’t actually believe the cryptocurrency, which has captured the imagination of so many, is immoral or depraved. But he doesn’t see it supplanting the dollar anytime soon for the simple reason that it fails the test of what economists call a “store of value.”
According to standard economic theory, a successful currency has to be both a medium of exchange, meaning a something that is easily transferrable, divisible, and universally valued, and a a good which maintains its value reasonably well. And while Bitcoin has proven to be a pretty great medium of exchange, it’s value has swung wildly over the course of its history.
In a recent blog post at The Verge, Adrianne Jefferies questions whether this really is a problem. She writes:
“If Bitcoin is successful, it could prove that money doesn’t need to function as a stable store of value — the price of Bitcoin could jump around constantly, and in the age of the internet it’s trivial to program prices of goods and services to fluctuate with it.”
In other words, since computers programs can easily adjust the price of goods along with the value of bitcoins, the currency doesn’t have to maintain a stable store of value. But this ignores the risk businesses will take by accepting and storing their wealth in bitcoins. Businesses invested in commodities or which deal in international trade know what a pain it is to deal with the risk imposed by the rising and falling values of commodities like oil or wheat, or even small swings in the value of foreign currencies. And the price of oil or the dollar-yen exchange rate have nowhere near the volatility of bitcoins.
On December 6th and 7th of last year, the value of one bitcoin fell from $1200 to $600 in the course of 48 hours. If your business had been storing its revenue in bitcoins at that time, such a decline could have a potentially destabalizing effect on your business. Of course, businesses could decide to accept bitcoins and then quickly change them to dollars to avoid the currency’s volatility. But then this raises the question, why accept bitcoins at all?
Jefferies goes on to posit that bitcoin’s success as a means of exchange could eventually lead to its being a good store of value:
“If people believe that they will be able to buy things with Bitcoin and exchange it for other currencies indefinitely, that could convince them to use it as a store of value. Many early adopters have already put their savings into Bitcoin. And if the technology is sound and the user base is (eventually) global, that doesn’t seem that insane.”
Indeed, some theorist argue that a currency’s stability follows from being a widely used means of exchange. But this gets us back to the question: what will motivate the vast majority of users to abandon dollars and adopt bitcoins? Sure dollars slowly lose value over time through inflation, but this isn’t a problem for most of us, as it happens slowly enough that any wealth we hold on to for very long time horizons can be stored in other investments like real estate or government debt. Secondly–and most important–national governments demand we pay taxes in local currencies and back up those demands with the threat of force. As a decentralized payment system, bitcoin will never hold this same advantage.
Bitcoin is an elegant technological innovation that may find a future in niche applications, like as a means for transferring money cheaply across borders. But economists are right to be skeptical of those who hope it will supplant government-controlled fiat money. Bitcoin enthusiasts simply have not posited a believable scenario where the vast majority of us will abandon fiat money for their virtual coins.
(MORE: How Does Bitcoin Work?)


Read more: Bitcoins -- Why Paul Krugman is Right to Hate Them | TIME.com http://business.time.com/2014/01/03/bitcoin-paul-krugman-is-right-to-hate-them/#ixzz2pZyt8MdE