We need to find a fairer way of providing Goods and Services to the rest of the people on Earth.Cryptocurrencies and/or Gold Standard of money....maybe the answer to fight hyperinflation caused by too much printing of paper/fiat currencies by Governments and Central Banks all over the World. (https://nomorefiatmoneyplease.blogspot.com)
Buffett says if he ran Federal Reserve, he would not raise rates significantly
Warren Buffett, the billionaire chief executive officer and chairman of Berkshire Hathaway Inc said he would not raise interest rates significantly if he ran the Federal Reserve.
PHOTO: REUTERS
[NEW YORK] Warren Buffett, the billionaire chief executive officer and chairman of Berkshire Hathaway Inc said he would not raise interest rates significantly if he ran the Federal Reserve.
"I probably wouldn't do much," Buffett said when asked what he would do if he ran the Fed. "Things are working pretty well and I would be worried that if I raised rates significantly with negative interest rates in Europe, I would be very worried about what that would do to the flow of funds." Mr Buffett spoke at an automotive industry conference in New York along with chairman of the Berkshire Hathaway automotive dealer group, Larry Van Tuyl.
Lew: Yuan not ready for IMF blessing as reserve currency
US Treasury Secretary Jacob J Lew said China needs to loosen its financial controls before the yuan can qualify to be included in the IMF's basket of reserve currencies.
PHOTO: REUTERS
[WASHINGTON] US Treasury Secretary Jacob J Lew said China needs to loosen its financial controls before the yuan can qualify to be included in the IMF's basket of reserve currencies.
Mr Lew urged China to ease restrictions on the flow of capital and the setting of interest rates to ensure the yuan is increasingly used as an international currency. China must implement the "necessary reforms" before it will meet the International Monetary Fund's standards for inclusion in the basket of currencies that determine the fund's Special Drawing Rights, Lew said in a speech Tuesday in San Francisco.
Countries including Germany and France have supported China's bid to be included in the basket, and IMF Managing Director Christine Lagarde has said the question is when, not if, the yuan qualifies. In late 2015, the IMF will complete its next twice-a-decade review of the basket of currencies that set the value of the SDR, which its members can count toward their official reserves.
"I hope that the timing here turns out to be a fortuitous one, where the fact that there's a periodic review by the IMF spurs the reforms to be implemented and completed," Mr Lew said.
The US is trying to strike a balance between welcoming China's efforts to more deeply integrate itself into the global economy, and pressing the Communist-led nation to speed reforms that would open it to more trade and investment.
Mr Lew said it's uncertain where China will end up on the spectrum from embracing the international economic order forged during the Second World War, or "starting with a blank slate and writing new rules." "As we engage with China about the right approach to high standards for the international financial system, neither the United States nor China can afford to walk away from the institutions that make up the international economic architecture," he said.
He spoke after a visit to Beijing this week to meet with top officials including Premier Li Keqiang and Vice Premier Wang Yang ahead of the US-China Strategic and Economic Dialogue, to be held in Washington later this year.
The IMF created the SDR in 1969 to support the Bretton Woods system of fixed exchange rates after supplies of gold and dollars proved inadequate. Owning SDRs gives countries a claim to the four currencies in the basket: the dollar, euro, yen and U.K. pound.
Mr Lew said financial reforms would leave China's economy more balanced.
"Internally it would be less dependent on investment and artificially low interest rates," he said. "Externally it would be less dependent on exports and an undervalued exchange rate." Getting China to intervene less in the yuan's rate remains at the top of the U.S.'s economic engagement with China, Lew said.
Mr Lew, 59, called wider international use of the yuan a "natural next step in the liberalization and reform" of the world's second-biggest economy.
Still, "China will need to successfully complete difficult fundamental reforms, such as capital-account liberalization, a more market-determined exchange rate, interest rate liberalization, as well as strengthening of financial regulation and supervision," he said.
There are signs that China has recently been intervening to prop up the yuan instead of weaken it, as the nation's economic growth slows and money flows out. The yuan is little changed against the dollar over the past year, while most currencies have fallen against the greenback.
The economy operates like a very simple apparatus. But most of the people can't fathom it - or they don't assent on how it really functions- and this has produced a lot of unnecessary economic agony.
Ray Dalio had a profound urge to distribute his straightforward but realistic instructions on economics. Though they're atypical, they have aided him to predict and dodge the global financial crisis, and have served him pretty well for the past 30 years.
Though the economic system might seem complicated, it functions in a plain, automated way. It's constructed of a few elementary components and a lot of uncomplicated transactions that are done repeatedly countless of times. These transaction agreements are predominantly compelled by human disposition, and they constitute three central forces that fuel the economy: 1. Productivity growth, 2. The Short term debt cycle, and 3. The Long term debt cycle.
We'll examine these three driving forces and how putting those in layers can generate a great pattern for following economic turbulences and evaluating what's occurring right now. All phases and all dynamics in an economic system are fueled by transactions. So, if we can comprehend them, we can appreciate the entire economy. People, companies, corporations, banks and governments all engage in transactions which are basically swapping money and credit for merchandise, services, equities and other monetary assets.
The biggest player (buyer and seller) in this "business" is the government, which has two very crucial components: Central Government that accumulates taxes and allocates money... and a Central Bank, which is very distinctive from other players because it governs the quantity of money and credit in the system.
It accomplishes this by affecting the interest rates and producing new money (literally). Because of this, the Central Bank is a critical influencer in the circulation of Credit. Credit is the most significant element of the economy, and apparently the least known. It is the most important because it is the largest and most unstable component.
The term “secular stagnation” was coined by Alvin Hansen in his 1938 American Economic Association presidential address, “Economic Progress and Declining Population Growth.” Writing in the latter stages of the Great Depression, Hansen argued that, because of apparent slowdowns in population growth and the pace of technological advance, firms were unlikely to see much reason to invest in new capital goods. He concluded that tepid investment spending, together with subdued consumption by households, would likely prevent the attainment of full employment for many years.
Hansen proved quite wrong, of course, failing to anticipate the postwar economic boom (including both strong population growth—the baby boom—and rapid technological progress). However, Summers thinks that Hansen’s prediction was not wrong, just premature. For a number of reasons—including the contemporary decline in population growth, the reduced capital intensity of our leading industries (think Facebook versus steel-making), and the falling relative prices of capital goods—Larry sees Hansen’s prediction of limited investment in new capital goods and an economy that chronically fails to reach full employment as relevant today. If the returns to capital today are very low, then the real interest rate needed to achieve full employment (the equilibrium real interest rate) will likely also be very low, possibly negative. The recent pattern of slow economic growth, low inflation, and low real interest rates (see below) motivates and is consistent with the secular stagnation hypothesis.
Notice, by the way, that the secular stagnation story is about inadequate aggregate demand, not aggregate supply. Even if the economy’s potential output is growing, the Hansen-Summers hypothesis holds that depressed investment and consumption spending will prevent the economy from reaching that potential, except perhaps when a financial bubble (like the housing bubble of the 2000s) provides an additional push to spending. However, Summers argues that secular stagnation will ultimately reduce aggregate supply as well, as growth in the economy’s productive capacity is restrained by slow rates of capital formation and by the loss of workers’ skills caused by long-term unemployment.
The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.) Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there. Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending. It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation.
Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns.
Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today. First, as I pointed out as a participant on the IMF panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects. As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. (I concede that there are some counterarguments to this point; for example, because of credit risk or uncertainty, firms and households may have to pay positive interest rates to borrow even if the real return to safe assets is negative. Also,Eggertson and Mehrotra (2014) offers a model for how credit constraints can lead to persistent negative returns. Whether these counterarguments are quantitatively plausible remains to be seen.)
Second, I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels (for example, see my August and November 2012 speeches.)
My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. (For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.) Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy. Of course, all else is not equal; financial capital does not flow as freely across borders as within countries, for example. But this line of thought opens up interesting alternatives to the secular stagnation hypothesis, as I’ll elaborate in my next post.
Comments are welcome, but because of the volume, we only post selected comments.
Ben S. Bernanke is a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. From February 2006 through January 2014, he was Chairman of the Board of Governors of the Federal Reserve System. Dr. Bernanke also served as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body.
A massive power cut caused chaos Tuesday across Turkey, shutting down the metro networks in Istanbul and the capital Ankara, with the government saying an outside attack on the system was not ruled out.
PHOTO: AFP
[ISTANBUL] A massive power outage caused chaos Tuesday across Turkey, shutting down the metro networks in Istanbul and the capital Ankara, with the government saying an outside attack on the system was not ruled out.
The power outage, the worst in one-and-a-half decades, began around 10:36 am (0736 GMT) in Istanbul, the state-run Anatolia news agency quoted the Turkey Electricity Transmission Company (TEIAS) as saying.
It also hit almost all the country's provinces from the Greek border to the southeast.
"Every possibility including a terrorist attack is being investigated," in the outage affecting the country of some 76 million, Prime Minister Ahmet Davutoglu said.
He added that a crisis desk was established at the energy ministry.
Energy Minister Taner Yildiz also said the authorities were investigating whether the power outage was due to a technical failure or a "cyber-attack." "The most important thing for us is to bring the system back to life. This is not something we frequently experience," he said.
The ministry was quoted as saying by Turkish media that a power outage on this scale had not been seen in 15 years.
Media reports said that the power outage affected at least two dozen cities, where telephone and Internet lines were also mostly down.
The blackout trapped people in elevators in Istanbul and rescue teams rushed to subway stations to evacuate stranded travellers.
Traffic lights also were not working in several places in the city, causing huge traffic jams, with officers taking to the streets in an attempt to break the logjams.
Websites warned commuters to take special care of traffic accidents.
The Istanbul tramway which links outlying areas with the historic touristic heart of the city was also down, as was the metro in the Aegean city of Izmir.
In the heavily industrialised western city Izmit, near Istanbul, the cuts prevented many factories and workshops from functioning.
There were conflicting initial reports about the cause of the outage but Turkish grid operator TEIAS said it resulted from a severing of the power lines between Europe and said it could take hours before the power outage was restored.
The Chamber of Electrical Engineers of Turkey however claimed that it happened because some private power suppliers had refused to sell electricity due to low prices.
The DHA news agency said almost all provinces in Turkey were affected by the outage, except the Van province in the east which imports electricity from neighbouring Iran.
International Business Machines Corp said on Tuesday it will invest US$3 billion over the next four years in a new 'Internet of Things' unit, aiming to sell its expertise in gathering and making sense of the surge in real-time data.
PHOTO: BLOOMBERG
I[SEATTLE] International Business Machines Corp said on Tuesday it will invest US$3 billion over the next four years in a new 'Internet of Things' unit, aiming to sell its expertise in gathering and making sense of the surge in real-time data.
The Armonk, New York-based technology company said its services will be based remotely in the cloud, and offer companies ways to make use of the new and multiplying sources of data such as building sensors, smartphones and home appliances to enhance their own products.
For its first major partnership, IBM said a unit of the Weather Co will move its weather data services onto IBM's cloud, so that customers can use the data in tandem with IBM's analytics tools.
As a result, IBM is hoping that companies will be able to combine live weather forecasting with a range of business data, so companies can quickly adapt to customer buying patterns or supply chain issues connected to the weather.
For example, insurance companies could send messages to policyholders in certain areas when hailstorms are approaching and tell them safe places to park, saving money all round.
Or retail stores could compare weather forecasts with past data to predict surges or drop-offs in customer buying due to extreme weather, and to adjust staffing and supply chain logistics accordingly.
IBM said it was already working with some large companies, such as German tire maker Continental AG and jet engine maker Pratt & Whitney to help them use data in their processes.
Focusing on the cloud is part of IBM's gradual shift away from its traditional hardware and consulting business. The company is targeting US$40 billion in annual revenue from the cloud, big data, security and other growth areas by 2018, which should be about 45 per cent of its total revenue at that time, based on analysts' growth estimates.