Thursday, February 28, 2019

Thoughts from Galicia, Spain: 28.2.19

Spanish life is not always likeable but it is compellingly loveable.
           Christopher Howse: A Pilgrim in Spain
  • Those culture shocks that hit you when, as an Anglo, you first come to live in Spain, some of which - as in this case (and mine) - you never really get over.
  • A small but fascinating case of corruption
  • Spain and Brexit: See here, here and here for things that are happening, aimed at mitigating the worst consequences for foreigners living here.
Brexit and The UK
  • Richard North today: The political collective has made such a mess of things that all we have left is the choice between an extremely bad deal or no Brexit at all. I've said a couple of times that I favour the latter over the former.
  • But as of right now and in the context of a short postponement of Britain's scheduled exit from the EU on 29 March, RN says that: One can hardly disagree with Macron, who, with Angela Merkel beside him, said there needed to be a "clear purpose" before giving the UK an extension. They are obviously of like mind with [the Spanish PM] Sánchez, who says he would want to be clear that it was not merely delaying an inevitable no-deal crash-landing. But, adds RN, there is still the spectre of Brussels going for the long option, demanding at least 21 months if any extension was to be granted. Hey ho. Onwards and downwards.
The EU
  • The columnist Timothy Gordon Ash - a Remainer - sees Britain as just one corner of a European crisis in which opportunity still lurks. See his interesting article below. I wish I had his optimism about the EU. The article was written last November, by the way. Before the shenanigans of the last 3 months. It's quite persuasive, particularly if - like me and Richard North - you've given up hoping for anything like a sensible Brexit.
The UK
  • Fart v Cohen: Nice to see a first class liar accusing his lawyer of 10 years of being only a second class liar.
  • Also nice to see the first class liar talking up another failed negotiation with the North Korean leader. Though it might well have succeeded in its possible aim of distracting attention from domestic events.
  • I mentioned yesterday that the USA ranks only a shameful 35th in the international health league. This is despite the number which heads this table, kindly supplied by reader Sierra:-
Health consumption expenditures per capita, U.S. dollars 2017
United States $10,224 (25% higher than the next)
Switzerland $8,009
Germany $5,728
Sweden $5,511
Austria $5,440
Netherlands $5,386
Comparable Country Average $5,280
France $4,902
Canada $4,826
Belgium $4,774
Japan $4,717
Australia $4,543
United Kingdom $4,246
Spain, says Sierra, spends about the same % of GDP as the UK
  • Wealth inequality in the USA. See the astonishing/shocking second article below. And ponder the last sentiment expressed.
The World
  • As if we didn't know . . . One in 11 properties in Edinburgh are now listed on the holiday letters site, as owners can make so much money from visitors, especially during festival season. While the firm began as as part of the so-called 'sharing economy', it is now heavily used for marketing private rental of whole apartments (often by 'hosts' with several properties), rather than cheaply staying in someone's spare room.
  • If you aspire to avoid places hit by ‘overtourism’ and to get far away from the madding crowd, these are relevant countries and cities nominated by some readers of a UK newspaper:-

Well, rather you than me. My aspiration is Samarkand. And I've been to Madagascar and Belfast.

Social media
  • It's a start: Facebook is preparing to release its long-awaited Clear History tool later this year after months of delays.  This allows users to delete any data on websites and ads that have been clicked on while logged into Facebook. 
Finally . . .
  • A little mystery . . .  Two days ago, there was a note on my windscreen asking if I'd lost some keys. As I had, I contacted the person who'd written it. Since I'd lost the keys months ago, I wasn't too optimistic, and so wasn't surprised to find they aren't mine. But I'm left wondering why someone thought they might be, as there was no car key on the ring and, therefore, no indication that they belonged to the driver of a Honda. I don't think there was a note on every windscreen.

1. Brexit: an island on the edge. Britain's just one corner of a European crisis in which opportunity still lurks: Timothy Garton Ash

What do they know of Brexit who only Brexit know? As we in Britain interminably “bang on about Europe,” to recall what David Cameron said he didn’t want Conservatives to do, we are also viewing the continent through a very narrow and distorting British lens. There is scant sense here that our referendum vote was itself a very European phenomenon and just one corner of a wider crisis of the European project. We obsess about the potential impact of different kinds of Brexit on Britain, and think less, if at all, about the consequences for Europe as a whole. Yet Brexit could punch a dangerous hole beneath the waterline of the good ship Europa, while a late step back from the brink could be a pivotal moment in Europe’s recovery. A second referendum choice to stay on board could give the EU a much-needed boost, and, in time, contribute to transforming it into the Union we all need to meet the challenges of the 21st century.

For years, universities have offered classes on European integration; now, we host lectures on European disintegration. Today’s Union is simultaneously fractured along two lines—north-south and east-west. The first fault line is created by problems of political economy. Italy, with its populist government locked in budgetary battle with Brussels, is demonstrating that the fundamental design flaws of the eurozone have still not been addressed. A few years ago Romano Prodi, a former European commission president and Italian prime minister, told me—with an eloquent spread of his hands—that his country seemed to be governed by “lospread” (that is, the yield spread between Italian and German government bonds). If “lospread” widens to create a crisis of confidence, the Italian economy may prove too big to fail but also too big to save.

The east-west fault line involves a challenge to fundamental European values. Jean Monnet once said that “a dictatorship… cannot exist in the [European] Community.” Hungary under the regime of Viktor Orbán’s Fidesz Party is not a fully-fledged dictatorship, but it is certainly no longer a liberal, pluralist democracy. Poland’s populist nationalist government is also, albeit against more resistance, eroding the checks and balances of a still fragile young democracy. One reason the EU’s response to the Hungarian outrage has not been stronger is that the centre-right European People’s Party (EPP) grouping in the European Parliament cannot bring itself to relinquish the votes of its Fidesz members, even though Fidesz is flagrantly violating the EPP’s own proclaimed values. The very mechanism that was supposed to democratise the EU—pan-European parties, such as the EPP, with their Spitzenkandidaten (lead candidates) for the Commission presidency—has undermined its readiness to defend democracy inside a member state.

One hears a kind of xenophobic, reactionary, nationalist rhetoric that recalls the 1930s.

Compounding Europe’s internal frailties is a chilling constellation of forces beyond its borders. Vladimir Putin’s Russia has unilaterally annexed a chunk of territory from a neighbouring, sovereign country—behaviour Europe has not seen since the times of Hitler and Stalin—and the EU has proved unable to do much about it. Putin loses no opportunity to divide and weaken the Union, whether with the help of fellow travellers such as the Czech president Milosˇ Zeman, or through his covert disinformation warfare, which clearly played a role in the 2016 Brexit referendum vote. China uses its growing economic influence in countries such as Greece and Hungary to get something close to a seat at the EU’s decision-making table: a separate 16+1 grouping of East European states plus China met just before a recent EU-China summit.

The United States, too, is increasingly preferring to do business with particular member states—especially Germany and France. Donald Trump’s “America First” nationalism further weakens transatlantic support for the project, values and interests of the EU. Brexit, if it happens, would be the first time an entire member state (as opposed to Danish outpost Greenland, which left in 1985) has chosen to leave the Union.

Together, all these elements of disintegration place a huge burden on Europe’s central power, Germany—a burden that it is not in good shape to shoulder. Strong, civilised and centrist leader though she has been, Angela Merkel fatefully allowed a simplistic narrative of the eurozone crisis to take root at home, according to which the Germans are the innocent, industrious, virtuous victims of lazy, irresponsible south Europeans. Precisely because Germany itself is prospering, it is very hard to persuade the German public of the need for energetic, radical EU reform of the kind being advocated by France’s Emmanuel Macron. “Aristocrats don’t vote for revolution,” a senior Macron adviser explained to me. It took me a moment to realise that the aristocrats in this 1789 analogy are the Germans, which presumably makes the French the sans-culottes.

Merkel’s 2015 decision to let in close to a million refugees has catalysed a fragmentation of German politics—and this October the Chancellor acknowledged that her days in charge are numbered. Meanwhile, like other centre-left parties across the developed world, social democrats in Germany are in disarray. Although a lot of their voters have gone to the Greens, some have defected to the far-right Alternative für Deutschland (AfD), which now regularly achieves a double-digit percentage of the vote. Since four out of five AfD voters assess their own personal economic situation as good or very good, the party’s performance cannot be explained by “It’s the economy, stupid.” Rather, as I have argued elsewhere, it’s the Kultur, stupid.

The reaction against a real (in west central Europe) or (in east central Europe) merely threatened influx of immigrants has undermined one of the great achievements of the last 30 years of European integration: travel without any border controls within the Schengen area. Now some of those border controls are back—“temporarily,” of course. From the AfD to Marine le Pen in France, Geert Wilders in the Netherlands and Matteo Salvini in Italy, one hears a kind of xenophobic, reactionary, nationalist rhetoric that recalls the 1930s. In Hungary, Fidesz drums up electoral support by spreading conspiracy theories about a Jewish billionaire, George Soros, who survived Hungarian and Nazi fascism as a child in Budapest.

70 years of peace? Tell that to the Baltic nations, the Czechs, the Spanish, the Portuguese, the Poles

Merely listing some of the things that have gone wrong in Europe over the last decade, it’s easy to work oneself into a hyperbole of despair. But how bad is it really? We have been through difficult periods before. One of post-1945 Europe’s characteristic features has been almost manic-depressive mood swings between lows of Europessimism and highs of EUphoria. Is this just one more crisis in the EU, or is it a crisis of the whole European project? To get some perspective, we turn to history.

Although Britain, as a state, has been an awkward member of the EU, British historians have made a signal contribution to understanding its past. One thinks of Norman Davies’s Europe: a History, Tony Judt’s Postwar, Mark Mazower’s Dark Continent, Richard Vinen’s A History in Fragments and Harold James’s Europe Reborn, to name but a few. Now we have Ian Kershaw’s two volumes in the Penguin History of Europe: To Hell and Back, which covers 1914 to 1949, and Roller-Coaster, which boldly goes from 1950 all the way up to 2017.

To read the nearly 1,100 pages of Kershaw’s two-volume history is to watch a master-carpenter hitting nail after nail soundly on the head. He is unbelievably accurate; he covers north and south, east and west, small countries and large; he somehow manages to embrace political, social, economic, military and cultural history; he mixes narrative, description and analysis, offering mature, nuanced judgments. There is a strong central thread of the major political developments, but also a judicious sprinkling of what the Germans call Alltagsgeschichte, everyday history. Thus, for example, Greece’s terrible immiseration during the eurozone crisis is illustrated by the experience of a 55-year-old plasterer: “‘From one day to the next,’ he recounted in February 2012, ‘the economic crisis hit me. Suddenly I was fired without any compensation… Two months later I couldn’t even afford my rent. All my savings had gone on paying medical bills for my late wife.’ He was evicted from his flat and for four months slept in his battered Toyota. Then he could no longer afford petrol for his car. He had to seek refuge in a shelter for the homeless. ‘It was a big step asking them for a bed,’ he remarked. I felt very ashamed.’”

While warning lights were already flashing in the 2005 French and Dutch referendums that rejected the proposed European Constitution, Kershaw rightly dates the beginning of what he calls Europe’s “crisis years” to the 2008 financial crisis. The average debt of EU member states rose within two years from around 58 per cent of GDP to 73 per cent. In Greece and Spain, two out of every five young people were unemployed. What might have looked like a neo-Keynesian response to the crisis was, Kershaw argues, only neo-Keynesianism for the banks; it was austerity for everyone else. This came on top of staggering -levels of income inequality: by 2014, the median pay of top executives in Britain was £4.4m a year, whereas median national pay was at least £26,000.

Although cultural factors are as important as economic ones in explaining the epidemic of nationalist populism, it is hard to imagine that the outbreak would have been half as virulent without the 2008 crisis and the one-sided responses to it. Moreover, the cultural and the economic are often intertwined. Visiting Barcelona earlier this year it was clear that the dramatic upsurge of the Catalan nationalist push for independence was also catalysed by the 2008 crisis, with the eurozone politics of austerity fuelling Catalans’ resentment at what they see as an unequal, unfair economic relationship with the Spanish central power. In this sense, the Brexit referendum vote is just one manifestation of a pan-European epidemic, with each of the patients exhibiting particular national symptoms.

Using a football analogy, Kershaw suggests that Europe’s 20th century is a game of two halves—“perhaps with ‘extra time’ added on after 1990.” In the first volume, he describes how Europe descended into “hell on Earth,” in total war, Holocaust and gulag, but goes on to explore what he calls the “matrix of rebirth” that resulted from the disaster—hence his title, To Hell and Back. I’m tempted to suggest that his second volume might have been called To Heaven and Back, since Europe at the end of 2004 was arguably in about as good shape as it has ever been. But of course that must remain a joke, since one thing we learn from history is that while human beings are capable of building hell on Earth, if they ever seriously set out to make a heaven on Earth, they end up building another hell.

In his first volume, Kershaw identifies four “interlocking major elements of comprehensive crisis, unique to these decades” that led to what he calls “Europe’s era of self-destruction” between 1914 and 1945:

“(1) an explosion of ethnic-racist nationalism; (2) bitter and irreconcilable demands for territorial revisionism; (3) acute class conflict—now given concrete focus through the Bolshevik Revolution in Russia; and (4) a protracted crisis of capitalism (which many observers thought was terminal).”

Reading that, I found myself thinking that the only one of those four elements we generally don’t have in the Europe of 2018 is (2), with Putin’s Russia—its seizure of Crimea and low-level war in eastern Ukraine—being the exception that proves the rule. Of course we also don’t have (1), (3) and (4) in the same measure as we did in the 1930s, but in post-2008 nationalist populism we can detect elements of ethnic-racist nationalism, class conflict and a crisis of capitalism. Kershaw himself is reassuring on this comparison. Although “the only certainty is uncertainty,” he argues that we have come through the last decade of crisis incomparably better than Europe did after 1929.

And today, Europe “has at its centre, as its most powerful and influential country, a peaceful, internationalist Germany—the starkest imaginable contrast to the Germany that in the 1930s and 1940s -trampled human rights into the dust and almost destroyed European civilisation. Europe has fought for and won freedom. It has acquired prosperity that is the envy of most of the world. Its search for unity, and for a clear sense of identity, goes on.” Thus, like those other British historians of Europe, he ends on a note of appropriately cautious optimism.

The only thing I don’t like about Kershaw’s second, masterly volume is his title, Roller-Coaster. At the fairground, rollercoasters shoot up and down, but you end up back where you started, which is hardly the case for postwar Europe. In a broader sense, as in the phrase “emotional rollercoaster,” it just means a series of often sharp ups and downs. I call that life. There is, however, one lesser-known meaning of rollercoaster which is perfectly fitted to this moment. In surfing, a rollercoaster is a manoeuvre in which the surfer ascends the face of a wave and then at the last minute flips round, bouncing off the foamy crest and triumphantly whizzing down again. Faced with the giant wave of anti-liberalism, this is what we have to do—a liberal, pro-European rollercoaster. And Britain has a vital part to play in this daring manoeuvre.

As the remaining 27 member states of the EU head into European elections next May, the Orbáns and Salvinis are making the running, with parties of the centre-right trying to steal their clothes but ending up dancing to their tune. “30 years ago we thought that Europe was our future,” Orbán said earlier this year. “Today we believe that we are Europe’s future.”

But there is a powerful counter-movement forming, led not by the old parties of the centre-left but by Macron. Macron is not just a brilliant and passionate speaker; he can at moments also be profound. In Aachen earlier this year, on the occasion of his receiving the Charlemagne prize, I heard him demolish what he called the “myth” of 70 years of peace in Europe. 70 years of peace? Tell that to the Baltic nations, the Czechs, the Spanish (remembering Franco’s dictatorship), the Portuguese (remembering Salazar), the Poles, the peoples of former Yugoslavia and Ukraine! Macron’s fundamental insight is that Europe must be built on a consciousness of the tragic dimension of its past and present, le tragique de l’histoire.

“Only those who have lived in a police state can know what it is like not to live in one,” commented the Oxford political scientist Peter Pulzer, whose family fled Austria just in time to escape the Holocaust. Kershaw quotes this and adds that “only those who have experienced outright destitution really appreciate what it is like not to be poor… only those who have witnessed at first hand the horrors of war understand what it means to live in peace.” As an observation on human nature, this is tragically true. But one of the main purposes of studying history is to try to learn from the past without having to go through it again ourselves. That is Macron’s point.

Brexit has, albeit in a less tragic key, had the galvanising effect of a prospective disaster. As a lifelong English European, I never dreamed that I would witness the scene in central London on Saturday 20th October, with as many as 700,000 people turning out to demonstrate for a second referendum (or People’s Vote), bearing handmade placards proclaiming “Fromage not Farage,” “Freedom I will not give EU up” and a very English “The EU is Rather Good.”

The tragic-farcical spectacle of Brexit—and the fear that it stirs of a wider unravelling—has given a similar positive impetus across the continent. Wherever I go, be it in Ireland, Denmark or Poland, I find that, far from inspiring imitation, Brexit has actually strengthened support for membership in the EU.

In recent Eurobarometer polls of public opinion across the EU (still including Britain), 75 per cent of those asked say they are happy living in the EU, 70 per cent say they feel they are citizens of the EU, 56 per cent feel attached to the EU, and 58 per cent say they are optimistic for the future of the Union. (For their part, Britons envisage Europe sticking together and that the UK may one day rejoin; see Prospect’s new polling.) The aggregate results obviously conceal big differences between countries. More Europeans still “tend not to trust” the institutions of the EU (48 per cent) than trust them, but then most have low levels of trust in their own national institutions as well. Significantly, while nearly half of those asked disagree with the statement “my voice counts in the EU,” this is down from a massive two thirds in 2013, at the height of the eurozone crisis.

So there is still a bedrock of public support on which to build a new reform agenda. Macron has such an agenda, starting with steps to fix some original design flaws of the eurozone. You don’t have to agree with every one of his proposals to welcome their thrust. Old and new liberal forces are stirring across the continent, including in Hungary and Poland, and Macron’s En Marche is seeking alliances with parties in the Liberal Democrat (ALDE) grouping in the European Parliament. Remarkably, one of Merkel’s potential successors as leader of the Christian Democrats, the conservative Friedrich Merz, has recently co-signed an open letter calling, among other things, for a eurozone-wide unemployment insurance scheme. I don’t want to overstate the probability, but there is a chance that by this autumn we could have a new correlation of forces in the EU, including a strong Orbánite nationalist-populist opposition, but with a more reformist, pro-European alignment having the upper hand.

Only those who have witnessed at first hand the horrors of war understand what it means to live in peace.

The test would then be whether it could initiate overdue reform. How might that look? This is not the place to delve too deeply into the grim science of European institutional architecture, but here’s one interesting suggestion. It comes from the distinguished French intellectual Jean Pisani-Ferry and colleagues at the Bruegel think tank in Brussels. They propose a stripped-to-essentials “bare bones EU,” to which all member states would belong, “built around the customs union and the single market, together with the set of policies that are indispensable to make them viable.” On top of this “common base,” there would be four clubs—economic and monetary union; migration, asylum and Schengen; security and foreign policy; other policies—which members could join on an opt-in basis. Supervising the whole would be a common court system.

Again, one can argue about the details, but it seems to me that a Union reformed on these lines would better accommodate the diversity that is producing such strains in today’s EU. What is more, one glimpses here a possible place for Britain in a possible future European Union which even moderate British Eurosceptics might accept. Britain could, for example, be an important player in the foreign and security policy club, while not belonging to the migration and monetary ones. Yes, this would require some continued supranational jurisdiction, but in return you would maximise both British prosperity, through the customs union and single market, and British global influence, through the foreign policy club.

Now here’s the rub. Britain has zero chance of helping to reform the EU if it leaves it. If, however, we choose through a second referendum to stay in the EU, we can make a major contribution to that shift. I’m not suggesting that we would be welcomed back like the prodigal son. After more than two years of Theresa May demanding the impossible, in order to appease the unappeasable in her own party, many Europeans are fed up to the back teeth with an incompetently perfidious Albion.

But objectively everyone must recognise that a British exit from Brexit would be a massive shot-in-the-arm for the post-1945 project of closer co-operation between the people and states of Europe. And it would keep inside the key decision-making bodies—European Council, Commission and Parliament—one of the strongest advocates of the reform that this Union badly needs.

Were the pro-reform forces to emerge triumphant from May’s European elections, a new British government could swiftly reconnect with reform-minded north European allies, such as Merz, Mark Rutte, and the dynamic former Finnish prime minister Alexander Stubb. Eurozone and Schengen reform would depend on Germany giving a stronger answer to Macron, who faces formidable challenges of his own at home. Yet Macron, happily endowed until 2022 with the extensive presidential powers designed by Charles de Gaulle, would be keen to co-operate closely with the UK on foreign and defence policy. None of this will be easy but, in time, working with other liberal, pro-reform states and forces, we could move towards a better Union for the next generation.

In order to do any of this, however, our MPs need first to vote down whatever fudged “deal” May brings to parliament, and then, in a second vote, take the fundamental question back to the people. We have only weeks to make that happen. By the time you read this, it may be too late. But if it is not, please do everything you can to sway every MP you know, and persuade them to put country before party and self. The case for Britain staying in the EU can be made on grounds of national interest, but that national interest has throughout history depended also on the condition of the continent. Anyway, to adapt John F Kennedy: do not only ask what Europe can do for Britain, ask also what Britain can do for Europe. This is the moment, the chance of the crisis. Let us help Europe perform the world’s finest surfing rollercoaster.

2. Survival of the Richest All Are Equal, Except Those Who Aren’t: Nomi Prins

Like a gilded coating that makes the dullest things glitter, today’s thin veneer of political populism covers a grotesque underbelly of growing inequality that’s hiding in plain sight. And this phenomenon of ever more concentrated wealth and power has both Newtonian and Darwinian components to it.

In terms of Newton’s first law of motion: those in power will remain in power unless acted upon by an external force. Those who are wealthy will only gain in wealth as long as nothing deflects them from their present course. As for Darwin, in the world of financial evolution, those with wealth or power will do what’s in their best interest to protect that wealth, even if it’s in no one else’s interest at all.

In George Orwell’s iconic 1945 novel, Animal Farm, the pigs who gain control in a rebellion against a human farmer eventually impose a dictatorship on the other animals on the basis of a single commandment: “All animals are equal, but some animals are more equal than others.” In terms of the American republic, the modern equivalent would be: “All citizens are equal, but the wealthy are so much more equal than anyone else (and plan to remain that way).”

Certainly, inequality is the economic great wall between those with power and those without it.
As the animals of Orwell’s farm grew ever less equal, so in the present moment in a country that still claims equal opportunity for its citizens, one in which three Americans now have as much wealth as the bottom half of society (160 million people), you could certainly say that we live in an increasingly Orwellian society. Or perhaps an increasingly Twainian one.

After all, Mark Twain and Charles Dudley Warner wrote a classic 1873 novel that put an unforgettable label on their moment and could do the same for ours. The Gilded Age: A Tale of Today depicted the greed and political corruption of post-Civil War America. Its title caught the spirit of what proved to be a long moment when the uber-rich came to dominate Washington and the rest of America. It was a period saturated with robber barons, professional grifters, and incomprehensibly wealthy banking magnates. (Anything sound familiar?) The main difference between that last century’s gilded moment and this one was that those robber barons built tangible things like railroads. Today’s equivalent crew of the mega-wealthy build remarkably intangible things like tech and electronic platforms, while a grifter of a president opts for the only new infrastructure in sight, a great wall to nowhere.

In Twain’s epoch, the U.S. was emerging from the Civil War. Opportunists were rising from the ashes of the nation’s battered soul. Land speculation, government lobbying, and shady deals soon converged to create an unequal society of the first order (at least until now). Soon after their novel came out, a series of recessions ravaged the country, followed by a 1907 financial panic in New York City caused by a speculator-led copper-market scam.

From the late 1890s on, the most powerful banker on the planet, J.P. Morgan, was called upon multiple times to bail out a country on the economic edge. In 1907, Treasury Secretary George Cortelyou provided him with $25 million in bailout money at the request of President Theodore Roosevelt to stabilize Wall Street and calm frantic citizens trying to withdraw their deposits from banks around the country. And this Morgan did -- by helping his friends and their companies, while skimming money off the top himself. As for the most troubled banks holding the savings of ordinary people? Well, they folded. (Shades of the 2007-2008 meltdown and bailout anyone?)

The leading bankers who had received that bounty from the government went on to cause the Crash of 1929. Not surprisingly, much speculation and fraud preceded it. In those years, the novelist F. Scott Fitzgerald caught the era’s spirit of grotesque inequality in The Great Gatsby when one of his characters comments: “Let me tell you about the very rich. They are different from you and me.” The same could certainly be said of today when it comes to the gaping maw between the have-nots and have-a-lots.

Income vs. Wealth

To fully grasp the nature of inequality in our twenty-first-century gilded age, it’s important to understand the difference between wealth and income and what kinds of inequality stem from each. Simply put, income is how much money you make in terms of paid work or any return on investments or assets (or other things you own that have the potential to change in value). Wealth is simply the gross accumulation of those very assets and any return or appreciation on them. The more wealth you have, the easier it is to have a higher annual income.

Let’s break that down. If you earn $31,000 a year, the median salary for an individual in the United States today, your income would be that amount minus associated taxes (including federal, state, social security, and Medicare ones). On average, that means you would be left with about $26,000 before other expenses kicked in.

If your wealth is $1,000,000, however, and you put that into a savings account paying 2.25% interest, you could receive about $22,500 and, after taxes, be left with about $19,000, for doing nothing whatsoever.

To put all this in perspective, the top 1% of Americans now take home, on average, more than 40 times the incomes of the bottom 90%. And if you head for the top 0.1%, those figures only radically worsen. That tiny crew takes home more than 198 times the income of the bottom 90% percent. They also possess as much wealth as the nation’s bottom 90%. “Wealth,” as Adam Smith so classically noted almost two-and-a-half-centuries ago in The Wealth of Nations, “is power,” an adage that seldom, sadly, seems outdated.

A Case Study: Wealth, Inequality, and the Federal Reserve

Obviously, if you inherit wealth in this country, you’re instantly ahead of the game. In America, a third to nearly a half of all wealth is inherited rather than self-made. According to a New York Times investigation, for instance, President Donald Trump, from birth, received an estimated $413 million (in today’s dollars, that is) from his dear old dad and another $140 million (in today's dollars) in loans. Not a bad way for a “businessman” to begin building the empire (of bankruptcies) that became the platform for a presidential campaign that oozed into actually running the country. Trump did it, in other words, the old-fashioned way -- through inheritance.

In his megalomaniacal zeal to declare a national emergency at the southern border, that gilded millionaire-turned-billionaire-turned-president provides but one of many examples of a long record of abusing power. Unfortunately, in this country, few people consider record inequality (which is still growing) as another kind of abuse of power, another kind of great wall, in this case keeping not Central Americans but most U.S. citizens out.

The Federal Reserve, the country’s central bank that dictates the cost of money and that sustained Wall Street in the wake of the financial crisis of 2007-2008 (and since), has finally pointed out that such extreme levels of inequality are bad news for the rest of the country. As Fed Chairman Jerome Powell said at a town hall in Washington in early February, "We want prosperity to be widely shared. We need policies to make that happen." Sadly, the Fed has largely contributed to increasing the systemic inequality now engrained in the financial and, by extension, political system. In a recent research paper, the Fed did, at least, underscore the consequences of inequality to the economy, showing that “income inequality can generate low aggregate demand, deflation pressure, excessive credit growth, and financial instability.”

In the wake of the global economic meltdown, however, the Fed took it upon itself to reduce the cost of money for big banks by chopping interest rates to zero (before eventually raising them to 2.5%) and buying $4.5 trillion in Treasury and mortgage bonds to lower it further. All this so that banks could ostensibly lend money more easily to Main Street and stimulate the economy. As Senator Bernie Sanders noted though, “The Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world... a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

The economy has been treading water ever since (especially compared to the stock market). Annual gross domestic product growth has not surpassed 3% in any year since the financial crisis, even as the level of the stock market tripled, grotesquely increasing the country’s inequality gap. None of this should have been surprising, since much of the excess money went straight to big banks, rich investors, and speculators.  They then used it to invest in the stock and bond markets, but not in things that would matter to all the Americans outside that great wall of wealth.

The question is: Why are inequality and a flawed economic system mutually reinforcing? As a starting point, those able to invest in a stock market buoyed by the Fed’s policies only increased their wealth exponentially. In contrast, those relying on the economy to sustain them via wages and other income got shafted. Most people aren’t, of course, invested in the stock market, or really in anything. They can’t afford to be. It’s important to remember that nearly 80% of the population lives paycheck to paycheck.

The net result: an acute post-financial-crisis increase in wealth inequality -- on top of the income inequality that was global but especially true in the United States. The crew in the top 1% that doesn’t rely on salaries to increase their wealth prospered fabulously. They, after all, now own more than half of all national wealth invested in stocks and mutual funds, so a soaring stock market disproportionately helps them. It’s also why the Federal Reserve subsidy policies to Wall Street banks have only added to the extreme wealth of those extreme few.

The Ramifications of Inequality

The list of negatives resulting from such inequality is long indeed. As a start, the only thing the majority of Americans possess a greater proportion of than that top 1% is a mountain of debt.  The bottom 90% are the lucky owners of about three-quarters of the country’s household debt. Mortgages, auto loans, student loans, and credit-card debt are cumulatively at a record-high $13.5 trillion.

And that’s just to start down a slippery slope. As Inequality.org reports, wealth and income inequality impact “everything from life expectancy to infant mortality and obesity.” High economic inequality and poor health, for instance, go hand and hand, or put another way, inequality compromises the overall health of the country. According to academic findings, income inequality is, in the most literal sense, making Americans sick. As one study put it, “Diseased and impoverished economic infrastructures [help] lead to diseased or impoverished or unbalanced bodies or minds.”

Then there’s Social Security, established in 1935 as a federal supplement for those in need who have also paid into the system through a tax on their wages. Today, all workers contribute 6.2% of their annual earnings and employers pay the other 6.2% (up to a cap of $132,900) into the Social Security system. Those making far more than that, specifically millionaires and billionaires, don’t have to pay a dime more on a proportional basis. In practice, that means about 94% of American workers and their employers paid the full 12.4% of their annual earnings toward Social Security, while the other 6% paid an often significantly smaller fraction of their earnings.

According to his own claims about his 2016 income, for instance, President Trump “contributed a mere 0.002 percent of his income to Social Security in 2016.” That means it would take nearly 22,000 additional workers earning the median U.S. salary to make up for what he doesn’t have to pay. And the greater the income inequality in this country, the more money those who make less have to put into the Social Security system on a proportional basis. In recent years, a staggering $1.4 trillion could have gone into that system, if there were no arbitrary payroll cap favoring the wealthy.

Inequality: A Dilemma With Global Implications

America is great at minting millionaires. It has the highest concentration of them, globally speaking, at 41%. (Another 24% of that millionaires’ club can be found in Europe.) And the top 1% of U.S. citizens earn 40 times the national average and own about 38.6% of the country’s total wealth. The highest figure in any other developed country is “only” 28%.

However, while the U.S. boasts of epic levels of inequality, it’s also a global trend. Consider this: the world’s richest 1% own 45% of total wealth on this planet. In contrast, 64% of the population (with an average of $10,000 in wealth to their name) holds less than 2%. And to widen the inequality picture a bit more, the world’s richest 10%, those having at least $100,000 in assets, own 84% of total global wealth.

The billionaires' club is where it’s really at, though. According to Oxfam, the richest 42 billionaires have a combined wealth equal to that of the poorest 50% of humanity. Rest assured, however, that in this gilded century there’s inequality even among billionaires. After all, the 10 richest among them possess $745 billion in total global wealth. The next 10 down the list possess a mere $451.5 billion, and why even bother tallying the next 10 when you get the picture?

Oxfam also recently reported that “the number of billionaires has almost doubled, with a new billionaire created every two days between 2017 and 2018. They have now more wealth than ever before while almost half of humanity have barely escaped extreme poverty, living on less than $5.50 a day.”

How Does It End?

In sum, the rich are only getting richer and it’s happening at a historic rate. Worse yet, over the past decade, there was an extra perk for the truly wealthy. They could bulk up on assets that had been devalued due to the financial crisis, while so many of their peers on the other side of that great wall of wealth were economically decimated by the 2007-2008 meltdown and have yet to fully recover.

What we’ve seen ever since is how money just keeps flowing upward through banks and massive speculation, while the economic lives of those not at the top of the financial food chain have largely remained stagnant or worse. The result is, of course, sweeping inequality of a kind that, in much of the last century, might have seemed inconceivable.

Eventually, we will all have to face the black cloud this throws over the entire economy. Real people in the real world, those not at the top, have experienced a decade of ever greater instability, while the inequality gap of this beyond-gilded age is sure to shape a truly messy world ahead. In other words, this can’t end well.

Wednesday, February 27, 2019

Thoughts from Galicia, Spain: 27.2.19

Spanish life is not always likeable but it is compellingly loveable.
           Christopher Howse: A Pilgrim in Spain
  • Spanish politics: Anyone looking for evidence of how irrational politics can be should look to Catalonia right now.  . . . . In forcing early elections and the potential fall of the Sánchez government, the Catalan separatists appear willing to forfeit the best chance they have had in decades to advance Catalan autonomy.  . . . The chances are that a new right-wing government in Madrid would be even more intolerant of Catalan separatism than Mr. Rajoy was. Why would the separatists possibly want this outcome? An explanation, in the NY Times, here
  • Project Fear? Brits face airport hell, at least in Spain, if not in Portugal.
  • Reader Sierra has written about banks in his village and has pointed out that his Lugo province village has 10 bars for 5,000 people. Or 1 per 500 resident. But I have to add that this is far below the alleged national average of 169.
  • More Gib nonsense.
  • How the EU's strategy on plastic will affect us residents in Spain.
  • Here's Don Quijones on an issue that's been bubbling along for a couple of weeks - One of the biggest cases of mass discrimination since the foundation of Spain’s democracy some 40 years ago
  • Dear god. Or should that be Dear dog?¡
Brexit and The UK
  • Two leaders, two U-turns in two days. As expected, the extension of Article 50 for at least 2 months has surged to the front of the numerous possibilities. But, in reality, nothing has changed. There still isn't any certainty of anything.
  • Richard North today: We see the most likely effect of a no-deal Brexit to be economic, expressed in terms of lower GDP, businesses going into liquidation, substantial increases in unemployment, and a significant drop in tax income.  So, it is very difficult to accept that there can be any validity in Mrs May's claim that we can make a "success" of a no-deal, either in the immediate future or in the longer term. At the very least, it will trigger a prolonged economic recession. Most likely, it will cost us a substantial fall in growth and a permanent reduction in GDP. Bear in mind that RN is a Brexiteer. Albeit an informed and sensible one. They do exist.
  • See the article below on the latest machinations of a very conflicted Labour Party.
  • Comes in at No 35 in the health stakes, I've now read. Not very impressive for such a rich country.
The World
  • And you thought Fake News was already a major problem . . . Well . . . We must prepare for an age when AI allows anyone with a grudge to create convincing bogus clips. Political convulsions are visible everywhere in the western democratic world. On both left and right, debate has become increasingly febrile and ideological. Non-consensus is the new normal, and this is provides fertile ground for abuse by malign actors who seek to undermine western democracies. They will do so more easily with the help of technology. Advances in AI mean that predictive algorithms are able to generate synthetic content — fake audio and video — that will be indistinguishable from the real thing. When seeing is no longer believing, the very nature of reality disintegrates.  . . . Deep fakes are a grenade ready to be lobbed into an already explosive mix of declining trust in our political processes, leaders and institutions.
  • The good news:  A London based research team is looking to build software which detects deep fakes. It is backed by the Transatlantic Commission on Election Integrity, a group of senior politicians including the former Nato secretary general Anders Fogh Rasmussen and the former US vice-president Joe Biden.
Nutters Corner
Finally . . .
  • I mentioned fashionistas yesterday. Last night I read this: Indecision is not confined to Brexit-era politics. Fashion is having an ambivalent moment and, with shoppers apparently unwilling or unable to choose between 2 distinct designs, the trend for 'pre-clashed clothes' is growing. Dear dog!

Jeremy Corbyn is committed to a second referendum he must pray will never happen: Allison Pearson

The Archbishop of Canterbury is so concerned about the state of the nation after March 29th that he is planning five days of prayer. Is he quite sure five days is enough?

A sample of headlines just from the past 48 hours: Brexit may be delayed by two months! Article 50 extended! A second referendum (for crying out loud…)! Please can they make it stop?

Seriously, apart from the headbangers on both sides, everyone has had enough. Not a week more. Not a minute longer than is absolutely necessary. If we can get out on March 29th with the shirt on our backs, a few quid for the bus and a Thorntons voucher from Donald Tusk, let’s just do it. End of. Done. Had it. Fini. No more.

Brexit is no longer about what the people want. (Was it ever?) It’s party management now.

Jeremy Corbyn, a lifelong opponent of the European Union, tries to stem the tide of Labour defections with the promise (fingers crossed behind his back) of a second referendum. Music to the ears of Labour’s Remainer metropolitans, but complete anathema to millions of constituents in the North and the Midlands.

Labour’s unexpectedly strong performance in the 2017 general election came on the back of a manifesto promise to honour the first referendum result. Corbyn is committed to a second referendum he must pray will never happen.

For her part, Theresa “no deal is better than a bad deal” May tries to stop Cabinet mutinies with a promise (fingers crossed behind her back) to let MPs delay Brexit if they reject her deal with the EU again next month. No deal may be better than a bad deal, but we can forget about that now because Parliament will never let us have one. The Prime Minister has promised to “stick by” commitments she must pray will never happen.

It’s bad enough keeping track of what has happened, let alone getting to grips with what might happen, but mustn’t be allowed to happen. Perhaps that’s the point of all this. To grind us down. To bring us to the point where we’re sick of the sight of them and will go along with anything. If Brexit was an illness, most of us would have booked a one-way flight to Dignitas by now.

“Sod it, I just want to sell my flat,” cries a colleague. It’s a plea for normality, for the resumption of a life we vaguely remember where people weren’t defined by the Manichean categories of Leave or Remain.

I’ve been pro-Brexit throughout. I don’t think the UK could ever wear being part of a United States of Europe, which is what staying in would mean, ultimately.

“We have our own dream and our own task,” as Churchill said. “If Britain must choose between Europe and the open sea, she must always choose the open sea.”

Now, though, I’m sickened by the bile, the sheer divisive nastiness. One comment on the Telegraph website referred to a “Filthy Remainer”. I shuddered. How did it descend to that? We simply can’t go on like this, and a second referendum would only make things even more bitter.

So, please can MPs agree to a deal that can let us leave on the appointed date? They owe the country that much. Doesn’t matter if it matches the purists’ perfect plan. Life will go on, the daffodils will poke up through the earth, plenty will happen in the EU over the next few years that could change everything.

As for prayers after 29th March…

“Dear God, Give us this day our daily news without any mention of Michel Barnier,
And forgive us for never understanding the Backstop,
And lead us not into the Common Fisheries Policy
A and deliver us from Soubry.
For this will make a welcome change.”

Amen to that.

Tuesday, February 26, 2019

Thoughts from Galicia, Spain: 26.2.19

Spanish life is not always likeable but it is compellingly loveable.
           Christopher Howse: A Pilgrim in Spain
  • Lent is fast approaching, so it's time for Carnival. Or is it Carnaval? Both are used in this article on Spain's most unusual celebrations of it. 
  • Here in Pontevedra, we have a mock funeral, which involves a lot of cross-dressing (wailing 'widows') and ends in the cremation of a huge stuffed parrot (called Ravachol), while our neighbouring villages make do with an anonymous sardine.
  • On a wider front, there's turbulence ahead in the political sphere.
  • As residents will know, Spain is a country of great contrasts. Here's one of them . . . While in our cities we might still be spoilt for choice, out in the countryside as many as 4,000 villages have no local bank branch and just 20% of these are served by a monthly or fortnightly mobile bank open for 3 hours at a time. This is problematic for an entire generation which still pays its bills in cash over the counter at the bank. For American readers, a fortnight is 2 weeks. 
  • Remember me saying I got a large coffee for 50 cents near Valença in North Portugal a couple of weeks ago? In Madrid yesterday - €2.00. For the non-numerate, 4 times the price. 
Brexit and The UK
  • Mrs May's most obvious - only? - talent is stonewalling, not giving a straight answer - or, indeed, anything resembling a real answer - to a straight question. After Brexit means Brexit, this week - when asked if she would seek a delay to the Brexit - she gave us: Any delay is a delay. A British columnist has suggested that, if Mrs May were to write a dictionary, it would go something like this:-
- Aardvark, noun. Aardvark.
- Abacus, noun. Abacus.
- Abandon, verb. To abandon.
And so on, for 200,000 words.
  • If, indeed, there is an extension to Article 20 - especially if this is for almost 2 years - it's widely believed that Mrs May would be rapidly defenestrated by her party. But can there really be anyone willing to take the poisoned chalice from her hands? Of course there is.
  • Meanwhile, Jeremy Corbyn has almost emerged from the long and twisted grass to say that the official Labour policy could well be - or become - support for a second referendum. A bold move which at least some in his party believe will end his chances of becoming prime minister.
  • So, what say you? An extensive delay during which a second referendum or even a general election takes place?? Do you care one way or the other??
  • More here on the Nazis of the 1930s.
  • Odd Old Word: Sennite. A week. See above for 2 weeks.
Finally . . .
  • Today's fashionistas are reported to increasingly favour items of clothing that you wear only once and then chuck away. Or give to a charity shop. I wonder what they'd make of my still wearing trousers I bought over 20 years ago. And into which, I'm proud to say, I can still get.

Monday, February 25, 2019

Thoughts from Madrid. Spain: 25.2.19

Spanish life is not always likeable but it is compellingly loveable.
           Christopher Howse: A Pilgrim in Spain
  • Spain is now officially the world's healthiest country. The UK ranks 19th. But I can't see the USA in the top 20. Nor Germany.
  • If you're in the pueblo purchasing business, this guide is for you.
  • As we walked down my daughter's street in Malasaña yesterday, she pointed out a small queue of people waiting to take a selfie in front of a particular shop. They were, she said, copying some social media 'influencer' who'd done this, for some reason or other. Dear god.
  • It's a common site in central Madrid, at any time of the day, to see  people trundling carry-on suitcases through the streets. Particularly at weekends, I guess.
  • Another common, though less frequent, sight is the Spanish flag draped over balcony railings. I imagine this is 'Spanish nationalism' at work, among the right-leaning residents of the city.
The EU, the UK and Brexit
  • A possible last minute scenario . . . Richard North this morning: We could be looking at an entirely new twist involving the 21-month transition period being abandoned and replaced with an Article 50 extension that takes us to the end of 2021. This idea, according the Guardian is gaining traction as the EU's default position in the event that MPs continue to reject the Withdrawal Agreement, with the extra time allowing the UK and the EU to negotiate their future relationship with the aim of making the contentious Irish backstop redundant. This, of course, would mean that the UK continued to be a full member of the European Union and would thus stay on board for the multi-annual financial framework discussions, taking part in determining the budget for the next 7 years. This would have to gain the support of all 27 Member States and the backing of Mrs May, her cabinet and the UK parliament. RN sees the latter as unlikely and that even if they did back it: there is no guarantee, or anything close, that a 21-month extension would solve the outstanding issues. Not only is there no domestic consensus over the withdrawal agreement but there is no common position on what kind of trading relationship we want with the EU. . Hey ho. Is there anyone out there good at untying Gordian knots?
  • It may already be too late to avert global recession, with dire consequences for Europe, says Ambrose Evans Pritchard in the first article below.
The Western World
  • See the second article below on how the Me-Too movement has altered the office environment for the worse. Allegedly. By the way, it's written by a woman. Not by a disgruntled male. Though maybe be she isn't of the current generation of young women, who might well differ with her. Actually, I just checked and she's 37.
Social media
  • A UK parliamentary committee which has issued its final report on 'disinformation'. This is said to make 'blistering reading'. Facebook, it says, puts profits ahead of users’ privacy, their security and the health of democracy. It uses its market dominance to crush rivals. It obstructs outside scrutiny and apologises (feebly) only when caught. Anyone still surprised at reports like this?
  • Some major companies are annoyed with YouTube for allowing their ads to appear on videos exchanged between pedophiles. It's claimed today that: To get itself out of its current predicament, YouTube will either have to take a harder line on what appears on its site, imperilling the community of video makers and viewers it relies on, or accept the loss of high-paying advertisers that are unwilling to risk being associated with many of its videos. Whatever it chooses, its days of having its cake and eating it appear to be coming to an end. Which can't be bad.
  • Word of the Day: Dividoso
Finally . . .
  • I think I mentioned I wasn't a fan of Gmail's feature of an automatic new-message box every time you log on. Well, I've finally found out how to stop this. Open this page and then put it in your Favourites or Bookmarks list. Or whatever Microsoft calls their version - https://mail.google.com/mail/u/0/?labs=0#inbox

1. It may already be too late to avert global recession, with dire consequences for Europe: Ambrose Evans-Pritchard

Global recession risk has suddenly jumped several notches.

The accumulated damage from Donald Trump’s trade wars and worldwide monetary tightening is taking its toll. We are one shock away from a contractionary vortex that would be extremely hard to control.

In America the Federal Reserve’s instant tracking gauges of GDP growth have halved since late January. They are approaching stall speed.

In China it is becoming clearer that the Communist leadership either cannot or will not engineer another brake-neck credit boom to revive an economy slipping into structural stagnation. Stimulus is trickling through but it is a pale image of past reflation cycles.

This is hard to square with the blistering asset boom over the last two months. The MSCI index of world equities has risen 15%. Wall Street’s S&P 500 is up 18%. Bears have been mauled.

Big global banks and funds bought into this relief rally on early evidence of synchronised ‘policy capitulation’ by the G2 economic superpowers: the Fed’s rhetorical retreat after its ill-judged rate rise and hawkish message in December; Beijing’s pledge to avert a hard-landing at the Central Economic Working Conference.

This had echoes of the Fed rescue in early 2016, which bought another lease of the global expansion and proved to be a bargain-basement buying moment. Yet the comparison has its limits.

The eurozone was then in the accelerating stage of a V-shaped recovery driven by quantitative easing a l’outrance and the end of austerity. Today it is in a deep industrial slump. It has tightened monetary policy into the downturn by shutting down QE.

Yields on 10-year German Bunds have dropped 70 basis points over the last year and are flirting with zero again. Over $11 trillion of bonds worldwide are back to negative yields. Large players are battening down the hatches for a deflationary storm.

Morgan Stanley’s Michael Wilson said it is time to dismount from the stock market rodeo. “Bulls can be dangerous animals. We struggle to see the upside from hanging on,” he said.

The danger for the world economy is that the sugar rush from Mr Trump’s $1.5 trillion fiscal package will fade before China comes close to righting the ship. This would push the defenceless eurozone over the edge and back into the ‘sovereign/bank doom-loop’ that it has conspicuously failed to resolve.

The central premise of Trumponomics has turned to dust. Cut in corporate tax rates from 35% to 21% were supposed to set off a virtuous circle of capital investment by companies. Instead they spent the money on dividends and share buybacks.

All that remains of this wasted largesse is a budget deficit near 5% GDP at the top of the cycle, and a public debt ratio rising from 106% of GDP this year to 117% by 2023 (IMF forecast) assuming nothing goes wrong.

Great expectations now ride on China’s gargantuan $690bn credit surge in in January. But Chinese double counting distorts the headline figures. Rob Subbaraman from Nomura said much of the debt is being used to refinance corporate and household liabilities that have reached 206% of GDP. China has reached credit saturation.

His ‘credit impulse’ measure has risen just 2.5 percentage points in the latest reflation mini-cycle. This compares to 13.9 points in the 2015-6. It was 18.7 points in the cycle before that, and 30.2 points in the post-Lehman blitz of 2008-2009.

Chang Liu and Mark Williams from Capital Economics estimate that fiscal stimulus from tax cuts and extra spending amounts to just 1% of GDP so far, compared to 4% after the stock market crash and currency scare in 2015-2016, and 10% a decade ago.

The global impact of the 2008-2009 episode had five times the potency (adjusting for the smaller size of the Chinese economy back then)

The People’s Bank (PBOC) has ostensibly been easing for several months. The required reserve ratio for banks has been cut five times, but this is chiefly in order to stop liquidity drying up. The PBOC has not cut the benchmark lending rate this time. It cannot risk setting off capital outflows.

The short-term repo rate has come down 100 points - half the level of cuts seen in previous rescues - but this is not feeding through to corporate lending where it is most needed.

Capital Economics said spreads on AA- bonds have jumped 150 basis points to 400 over the last year due to credit risk and rising defaults. The transmission mechanism for stimulus is partly broken. The economy may stabilize by the middle of the year at (true) growth rates near 4% but there will be no return to boom.

The new twist is how shockingly weak the US economy suddenly seems. Retail sales fell 1.2% in December, the biggest drop for nine years. The Conference Board’s leading indicator for the economy has hit an eight-year low.

The Philadelphia Fed’s manufacturing survey for February was dire. New orders fell 23.7 points in the steepest one-month drop since October 2008. The broad U6 measure of unemployment has risen from 7.4% to 8.1% since July. This has tell tale signs of late-cycle exhaustion.

The New York Fed’s Nowcast gauge of growth in the first quarter has dived to 1.2% (annualised) since late January, with a startling drops for net exports and industry. The Atlanta Fed’s GDPNow is telling much the same story.

The Fed waited too long to abandon monetary tightening, which famously operates with “long and variable lags”. Delayed damage from higher rates and bond sales of $50bn a month (reverse quantitative easing) is only now being felt.

Lakshman Achuthan from the Economic Cycle Research Institute said it is not enough for the Fed to hit the pause button. Rate cuts are needed. “The Fed may already have left it too late to avert a recession,” he said.

We can see with hindsight that a rise in 10-year ‘real’ borrowing rates to 1.15% in October was all it took to set off an episode of violent global stress.

The rising dollar was torture for an international system with $11.8 trillion of offshore dollar debt and complex linkages to the US monetary policy through derivatives. European banks have large dollar liabilities on short-term maturities that must be rolled over constantly.

When the Fed kept tightening over the course of 2018 it drained global liquidity and pushed the broad dollar index to a modern-era high of 128.88 - until the world screamed. The global fall-out from this protracted squeeze is now blowing back into the US economy with a delay.

If the US rolls over before China stabilizes, the eurozone risks a terminal crisis. It is chronically incapable of generating its own internal demand growth. The European Central Bank’s key rate is already minus 0.4%. The political bar to fresh QE is exorbitantly high.

The fiscal machinery of the eurozone makes it impossible to carry out aggressive counter-cyclical stimulus in a crisis. Public debt levels are much higher than before the Lehman crisis and European banks are sitting on €1 trillion of non-performing loans. Populist parties are on the rampage.

This is a political and economic construction that cannot withstand a major shock, which is why a no-deal Brexit would be courting fate for the EU. “Europe is a sitting duck in the next global downturn,” says Ian Kearns, director of the European Leadership Network.

It does not require a catalyst to set off global recession. Claudio Borio from the Bank for International Settlements says asset markets can “fall under their weight” from exhaustion and then take the economy down with them. This is what happened in the dotcom bust of 2001 and the Great Recession of 2008.

“Rapid increases in credit drive up property and asset prices, which in turn increase collateral values and thus the amount of credit the private sector can obtain until, at some point, the process goes into reverse,” writes Mr Borio in his seminal work, The Financial Cycle and Recession Risk.

Donald Trump may keep this asset rally going through the Spring if he pulls back from trade wars with China and Europe, and a Brexit deal ices the cake. But deeper economic forces are at work in the world’s debt-stretched system. We may already be uncomfortably close to Mr Borio’s tipping point.

2. Am I the only one mourning the death of the office romance? Zoe Strimpel.

I began my first job at a national newspaper a few months after graduating from university. It was deeply exciting, finding myself in London, the youngest person on the paper, surrounded by grown-ups.

One of the most exciting things about my new workplace, truth be told, was the office gossip – by which I mean, of course, office romance, of which there was boatloads: above board, below board, and all the boards in between. I remember that both men and women were routinely inappropriate, frequently forward with each other and – not unrelatedly – very often drunk, too. There were affairs and love stories aplenty. It was enthralling.

From the vantage of a post-MeToo era, whereby all but the creepiest men have been well and truly scared off so much as uttering a compliment about their female colleague’s winning summer dress, those days now seem as wondrous and zestful as they are far gone.

They’re certainly distant: a new study by sociologists at Stanford and the University of New Mexico examining the decline of ‘traditional’ ways of meeting people in the digital age has found that the numbers finding love at work have sunk quite dramatically in the past 20 or so years. In the Nineties, nearly one in five US couples met at work; that figure has dropped to one in 10.

The death of workplace romance is a great shame – but not a surprise. The authors of the study stress the march of online dating rather than strangulation by fraught sexual politics, but in my view it’s the latter that’s largely to blame.

Since MeToo, the landscape in which the sexes engage with each other has become febrile and offence-prone. With all encounters now subject to intense scrutiny, the office, with its inherent powerplays, hierarchies, and competetiveness, was particularly destined to become a minefield.

Trying it on in the lift these days is not only frowned upon, it’s dangerous: armed with smartphones in their back pockets, the object of your lust can and very well may seek instant and global revenge by telling the world what you’ve done via social media.

That’s if you don’t get zapped by your boss first. Since MeToo, employers have begun puritanically policing the libidinousness of their staff to make office liaisons as difficult as possible. At Netflix, workers are prohibited from asking each other out more than once, warned that ‘if you stare at someone for more than five seconds, it’s creepy and inappropriate’.

The advertising agency FCB Worldwide advised its employees of the difference between ‘responsible fun’ and ‘stupid fun’ at office parties in a companywide memo in 2017.

Meanwhile in Britain, nearly 80 per cent of firms have tightened or reviewed their policies on workplace relationships since the dawn of MeToo, according to a survey by Direct Line insurance, with one in 20 banning workplace romance.

In a grim but predictable development in higher education, an insider informed me that last week a major London university has introduced a policy forbidding not just romance but all socialising between lecturers and students.

It’s hard to think of a drearier, more bureaucratically sexless world than this, with everyone cowed into keeping well away from each other by threats of being branded a predator, of public humiliation, denouncements, and of course sacking.

In fact, all the beady-eyed watching out for rule-breakers, knee-strokers, bum-grabbers, off-colour-compliment-givers rather puts me in mind of a repressive Communist state.

Maybe in becoming illicit and dangerous, office romance will become even more heady, and thrive under the radar. But I doubt it. This is because it has become increasingly clear that the internet, now our main dating exchange (40 per cent of couples meet online), has done more than compete with traditional dating mechanisms: it has actually expunged the energy from them.

Even in bars, where you’re (still) free to meet and pick up people, that’s happening less and less. This is partly because online life has robbed many people of the ability to flirt with actual spoken words rather than emojis. But it’s also because the internet has created and enshrined Designated Dating Zones.

Offline settings, including workplaces, are now seen as unbounded, messy, ambiguous and... hard work. I’ve actually heard people of both sexes say they can’t be bothered to meet people IRL (in real life) because, well, that’s what Tinder’s for – a tagline a new advert for Three Mobile has adopted, too.

I can see why many prefer to keep their dating life digital, where everything and everyone can be stopped, blocked, or unmatched, and where you can rig your settings and filters up so well that nobody can ever discomfit you.

You can stop the inappropriate before it even begins. Life in the flesh is much harder to control, but offers so much more; both bad and good.

Sunday, February 24, 2019

Thoughts from Madrid, Spain: 24.2.19

Spanish life is not always likeable but it is compellingly loveable.
                             Christopher Howse: A Pilgrim in Spain
  • There must be some positive benefits to late hours, reduced sleep and lots of chatting, for Spain is about to replace Japan, it says here, as number 1 in the longevity stakes.
  • One good thing about Spanish high levels of ambient noise is that, in a restaurant, no one can hear a baby cry. But, then, this being Spain, even if the diners could hear it, they'd just smile.
  • Woody Allen has a strong connection with Spain. Or, should I say, with Asturias, whose capital city (Oviedo) has a larger-than-life statue of him. So, perhaps it's not surprising that his latest cinematic endeavour will take place here. Notwithstanding how he's viewed back home.
  • Here's a heartfelt plea from reader Maria to all of those who have a vote in the upcoming elections. 
The EU
  • Italy: The French government is reported to fear that the the Eurozone is not sufficiently armed to face a new economic or financial crisis. And that such a crisis could begin in Italy. Given that taken together, the financial sectors of the largest, second largest and fourth largest economies in the Eurozone — Germany, France and Spain — hold no less than €600 billion of Italian debt, derivatives, credit commitments and guarantees on their balance sheets - it's not really a surprise that these concerns exist. And, of course, it's not only the French who are worried about the near future. See DQ on this here.
  • Germany: As everyone knows, the European economy is in trouble, but just how much may not yet be widely appreciated. Thanks to a sharp fall in German production, eurozone manufacturing output is declining for the first time in 6 years, survey evidence suggests. Most commentators regard this as just a temporary setback, caused by a sharp slowdown in car exports to China and the after effects of Germany’s diesel scandal. These setbacks are expected to pass. Or maybe not. As is ever more obvious, the problems of Europe’s car industry are as much structural as cyclical. Put simply, Europe is behind the curve on the switch to electric vehicles, and also on the infrastructure needed to support the transition. That it should so late in the day be playing catch-up with Asia and America is an extraordinary indictment of a continent assumed to be at the forefront of automotive engineering.
Brexit and The UK
  • The populace continues to yawn its way to a No Deal Brexit in just over a month's time. Or, at best, a 3-month-plus stay of execution. As it does, the governing Tory party - following the example of the opposition Labour party - continues to tear itself apart. Interesting times. One wonders now what the New Politics will look like in the New Britain. Should the latter ever come to pass.
  • Odd Old Word: Dight: 1. Adjective: Clothed or equipped. 2. Verb: Make ready for a use or purpose; prepare. You'll need to know this word  if you read a 19th century translation of Sir Gawain and the Green Knight. Among others.
Finally . . .
  • I noticed a sparrow in my garden last Thursday, so perhaps they're back from their winter sojourn. Coincidentally, I read this yesterday: The chirruping of sparrows is obviously a language and a sophisticated one at that. It reverberates in the human mind long after we have ceased to hear it. That is when the meaning kicks in, through resonance. The chattering is ingrained within our psyche and may even have inveigled its way into our genes.

Saturday, February 23, 2019

Thoughts from Madrid, Spain: 23.2.19

Spanish life is not always likeable but it is compellingly loveable.
            Christopher Howse: A Pilgrim in Spain
  • Barcelona's already bad reputation for crime gets worse.
  • Right on cue for me - The 10 best days trips from Madrid.
  • Speaking of the capital . .  I came, as usual, on the night train to Madrid on Thursday night. Given how late Spaniards stay up at night, it struck me as odd - not for the first time - that my 2 compartment companions retired to bed at 9.30 or so. While I read until after 10.30. Even odder was the fact that, whereas I got up for a coffee at 7, one of the pair rose after 8 and the other after 9. Indeed the latter complained that I'd let the sun in on him when I drew back the blind a centimetre or so at 9. The other odd thing - but by no means new to me - is that, in this talk-heavy culture, there seems to be a convention that there's zilch conversation in the compartment as soon as the train departs. And very little, if any, before that.
  • On the subject of the Spanish timetable(horario) . . . On Sunday night there'll be no bed for me in my daughter's flat, so I booked into a hostel near by for just that night. On the reception desktop, there was an information sheet giving prices for things such as toothpaste, and a list of Compensations. These were for things such as smoking in the place or being noisy after a certain time. This being Spain, the latter was not 10 or 11 but midnight. More to the point, the 'Compensations' are clearly better described as 'Penalties'. Or even 'Fines'.
The EU and Brexit
  • Yanis Varoufakis is the ex Greek Finance Minister who was serious roughed up by the EU a few years ago. Despite that, he's remained a europhile. But he's now said that Brussels has underestimated the risk that Britain's leaving could pose to the Eurozone. Going further, he warned Brussels that Brexit is 'a symptom of the disintegration of the European Union'. He might well be right.
Brexit and The UK
  • It's not all disastrous . . . Despite a great deal of French lobbying against it plus attempts to have everything moved to Paris, The City of London Corporation has finally got what it wanted: recognition by the European Securities and Markets Authority (ESMA) of the three biggest clearing houses it hosts, LCH, ICE Clear Europe and LME Clear. This will allow the three to continue providing services throughout the EU even in the event of a no-deal Brexit. It will also limit the potential for disruption in central clearing and prevent any negative impact on the financial stability of the EU, says ESMA.
The UK
  • Some fascinating news: Three months after Peter Jackson’s extraordinary colourised First World War documentary 'They Shall Not Grow Old', television audiences are being invited on another trip back in time – and on this occasion, the destination extends back even further. 'Edwardian Britain in Colour', a new series beginning tomorrow on Channel 5, will see previously black-and-white footage from the turn of the 20th century brought to life by using some of the 21st’s most advanced filmmaking technology. The results are remarkable, revealing an often overlooked era to be a world away from the drab impression we have until now gleaned from photographs. Instead, the period leaps off the screen, practically iridescent with colour. According to its creators, “It is the closest we have ever come to a time machine”: a chance for us to not only witness history in motion, but to live it in full, vivid glory." A must-view, then.
  • There's nothing here because it simply isn't news that Fart gets madder and madder.
Social media
  • Britain's Culture secretary has pronounced that the era of self-regulation for technology companies is coming to an end. Let's hope so.
Finally . . . 
  • Fed up with the problems I was having on my 3 year old smartphone, I lashed out on a new one. But now I almost wished I hadn't. It keeps sending me unintelligible messages, such as the one I got this morning about something that wasn't working because the phone was possibly too close to a 'proximity sensor'. Or something like that. I paid as little as I could for the phone - €150 - but noted its neighbours in the shop - not even iPhones -  ranged up to more than €900. Can anyone tell me what you get for this outlandish sum?  
  • Talking of technology . . . On my new laptop - it's been an expensive few weeks - I noted, when installing an ad blocker, that I could also upload a tracker blocker. These, I believe, are cookies which do what is says on the tin - they track your usage and send details to various interested parties. Clicking on the privacy settings of a UK newspaper this morning, I got a list of more than 150 of these. On other pages, I've seen that not only Google but also Facebook, Instagram, Linkedin, Twitter and Amazon were collaborating with the publisher. Hopefully, these are now all blocked.
  • Lenox Napier of Business Over Tapas has provided this video of (I guess) a reggaeton number performed by Zion and his (almost) namesake Lennox. It's a trifle weird, to my lights. My daughter tells me that reggaeton 'informs all today's Spanish pop songs.' To complete your education on the subject, here's how Wiki defines it:- Reggaeton  is a music style which originated in Puerto Rico during the late 1990s. It is influenced by hip hop and Latin American and Caribbean music. Vocals include rapping and singing, typically in Spanish. More here.

Friday, February 22, 2019

Thoughts from Madrid, Spain: 22.2.19

Spanish life is not always likeable but it is compellingly loveable.
            Christopher Howse: A Pilgrim in Spain
  • While some don't, the PSOE government certainly does believe in AGW, and is proposing that something be done about it. Via a very large investment of public funds. Its plan might or might not see the light of day. It has to get elected, for one thing.
  • Spain - understandably - continues to use the leverage which the Brexit negotiations give it to play the awkward squad around what it labels the colony of Gibraltar. But not everyone sees things in the same way and the European Parliament has rejected insertion of the word 'colony' in official documents, even as a footnote. Thrice.
  • Needless to say, ahead of a general election and with the country's 'Spanish nationalists' to appease, the right wing parties are accusing the Spanish PM of failing to take as much advantage as he could. Even accusing him of treason, where - ironically - others see great success on his part. Such is the impact of nationalism everywhere. Matthew Bennet gives an overview of the eternal dispute here.
  • As for us Brits, the eternal Gib spat brings a very immediate threat; we might have to pay for visas to visit EU countries for less than 90 days.
  • At a wider lever, the EU technocrats are said to be worried that the emergence of a far right wing party here in Spain could Italianise the country. And threaten The Project, of course.
  • So . . . Has Spain really swung to the right? asks El País here.
  • The real Spain. There are, says Guy Hedgecoe here, 2 wildly contrasting ideas of the country and its democratic credentials. GH gives an off-the-top-of-his-head list of his impressions. I can certainly relate to most - well, nearly all - of the items on it. And could certainly extend it, for good or bad.
  • Several more cities have joined Lugo in using archers to cull wild boars, among them Madrid and Valencia. I used to be dab hand with a bow. Maybe a profit opportunity, though the bows I've seen seem to be Olympics-level high tech. And would possibly confuse me.
  • Not for the first time, there are reports that the UK-Vigo-Lisbon ferry is to be restarted. I'll believe it when I board it.
Brexit and The UK
  • Richard North this morning: We're beginning to burn through the uncertainty - but only in the sense that the little optimism there was has almost disappeared, leaving no deal as the prevailing expectation. . . Most ordinary people are yearning for the drama to be over and some semblance of normality to be restored. . . We may end up with a no-deal exit simply because Brexit is so well and truly broken that there is no way of stopping it. Which would be catastrophic.
  • FWIW . . . I still believe there will be a 3 month extension to the Article 50 process. Though what this will achieve, GOK.
The EU
Finally . . .
  • A few more Elvis songs, reggae style - here, here and here.  I'm hooked . . .

Thursday, February 21, 2019

Thoughts from Galicia, Spain: 21.2.19

Spanish life is not always likeable but it is compellingly loveable.
            Christopher Howse: A Pilgrim in Spain

Note: As it's Thursday, I owe some elements of this post to Lenox Napier's Business Over Tapas weekly bulletin.

  • The run-up to the national, regional and local elections of this spring.
  • A worrying prediction from El Independiente: The PSOE would win the 28-A general election while Vox would take up to 46 seats. Both PP and Unidos Podemos would lose almost half of their deputies.
  • Excellent news for expats in the EU.
  • Relevant news for Brits in Spain.
  • Sadly unsurprising news from down South.
  • A relevant update from EuroCitizens.
  • Urban spots to avoid?
  • Our local press has suggested that 'optimising' Galicia's 3 small international airports is a 'strategic objective'. I suspect that this is all that will happen - talk. Especially as our politicians say they won't capitulate to 'blackmail' from the airlines. Which can, of course, continue to play them off against each other until they're reduced to one large, competitive airport with negotiating clout. On the 12th of Never.
  • Is there a more irritating site in the world than Renfe's? The most frequent - habitual? - problem is that it keeps telling me I haven't entered the origin and destination stations when I have. Yesterday it also first told me my password was wrong - several times - and then accepted it. Finally, having noted that my email address was wrong in my data, I eventually gave up trying to find out how to correct it. 
Brexit and The UK
  • Richard North today: There was never a good time for a no-deal Brexit but that applies in spades when we could be on the verge of a global recession. What was already important to avoid now becomes a matter a vital national interest. But. . . In the last few weeks before we are scheduled to leave the EU, the prime minister has almost run out of opportunities to salvage a deteriorating situation and she shows no signs of being able to manage an orderly Brexit.
The USA 
  • This should possibly come under Nutters Corner.
  • This, though, does belong here. Am I imagining a German accent for the singer of The Star-Spangled Banner? More on this here and here
The USA and Europe
  • Europe prepares risky counter-attack in US car war as Atlantic alliance falls apart. See below.
  • Odd old word: A nokes: A simpleton. From A noke, an oak. [As with A norange, an orange]
Finally . . .
  • Yesterday, I had to ask the young waiter in one of my 2 regular bars what reggaeton was. Right on cue, here's what Lenox Napier of BoT, says this morning is a good example of it.
  • Oops . . . A Colombian friend has just told me that isn't reggaeton but this is . . .  What do I know?? Or maybe Lenox too . . . P. S. If you leave this second playing, you'll eventually get this interesting version of Elvis's Ann Marie's the Name. Possibly of more appeal to male readers.

Europe prepares risky counter-attack in US car war as Atlantic alliance falls apart: Ambrose Evans Pritchard

Germany has reacted with shock and mounting anger to threats of exorbitant car tariffs by the Trump administration, a move seen as a targeted attack on the country’s crown jewels.

In Brussels, the European Commission said it would “react in a swift and adequate manner” to any escalation by the White House after the US commerce department cleared the way for car sanctions on national security grounds.

Brussels has drawn up plans for first phase retaliation against €20bn (£18bn) of US goods, targeting regions seen as crucial to Mr Trump’s re-election but also taking direct aim at Tesla.

Leading figures in Berlin have called for proportional retaliation if President Donald Trump goes ahead with duties of up to 25%, even if this means a full-blown trade war and further damage to the disintegrating trans-Atlantic alliance. “War is war, and a trade war is a trade war,” said Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee.

Chancellor Angela Merkel said it was alarming that Washington had invoked the nuclear weapon of national security under a “Section 232 clause” as a part of its trade armoury. “We’re proud of our cars and we have a right to be,” she told the Munich Security Conference over the weekend. “The biggest BMW plant is in South Carolina, not Bavaria. If these cars built in South Carolina are suddenly a threat to US national security, that is frightening,” she said.

The US commerce department delivered its long-awaited verdict to the White House on Sunday. While the findings have not been published, the broad thrust is known. The report allows the president to impose sanctions over the next 90 days on car imports worth $340bn without the assent of Congress.

This dispute has been coming for a long time. Europe is paying the price for building up a structural trade surplus with the US worth $171bn by compressing internal consumption with tight fiscal policies for much of the last decade, relying on global demand to pull the eurozone off the reefs. German imports alone accounted for $65bn of this last year. Mr Trump’s trade guru, Peter Navarro, said it is possible only because the structure of the euro keeps Germany’s exchange rate undervalued. Monetary union prevents the system returning towards balance through a German revaluation.

The trade showdown between America and Europe came as leaders of both camps clashed in open acrimony at the Munich security summit, a gathering that tore away all pretence of shared strategic interests. US vice-president Mike Pence rebuked the Europeans for free-loading on Nato, propping up the Iranian terror machine, and sacrificing Ukraine to curry favour with Russia over the Nord Stream 2 gas pipeline.

It was raw diplomacy of inter-War vintage and may mark the moment when the liberal Atlantic order became an empty term.

The EU has a powerful interest at this juncture in keeping Britain closely aligned, lest it is tempted by other strategic suitors. Former German foreign minister Sigmar Gabriel advises the EU to hug the British as tightly as possible to keep their defence, security, and finance strengths on the European side of the ledger. But Brexit negotiations have been conducted by lawyers in Brussels with little regard for the bigger picture.

Trade experts say the US report has fixed on a menu of options ranging from punitive tariffs on the hi-tech components of cars such as software, sensors, or GPS systems, as well as electric vehicles, all the way up to a sweeping 25% tariff on all car imports. William Reinsch, a former deputy commerce secretary, said the real goal is to pressure the Europeans into agreeing “voluntary” quotas along the lines of the 1980s deal forced on Japan by the Reagan Administration.

Michael Hüther from the German Economic Institute (IW) said the EU should hit back hard enough to “make it painful”. Yet tit-for-tat retaliation by the EU will enrage Mr Trump and lead to tariff escalation. The lesson of the 1930s is that surplus states suffer more in a trade war.

Conflict looks almost unstoppable. The European Parliament’s trade committee has called for a suspension of talks with the US, arguing that Mr Trump is abusing the WTO system and that Europe should not negotiate with a gun to its head. It said that agriculture must be excluded. This dooms any talks on a free-trade pact since the US Senate will not approve a one-sided deal that locks out US farm products on disputed health grounds. Little remains of the trade truce agreed last July by Mr Trump and EU commission chief Jean-Claude Juncker.

Gabriel Felbermayr from the IFO Institute said tariffs of 25% would cut German car exports to the US by half, costing €18.4bn a year.

A no-deal Brexit in these circumstances would mean a traumatic rupture in Germany’s two biggest car markets at the same time. German producers exports 750,000 cars a year to the UK, and rely on UK industrial supply chains.

The British car industry – led by Tata, Honda, and BMW – would also be hit hard by US tariffs. Sales to the US reached 221,000 last year, making up 18pc of UK car exports.

For Germany, the tariff threat comes at a time when the auto sector is reeling from the diesel scandal and is struggling to keep up with China and the US on electric cars. VW’s chief Herbert Diess says the German car industry risks being toppled from its dominant position and going the way of Coventry within 10 years if it is not careful. “Nothing is guaranteed for eternity. If you look at the former bastions of the auto industry such as Detroit, Oxford-Cowley, or Turin, you can see what happens to cities once their dominant companies and industries falter,” he said.

The EU must decide how to manage its internal rifts as it explores trade retaliation. France’s Emmanuel Macron pointedly said in a moment of pique with Germany last year that his country does not export cars in volume to the US. It was a veiled warning that Paris might not let Berlin use the EU trade process to fight its own sectoral interests, or a least there would be a political quid pro quo.

The eurozone is already close to recession. A US trade war at this point would push the economy over the edge and potentially into an “adverse feedback loop” where deflationary forces set it and trigger an unstable reaction in the debt markets. The European Central Bank has no monetary defences of any potency with rates already at minus 0.4%, and the currency has no fiscal fund able to launch counter-cycle stimulus through borrowing with a common safe asset.

If Mr Trump’s trade war combined with a no-deal Brexit, Europe would face an existential political and economic crisis.