French protests threaten to spill into Europe
The cost-of-living crisis is hurting the whole continent
Shocking scenes emerged this weekend from Sainte-Soline, a rural district in Western France. Police vehicles burned as protestors hurled rocks and fireworks. At one point, police officers on quad bikes used what appeared to be light mobilised infantry tactics against the protesters, who opposed the building of a large water reservoir to be used for farm irrigation.
The clashes in Sainte-Soline come after similar scenes across the rest of France. Two weeks ago riots broke out on the Place de la Concorde in Paris, with 120 arrested after a night of violence and chaos. These protests were not due to waterworks, but because President Emmanuel Macron announced that the retirement age was to be raised from 62 to 64. ...
Are we about to enter a full-scale banking crisis?
The international monetary system is looking increasingly shaky
When is a banking crisis a banking crisis? These past few days we have seen the failure of multiple banks. The action started with Silicon Valley Bank and soon spread to Signature Bank, making those two the second and largest bank failures in American history respectively. Significant pressure has also been felt on other institutions, like First Republic.
However, the crisis has now gone international, with UBS agreeing an emergency rescue deal with Credit Suisse. While Silicon Valley Bank and Signature Bank had their own idiosyncrasies in the tech sector — with oversize deposits held by venture capitalists in the former and cryptocurrency exposure in the latter — Credit Suisse was simply a normal international bank with some structural weaknesses. ...
Techies are replacing bankers as public enemy number one
The collapse of Silicon Valley Bank has put a target on the community's back
The recent bailout of Silicon Valley Bank (SVB) depositors could prove highly controversial. That is, unless policymakers are convinced that it was necessary and the public are convinced that it is perfectly normal. But it was and is neither.
SVB went bust because of its investments. These were not particularly exotic — mostly Treasury bonds and mortgage-backed securities. Many banks carry similar investments today, but what was unusual were SVB’s depositors.
These were not people squirrelling away a few quid for their nest egg; nor were they Main Street mom and pop stores. Rather, they were some of the wealthiest people and most vibrant start-up investments in Silicon Valley. ...
China and America are set for Great Divergence 2.0
As US growth remains sluggish, China is rebounding
On Sunday, China’s Premier Li Keqiang announced at the National People’s Congress that China has set a 5% GDP growth target for 2023.
Chinese GDP figures should always be taken with a pinch of salt. Indeed, Keqiang himself once said that the figure was “man-made” and unreliable. He instead suggested tracking other metrics such as railway cargo volume, electricity consumption, and loans disbursed by banks. China watchers have since come to refer to this as the ‘Li Keqiang index’.
Yet when we look at alternative metrics, they do appear to track China’s official GDP figures. And since Chinese GDP figures usually clock in close to the target set by the Government, it is safe to say that Keqiang’s promise to deliver around 5% GDP growth in 2023 is reasonable. ...
Have sanctions really hurt Russia?
If anything, Europe has come off worse from the decision
Last week the Centre for Research on Energy and Clean Air (CREA) released a weekly snapshot of Russian fossil fuel exports. Since the price cap on Russian oil was announced in December 2022 and the snapshot provides data up until February 2023, it allows us to assess how effective sanctions against Russian crude oil have been.
Some have already pointed out that the sanctions have not actually stopped the European Union from buying Russian fossil fuel products. In fact, as of February the EU remains the second largest importer of Russian fossil fuels — trailing China, but still larger than India. But there is no doubt that there has still been an enormous shift: before the sanctions, the EU was by far the largest importer of Russian fossil fuels. ...
The era of rules-based central banking is over
Welcome to a world of monetary uncertainty
On May 6th 1997, then Chancellor of the Exchequer Gordon Brown sent a letter to the Governor of the Bank of England. In the letter Brown highlighted the New Labour manifesto commitment to “ensure that decision-making on monetary policy is more effective, open, accountable and free from short-term political manipulation”. In 1998, this new decision-making framework was brought into law under the Bank of England Act 1998.
These legal developments reflected broader changes in the discipline of economics. As inflation subsided in the 1990s, many attributed this new stability to central bank policy. It seemed that many central banks had cracked the code of setting interest rates to ensure healthy economic growth without disruptive price rises. Brown, and other politicians like him, believed that public policy could be set in line with economic science and so he gave free rein to the experts. ...
Most of the UK is already in recession
The latest ONS growth numbers conceal a worrying reality
Recently, the ONS published its first quarterly estimate for the end of 2022. It was significant because there were fears that the data might show a recession in Britain. The previous quarter had registered very slight negative growth, so if this latest release had shown something similar, Britain would have been considered to be in a recession. Instead, the latest figures showed that the economy had narrowly avoided one.
If that’s the case, then what can be said about the state of the British economy?
For one, the economy has been stagnant for some time. It has still not quite managed to grow back to its pre-pandemic size, while Britain has been far underperforming its peers: IMF data shows that the country has had the worst two years of any major economy. ...
America’s job numbers are not as rosy as they seem
There's a reason why economists were surprised by the latest figures
To much fanfare at the end of last week, the Bureau of Labor Statistics (BLS) in the United States published jobs numbers that appeared surprisingly rosy. The BLS reported that the number of jobs grew by 517,000 in January, a figure that, outlets claimed, “surprised economists”. No doubt this was a strong jobs report, but there are reasons to be cautious.
To understand why, we need to rewind back to February 2008. In its report on the January job numbers of that year, the BLS stated that “nonfarm payroll employment and the unemployment rate were essentially unchanged in January”, signalling that all was stable (‘nonfarm payroll’ refers to the entire economy’s employment outside of the agricultural sector). But, in retrospect, the next sentence portended disaster: “The small January movement in nonfarm payroll employment reflected declines in construction and manufacturing and job growth in health care.” ...