Archive for March, 2015

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The world is going to university

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Free exchange

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Is there such a thing as a skyscraper curse?

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THE world is in the middle of a skyscraper boom. Last year nearly 100 buildings over 200 metres tall were built—more than ever before. This year China’s business capital will welcome the Shanghai Tower, which will be the world’s second-tallest building. Saudi Arabia is building Kingdom Tower, which will be the world’s tallest (and twice the height of One World Trade Centre in New York, the tallest building in the Americas). Does this frenzy of building augur badly for the world economy? Various academics and pundits, many of them cited by The Economist, have long argued as much, but new research casts doubt on it.
In 1999 Andrew Lawrence, then of Dresdner Kleinwort Benson, an investment bank, identified what came to be known as the “skyscraper curse”.* Mr Lawrence noticed a curious correlation between the construction of the world’s tallest buildings and economic …<div class="og_rss_groups"></div>

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UK Only Article:&nbsp;
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The world is going to university

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Bank resolution

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Regulators’ desire to make banks easy to kill is determining how they live

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JUST 51 hours separate the closing of the New York Stock Exchange on Friday afternoon from the opening of the Tokyo bourse the following Monday. How bankers wish it were longer. Regulators want it to be possible for any bank to fail without causing chaos or taking a bail-out from taxpayers. To that end, they are demanding that big financial firms draw up plans that would make it easier to dismember them or start winding them down during the brief weekly hiatus in trading.
That is proving tricky. This week the Federal Deposit Insurance Corporation (FDIC), the American regulator that takes charge of failing banks, rejected the “living wills” of the local subsidiaries of three of the world’s biggest banks: BNP Paribas, HSBC and RBS. Last year it declared inadequate the plans of all …<div class="og_rss_groups"></div>

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IN THIS week's print edition, we take a look at the latest budget, delivered yesterday by George Osborne, the Conservative chancellor of the exchequer. We called his plans for a rollercoaster of spending cuts until 2018, followed by a splurge, "a strange mix of prudence and lunacy". The inconsistency of the budget proposals can partly be explained by Mr Osborne's need to play politics. Although "Mr Osborne’s performance was monstrously political," we say, it is "also quite likely to improve the Tories’ prospects". The next day, the Liberal Democrats outlined their own fiscal proposals, which called for an even steeper rollercoaster of public spending (see chart).

But if the government's future proposals are a rollercoaster ride of spending, economists say that the past few years have also followed a similar course. Initially,&nbsp;Mr Osborne set out on a course of fast-paced austerity designed to eliminate the structural deficit by 2015. But the crisis in the euro zone and a British economic slump led the chancellor to toss out that plan. Slowing down his plans for fiscal adjustment, along with monetary stimulus in the form of funding for lending by the Bank of England, were the policies that underpinned the economic boom that has taken hold since 2013.Yet this rollercoaster ride may not have simply been due to yo-yo austerity or Europe's economic problems. As we …<div class="og_rss_groups"></div>

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UK Only Article:&nbsp;
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Made in China?

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The shipping industry

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A slump in shipping rates reflects the chronic optimism of shipowners

OLD salts interpret low-flying seabirds as a sure sign that a storm approaches. For some observers the Baltic Dry Index (BDI), which tracks the cost of shipping iron ore, coal, grain and other materials, is delivering much the same message about the global economy as a wave-skimming albatross. Last month it hit a 30-year low (see chart 1). Yet its decline says more about the predicament of those who own the vessels that carry such cargoes than it does about economic growth or the prospects for world trade. For container ships, which move finished goods, and oil tankers the outlook is less gloomy.

True, fresh signs emerged this week that China’s economy is slowing. Growth this year may be 7% or less, compared with 7.7% in 2013 and 7.4% in 2014. China absorbs three-fifths of the world’s ship-borne iron ore—the most commonly carried dry-bulk cargo—and a quarter of its coal. Yet this alone does not …<div class="og_rss_groups"></div>

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THE Baltic Dry Index (BDI), which measure the rates for chartering the giant&nbsp;ships that transport iron ore, coal and grain, has long attracted the&nbsp;attention of commentators hoping to take the pulse of world trade. The&nbsp;cost of shifting the basic raw materials that are the ingredients of&nbsp;steel, energy and food supposedly provides a leading indicator of the&nbsp;state of the world economy. If so the forecast would suggest that a&nbsp;storm at sea will shortly make landfall. The index, a composite of&nbsp;rates charged on a variety of important trade routes, has hit an&nbsp;all-time low, after sinking by 65% in the past 13 weeks alone. Even in the&nbsp;depths of the financial crisis shipping rates kept their heads further&nbsp;above water (see chart). Why are they so remarkably low now?

There is no doubt that world trade is slowing down. China’s&nbsp;rip-roaring economy, the destination for well over half the world’s&nbsp;ship-borne iron ore and 25% of coal, has cooled. It grew by 7.4% last&nbsp;year compared to well over 10% when running at full tilt. But although&nbsp;the world economy is quite weak it is far away from the apocalypse&nbsp;that the index apparently foretells. The reason that the BDI has taken such a precipitous dive is that it is a measure both of&nbsp;demand for shipping and of the supply of vessels. Sliding charter&nbsp;rates are more …<div class="og_rss_groups"></div>

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A new book and study both show that the ability to rise from poverty to the middle class truly is shrinking. A child without married, educated parents starts life at a huge and worsening disadvantage.

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TODAY the European Central Bank (ECB) launches its long-awaited programme of quantitative easing (or QE), adding lots of public debt to the private kind it has already been buying. Its monthly purchases will rise from around €13 billion ($14 billion) to €60 billion until at least September 2016. The ECB is just the latest central bank to jump on board the QE bandwagon. Most rich-economy central bankers began printing money to buy assets during the Great Recession, and a few, like the Bank of Japan, are still at it. But what exactly is quantitative easing, and how is it supposed to work?Central banks are responsible for keeping inflation in check. Before the financial crisis of 2008-09 they&nbsp;managed that by adjusting the interest rate at which banks borrow overnight. If firms were growing nervous about the future and scaling back on investment, the central bank would reduce the overnight rate. That would reduce banks' funding costs and encourage them to make more loans, keeping the economy from falling into recession. By contrast, if credit and spending were getting out of hand and inflation was rising then the central bank would raise the interest rate. When the crisis struck, big central banks like the Fed and the Bank of England slashed their overnight interest-rates to boost the economy. But even cutting the rate as far as it could go, to almost zero, failed to …<div class="og_rss_groups"></div>

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