Archive for July, 2015

OVER the past six years, long-term unemployment in Europe has swelled. Around half of Europe's 25m unemployed have been jobless for over a year. Over 12% have not worked for more than four years. Aside from rising poverty levels, the problem brings a further set of difficulties that can render it self-sustaining. Skills are forgotten, confidence drains, fertility slows and the risk of poor health increases. The challenge for policymakers is to stop this cyclical unemployment from becoming structural.

Unsurprisingly, the problem is most acute in southern Europe. More than 60% of jobless Italians have not worked in over a year; in Greece the rate is over 70%. The high long-term unemployment rate is due in part to the fact that Italy simply has high overall unemployment rates, brought on by a severe recession and inflexible labour markets. Moreover, economic woes feed into political ones. Unemployed people are more likely to distrust their politicians and the European Union. This has strengthened the hand of euro-sceptics and populists.

The problem is also acute in the new EU member states of eastern Europe. But unlike southern Europe, many of these countries have recent experience of high long-term unemployment after recessions in the late 1990s and early 2000s. In some places long-term joblessness persisted despite economic recoveries. Slovakia experienced a …<div class="og_rss_groups"></div>

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Empire of the geeks

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Buttonwood

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Technocratic solutions may come back to haunt politicians

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“THE people have spoken. The bastards.” Dick Tuck’s reaction to defeat in a Californian state Senate race in 1966 is not that far from the attitudes of the authorities since the 2008 financial crisis. They have tended to act first, and hope that voters approve of their actions afterwards. Often this has involved the introduction of improvised measures that the people might not have favoured, and the use of bodies that were free from democratic constraint.
The unpopularity of the Bush administration’s bank bail-out in 2008 created a strong sense of caution among elected leaders. Congress initially voted the rescue down in response to a backlash among constituents that eventually created the Tea Party. Although the bail-out was pushed though in the end, many of those who voted in favour lived to regret it.

Given …<div class="og_rss_groups"></div>

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Hiyatollah!

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Buttonwood

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The supply of equities may soon stop shrinking

WHEN supply falls and demand is strong, prices tend to go up. So it has been in America’s stockmarkets. Short-term interest rates at record lows and minuscule yields on government bonds have boosted investors’ demand for equities. And thanks to share buy-backs, the supply of shares has been steadily falling. BCA Research estimates that the number of shares in issue on American stockmarkets has fallen by 6% since 2009. This tailwind for share prices, however, may be starting to fade.
A few decades ago many firms deliberately kept a bit of cash on their balance-sheet as a “rainy-day fund” to help them cope with recessions. That has gone out of fashion, partly due to pressure from activist investors. If firms have no better use for their money, the argument runs, they should return it to their shareholders.

Share buy-backs also help improve a number of financial ratios. Especially at current interest rates, companies earn a low return …<div class="og_rss_groups"></div>

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Hiyatollah!

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Free exchange

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New research suggests it is debt, not frothy asset prices, that should worry regulators most

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WHEN Chinese shares plunged earlier this month, the government tried frantically to limit the damage. It pumped cash into the market, capped short-selling and ordered share buy-backs. Although China was unusually heavy-handed, it was hardly the first country to try to bolster stock prices for fear of the economic harm a crash could bring. Alan Greenspan, as chairman of the Federal Reserve, famously created the “Greenspan put” by giving investors the impression he would cut interest rates to stop stockmarket routs.
The underlying rationale for these interventions is an idea that until recently received surprisingly little scrutiny—namely, that stockmarket busts are very damaging for the economy. The link seems clear enough in the case of the crash of 1929, which led in short order to …<div class="og_rss_groups"></div>

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IT ALL seems a little too perfect to be true. The Chinese government set a growth target of “about 7%” this year. And for a second consecutive quarter, despite ample evidence of stress in its industrial sector, it managed to hit that right on its head. In the three months from April to June, the economy expanded 7% compared with the same period a year earlier. Cue the chorus of scepticism: Chinese data just cannot be trusted, goes the usual refrain. Yes and no. There is a difference between smoothing data and totally fabricating it. Evidence suggests that China is guilty of the former (the lesser charge) but not the latter (the more serious allegation).China has a history of ironing out the ruffles in its growth figures. No less an authority than Li Keqiang, now the premier, once said that local GDP data were "man-made and therefore unreliable". The most notorious case of manipulation came in 1998 in the aftermath of the Asian financial crisis. Many Asian countries suffered recessions but China claimed to grow by a hefty 7.8% that year. Looking at other indicators, many economists concluded that growth was in fact closer to 5%. The manipulations can occasionally work in the opposite direction. In the early 2000s, when China reported growth of 8-9%, some reckoned that it really expanded by closer to 10%. Why would China understate its growth? One possibility is that …<div class="og_rss_groups"></div>

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It’ll take trillions of dollars — not billions but trillions. Leaders are meeting in Ethiopia this week to figure out how to raise the money. Spoiler alert: Most of it won’t come from governments.

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The Economist asks

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From debt bumps to paperology and the power of &quot;oxi&quot; – the crisis vocabulary in Berlin, Brussels and Athens tells us a lot about differing attitudes

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20150713

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