Tag Archives: Banking reform

The world is sitting on a $400 trillion financial time bomb

By Allison Schrager – Financial disaster is looming, and not because of the stock market or subprime loans. The coming crisis is more insidious, structural, and almost certain to blow up eventually.

The World Economic Forum (WEF) predicts that by 2050 the world will face a $400 trillion shortfall (pdf) in retirement savings. (Yes, that’s trillion, with a “T”.)

The US will find itself in the biggest hole, falling $137 trillion short of what’s necessary to fund adequate retirements in 2050. It is followed by China’s $119 trillion shortfall.

Much of the massive shortfall is baked into retirement systems; setups in which nobody, neither individuals nor the government, saves enough.

About three-quarters of the projected comes from underfunded promises from governments, with the rest mostly accounted for by under-saving on the part of individuals. more> https://goo.gl/UUisEk

Updates from GE

Beyond Bitcoin: Digital Currency Among Many Industrial Applications For Blockchain
By Mark Egan & Dorothy Pomerantz – Ben Beckmann works as the lead scientist in the complex systems engineering lab at GE Global Research in Niskayuna, New York. In 2012, he made a seemingly inconsequential wager: He bet one of his colleagues that the electronic currency bitcoin would fail.

Bitcoins started trading for pennies after the currency launched in 2009. Today, you can buy one bitcoin for $2,200. Beckmann lost the bet and took his colleague for a nice meal. “If we had taken the $100 we spent on dinner and invested it in bitcoins at the start, we would be millionaires,” Beckmann laughs.

Losing the bet pushed Beckman to take a closer look at the code behind bitcoin. He and others at GE discovered that the real magic that made it work was a public digital ledger called blockchain that keeps a chronological record of all bitcoin transactions. But the currency is just one blockchain application. The technology could be used for tracking trade, contracts, and even renewable energy.

Maja Vujinovic, technical product manager at GE Digital, is leading a push to explore and develop blockchain across the company. She’s looking at everything from purchase orders and budget reconciliation and parts tracking. “The bank receives a fee for every transaction,” Vujinovic  says. “If we can remove the bank and establish a trust mechanism instead, that will save us a lot of money.” more> https://goo.gl/5XIWo7

Why Wall Street Went Astray: Eight Ways To Humanize Finance

BOOK REVIEW

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return, Author: Mihir Desai.

By Steve Denning – Why did Wall Street go astray?

For most of the last several centuries, bankers and financiers were the pillars of society, the bastions of morality, the people in society that everyone respected.

Yet over the last few decades, Wall Street has become almost a synonym of evil. What went wrong? What can be done to restore the financial sector to the level of respect that it once enjoyed?

For people outside finance: Finance is deeply misunderstood, and we need to make it understandable to people so that they don’t demonize it. The way to do that is not through equations or graphs, but through stories. Finance is central to our lives and ignorance of it is very costly on an individual and societal level.

For people in finance: The core ideas of finance are quite life affirming and very noble — we should make people in finance aspire to them rather than expect so little of them. If finance is going to rehabilitate itself, and I do think it’s broken in many ways, the way to rehabilitate is not through regulation, or outrage, but rather returning to its basic underlying ideas, which are actually quite wonderful. In the long run, that’s how we make finance better — by getting back to the core ideas. more> https://goo.gl/Kr4Mnj

Deficits In Trade And Deficits In Understanding

By Omar Al-Ubaydli – To see why the current trade deficit is benign, we need to understand the relationship between trade and the dollar’s value. Greenbacks are like any commodity in that the more people want to possess them, the higher their price. People acquire dollars primarily for two reasons: buying American goods and investing within the United States.

If the United States is importing more than it exports, then American consumers are exchanging dollars for foreign currencies to buy foreign goods more than foreigners are doing the reverse, meaning that foreigners are accumulating lots of dollars that they’re not using to buy American goods.

So why has America been recording a large, persistent trade deficit, and why isn’t the dollar devaluing? It’s due to the second major difference (from 1970s): The investment-based demand for foreign currencies—which we momentarily set aside—has ballooned. People no longer exchange currencies just to buy foreign goods.

Consequently, the dollar no longer corrects trade imbalances. more> https://goo.gl/L1VHHr

The Robot Economy: Ready or Not, Here It Comes

By JP Sottile – This is the “next economy,” and, ready or not, it is coming at the double-time speed of Moore’s Law. This rapid acceleration of the Fourth Industrial Revolution is transforming “The Future of Employment’s” apocalyptic premonition — that 47 percent of all jobs in the United States may be lost to automation over the next two decades — into a solemn epitaph for the rapidly fading era of manufacturing-based, consumption-driven economics.

Even low-paying farming jobs could be completely upended by robotic fruit pickers with the deft touch needed to harvest food in American and European fields. Robots are already replacing cheap migrant workers shut out by anti-immigrant policies. And new robot-staffed factories are producing modular houses, while robotic bricklayers promise to do to the construction trades what automation did to coal mining.

An often overlooked element, though, is the way automation helped maintain continued growth in productivity, even as wages lagged. As the Guardian recently noted, “As of 2015, a typical production worker in the US earned about 9% less than a comparable worker in 1973. Over the same 42 years, the American economy grew by more than 200%, or a staggering $11tn.” This divergence between wages and productivity drove wealth inequality. more> https://goo.gl/a7rHdR

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Seeking a policy response to the robot takeover

By Alice M. Rivlin – We could soon be living in a world in which driverless vehicles or drones make all deliveries. Those vans and big rigs on the interstates will barrel along to their destinations without drivers; the groceries or prepared food you need for dinner or the prescription your doctor ordered will descend on your doorstep without a human delivery person in sight.

The transition to driverless deliveries will be a bonanza for early investors in the winning technologies. A wide range of consumers and businesses will benefit from cheaper, faster, more reliable delivery of things they buy or parts they need. In the end, most Americans stand to benefit from a higher productivity economy. However, in the near term, the consequences could be devastating for delivery drivers and their families and owners of the soon to be old-fashioned vehicles that require drivers.

Policy makers should be preparing now to respond to this technological revolution, so that we can benefit from the new technology, but mitigate the damage to those who lose out. more> https://goo.gl/30A3Ll

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The European Crisis

By Ross Douthat – Those problems bear a certain resemblance to those of our own politics. In Europe as in the United States, recent trends in culture and economics have elevated an educated upper class while separating it, geographically and ideologically and in every other way, from a declining and fragmenting working class. In Europe as in the United States, a growing immigrant population serves this upper class while seeming to compete with downscale natives for jobs, housing and social benefits.

In Europe as in the United States, the center-left coalition has become a kind of patronage arrangement between the multicultural meritocracy and minority groups both new and old, while the white working class drifts rightward and votes for Brexit, Trump and now Le Pen.

So far, so similar. But as counterintuitive as it may seem — after all, we elected Trump and they have not — in many ways these problems are worse in Europe, part of a systemic crisis that’s more serious than our own.

They’re worse because Europe is stuck with a horribly flawed experiment in political economy, a common currency without a common fiscal policy or a central political authority capable of claiming real legitimacy. The damage that this combination has done to the economies of Southern Europe, in particular, is striking and severe — years of elevated unemployment and stagnation, all of it imposed without democratic accountability by a mostly Northern European caste of bankers and politicians. more> https://goo.gl/VTMNjq

Our world outsmarts us

BOOK REVIEW

A Skeptic’s Guide to the Mind: What Neuroscience Can and Cannot Tell Us About Ourselves, Author: Robert Burton.

By Robert Burton – Whether contemplating the pros and cons of climate change; the role of evolution; the risks versus benefits of vaccines, cancer screening, proper nutrition, genetic engineering; trickle-down versus bottom-up economic policies; or how to improve local traffic, we must be comfortable with a variety of statistical and scientific methodologies, complex risk-reward and probability calculations – not to mention an intuitive grasp of the difference between fact, theory and opinion.

Even moral decisions, such as whether or not to sacrifice one life to save five (as in the classic trolley-car experiment), boil down to often opaque calculations of the relative value of the individual versus the group.

If we are not up to the cognitive task, how might we be expected to respond? Will we graciously acknowledge our individual limits and readily admit that others might have more knowledge and better ideas?

Will those uneasy with numbers and calculations appreciate and admire those who are?

Or is it more likely that a painful-to-acknowledge sense of inadequacy will promote an intellectual defensiveness and resistance to ideas not intuitively obvious? more> https://goo.gl/Bjkogb

How Norway Proves Laissez-faire Economics Is Not Just Wrong, It’s Toxic.

By David S. Wilson, Dag O. Hessen – For most of human existence, until a scant 10 or 15 thousand years ago, the human ladder was truncated. All groups were small groups whose members knew each other as individuals. These groups were loosely organized into tribes of a few thousand people, but cities, provinces, and nations were unknown.

Today, over half the earth’s population resides in cities and the most populous nations teem with billions of people, but groups the size of villages still deserve a special status. They are the social units that we are genetically adapted to live within and they can provide a blueprint for larger social units, including the largest of them all – the global village of nations.

Modern nations differ greatly in how well they function at the national scale. Some manage their affairs efficiently for the benefit of all their citizens. They qualify at least as crude superorganisms.

Other nations are as dysfunctional as a cancer-ridden patient or an ecosystem ravaged by a single species. Whatever teamwork exists is at a smaller scale, such as a group of elites exploiting the nation for its own benefit.

The nations that work have safeguards that prevent exploitation from within, like scaled-up villages.

The nations that don’t work will probably never work unless similar safeguards are implemented. more> https://goo.gl/r9OigY

Almost everything Republicans get wrong about the economy started with a cocktail napkin in 1974

BOOK REVIEW

Return to Prosperity, Author: Art Laffer.

By Gwynn Guilford – The sealing of America’s fiscal fate began in 1974, over cocktails.

As afternoon faded to evening on December 4, Dick Cheney and a young economist named Art Laffer shuffled into a booth at the Two Continents restaurant in the iconic Hotel Washington—two blocks from the US Treasury department.

Cheney was US president Gerald Ford’s deputy chief of staff. He and his boss, Donald Rumsfeld, were looking for alternatives to Ford’s plan to raise taxes 5%. Raising taxes was a bad idea, said Laffer.

Growth, argued Laffer, depends on how much people work and how much businesses invest. He believed both those things hinge on tax rates: the more income the government takes away in taxes, the less motivated people are to work and save (leaving businesses less money to invest).

The government that thinks that raising taxes is necessary to pay for social programs and other public services is short-changing itself, argued Laffer. more> https://goo.gl/3Tfhgj