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Grads can expect to earn around $107,000, on average 65% more than their pre-MBA salary.
But of course, there was a long list of criteria. Tuck's alumni are ranked the most effective in the world (though the school came in 90th out of 100 for "alumni breadth," but that's because of its smaller network), and also came out on top in the "personal development and educational experience" category.
Trailing Dartmouth are Chicago's Booth School of Business, Switzerland's IMD, University of Virginia's Darden School of Business, and Harvard Business School.
Interestingly, The Economist says "No purely Asian school makes our top 30. Hong Kong University, at 36th, is the highest-placed. The China Europe International Business School is the only school from the mainland to make our top 100. The Indian Institute of Management in Ahmedabad, India’s sole representative, and the toughest business school in the world to get into, is 78th."
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Ireland is hurting under harsh austerity measures and unemployment is fairly high but 68% of Irish people are satisfied with their life and 79% expect it to be satisfying five years from now.
This compares with 59% of people in the OECD countries that are satisfied with their life.
We've used the OECD Better Life Index and put together 12 countries with the highest life satisfaction and combined it with work hours and their sense of safety.
Note: The average OECD homicide rate is 2.2 murders per 100,000 inhabitants.
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The Rashidun Caliphate's Remains of Taq-i Kisra
To be considered an empire an expanse of land must be politically led by either a monarch, an emperor, or be an oligarchy.
As the decline of the U.S. is being hailed in the news and opinion of the world, we thought it would be interesting to look at the biggest empires of the past.
Aside from their leadership model, the only other thing they all have in common is that each of them disappeared.
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This series is commissioned by UPS. Discover the New Logistics. Logistics levels the playing field and helps you compete locally or globally. Put the power of New Logistics to work for you.
A very smart building from the movie iRobot
"While this certification means that the design features are amongst the greenest in the country, it does not guarantee that the people working in the building are always mindful of the environment."
To get around this human error, AMD is installing smart e-building technology.
Smart e-building provides 24/7 real-time information on how energy is used. If a computer or light bulb is left on overnight, this technology will let you know. It will also identify surges in power and other inefficiencies that are driving up the power bill.
There is an old saying that "what gets measured gets managed," and that's exactly the idea behind AMD's new energy management tool.
It's not an entirely new concept. Smart metering was initially popular in Europe in the early 2000s, though it's been gaining momentum in the U.S. since 2006, when GE, Intel, HP, Oracle, Cisco, and Capgemini came together to form the Smart Energy Alliance.
It makes sense that AMD is launching its own smart e-building program at its Lone Star campus, since Austin ranks among the greenest cities and intends to become carbon neutral by 2020.
Ongoing initiatives by the city of Austin, such as the Pecan Street Project, show that citizens support getting 15-second updates on their energy usage — because it encourages them to become more energy efficient, and they ultimately save money on utilities.
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Doug Short is the vice president of research at Advisor Perspectives. Markets were crushed worldwide last week. The Hang Seng fared worst, with a decline of 9.18%, while five of the eight markets on our world scoreboard lost more the five percent. In fact, six of the indexes are now below the 20% decline-from-interim-high benchmark traditionally associated with bear markets, and two have slipped 30% or more from their interim highs. Only the S&P 500 and FTSE 100 remain above bear territory.
The tables below provide a concise overview of performance comparisons over the past four weeks for these seven major indexes. I've also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.
The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.
A Longer Look Back
Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai, Hang Seng) is readily apparent.
Check back next weekend for a new update.
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Citi's Willem Buiter is out with a new note firmly opposing all those who toy with the idea of a Greek exit from the eurozone.
"The prospect of Greece exiting the euro area is seldom viewed with the proper degree of fear and trepidation," he writes.
While Buiter admits that a Greek exit could have euro-positive implications in the long term, in the short term it would be an "economic disaster" for both Greece and the remaining 16 euro states with "severe economic and political implications" for the rest of the world.
Here are a few of his main points:
- A Greek exit is still unlikely but has become a lot more possible in the last few weeks.
- While the Euro Area can't formally kick Greece out of the euro, denying it bailout funds or forcing it to adopt unfeasible austerity measures would virtually amount to booting the Greeks out. Buiter cites stalled negotiations (set to resume tomorrow) between Greek officials and ECB/EU/IMF troika inspectors as a bad sign that this not impossible. "For the sake of economic stability and growth in the euro area, the wider European Union and the global economy, we hope that this message is taken to heart by the European authorities."
- Buiter believes that the troika will continue to give Greece funding, but will probably force Greece to endure more austerity cuts and will be directly involved in designing the program.
- Private creditors to Greece will probably accept a haircut of 65-80% net present value of their investments. More than 90 percent of Greek sovereign debt held by private creditors was issued under Greek law. That means Greece could pass a single law and walk away from all these debts. Creditors would have no recourse. Not that Greece will do that -- just that it can.
- Were Greece to exit from the euro, however, Buiter would expect private creditors to lose 90-100% net present value on all Greek debt.
- Greece will not leave the euro on its own. "A collapsed banking system, widespread default throughout the economy, a continuing non-competitive economy and high inflation with a material risk of hyperinflation would make for a deep and enduring recession/depression in Greece. Social and political dislocation would be certain. There would, in our view, be a material risk of a downward spiral of dysfunctional politics and economics."
Here's what would happen in Greece if it left the euro:
- Greece immediately issues a new currency, a run on banks would ensue, and no one will be able to get cash in Greece. The banking system there would be kaput. This also wouldn't restore growth or competitiveness to Greece in the long run.
- The big deal for the rest of the euro area is that an exit from the area was allowed and precedent was broken.
- After a Greek exit, markets would immediately focus on the PIIGS countries most likely to follow suit. Investors would withdraw any deposits they would have there.
He paints a pretty picture of just what would happen:
Apart from bank runs in every country deemed, by markets and investors, to be even remotely at risk of exit from the euro area, there would be de facto funding strikes by external investors and lenders for borrowers from these countries. Again, putting under foreign law (most likely English or New York) all cross-border (or perhaps even all domestic) financial contracts and instruments could at most mitigate this but would not cure it.
The funding strike and deposit run out of the periphery euro area member states (defined very broadly), would create financial havoc and mostly like cause a financial crisis followed by a deep recession in the euro area broad periphery. The counterparty inflow of deposits and diversion of funding to the ‘hard core’ euro area and the removal (or at least substantial reduction) of the risk of ECB monetisation of EA sovereign and bank debt would drive up the euro exchange rate. So the remaining euro area members would suffer (at least temporarily) from an uncompetitive exchange rate as well from the spillovers of the financial and economic crises in the broad periphery.
DON'T MISS: Here's who gets crushed if Greece goes bust >
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America's fastest computerImage: wikipedia commonsIBM's Watson computer astonished the world in February when it won a Jeopardy match against two human contestants. This week, Watson got a job at WellPoint health insurance as a consultant.
In honor of this, we've re-released our list of the greatest electronic processors on the planet.
Most of these are supercomputers: giant mainframes that link many small processors to achieve breakneck speeds. In terms of pure speed, the smartest is China's Tianhe.
But we also looked at computers that are incredibly good at a certain task. Watson is the best Jeopardy playing computer, just like there's a best weather predicting computer.
As Ken Jennings said when he was beat out on Jeopardy. "I for one welcome our new computer overlords."
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From increased security and law enforcement, to the decline in the economy and partisan politics -- this isn't the same place it was in 2011.
And the world has noticed.
The following cartoons offer a glimpse of what the world sees -- 10-years later.
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The level of play was high, the atmosphere was electric, and the both players left every ounce of their remaining energy on the court.
Novak prevailed, but not before an epic four hours of beautiful tennis.
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But in terms of sheer impact on the world? Microsoft wins, hands down.
Microsoft gave the world two things:
Microsoft was the first real software company.Microsoft did put a PC on every desk and in every home.At the end of the day, it's that last part that matters. By shifting the value in computing to software, Microsoft commoditized computing hardware and made computing accessible to the masses. If this isn't one of the most significant events in history, nothing is.
Now, some people will say that Microsoft did this by copying Apple's innovations like the graphical user interface. Whatever. First of all, Apple famously copied those from Xerox PARC. Great artists steal. Second of all, by any meaning of the word, the person who changes the world isn't the one who comes up with the idea, it's the one who executes on it, and 1980s Apple failed to execute (a lesson well learned by Apple under Steve Jobs 2.0).
The original Macintosh did show where the future of computing was headed, but it was also a commercial failure. 1980s Apple failed to understand the value of software, in particular third party software, which was lacking in the Macintosh. (This writer's mother bought two computers in the mid-1980s: the first Macintosh and the first IBM PC. There was a lot more software for the PC. So she kept buying PCs, to this day--though she has an iPhone.)
Microsoft, being a software company, built an operating system platform that let thousands of others innovate which, along with Moore's Law, made PCs cheaper and more valuable every year which meant more and more people could get access to them, in a vicious circle.
Being the first big, viable software company also meant Microsoft cleared the way for thousands of other software innovators, when it was in no way obvious at the start that a company could be viable making just software.
The hardware may have been ugly, and the software clunky (a big reason why Windows is buggy is because of Microsoft's amazing 20 year commitment to backwards compatibility, which makes PC software a cohesive environment, a tremendous service to users and the world, for which it gets no credit. With less software to support, Apple can afford to wipe the slate clean every ten years, a strength born of weakness.), but it was the software that millions of people used, and loved.
Nowadays Apple is so huge and efficient that it can afford to make the best products at the best prices. But when the personal computer revolution happened, the Macintosh was a Mercedes and MS-DOS was the Model T. The Model T might have been ugly, clunky and cheap, but being cheap it also changed the lives of millions and transformed the world in a way that the early auto pioneers, amazing and necessary though they were, didn't.
Now, Apple may yet get its revenge. The mobile computing revolution, with smartphones and tablets, will be at least as big as the desktop computing revolution, and Apple is seriously taking the lead. Android has a good chance of disrupting iOS, but Apple also has a great chance of remaining the dominant mobile platform. Maybe 20 years from now we'll look back and see Apple had an impact at least as big as Microsoft in the 1980s.
But if we're looking now, Microsoft clearly had a bigger impact on the world than Apple. The fact that we all love Apple products and they're gorgeous doesn't change the fact that the company that actually made the world realize the magic of software, and made computing accessible to almost everyone on the planet, is Microsoft.
Related: My Apple Story ?
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The rugby World Cup has just officially been launched.
The first game, between the host country New Zealand, and Tonga, will be starting shortly. This writer and rugby fan will be blogging the highlights of the cup.
From an organizational and business perspective, the World Cup is shaping up to be a slight disappointment.
Organizationally, New Zealand was shaken up by the tragic Christchurch earthquake, which means some events had to be moved around and there will be less venues available.
From a business perspective, the fact that the Cup is happening in New Zealand is a drag. This means a huge time difference with Europe and South Africa so TV rights are cheaper because live games will be broadcast during the day. It also means lower attendance because it costs more to travel there. The cup is happening in September, because New Zealand is in the Southern hemisphere and the seasons are inverted, but that also means less people can take time off from work in September to come. Many tickets remain unsold.
From a sports perspective, the clear favorite is New Zealand, whose All Blacks are on paper the best team in the world. The All Blacks haven't won a World Cup since the first one in 1987, and are itching for a victory on their home ground. In the last Cup in 2007, they were unceremoniously sent home by France in the quarter finals.
Other favorites include Australia, South Africa and England. A dark horse to watch (and not just because this writer is French) is France. If the All Blacks are the gold standard, France are the most unpredictable team and have a knack for surprising everyone. In fact the All Blacks have said that France is the only team they're scared of.
Stay tuned...
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Despite the quietly positive day in Europe, Greece is still in its own world, as markets give up hope.
Athens stocks are off about 1% and the Greek 2-year has just passed 55%.
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While other 13-year-olds were dealing with the rigors of middle school and garnering the courage to talk to girls, Lionel Messi was signing a lucrative contract to play professional soccer overseas.
These days, at just 24, Messi is leading FC Barcelona to title after title.
The decorated futballer plays the game with a style and enthusiasm rarely seen at the professional level.
"No one plays with as much joy as Messi does," wrote Uruguayan soccer novelist Eduardo Galeano. "He plays like a child enjoying the pasture, playing for the pleasure of playing, not the duty of winning."
Messi's abilities have led many to wonder if he's the best soccer player of all-time.
How did the skinny, shy Messi reach soccer's apex?
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24/7 Wall St. provides insightful analysis and commentary for U.S. and global equity investors. 
Is September Really A Cursed Month For Stocks? (VZ, T, IBM, BAC, KFT, MCD, KO, HPQ, XOM, CVX, DIA)The Great Energy Spin-Off Pipeline (MRO, MPC, TSO, TLLP, COP, BP, CHK, EP, XOM, CVX)AIG to Spin-off Plane-Leasing Subsidiary (AIG, BA, GE, EADSY, UTX, BAC, C, JPM, MS)Figuring out how much oil is left in the world and where it is located seems more important than ever, especially considering the political instability in many of the oil-producing countries.24/7 Wall St. used the most recent public information available to identify the largest oil fields in the world.
Those who call for America to end its dependence on foreign oil would be relived to hear the U.S. actually has the world’s largest oil reserve, albeit in oil shale — oil that is in rock form.
If prices go high enough, however, and the supply dries out, extracting that oil could become commercially viable.
There are more than 40,000 producing oil fields dotted around the globe, though most are relatively small. Just 100 to 125 giant or supergiant oil fields supply approximately 50% of the world’s oil. A giant oil field is one that contains more than 500 million barrels of recoverable oil. A supergiant fields holds more than 5 billion barrels of recoverable oil. 24/7 Wall St.’s ten largest oil fields in the world are all supergiants.
Interestingly, the largest deposits ever found are not liquid oil at all. They are either an asphalt-like substance called tar or oil sands, or rocks called oil shale. The vast size of these “unconventional” resources is matched only by the vast complexity and cost involved in turning them into liquid petroleum.
Finding new giant and supergiant oil fields brimming with cheap, easy-to-extract oil is surely a historical phenomenon, and the number of new discoveries — of any size — is dwindling. In addition, the largest recent finds are under miles of water and seabed, in some unconventional form or in some inhospitable, usually arctic, climate. The effort required to tap these fields will involve mountains of capital and years of work. No doubt, we need to be prepared to deal with a new reality where oil isn’t as cheap or abundant.
24/7 Wall St. looked at conventional oil fields, like those found in the Middle East, and unconventional oil fields, like oil shale found in the U.S., to come up with a comprehensive list of the largest oil deposits in the world.
This post originally appeared at 24/7 Wall St.
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Since the beginning of civilization, the need for public, interconnecting roads became evident for the speediness of communication and national defense.
With the creation of advanced motors, paved roads combined with other tactics created the most proficient roadways to better serve travelers.
Some roads have been around for centuries whereas others are known for their specific engineering characteristics.
From longest to busiest to deadliest, here are the most remarkable roadways ever built.
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There is more to cover than I can really do justice to, but we will just start.
We HAVE to look at the US data first (briefly) and then on to Europe, where it will may be the end of the euro experiment, depending on two voting populations. Can you spell “Banking Crisis,” gentle reader? A nod to Bernanke’s finger-pointing speech, some links on the scourge of high-frequency trading, and we end on a positive note about the Boomer generation growing older.
And, I answer the question that is burning in your brain: “How many years of US corn production will China’s dollar reserves buy?” Write your answer down now. This letter may print out longer than usual, as there are plenty of charts. Let’s skip the “but firsts” and jump right in.
Last week I finally stopped being wishy-washy (with my 50-50% chance of a recession call) and said the US would be in recession within 12 months. And suggested that you consider moving to the sidelines your longer-term equity investments, except your conviction stocks. (I have some of those in the biotech space and simply intend to buy more if the prices go down. But remember, I am looking out ten years and expect an eventual bubble, so I don’t care if I am early for some of my high-risk money.) Stocks typically go down about 40% or more in a recession. David Rosenberg estimates that we have seen 27% of a typical bear-market move, so that would suggest the possibility of another 30% downdraft (give or take).
None of the data this week makes me want to change my opinion on recession. Rich Yamarone (Bloomberg Chief Economist) and I traded emails as we got new data this morning, comparing notes. He does better charts than I do, so we will use his. (I hear, by the way, that he is being addressed as Lord Vader in the halls of Bloomberg. Come to think of it, his voice is rather raspy.)
As he points out, when GDP year-over-year drops by more than 2%, we have always had a recession. So with today’s second-quarter revision (first revision of many) down to just 1% (technically 0.99%, but we are among friends here), where are we? At 1.5% year-over-year. Here is the chart:
The normally bullish staff at economy.com gave us this rather dismal paragraph tonight as a summary to the week:
“The last week of the summer brings a rare Northeast hurricane and a heavy load of data that will show the economy running close to stall speed. Second quarter GDP was revised down to 1%, and the slight improvement in growth we expect for this quarter assumes no new financial shocks. Upcoming indicators for August will bear the mark of steep declines in stock prices. The employment report will be the headliner; nonfarm payrolls are expected to rise just 30,000, and the unemployment rate likely will tick up 0.1 percentage point to 9.3%. We think the ISM manufacturing survey dipped into contraction territory for the first time in two years, and auto sales and consumer confidence likely also fell during the month. There will also be significant interest in the minutes of the August Federal Open Market Committee meeting, especially given Chairman Ben Bernanke's omission of details regarding policy easing options in his Jackson Hole speech.”
Ugh. More on the Bernank later.
The Michigan Consumer Sentiment number was just awful. It dropped 8 full points (which is huge for this index) to 55.7. The index has fallen nearly 20 points in three months. In the chart below, note the close previous correlation between sentiment and GDP. Which do you think is more likely to happen: sentiment to rise or GDP to fall?
Unemployment claims are back up over 400,000, to 417,000. If the employment gain is really just 30,000, that bodes poorly for any recovery. So, exactly how does that square with the recent Congressional Budget Office (CBO) projections? Quoting:
“CBO expects that the recovery will continue but that real (inflation-adjusted) GDP will stay well below the economy’s potential—a level that corresponds to a high rate of use of labor and capital—for several years. On the basis of economic data available through early July, when the agency initially completed its economic forecast, CBO projects that real GDP will increase by 2.3 percent this year and by 2.7 percent next year. Under current law, federal tax and spending policies will impose substantial restraint on the economy in 2013, so CBO projects that economic growth will slow that year before picking up again, averaging 3.6 percent per year from 2013 through 2016.”
Let me work you through the numbers. We grew at less than a total of 1.4% for the first six months of 2011. To get to 2.3% as an average for the year, we would need to grow by (back of the napkin) 3.2% for the last half of the year. We could reduce the deficit by a lot if we could sell what these guys are smoking to engender such optimism. I think demand would be strong, especially on Wall Street. (Note: these are the same people that told us in 2000 that all government debt would be gone by 2010. Just saying.)
Their projections are likely based on assumptions about recoveries from past recessions. But since 1945, all recessions have been business-cycle recessions. We are now in a deleveraging/balance-sheet/post-credit-crisis recession for which we have no modern analogs, except maybe Japan. And that hasn’t turned out too well, as in, two decades of going nowhere. Yet we are applying the same methodology (massive debt and deficits along with zero interest rates) that did not work there, and will soon bring Japan to ruin.
We have a fundamentally different economic scenario than at any time for the last 66 years. Why then should we expect the same outcome? EVERY indicator (employment, GDP, ISM, sentiment, etc.) is far below its average result two years after the official end of a recession. That should speak volumes.
So why does what the CBO says mean anything? Because Congress is making projections for future deficits, based on what appear to be wildly optimistic assumptions. That means future deficits are likely to be worse than expected. If we enter recession, as I expect, then revenues will be down (as unemployment will be up and profits down) and expenses will go up. That de minimis deficit reduction currently being negotiated by the “Gang of 12” will disappear in a cloud of smoke and maze of mirrors. This will mean that more pain in the terms of future spending cuts and/or tax increases will be needed. (I know a fair number of congressional staffers read this letter. Please pay attention here – your bosses need to be given a “heads up.”)
If we are in for a slow-growth, Muddle Through decade, then the deficit projections by CBO are dismally off. Get the spreadsheets. Factor in slower growth and higher unemployment and two recessions by the end of the decade (typical for the aftermath of a banking/debt crisis), and see what those deficit projections look like.
Given the large amount of data coming next week, as the month ends, I will stop here and get back to the US next week.
In trying to decipher Europe it is hard to know where to start, but let’s begin with some assumptions:
For the euro to survive, one of two things must happen. Either the Germans (and the Dutch and Finns and French) decide to back the concept of some sort of eurobond financing of the balance sheets of the peripheral countries, OR there need to be massive write-downs of insolvent-country debt and the various countries need to backstop their banks, because bank losses will be massive.
The former needs buy-in from German voters. Polls show Germans are against the idea of eurobonds by something like 5-1 (75% against, 15% for). (More on Germany below.) The latter option assumes the peripheral countries will lose access to the private bond markets, thus forcing sudden and enormous austerity (read Depression levels or worse). Will they simply throw in the towel and leave the euro on their own, remaining in the free-trade zone but with their own currencies, much as Denmark, the Czech Republic, or Sweden are now? Or opt to suffer and remain in the euro?
Germany could decide not to back the peripheral country debt, and leave the Eurozone. But this would be painful for Germans. If you think the Swiss franc trade is crowded (and way overvalued) because people are looking for a safe haven, what would a new Deutschmark look like to investors? Switzerland is a country (and one of my favorite in the world, so no slight intended – I will be in Geneva for my birthday in October) of just over 7 million people, only somewhat larger than the population of the greater Dallas-Fort Worth, Texas area where I live (although with much better weather!).
Germany, on the other hand, is the world’s 4th largest country by GDP, with a population of over 82 million. It is well-run and respected. The new mark would climb to far higher levels against the remaining euro countries and other currencies, which for an export-driven nation would not be very helpful. Mercedes and BMWs cost a lot now (and don’t forget tool parts and other things Germany excels in making). Double the value of your currency in a short time? Watch your market share drop. Painful is perhaps an inadequate word.
So, what to make of the remarks this week by respected German leaders? Let’s fire up a few quotes here ( http://www.telegraph.co.uk/finance/financialcrisis/8720792/Germany-fires-cannon-shot-across-Europes-bows.html):
“German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds. In a cannon shot across Europe’s bows, he warned that Germany is reaching bailout exhaustion and cannot allow its own democracy to be undermined by EU mayhem.
“ ‘I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,’ he said. ‘This prohibition only makes sense if those responsible do not get around it by making substantial purchases on the secondary market,’ he said, speaking at a forum of half the world’s Nobel economists on Lake Constance to review the errors of the profession over recent years.
“Mr Wulff said the ECB had gone ‘way beyond the bounds of their mandate’ by purchasing €110bn (£96.6bn) of bonds, echoing widespread concerns in Germany that ECB intervention in the Italian and Spanish bond markets this month mark a dangerous escalation.’” (London Telegraph)
From the same article: “The blistering attack follows equally harsh words by the Bundesbank in its monthly report. The bank slammed the ECB’s bond purchases and also warned that the EU’s broader bail-out machinery violates EU treaties and lacks ‘democratic legitimacy’. The combined attacks come just two weeks before the German constitutional court rules on the legality of the various bailout policies. The verdict is expected on September 7.”
Yet “Nobel laureate Joe Stiglitz told the forum that the euro is likely to fall apart unless Germany accepts some form of fiscal union. ‘More austerity for Greece and Spain is not the answer. Medieval blood-letting will kill the patient, and democracies won’t put up with this kind of medicine.’ ”
His solution? Germany will either have massive banking losses (see below) or assume some debt. Why give up the dream of a united Europe over a few trillion and your credit rating? Yet (Ambrose Evans-Pritchard writing in the Telegraph):
“Marc Ostwald from Monument Securities said Germany is drifting towards a major constitutional crisis. ‘This has all the makings of the revolt that unseated Helmut Schmidt [in 1982], and indeed has political echoes of the inefficacy of the Weimar regime,’ he said.
“Mr. Wulff said Germany’s public debt has reached 83pc of GDP and asked who will ‘rescue the rescuers?’ as the dominoes keep falling. ‘We Germans mustn’t allow an inflated sense of the strength of the rescuers to take hold,’ he said.
“ ‘Solidarity is the core of the European Idea, but it is a misunderstanding to measure solidarity in terms of willingness to act as guarantor or to incur shared debts. With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult,’ he said.”
The final option is for the peripheral nations to eschew austerity and leave the Eurozone, launching their own currencies again. This would mean long and painful bank holidays and massive losses for European banks and local citizens, depending on how many countries left. And the lawsuits would last for decades – nothing short of a full-employment act for lawyers all over the world.
And Merkel was not helped by her own Labor Minister, Dr. Ursula von der Leyen. Rather than simply hand over further loans to Athens – money many Germans believe they will never see again – Dr. von der Leyen suggests Berlin should ask for collateral. Gold, preferably. From the Irish Times:
“One month after euro zone leaders agreed a bailout reform package, and a month before the package goes to vote before national parliaments, a senior German minister appeared to be calling for a renegotiation.
“On an aircraft back from Belgrade, a thin-lipped chancellor Angela Merkel reportedly told advisers: ‘I’m going to have to have a word with Ursula.’
“Even before she landed, German officials were in full damage limitation mode, working the phones and issuing statements denying the minister spoke for the government. ‘This is sub-optimal,’ groaned a senior government source. ‘No one is amused.’ ”
Some back-bench minister? Hardly. Dr. von der Leyen, a 52-year-old mother of seven, is one of Dr. Merkel’s most ambitious ministers and one of two names regularly mentioned as a possible successor.
But she only reflected a rather contentious Bundestag meeting this week, in which one after another representative voiced opposition, invariably noting that the voters disapproved.
Of course, none of this is helped by Finland negotiating a side collateral deal as part of their conditions for approving their portion of the next loan to Greece. And a chorus of countries have jumped on that wagon. How do you explain to YOUR voters that the Finns got actual in-the-bank collateral and you got nothing but Greek promises? But if everyone gets collateral, the whole deal will fall apart. What’s the point if you give back a large chunk of your loan? It just means you need even more!
Let’s look at some charts. This first one is the amount of principal debt in terms of GDP from July 2011 to July 2012 (plus budget deficits, in red) needed by ten European countries. Note that France and Italy are well over 20%! Source: Peterson Institute of International Economics (hat tip, Simon Hunt!)
“From the same report this chart illustrates how Germany could become the banker for the Euro Zone. The question is will it? The question will be more clearly defined in September when Germany’s Constitutional Court will rule on the legal complaints against the Euro Zone rescue packages. If the comments being made by the Bundesbank and by the country’s President are a hint as to the outcome of the court then a negative ruling is a real risk. Who then will take the losses?” (Simon Hunt)
Note in the chart that Germany holds the largest percentage of net debt.
Claims of Euro Area members from netting of Euro System cross-border payments (in billions of Euros):
And then there are the interest-rate issues. Rates were rising rapidly in Spain and Italy until the ECB stepped in. Everyone knows Greece, Ireland, and Portugal are on life support and cannot get debt on their own. The ECB inserted an IV into Spain and Italy and started them on a slow drip. The real question of the moment is, can they get off that support and stand in the markets on their own? The answer a few weeks ago was starting to look like “No.”
And look at the massive growth in ECB lending to Italian banks, which are getting shut out of the “normal” market. It has literally more than doubled in a few months:
Credit spreads at French banks are blowing out. Review how much France has to borrow in the next 12 months, in the first chart. Then look at their deficit-to-GDP (above 10%, according to Charles Gave) and realize that there is no reason why S&P should not downgrade them as well. How do they cut spending? Taxes are already at 50% of GDP. Wealthy French have voted with their feet by moving away.
The list of country woes is long in Europe. Massive unemployment in Spain and Portugal. Deficits everywhere. Voting populations in both creditor and debtor nations are upset.
It is only a matter of time until Europe has a true crisis, which will happen faster – BANG! – than any of us can now imagine. Think Lehman on steroids. The US gave Europe our subprime woes. Europe gets to repay the favor with an even more severe banking crisis that, given that the US is at best at stall speed, will tip us into a long and serious recession. Stay tuned.
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"There is a twenty century-old pact between the greatness of France and the liberty of the world." — Charles de Gaulle
France is screwing itself. And the problem is that if it screws itself, it screws the world.
Market fears are spreading to France. CDS spreads on French debt are rising. The time to act is now, and yet French policymakers are doing everything wrong.
Right now, as in many times before in world history, if France fails the levee breaks. If France fails, the Eurozone bailout fund fails. If the Eurozone bailout fails, Europe goes to hell in a handbasket, and if it goes so goes the world economy.
France's policymakers are keenly aware of this. And they plan to act. But they're going about it precisely the wrong way.
Prime Minister François Fillon unveiled yesterday a tough austerity plan, with spending cuts, taxes on high earners, and a balanced budget amendment to the Constitution. Except that we've seen how austerity works out: it takes out the economy at the kneecaps. GDP growth slows, or reverses, which only makes the deficit worse. The last time France tried austerity in 1995, tax receipts went down and the deficit went up (and the government got crushed at the following election).
So, what to do? How can France reassure the markets as to its capacity to pay its debt without sinking into austerity, and thereby doom Europe (and the world)?
There's only one good way to reduce deficits and debt over the long term: growth.
And France has plenty of growth potential. It has the best infrastructure and the most productive workforce in Europe. It just happens to be extremely overregulated and overtaxed.
When a country is driven to desperation by the bond markets, here's what generally happens: the bond markets and the IMF impose two things: austerity and devaluation, and pro-market reform. Because austerity and devaluation are painful, the reforms don't really work, at least at first, and "neoliberal" reforms are associated with pain in the mind of voters.
But except when there's a bond crisis and the country literally cannot finance itself, there's no reason why austerity and reform should go together.
In fact, reform is the best way to avoid austerity. So to avoid a bond market showdown and thereby save the Eurozone (and the world), the French government must convince the bond markets that it is reforming for growth.
So here's what France's President must do: Announce a far-reaching plan of regulatory reform. Everything must go, with particular attention to the absurdly regulated labor market and to professional guilds. Everyone knows what must be done. President Sarkozy himself convened together a committee of economists, the Attali Committee, whose sensible report was shelved as soon as it was published. Comically (or tragically, depending from your perspective) many of its proposals echoed the proposals of the Rueff-Armand Committee from 1959 (!!). Everyone knows what must be done.Pass by decree (or ordinances, as the French Constitution allows) a brand new, revenue neutral tax code that broadens the tax base and gets rid of all but the most popular of the many tax breaks, like the special 5.5% VAT rate on race horses or the exemption of old furniture from the wealth tax (seriously, these exist). The new tax code would also drastically reduce the taxes on work, and possibly reverse some of the most absurd tax cuts enacted by the Sarkozy government. Hand over the implementation of this plan to a hand-picked group of highly internationally respected technocrats, and give them far-reaching powers under the law to strike down or suspend regulations.If he must, the President should consider exercising Article 16 of the Constitution, the war powers clause, to push through the agenda. It would be constitutionally iffy, but the French supreme court leans conservative.
This plan would tackle the root cause of the deficit: highly sluggish growth for the past 30 years, brought on by overregulation of the economy. It would convince the markets that France is serious about reducing growth, and therefore its deficit and its debt. It would convince them, more broadly, that there is still life and blood flowing in the veins of the Eurozone and so its currency and its debt is still worth holding.
But wait, is it that easy? No, of course not. Otherwise any government would have implemented these reforms already.
The problem is, of course, that all these reforms are blocked by interest groups who can go on strike overnight and freeze up the country, and that the government is already heavily unpopular.
That's the problem with austerity-induced reform: pusillanimous governments only reform when they have no choice and have to do it in the midst of austerity, and so these reforms end up being very unpopular.
Thankfully, there is a solution. Economists Jacques Delpla and Charles Wyplosz have a proposal that is convincing because of its utter simplicity: pay off the losers of the reforms.
So for example, it's impossible to find a (very expensive) cab in Paris because of an incredibly restrictive, absurd medallion system. The reason why no one is able to do anything about it is because taxi drivers (rightly) believe that if the medallion system is opened up, their own medallions, which they have paid handsomely to buy and intend to sell to finance their retirement, will become worthless. And so whenever someone threatens to do something about the medallion system (or even mentions it), they all go on strike, block the main Parisian roads with their taxis and bring the city to a standstill, and the government caves. And in a sense, they're right to go on strike: even though they're screwing the rest of the world with their inobduracy, no one willingly gives up 99% of his equity. So, the solution is: pay them off. Pay them the old value of their medallion so they don't have reason to complain.
Reform is necessary. But reform is painful for the losers and they can block reform. So the losers must be paid off. It's the only way to accomplish reform swiftly (and, in France, perhaps at all). It would be stimulative to boot, but that's not the point.
Depla and Wyplosz estimate the full cost of reforms to 20% of France's GDP, but many of the reforms can wait. Pensions and civil service reform and higher education, which would be most expensive, can wait. The idea is to boost GDP, output and employment now, and that mostly entails deregulating markets.
So the committee charged with implementing reforms should be allowed to raise debt backed by the French government up to, say, 250 billion euros, and spend it as it sees fit, with an eye not to stimulus but to greasing the wheels of reform. It should be allowed to suspend any regulation it sees fit, and empower local and regional authorities to try their own reform schemes.
But this is why it's crucial that the plan be put in place NOW. France still has a AAA rating with a stable outlook recently affirmed by all ratings agencies (absurdly, in theory a better credit than the United States). More generally, the markets still trust France as a core eurozone country. But no one knows how long that will last. If French CDSs rise too much, it won't be possible to borrow heavily anymore, and the world collapses.
It's also why it's crucial to hand over the money and the implementation of the plan to a trustworthy and independent committee. Like America's, France's post-crisis stimulus was a set of confused boondoggles of dubious stimulative value. The spending would obviously be stimulative, but that's not the point. The point is to deeply and thoroughly reform France's economy, and the bond markets need to understand that's how the money will be spent, not on boondoggles or even "vanilla" keynesian stimulus.
This bold plan, executed swiftly, would not just help France's economy tremendously, it would allay the market's fears as to the Eurozone core. It would also show other countries how they can reform themselves.
By enacting a bold program of reform before the bond markets force it on them, countries would be able to escape searing austerity. If the French experiment works, the markets would probably cut countries like Spain, Italy, Ireland and Portugal some slack and let them reform without having to immolate themselves first.
The last time France stood between the world and the abyss, it was May 1940 and we flubbed it dramatically, by plunging the world in a terrible and completely avoidable war. Even on the eve of defeat, victory was within our grasp: during the phoney war, France's armored forces, a match for Germany's, could have leaped to assault and taken over the strategically vital Rhine region while the Wehrmacht was occupied in Poland, breaking Germany's back and ending the war.
The reason France failed then was because the proper course required not just decisive, swift action, but a wholesale rethinking of our worldview, based on a (in hindsight useless) defensive posture.
We find themselves in the same position today: what is desperately needed is decisive action and a wholesale abandonment of old, discredited ideas, in this case austerity. And again today, we stand between the world and the abyss.
It's up to France to raise to the occasion. This time, hopefully, we'll be up to it.
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