FAT CATS SMOKING BIG CIGARS BEHIND
GOLDEN DOORS
Giggling onto avoid downfall of the
US « establishment »
« Tackling income
and gender inequality can have a huge economic impact »,
- says Christine
Lagarde
(Managing director of the International Monetary Fund)
Towards a legacy of inclusion
« What kind of a legacy do we want to leave? It is a
question we need to ask ourselves as we seek to solve the great challenges of
the 21st century. The United Nations’ Sustainable Development Goals (SDGS)
embody the contours of the world we want and need: fairer, free of poverty and
deprivation, a world that respects natural limits.
The SDGS overlap with the mandate of the International
Monetary Fund to the extent that they affect sustainable and inclusive economic
growth. They are the antidote to the loss of trust in institutions of all
kinds, and the loss of faith in global co-operation. To achieve these goals by
2030, we must place emphasis on inclusion—both in terms of income inequality
and gender equity. This should be a priority for 2019 and beyond.
Start with income inequality, which has become one of the
global economy’s greatest challenges. Some regions have seen remarkable
progress in reducing poverty and expanding the middle class over the past few
decades. But although inequality has been reduced among countries, this has not
happened within countries.
Since 1980 those in the top 1% globally have seen twice as
much of the gains from growth as the bottom 50%. Over that period, income
inequality has been on the rise in most advanced economies. This is partly due
to technology, partly to global integration and partly a result of policies
that favour capital over labour.
The implications are alarming. In advanced economies, rising
inequality is contributing to the withering away of entire communities and ways
of life. It is leading to the unravelling of both social cohesion and a sense
of a common destiny. And it is fuelling the growing tendency to replace
deliberation with demonisation, partnership with parochialism.
Inequality undermines the idea of a meritocratic society, as
a small minority gain access to the many tangible and intangible benefits
needed to get ahead, whether it is education, cultural enrichment or
well-placed connections. Such exclusion, whereby inequality of outcomes feeds
through to inequality of opportunities, hurts productivity because it deprives
the economy of the skills and talents of those who are excluded. » (Lagarde, Christine, Towards a legacy of
inclusion, The World in 2019, The Economist, London, page 96).
The wild-cats then perused on the latest report from Junior,
pet name of Canada by US well-to-do. In
New York, they appreciate that this « independent » country – doing 75%
of its business trade with USA - knows how to behave properly with Uncle Sam.
« Global economic growth is expected to moderate to a
more sustainable pace of around 3 1/2 per cent in 2019 and 2020. Growth in the
second half of 2018 is estimated to have eased by somewhat more than forecast,
due primarily to temporary factors in the euro area and Japan. The US economy
remained robust, supported by fiscal stimulus. The global outlook continues to
face important uncertainties. The United States and China have taken some
positive steps but have not yet reached an agreement on trade issues. The
dispute is reducing US–China trade in products subject to the increases in
tariffs and is weighing on activity and sentiment globally.
Among other geopolitical tensions, the future of Brexit is
unclear as the scheduled date for the United Kingdom’s departure from the
European Union approaches. The nature and timing of any resolution of these
issues are difficult to predict. The Bank continues to incorporate the adverse
effects of uncertainty and the impact of tariff actions into its outlook. The
impact of the US–China tariffs discussed in the last Report remains in place in
the Bank’s base-case projection, with the exception that the tariff increases
scheduled for January are now delayed until Spring. The Bank’s base case
continues to assume an orderly Brexit, with modest negative effects from
uncertainty.
The confluence of trade conflicts, geopolitical tensions and
emerging signs of their economic impacts is leading markets to reassess global
growth prospects and reprice most asset classes. Many private sector forecasts
for global growth have been revised down. There has been no net change in the
Bank’s forecast for growth in 2019 because impacts of trade and geopolitical
tensions had already been incorporated. Oil prices have fallen since the
October Monetary Policy Report, driven by stronger supply and concerns about
weaker global demand. Lower oil prices are expected to provide a modest boost
to growth in oil-importing countries while dampening growth for oil exporters. Note:
In the first round of tariff hikes, the United States imposed an additional
duty of 25 per cent on US$50 billion worth of Chinese imports. China responded
by imposing the same additional duty on US$50 billion worth of US imports. In
the second round of tariff hikes, the United States imposed an additional duty
of 10 per cent on another US$200 billion worth of Chinese imports. China
responded by imposing an additional duty of 5 to 10 per cent on another US$60
billion worth of US imports. Sources: United States Census Bureau and Bank of
Canada calculations.
A tightening of corporate credit conditions has been
particularly evident in the North American energy sector, given the decline in
oil prices. In 2018, central banks in many countries were taking steps to
gradually normalize monetary policy. Amid indications that trade and
geopolitical tensions are taking a toll on activity, markets now anticipate
that major central banks will withdraw less monetary stimulus in 2019 than
previously expected. In conjunction with falling government bond yields, the US
yield curve has flattened further. Meanwhile, portfolio inflows to
emerging-market economies (EMEs) have resumed since a mid-year sell-off, and
most EMEs have seen their currencies appreciate from the low levels of last
year. Oil prices have declined materially Global oil prices have recently
averaged about 25 per cent lower than assumed in the October Report. Steadily
increasing US oil production has been an important driver of the low prices.
Global oil output was estimated to be about 3 million barrels per day higher in
the fourth quarter of 2018 than in the same period in 2017, about two-thirds of
which was due to higher US production (Chart 4). Since October, rising US shale
production and output from members of the Organization of the Petroleum
Exporting Countries (OPEC) have contributed to the price declines, alongside
concerns that trade and geopolitical risks could weigh on global demand. Chart
3: Markets are repricing risks across asset classes Daily data a. Equity prices
Index: January 2, 2018 = 100 Canada—S&P/TSX Composite United States—S&P
500 Euro area—STOXX 50 China—SSE Composite MSCI Emerging Markets b. Spreads
relative to US Treasuries US high-yield non-energy corporate bonds US
high-yield energy corporate bonds Emerging-market sovereign bonds Note: The
spreads are the option-adjusted spreads between US-dollar-denominated bonds and
US Treasuries. Sources: Bloomberg L.P., Bank of America Merrill Lynch and Bank
of Canada calculations
Looking ahead, OPEC and some non-OPEC oil-producing
countries have agreed to cut output over the first half of 2019 to help offset
some of the supply increases. In Canada, mandatory production curtailments for
2019, announced by the Alberta government in early December (2018), have
narrowed the differential between prices received by western Canadian producers
and global benchmarks (Box 1, page 9). There is considerable uncertainty
around the future path for global oil prices. The most important considerations
are whether supply continues to outpace demand and whether market concerns
about the US–China conflict abate. The Bank’s non-energy commodity price index
is modestly weaker than in October. The market reassessment of global growth
prospects has been reflected in further declines in prices for base metals and
agricultural products. US growth is expected to ease to a more sustainable pace
The US economy has continued to expand at a pace well above potential in recent
quarters. Consumption growth has been bolstered by the strong labour market and
the 2018 tax cuts. Business investment growth continues to be healthy, even
though it has softened recently. Meanwhile, residential investment is being
held back by deteriorating affordability and supply constraints. Trade in goods
subject to increases in tariffs has declined in recent months, with
agricultural and steel and aluminum products most affected. There are signs
that US producers facing higher tariffs from China are finding new markets,
which has helped mitigate the impact of the tariffs on total exports. For
instance, US exports of agricultural products to countries other than China
have increased sharply. Over the projection horizon, growth of US gross
domestic product (GDP) is expected to moderate to around 2 1/2 per cent in 2019
and around 1 1 1/2 per cent in 2020. This leaves US growth somewhat below the
Bank’s Global supply has weighed on crude
oil prices Quarterly data Market balance. Note: Market balance refers to the difference
between production and consumption. Sources: International Energy Agency and
Bank of Canada calculations. The slowdown mainly reflects the waning of fiscal
stimulus, the adverse impact of trade actions and related uncertainty, and less
accommodative monetary policy. Core inflation has remained close to 2 per cent
in recent months and is expected to stay near the Federal Reserve’s inflation
target as growth moderates. Euro area growth has disappointed Growth in the
euro area was weaker in the third quarter of 2018 than expected. The auto
sector played a key role in the weakness because automakers were adjusting to
new emission standards. Recent survey data indicate a broader softening in both
services and manufacturing activity, suggesting that trade policy uncertainty
and geopolitical tensions are starting to have a negative impact on the
economy. Consumer confidence has fallen in the face of fiscal challenges in
Italy, renewed uncertainty about Brexit and social unrest in France. The labour
market has nonetheless continued to improve, as reflected by rising wage
growth. The Bank expects the euro area economy to grow at a rate just 12.5 demand
and low oil prices. Core inflation remains subdued and is anticipated to rise
only gradually. Growth in EMEs is moderating
Growth in China is expected to moderate from around 6 1/2
per cent in 2018 to just below 6 per cent in 2020. Policy-makers are continuing
to provide support to offset headwinds from trade tensions and deleveraging.
The adverse effects of trade tensions have become more evident in survey data
about Chinese manufacturing. Authorities have encouraged more bank lending,
particularly to small and medium-sized enterprises, and have announced
expansionary fiscal measures. The financial stress experienced by Argentina and
Turkey in 2018 is expected to continue to temper growth in oil-importing EMEs
in 2019. Growth in this group of countries is anticipated to recover to around
4 1/2 per cent in 2020. Growth in oil-exporting EMEs has been revised down
relative to the October Report, given the fall in oil prices. In addition, job
growth has been strong, the unemployment rate is at a 40-year low and inflation
is close to the target. » (Bank of Canada, Global Economy, Monetary Policy
Report, Ottawa, January 2019, pages 1-5).
Curled up in their leather armchairs, the « kittens »
agree that America needs a new « gourou », especially for the youth,
or rejuvenate the Chicago School of Economics.
Or, let’s upon up the money bags : but not too much!
Why? For instance «… an
Italian debt crisis is not just Italy’s business; it’s Europe. A new crisis could turn all that Italian debt
to junk. » (Reguly, Eric, Italy’s finances could clobber Europe’s banks,
Report on Business, Toronto, Saturday, February 9, 2019, page B4).
Fortunately enough for capitalists around the world, « canadian
banks enjoy an oligopoly and their long-time returns have been excellent. To take one example, Royal Bank of Canada has
posted an annualized total returns of about 12.5 per cent over the past 20 years, assuming all
dividends had been reinvested. Banks
also have some of the srongest dividend growth records in Canada. Royal Bank – which hiked its dividend by 4
per cent when it announced first quarter earnings (in February 2019) – is now
paying more than twice as much as it did in 2010. » (Heinzl, John, How
much bank exposure is too much?, Report on Business, The Globe and Mail,
Toronto, Saturday, February 23, 2019, page B12).
Aren’t they lucky those poor souls, communism is now
completely disbanded. More, ideas of
Marx and Lenin are no more taught.
While rich capitalists are celebrating with champagne, vodka
and caviar, communist ideology states that «… the emancipation of the
workers must be the act of the working class itself. All the other classes of present-day society
stand for the preservation of the foundations of the existing economic
system. The real emancipation of the
working class requires a social revolution – which is being prepared by the
entire development of capitalism – i.e. the abolition of private ownership of
the means of production, their conversion into public property, and the
replacement of capitalist production of commodities by the socialist
organization of the production of articles by society as a whole, with the
object of ensuring full well-being and free, all-round development for all its
members. » (Lenin, On the Organizational Principles of a Proletarian
Party, Novosti Press Agency Publishing House, Moscow, 1972, pages 88-89).
The toilers of America must know that the coming generations are : Youth with
a Future! »
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