Category Archives: United States

Britain, Economic, Environment, Government, Politics, Society, United Nations, United States

Climate change and the need for a global price on carbon…

CLIMATE CHANGE

The recent findings of the United Nations Intergovernmental Panel on Climate Change (IPCC) are alarmingly clear. The environment is incontestably warming – evidenced through the fact that each of the past three decades has been successfully warmer than any since 1850 – and it is now beyond reasonable doubt that human activities are the cause.

The IPCC report, the fifth of its kind, whilst not containing much that is absolutely new, does offer a higher degree of certainty than the previous report delivered in 2007. It is now as sure that human beings are causing climate change (a probability of 95 per cent) as of cigarettes causing cancer. This is not the judgement of politicians or those campaigners with vested interests, but the consensus of thousands of scientists from all over the world. With scientists having considered all the available evidence, one can only hope that it will banish the scepticism of the ignorant.

The effects of the alterations in the Earth’s environment are already being felt, and not just in extreme weather patterns. The polar ice sheets are thinning, sea levels are rising and the oceans are increasingly acidic. But of concern is what is still to come. The likelihood that rising temperatures will stay below the 2°C threshold, above which changes become catastrophic, looks far less achievable.  Quantifying this is not difficult if we consider that we have already burned through 54 per cent of the ‘carbon budget’ calculated to equate to a spike of 2°C.

Without radical action, the inference implied is that the outlook is bleak. Yet, the politics of long-term, counter-factual disaster-avoidance are no easier now than they were in the past. Last week, The International Development Secretary made all the right noises, commenting that Britain must play its part, only to be countered by the Chancellor who judges the green agenda an unaffordable luxury in times of public austerity. Ed Miliband, talks of a good game, too, with his pledge of carbon-free electricity by 2030. However, his promise to freeze energy bills raises serious questions about where the investment will come from and has already spooked potential investors.

In America, John Kerry, U.S. Secretary of State, responded to the IPCC in stirring terms… ‘This is yet another wake-up call: those who deny the science or choose excuses over action are playing with fire.’ But while Mr Kerry went on to affirm that the U.S. is ‘deeply committed to leading on climate change’ Congress is in the midst of yet another budget fight, upon which Republicans are demanding that any new borrowing is conditional on the weakening of carbon-emission regulations.

The sceptics are certainly right when they say that the cost of mitigating climate change is high. But it is also unavoidable, and the longer we delay the greater the bill will be – both in terms of money and human lives. We must then, throw, all we have at the problem, from the incremental (such as better insulation for our houses) to the fundamental (re-thinking how industry and transport, for example, uses energy). And then there is the thorny diplomatic issues over who should pay – the rich countries that did the historical polluting, or emerging economies from the developing world that are now industrialising in double-quick time.

Ultimately, though, the solution lies with the market. Europe’s ground-breaking carbon trading scheme has floundered, and with its price being meaninglessly low it could be easy to write it off. In America, President Obama’s hopes for national cap-and-trade were dashed by the Senate, leaving only a smattering of regional initiatives. The Australian Prime Minister wants to repeal his predecessor’s ‘carbon tax’. Despite the teething problems, however, a global price on carbon is vital and must be a priority. With China and South Korea now putting together their own schemes, there is at least some progress being made in dealing with the climate change threat.

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Government, Iran, Middle East, Politics, United Nations, United States

US-Iran rapprochement requires time…

US-IRANIAN RELATIONS

Where a diplomatic stalemate that has lasted, off and on, for several decades, it would be foolhardy in being anything but wary before dealing again. No more so when the country in question is Iran who has made peaceful overtures towards the United States. The opportunity for misrepresentations and misunderstandings – on both sides – is more pronounced than most others.  Greater still, given the unpredictability of a domestic political scene in Tehran in which the remit of the President and the Supreme Leader are not always clear.

However, Iran’s new President, Hassan Rouhani, has made encouraging noises. He has released political prisoners, exchanged letters with the U.S. President and even used social media to offer New Year greetings to Iran’s Jews earlier this month. And, most significantly of all, he has shifted responsibility for the nuclear programme to a moderate former diplomat who has long established ties to the United States. Mr Rouhani says this has the express support of the Ayatollah.

With Washington responding in good faith, the world’s media expected a meeting to be held between the US and Iranian presidents following Mr Rouhani’s speech at the United Nations earlier this week. Not since the toppling of the Shah in 1979 have both presidents met.

In the end, though, no meeting took place. After more than 30 years without diplomatic relations, some commentators later argued that the absence of a meeting may have been for the best. Undoubtedly, there remains great hurt and pain on both sides. The US has had no official representation in Tehran for almost two generations, with a gulf of understanding left widely prized open. Compared with Iran, the US is an open book. The risk of misunderstandings, especially on the American side, would have been great. It would have been little short of tragic if the early signals from Tehran had been misread which might have squandered any chance of forging better relations.

It was apparent, from their respective speeches at the UN General Assembly that both leaders treaded carefully. They did, after all, have their own public opinion to consider, as well as the expectations that were running so high elsewhere in the world. Mr Rouhani’s stated readiness, though, to engage in ‘results-orientated’ talks on his country’s nuclear programme, and his disclosure that he has negotiating authority, delegated from the Supreme Leader, does raise hope. President Obama would be derelict if he did not now try to test them out in some way.

The rewards from improved US-Iranian relations could be far reaching, particularly if agreement can be made on the nuclear issue. Iran would be brought in from the cold at a crucial time, and the regional map – which looks increasingly hostile to the West – would seem a little friendlier. With the stakes so high rapprochement must be given time rather than scuppering any deal by rushing it through.

Mr Obama, of course, risks charges of capitulation. The concern of Israel, which has Iranian nuclear facilities on its radar, and is ready and willing to bomb them, is again raising its head. But the prize of a safer and less divided Middle East must be pursued with as much vigour as the West can muster. Syria’s bloody civil war, and the threat of regional meltdown, only makes the need for a deal with Iran more urgent.

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Banking, Britain, Economic, European Union, Financial Markets, Government, Society, United States

What the banking crash five years ago has taught us…

BANKING FIVE YEARS ON

THE last five years have been the most nerve jangling and traumatic in the modern history of the British economy and for the City of London.

It is only now, on the 5th anniversary of the collapse of the 158-year-old investment firm Lehman Brothers – and after intensive ministrations from the Bank of England – that the UK economy has started to splutter back to life.

However, the banking sector, which should be a bedrock of the economy, remains vulnerable and susceptible to external shocks, and to scandals of its own making.

The Central Bank administered strong economic measures, namely in the form of a staggering £375 billion of extra cash into the UK financial system.

It has held the official bank rate at a historic low level of 0.5 per cent for more than four years and it is currently heavily subsidising the cost of buying homes as well as supporting smaller enterprises through its Funding for Lending scheme.

Finally, it appears to be working, and forecasters are quickly revising their predictions upwards as every part of the economy – from the dominant services sector, to manufacturing and construction – has begun to take off.

In the Chancellor’s March Budget, the independent Office for Budget Responsibility (OBR) predicted that gross domestic product would expand by a miserly 0.6 per cent this year.

The Paris-based OECD has doubled its forecast to 1.8 per cent and some City forecasters say the economy is expanding by as much as 3 per cent.

House prices are moving up firmly in many areas and not just in overcrowded and overcooked London and the South-East.

The jobless rate is currently 7.7 per cent and falling more rapidly than many critics could have imagined.

But it would be wrong to get carried away. UK output is still 2.8 per cent below where it was before calamity struck in 2008. In contrast, the German economy has expanded by 2 per cent and the United States by 5 per cent.

Despite the new born optimism of many British forecasters, it is safe to say that the whole edifice of the UK upturn is built on worryingly fragile foundations.

No doubt, the most important lesson of the terrifying events five years ago is how important a functioning banking system is to the creation of wealth.

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ACCORDING to the former Chancellor, Alistair Darling, Britain was ‘on the brink of what could have been a complete and utter calamity’.

Cash machines at the Royal Bank of Scotland and Lloyds Banking Group came within two hours of running dry. The economy’s restoration to full health cannot possibly happen until these two banking High Street giants have been restored to the private sector.

Yet, half-a-decade on from the near collapse of these two banks, the struggle over how to re-privatise them is nowhere near being resolved.

Consider RBS. Stephen Hester, the man brought in on a salary of £1.2 million by Gordon Brown to turn the bank around, resigned after a fractious relationship with Chancellor George Osborne. At the behest of the Parliamentary Commission on Banking, merchant bankers NM Rothschild is investigating how to split off RBS’s flawed investment-banking arm from the retail operation that serves the public and small firms.

Until it reports, the important job of extending credit to new and growing businesses has been put on hold and the process of returning the Government’s 80 per cent in the bank to the public has been suspended.

Lloyds, though, does look in far better shape. Under an EU ruling, it has separated out 632 High Street branches and relaunched them under the revised TSB banner.

But its return has been less than smooth.

In the aftermath of the financial crash, the bank emerged as one of the biggest providers of Payment Protection Insurance (PPI) policies in which customers were mis-sold expensive insurance schemes to cover debt repayments. It was required to spend £4.3 billion in compensation, part of an industry wide bill of some £14 billion.

PPI is just one of the egregious scandals to emerge since the financial crisis. In June of 2012 Barclays Bank agreed to pay a fine of £290 million for rigging the LIBOR interest rate that helps to set the cost of corporate loans, mortgages and other commercial transactions.

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BRITAIN’S highest paid banker, Bob Diamond – who earned more than £100 million in his years at Barclays – was forced to resign.

Even the most respected and safest names in British banking have found themselves in the dock.

The mighty HSBC admitted it had been involved in money laundering activities for Mexican drug cartels and Middle East terror groups.

London-based Standard Chartered was forced to own up to billions of pounds of sanctions-busting transactions with Iran.

And to top it all, the world’s largest and most blue-blooded bank of all, JP Morgan lost $6 billion in 2012 at its London branch after engaging in high risk trading in credit default swaps.

There are now signs, at least, that regulators in the U.S. and Britain have forced a clean-up of our banking system by imposing heavy fines and penalties and by forcing the errant institutions to accumulate fresh capital.

But looming over the City is the spectre of the eurozone, which is caught in a ‘doom loop’ – a self-perpetuating cycle that relentlessly racks up both national debts and those of banks.

The recovery, then, at best is being built on the most fragile of foundations.

Even if our banks manage to overcome the already formidable problems, the medicine itself already used poses its own future dangers in the shape of surging inflation and higher interest rates that could eventually be as frightening as the events of five years ago.

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