20/10/2014: Jean Tirole: Master Of Incentives, Risks and Contracts

Last week's Nobel Memorial Prize award in economics went to Jean Tirole. Here are some of my thoughts on his tremendous legacy: http://blog.learnsignal.com/?p=90. 

19/10/2014: IFSC: Down, Down and Down It Goes...

This data has been crowding my desktop for some time now, so might as well post it. In September this year, the new rankings of Global Financial Centres (http://www.longfinance.net/images/GFCI16_22September2014.pdf) came out for the second half of 2014. Dublin slipped to a rather less than honourable 70th place, down 4 ranks from march 2014 and 14 ranks from September 2013.

Here's the chart showing the sorry state of decline in Irish Financial Services prime centre in global position (these are primarily IFSC-linked):

So may be, just may be, having the chair of IFSC going around talking about everything political and EU is not exactly what drives excellence in the international financial services? Any ideas?..

19/10/2014: Dublin: Just 24th in the Global Centres for Talent Rankings

You know the mythology: despite 55% upper marginal tax rate in exchange for nearly zilch in public services, despite the need to pay consultants' fees and private insurance just to get basic medical care, and despite the fact that childcare runs a cost of the second mortgage, Dublin (nay, rest of Ireland too) is a great location for human capital-rich expats, especially if they command high salaries...

And now, we have:

Dublin ranks 24th in the world amongst the locations 'most appealing' for expats.

Never mind, we already have the best educated workforce in the world, so be jealous you London, NYC, Paris, and all the rest of ye in the 23-losers lot.

Source: http://www.citylab.com/work/2014/10/the-new-global-centers-for-talent/381487/

19/10/2014: Chart of the Week: Japanising Europe

A chart of the week, courtesy of @Schuldensuehner

10 year benchmark bonds: Japan for 1987-2004 period of decline and stagnation and Germany for 2004-present period of decline and ... oh, well... Japanisation of Europe is still ongoing, but it goes without saying: lower yields are not conducive to economic recovery. Or as @Schuldensuehner  noted:

Everything is going according to script...

Now, check out why Germany's lower borrowing costs mean preciously nothing when it comes to the hopes of Keynesianistas around the world for more German borrowing: http://trueeconomics.blogspot.ie/2014/10/13102014-germany-too-old-to-read-paul.html

19/10/2014: A New Cold War is a Bilateral Culpability

A well-balanced review of history that has led Russia and the West to the current confrontation: http://www.ecfr.eu/content/entry/commentary_the_origins_of_russias_new_conflict_with_the_west330

Select quotes:

"In Putin’s world national “sovereignty” is a central principle – but just a few countries can claim sovereignty and, therefore, have the right to a sphere of influence. Russia is one of those chosen few – historically, and because Putin stands ready to fight for his nation’s sovereignty in a world where Might means Right."

"In the twenty-first century, the West responded, all nations are equal and each country is sovereign. This sounds like a wonderful world – except that this does not seem to be the world of the US-led policy of humanitarian intervention, peace enforcement, taking sides in other nations’ domestic conflicts, and killing the forces for evil on behalf of the forces for good. Putin saw this as an argument that his world of Might means Right was real: America could pursue such policies because it was powerful and sovereign."

"The current confrontation between Russia and the West is a move back to a cold war design: Russia as “another world” isolated by the US-led West. Russia’s world today is limited to just itself with no socialist camp around it, and the West has the potential of pushing Russia deeper into a crisis, both economic and political. Unlike the Soviet meltdown that had numerous internal causes, but is blamed on the West by Russian conspiracy theorists, this crisis will truly be precipitated by the West."

19/10/2014: Of National Accounts and Ministerial Declarations

Here's an interesting take on the role of ESA2010 reclassifications on Euro area growth: http://euobserver.com/news/126110. Strangely, this topic is rarely discussed in Ireland which switched to ESA2010 standards ahead of majority of other countries.

And here's an illustration of the claim by Minister Noonan (made in his Budget 2015 speech) that Irish farming is a EUR26 billion sector:

Somewhere else, someone is producing EUR20 billion worth of 'farming' activity that Minister Noonan knows of... Maybe he or they can point us in that direction. But the above figures include much more than 'farming':

And the above figures include double-counting too, since they come from two different sides of the National Accounts (some of exports are in the Sector Output at factor cost). And they include net subsidies of some EUR1.5 billion (see http://trueeconomics.blogspot.ie/2014/10/7102014-subsidies-rained-on-irish.html) which no one, save possibly an Irish Minister, can describe as 'activity'. 

18/10/2014: Irish Economy: The State of Recovery

Yesterday I had a chance to speak about the state of the Irish economy at a breakfast briefing hosted by Invesco. Here are my speaking notes (slightly edited).

Where Ireland is today?

1. There is a recovery
2. The recovery is still fragile & highly uneven
3. Risks to the downside of the recovery continue to weigh heavily: external (international risks) and internal (domestic and structural risks)

There are three ‘Irelands’ today co-sharing this economy.

Ireland of ‘haves’ 

• Demographically old       
• Benefited from asset bubble of the 2000s
• Debt-free and secure in income
• This Ireland is growing in numbers, but not in terms of value added in the economy: 52,200 more in retirement today than in H1 2011 (+17.9% on H1 2011)
• This generation no longer saves to invest and is consuming lower value-added goods and services, which are lower in growth intensity

Ireland of ‘hopes’

• Demographically young (20-29 years of age)
• Unencumbered by debt, but assets and credit-poor
• Income is low, generating little surplus savings to invest, but
• Generating economic growth and value added, as well as strong consumption in entertainment and non-durable consumables
• Held back by ageing workforce at the top of career ladders and by lack of jobs in the 'normal' (ex-ICT and specialist skills) economy
• Emigrating for better career opportunities: population of this cohort in Ireland has declined 112,200 since 2011.

Ireland of ‘left-outs’

• Encumbered by legacy debt, 
• Unemployed or in low jobs security and 
• Hit by high taxes and cost of living
• Hit by pensions insecurity and investments values collapse
• Demographically in their prime productive age: 35-49 years
• This cohort is growing over time even if immediate arrears on mortgages are declining

What do we see on the ground in this economy? 

Growth:

• GDP at constant factor cost is up 5.37% y/y in H 2014, but only 3.72% on H1 2011.
• Due to a number of factors impacting changes in the ways that MNCs book profits into and out of Ireland, GNP rose 6% y/y in H1 2014 and is up 8.2% on H1 2011. Again, very strong.
• Taxes in the economy are up 11.5% on H1 2011 and 8.1% on H1 2013. The Governments took EUR11.7 billion in income-related taxes increases since Budget 2009.
• Much of recorded growth in 2014 is coming from the sources that have little tangible connection to reality: reclassifications of R&D activities, MNCs, etc.

Year on year, growth is concentrated in:

• Agriculture (at 11.9% y/y or 2.2 times the rate of overall growth). Large part of this is down to price effects;
• Distribution, Transport, Communications and Software (+10.9% y/y or double the rate of growth overall);
• Building and Construction (+8.3% y/y growth or 1.5 times rate of overall expansion); much of this is down to timing of tax incentives, as well as changes in regulations;
• Public Administration & Defense (+3.7% y/y) as we are witnessing massive shift toward charging for public services and paying interest on debt. In 2015, Interest on Government debt will amount to EUR8.5 billion, more than 1.8 times greater than the projected Corporation Tax take.
• ‘Other Services, including Rent’ (+3.3% y/y)

Much weaker growth was recorded in

• Industry overall (+0.6% y/y) and especially in Transportable Goods Industries and Utilities (+0.16% y/y)

In terms of demand side of the economy:

• Fabled return of consumers is quite overhyped for now: Personal Consumption is up only 1.2% y/y in H1 2014 and is still down 2.7% on H1 2011. Value of core retail sales rose only 0.28% in 3mo through August 2014 compared to 3mo through May 2014. Volume rose 0.29%. This is hardly a ‘boom’.
• Meanwhile, net current expenditure by the Government is up 5.2% y/y in H1 2014 and is basically flat (-0.2%) on H1 2011. Austerity on the spending side of Government has been a transfer of payments from services to national debt funding.
• Gross Fixed Capital Formation is up massive 11.3% y/y in H1 2014 and is up 2.3% on H1 2011, but most of the uplift is down to resale of properties. This also includes buying activities by the vulture funds. 

External Trade is booming – despite tough external economic conditions:

• Exports of goods were up 13.2% y/y in H1 2014 and are up 9.6% on H1 2011
• Exports of services up 7.1% y/y in H1 2014 and 24.6% on H1 2011
• Problem is: national accounts data is now in a total disconnect from the actual trade data. In the past, average discrepancy was around EUR1 billion per quarter. Now we are witnessing National Accounts exceeding trade data statistics by 7 billion. So quality of data is starting to look wobbly.
• Strong support for our exports is provided by our traditional exposure to the US and UK markets. But we are also seeing encouragingly strong performance in some new markets, e.g. Russia and China, again against the general trend toward slower demand in these economies.

What we do know about the domestic economy is still quite troubling:

1. Debt: 165,674 accounts in arrears in Q2 2014 – EUR33.6 billion in balances. Restructured: 125,763 accounts of which 48,862 are still in arrears. Total mortgages at risk of arrears or in default: 256,146 with balances of EUR46.06 billion. Over 50% of all ‘permanently restructured’ mortgages involve same or higher levels of life-cycle debt. 39% of all ‘permanently restructured’ mortgages are back in arrears, absent any significant shocks to interest rates, inflation or incomes.
2. Income: In real (inflation-adjusted) terms, Irish GDP per capita in 2014 is expected to be 11.9% lower than pre-crisis peak. This is the third worst performance in the Euro Area (after Cyprus and Greece). Lack of income uplift means that households’ deposits are trending slightly down in recent months. Labour force participation rate fell in Q2 2014 and at 60% is below the historical average of 60.8%. Which suggests that a large part of declines in unemployment is accounted for by people simply dropping out of the labour force.
3. Tax system: In 2006, Income tax and levies accounted for 27.2% of our total tax burden, while Corporation Tax accounted for 14.7%. This year, Income Tax + Levies will account for 41.9% and Corporation Tax for 11%. In 2015, based on Budget 2015 estimates, Income Tax burden of funding the state will be 42.5% and Corporation Tax burden will be 10.8%. In simple terms, at the peak of the 1980s crisis, Income Tax and Levies burden was 41.8% average for 1984-1989 period. Budget 2015-costed income tax and USC changes total EUR478 million in ‘stimulus’ to the economy. Yet, Budget 2015 for HSE includes EUR330 million of undefined “one-off revenue enhancements” (aka tax on services) and Irish Water is expected to extract EUR175-190 million out of economy net  of tax credits. Which implies that Budget 2015 will still draw money out households.
4. Entrepreneurship and investment: There is no significant growth in entrepreneurship, despite the claims of rising number of companies registrations. In reality, companies registrations numbers tell us little about entrepreneurship as we do not know if these are new enterprises or old ones that were forced to shut down by the crisis re-registering once again. We do not know how many of the new companies are being registered by spinning off existent companies functions to avail of 3-year tax exemption. In a number of sectors, there are now multiple enterprises trading from the same business platform. What we do know, however, is that Budget 2015 contained virtually zero cost-linked measures for business development or entrepreneurship supports. 3 year relief for start-up companies is costed in the Budget at EUR2 million for the Full Year, which, applying 12.5% tax rate implies profit run rate of EUR16 million or revenues / turnover of around EUR64-80 million for start ups launched 2013-2015. This is ridiculously low for an allegedly thriving ‘Entrepreneurial Culture’. Meanwhile, on supports side, Budget 2015 contained 11 measures to support agriculture, with largest measures aimed at supporting incomes from leases on unproductive land ownership. Worse, the starting point for much of entrepreneurship is self-employment. Budget 2015 literally pushed higher earning self-employed (those with higher investments in human capital, skills, knowledge, etc) over the cliff with new USC changes. The Government policy is now to actively pursue, hunt down and kill off anyone who is standing on their own, takes risks and creates own value added.
5. Innovation and R&D: Just three MNCs operating from Ireland account for 70% of all R&D activity here measured by patent filings: Accenture – 31%, Covidien – 24% and Seagate – 15%. In more recent data, foreign companies filings in Ireland have continued to outstrip Irish companies filings by a factor of 3:1. Ireland operates a large number of public intervention and support schemes to increase R&D and Innovation share of our economy. Yet there is not a single, coherent, comprehensive data reporting channel on what these schemes achieve on the ground. It appears that in this country, more knowledge and innovation is a pursuit best managed in the fog of obscured accountability.

On the net, the state of play in the Irish economy is that of a gentle uplift in the domestic economy with risks weighted to the downside.

• This is a fragile (due to risks) recovery on the ground, despite the fact that aggregate numbers are trumpeting the rise of the Celtic Phoenix. For now, there’s a lot of smoke, some strong wings flapping, but not a hell of a lot of flying, yet.
• Global risks are weighting growth prospects to the downside too, but Ireland is clearly benefiting from three idiosyncratic sources of strength:

1. We are benefitting from stronger demand in the US and the UK; and
2. Our indigenous exports, small as they might be, are performing well – a testament to longer-term relationships built by Irish exporters around the world.
3. Finally, the sheer scale of collapse in the economy during the crisis means we should expect a more robust bounce up. 

We can expect:

• Robust aggregate growth figures in 2014 (ca 4.1% on GDP side and 4.7% on GDP side or higher, depending on what and how is going to be booked into Ireland by the MNCs) and weaker, but still substantial growth of 3.0-3.6% on GNP side and 3.5-3.9% on GDP side in 2015.
• Slower growth is expected to result in continued weakening in employment growth: in 2011 we posted 2.3% growth, in 2014 we are likely to post 1.8% growth and in 2015 – closer to 1.5-1.6%. The risk here is to the downside.
• Consumption growth is probably going to be around 2-2.5% in 2015 after 1.5-1.7% rise in 2014.
• Investment will slowdown from 2014 estimated growth of 14.5-15% to 10-12% in 2015. Again, risk here is to the downside, should Budget 2015 changes on property side induce early purchases rush in the remaining months of 2014. Big unknown for 2015 is the rate of foreclosures on arrears-ridden properties. This can derail the recovery altogether and significantly depress sentiment in the economy. 

All in, 2015 is expected to be another year of recovery, amidst risky trading environments.  And 2015 recovery is going to be a bit more balanced.

The key risks, however, are now being shifted to 2016 – the year of more aggressive tapering by the Fed and the expected start of the monetary tightening cycle in the euro area.  Before then, accommodative policies by the ECB will keep rolling in, although their effects on growth will be most felt probably in H1 2015.

Still, for now at least, the theme of ‘fighting for survival’ that characterised the Irish economy in 2008-2013 is over and we have some hopes that the new theme of ‘fighting for growth’ is commencing.

18/10/2014: Latest news on Russian economy

In the week this was, much of my attention was on Irish economy (given the Budget 2015 shower of news), so here's a quick catch up on Russian economy news.

Fresh off the printing press, Moody's downgraded Russia credit ratings from Baa1 to Baa2. Per Moody's moody grumblings: "The first driver for the downgrade ...relates to the longer term damage the already weak Russian economy is likely to incur as a result of the ongoing crisis in Ukraine and, relatedly, the additional sanctions imposed against Russia." More bad news: the agency is maintaining Russia's outlook at "negative".

Let's face the music: so far in October, Russian Central Bank spent some USD13.5 billion in a futile attempt to hold ruble from sliding against USD and the euro. This is not good news as it signals three things:

1. Flood of capital out of Russia continues and seems to have resumed with renewed strength in last 30-45 days after a brief slowdown in May-August.
2. The combined effects of (a) general outflow of funds from Emerging Markets, (b) falling exports revenues on foot of collapsing prices of oil, © building of arrears against some importers of Russian gas (actually that would be Ukraine alone), (d) general volatility in the global markets, and (e) rumours of capital controls and deteriorating business climate in Russia, including in the shadow of the Russian banks facing pressures from the EU and US funding markets shutdown and talks of SWIFT disconnection, all are now acting to reinforce the adverse effects of the geopolitical mess in the Ukraine. [Note: here's the latest on SWIFT saga: http://www.themoscowtimes.com/business/article/sanctioned-russian-banks-seek-alternative-to-swift/509345.html]
3. There is now political economy kicking into high gear when it comes to ruble valuations: after  continued depreciation of the ruble against all major currencies stretching over some 12 months, we are starting to see some serious concerns in both the Central Bank and the Kremlin that more devaluations will be translating into serious pain on the ground for ordinary consumers.

Chart below (via Bofit) to illustrate the degree of interventions and associated exchange rates:

On the above point (2): Bofit reports that "Russian banks repatriated a record high amount of their assets from abroad in order to balance their forex positions as Russian firms and households reduced their domestic forex deposit accounts with Russian banks. ...Russia’s large state banks repatriated assets from abroad also in case there was an as-set freeze. Net borrowing of banks from abroad was strongly, and to an unusual degree, negative." In other words, banks were repaying foreign loans much more aggressively than rolling them over. Corporate capital outflows rose big time in Q3. This was driven by liabilities flows, which became negative in Q3 as companies aggressively paid down foreign debt and received virtually no new debt from abroad. It is worth noting that official capital outflows include not only funds expatriated abroad, but also private (corporate and household) funds converted into foreign currency, even if these funds never leave Russia.

And on the above point (2)(d), two weeks ago the rumours were so strong that the Central Bank of Russia had to issue a note denying the capital controls were under consideration.

The general sentiment in the EM asset markets is that of a heavy risk-reweighting in the mature economies pushing massive outflows of funds from the EMs. Risk-off sentiment is certainly on this week across global markets. Ongoing volatility is high and rising and signals general nervousness in the global markets. This is fuelling a strong sell-off in risky assets, especially in the EMs. Addicted to endless increases in liquidity supply, the markets are clearly waiting for the Central Banks to open the taps once again. Absent such action, there is no fundamental reason for current asset valuations in any region in the world.

Ruble is getting hammered, with the largest catalyst for change being oil prices. Currently RUB/EUR is at 52.3 and RUB/USD is at 40.8. Two weeks ago, we had RUB/EUR at 50.5 and RUB/USD at 39.6. Month ago: RUB/EUR at 48.4 and RUB/USD at 36.8. Ugly!

In the short run, I can see both rates rise by around 5 percent (3mo outlook) and at 12 months horizon, my expectation would be for RUB/EUR is at 54.0-55.0 and RUB/USD is at 43.0-44.2.

With ruble plunging, imports are also falling off the cliff. Latest data from the Central Bank show Q3 2014 current account surplus hitting another 2 year high. Over 12 months through September 2014, Russian current account surplus averaged almost 3% of GDP. Goods trade surplus has been running at nearly 10% of GDP. This is despite a small decline in exports of goods and services in Q1 and Q3 2014 and virtually zero growth in exports in over 2 years. In contrast, imports fell 6-7% y/y in the first 9 months of 2014 and in Q3 2014. Goods imports declined 8%. Chart below (courtesy of Bofit) illustrates:

On the net, current account position is still strong, but trending around post-crisis levels. Lower oil prices should significantly harm this, especially as supports from imports declines start to wear out over time.

16/10/2014: Euro Area Industrial Production Losing Momentum... What Momentum?..

A nice chart from Pictet, graphing industrial production in the US against the Euro area:

Everyone is talking about 'fading momentum' in euro area industrial production... my view: what 'fading momentum'? Euro area industrial output has been on a declining trend for more than 36 months now. The 'recovery' from Q1 2013 through Q1 2014 was a blip - so weak in any 'momentum' it is not worth mentioning.

The chart basically shows no gains on output in the sector for the euro area since 2000-2003 averages. If there was any 'momentum' in the series before the last couple of months, would anyone please point it out?

16/10/2014: Ireland's Real Recovery Metrics: Try Avoiding that Over-Confidence Trap

So 7 years into the crisis, and Ireland is 'securing' the 'robust recovery' according to the Government. Securing? Well, here's the chart based on IMF latest projections for real GDP growth in 2014 (never mind, GDP is not that great metric for Ireland, but that's all we have to compare across the economies as of now).  The data is on per-capita basis and the index reflects 100=value of real GDP per capita in the year of pre-crisis peak.

So how is Ireland faring?

Ah, as of 2014, with 'robust recovery' being 'secured' we are the third worst-off economy in the Euro area, with GDP per capita in real terms down 11.9 percent on pre-crisis peak and 7 years (longer-tail of the range) duration of the crisis. Two economies worse off than our 'robustly recovering' one are: Greece and Cyprus. And of these, only Greece is as long into the crisis as Ireland.

But, I hear you say, things are improving in Ireland faster than anywhere else... Shall we take a look?

The rate of improvement is measured by the slope of the line. By this measure, Ireland in 2014 is indeed improving faster than anyone else, except the recovery is close to or on par with Latvia, Slovakia and Malta. But here's a kicker: 2014 rate of improvement in Ireland is similar to the rates of improvement attained in the past during this crisis by:

• Latvia in 2011, 2012, 2013 and 2014
• Finland in 2009 and 2010
• Malta in 2010, 2013 and 2014
• Slovakia in 2009, 2010 and 2014
• Germany in 2010 and 2011
• Austria in 2011

So our 'unique today' is not as unique as we would like it to be, both today and historically over the crisis period.

Time to be a bit more humble, perhaps? Just to avoid falling into over-confidence fallacy?

16/10/2014: Stating the Obvious, yet the Un-mentionable

With all the talk about 'inflation is too low' in Europe, let me put it to you succinctly: It is not the inflation, stupid! It is income, aka consumers capacity to sustain demand...

In real terms, and with illicit drugs and prostitution factored in, whilst counting in addition bogus R&D reclassifications and other 'bells and whistles' of national accounts, only TWO of the Euro Area 12 'rich' economies have managed to regain their pre-crisis real GDP per capita peak: Germany and Austria. One of them - Germany - has no demographic driver for increased demand. So go figure: price inflation is low because incomes are low! Not because monetary authorities are not doing something. Nor because Germany is dragging Europe down. May be, because, in part, fiscal authorities have taxed the daylights out of people. And may be because banks have shoved so much credit into households prior to the crisis than few can borrow much more to sustain unsustainable (judging by income growth) consumption growth.

So again: It is not the inflation that is too low, stupid! It is income, aka consumers capacity to sustain demand, that is too low...

15/10/2014: Changing Nature of Financial Diversification

My new blog post on Learn Signal Blog covering the changing nature of diversification in financial markets: http://blog.learnsignal.com/?p=83

Certainly of use to our MSc in Finance class!

14/10/2014: Budget 2015: Of Double Irish and Tax Non-Reforms

This Budget was supposed to be about giving working families something back. In the end, it was not.

The core asymmetry in Irish tax system has been, since the onset of the crisis, increasing burden of State on ordinary incomes. This remains.

2014 projected income tax take is EUR17.18 billion out of total tax take of EUR41.04 billion. 2015 projected income tax at EUR17.98 billion against total tax take of EUR42.3 billion.

Corporation tax: 2014 projection for EUR4.525 billion and 2015 at EUR4.575 billion.

So as a share of total tax take, income tax continues to rise, corporation tax continues to fall.

There is no re-balancing of tax system. Households pay. Full stop.

Of core measures, announced, corporate tax reforms are the biggest. As predicted, 12.5% headline rate is here to stay. Minister Noonan sounded like a politician cornered by someone with a bit more power (Germany? US? EU? UK? all of the above?) on the topic. And he stayed his ground (absent visible opponents).

But the 'non-tax-haven' tax loophole of the Double Irish was abolished, as predicted. For new companies coming into Ireland - starting with 2015 - all companies resident here will be resident here for tax purposes too. For existent companies, the new provision comes into force at the end of 2020. Transition period will see more tax optimised activity being booked through Ireland as corporates embark on building up cash reserves. This firmly puts any risk of economic activity falloff after the full abolition of the Double Irish out into next Government, so should FF or SF or both win next elections, they will bear the weight of any disruptions. Before then, however, more will flow through Ireland on the way to real tax havens.

It is worth reminding that in October 2012, Minister Noonan steadfastly claimed that abolishing Double Irish provision was not within his remit.

Minister Noonan also set out some sketch of the forthcoming tax reforms. These will:

1) Remove completely any base year consideration in application of R&D tax credits. The measure will take hold from January 1, 2015 and will create more incentives to book R&D spending into Ireland. Whether this will tangibly increase actual R&D activity here remains to be seen, since R&D investment is even harder to price than transfer pricing in the services sector. Suppose a lab located in, say, New Hampshire develops a formula for new drug. But final preparation is registered into Ireland. All R&D investment, save minor expenditure on lab operations, can be billed into Ireland, in exchange for having a 'token' small lab of formula preparation team here. make a key scientist fly into Dublin for a couple of meetings and you have magic R&D activity here that can easily exceed activity in the actual lab. The “knowledge box” will, presumably, tax corporate profits generated as a result of patented innovations in a way similar to so-called 'patent box' structures already in place in the Netherlands and the UK. UK 'box' has a tax of 10% , Netherlands' one has 5%, and Minister Noonan promised Irish equivalent will be 'the best in class', so it will need to undercut the already existent ones. Which means that the above-mentioned example of an 'investment' will book profits into Ireland as payments on R&D-generated IP and these will be taxed at a reduced rate.

2) Aim to deliver even more 'competitive' environment for 'intangible assets' domiciling in Ireland. In other words, the fabled IP pushed through the fabled 'Knowledge Development Box', aka black box tax system that leaves IP outside tax net. This should sweeten the removal of the Double Irish for MNCs, especially in the IP-intensive ICT services sector. But it will also mean preciously little in terms of incentivising real activity on the ground here. Instead of shifting profits to Bahamas to get them off the tax hook, MNCs can just book payments into Ireland as payments on IP, making them basically tax free too.

3) To facilitate internationally trading sector, Budget 2015 enhances Special Assignee Relief Programme

4) To address future criticisms of the new system as being unfair to our trading partners, the Revenue will get additional resources to act as a 'competent authority' in enforcement and monitoring of corporation tax matters.

Gas bit is: the EU Commission is already investigating if 'patent-knowledge' box schemes constitute illegal state aid.

One simply cannot assess the full impact of the new changes on the economy. We have no data on specific activities by MNCs here. We have no data on operating tax structures. We have no data on how MNCs can re-arrange their activities here to address the challenge. It is, however, safe to assume that none of existent MNCs will be rushing to do much before 2020. And it is also safe to assume that by 2020, when the Double Irish fully bites the dust, the OECD-led BEPS reforms will be already known.

This, in effect, will mean that Ireland's Double Irish abolition today is a preemptive move that preempts nothing but bad PR. Reputational gain. Opportunity of real reforms for now remains a distant hope.

14/10/2014: Budget 2015: Economic Forecasts a Bit Optimistic

Here's my take on economic side of the Budget 2015 projections:

Gross current expenditure for 2015 will be just over €50 billion. This figure represents an increase of €429 million over the 2014 Revised Estimates. Note: in H1 2014, Government spent EUR35.567 billion which is EUR1.255 billion more than in the same period 2013. As unemployment fell, social benefits rose from EUR13.823 billion to EUR14.016 billion. General Government Deficit has fallen only EUR307 million y/y in H1 2014. These numbers are not consistent with strong economy or strong fiscal performance. Meanwhile, the state took out of the economy EUR1.893 billion more in taxes and social contributions in H1 2014 compared to H1 2013. Where did this increase of funding go?

Government deficit target for 2015 is 2.7% of GDP under ESA 2010 classification. Which means that going back to Troika programmes-comparable measure (ESA 1995 classification), the target deficit is closer to 3.2% of GDP. This is ahead of 3% target and shows how much debt we owe not to smart management of resources, but to accounting rules changes.

Here's a set of economic puzzles courtesy of the Department of Finance:

Real growth is slowing down from 2014 levels, but employment generation is rising. A puzzle. Especially as domestic demand is expected to grow at same rate in 2015 and growth rate is expected to fall in years after.

As compared against other organisations forecasts:

Added puzzle: IMF projections for Irish economy real GDP growth are: 2015 3.045% - full 0.85 percentage points lower than DofF, 2016: 2.538% which is full 0.87 percentage points below DofF, in 2017 : 2.649% or 0.75 percentage points below DofF… and so on.

And another kicker in the teeth… the promise of fiscal rectitude and 'no going back to boom-and-bust cycles':

All of the above is rather academic, since the Department of Finance refuses to forecast Gross Voted Current expenditure of the Exchequer beyond 2015, setting all of it at EUR50.075 billion for each year 2015-2018. Which means the estimated effects on deficit and on borrowing are based on assuming zero growth in spending and continued growth in tax revenues. Happy times roll, even though Haddington Road agreement is about to expire.

Still, as you can see, debt/GDP ratio is expected to fall, courtesy of higher GDP, including the new classification effects that came into force this year. But debt itself is not expected to fall. Instead, from EUR 203.2 billion, Government debt is expected to rise to EUR 215 billion in 2017 and basically stay there in 2018.

So on the balance: a bit too much optimism, especially past 2015. Not enough risk cushion. May the numbers turn out this well in reality...

14/10/2014: One Chart to Keep in Mind when Watching Budget 2015

When you are listening to the Budget 2015, remember this chart:

Corporate activity has been booming (per National Accounts), Households' tax burden has been booming too...

14/10/2014: Expect the Expected: pre-Budget 2015

Pre-Budget Budget... what to expect based on leaks so far:

Big Items:

1) Corporate Tax Regime changes: we can expect some phasing out to be announced for the notorious Double-Irish Tax Scheme.

This is one of the most criticized parts of the Irish tax code. Double Irish a complex corporate structure whereby a multinational can channel revenues to an Irish subsidiary, which then pays royalties on Intellectual Property to another company resident in Ireland, but tax resident in a tax haven, e.g. Bermuda.

To close the loophole, we can expect the Government will announce that all companies registered in Ireland will be automatically deemed tax resident in Ireland. Such a change will make Irish tax law fully aligned with the US and UK systems.

Since MNCs employ around 160,000 in this country, or roughly 8.6 percent of our workforce, the impact can potentially be significant. Which means Minister Noonan will have to be careful in closing the loophole. It is expected he will off-set the impact by expanding the R&D and Intellectual Property taxation benefits.

It is worth remembering that in October 2012, Michael Noonan solemnly declared that changing the Double Irish 'situation' was not within his remit. Direct quote: "Mu understanding of the "double Irish" is that while it exists, it cannot be remediated by changes in Irish tax law".

2) Households: Budgets 2009-2014 have lifted tax (direct and indirect) take by EUR11.7 billion. Meanwhile, on spending side, all years of austerity have basically meant that our Government spending (excluding banks measures) stayed relatively flat on pre-crisis levels.

There has been re-allocation of some spending from services to paying interest on our massive debt, which or course means there were cuts to some specific services. But we had no significant improvements in public sector efficiencies and we had no significant changes in how the State does business:

• Semi-state companies continue to inflate their books by charging higher and higher prices, blessed by captive regulators;
• State employment, pay and promotion policies remain detached from productivity;
• State pensions remain unfunded, private pensions becoming de-funded;
• State health system continues to crumble, while private subsidy to this system is being eroded;
• Management in public services remains excessively bloated and inefficient, compared to front-office staff which is getting worked harder.

All of which means that 'austerity' years have shifted the burden of state even more directly onto ordinary income earners.

Now, with the economy expected to grow by 4.7 percent in 2014 and deficit expected to fall thanks to the national accounts reclassifications and booming MNCs tax arbitrage, Minister Noonan has some room for minor giveaways.

We can expect that he will cut income tax burden, possibly by lowering the top 52 percent tax rate or raising the income threshold for that rate. Another possible target is much despised USC which currently hits workers on earnings from €10,036.

Keep in mind, whilst the Government will claim credit for any tax reductions and austerity easing, these were made possible, primarily, by the EU-mandated changes in our National Accounts. On the other hand, keep also in mind that the Troika-demanded water charging is introduced as double-taxation measure on foot of Government-own design.

To appease trade unions and other 'Social Partners' pivotal to the Labor Party electoral base, he could also announce the hiring of more teachers and increase some benefits. One point he will probably address is the kick backs to taxpayers and vocal interest groups in terms of reduced cost of water provision. Rumour has it, he will:

• Create additional EUR100 credit for the elderly for water services; and
• Announce tax relief on water charges.

Net outcomes: We are some 18 months away from elections and the Government desperately needs to test waters to see what response from electorate they can get if they start 'McCreeviasing' their Budgets. Over months to come, the Government will be closely watching changes in opinion polls as a function of Budget 2015 'easing' of the austerity. Which is all about one thing: instead of 'stimulating the economy', the Government is attempting to gauge the extent of the Budget easing stimulus on electorate.

Still, keep in mind: Budget 2015 is likely to cut spending and raise revenues by some EUR800-900 million. So small giveaways will mask still substantial austerity. Which means that Budget 2015 is going to be about reallocating once again the burden on budgetary adjustments. Pensioners (already massive winners during deflationary period in the economy and low on debt burden courtesy of the previous property boom) are going to gain. Special interest groups are going to gain. General economy, ordinary working households are going to lose.

'McCreevization' by one half, then...

Little pesky details: Budget 2015 is, in part, going to be based on some non-trivial economic assumptions. In best practice terms, these should be conservative, rather than optimistic. But in Irish reality, the champagne of big 7.7% headline GDP print in Q2 2014 is starting to hit some heads in the Department of Finance. Government's forecast for 2015 Budget is for 3.6% GDP and 3.3% GNP growth. Seems conservative compared to H1 2014 figures, but is it conservative enough? Underlying these, there is a forecast for exports growth of 5% y/y in 2015. Again, might be a tad optimistic. And we also have forecast for accelerated jobs creation over 2015 +2.2% growth) compared to 2014 (+1.8% growth), despite the fact that the Government is forecasting slower economic growth in 2015 (3.6% GDP and 3.3% GNP) than in 2014 (4.7% GDP and 3.1% GNP).  Interestingly, in SPU 2014 (April 2014), the Government estimated employment growth to be 2.2% in 2014 and 2.0% in 2015. This is now revised down to 1.8% for 2014 and up to 2.2% in 2015. Labour force growth was penciled in at 0.5% in 2014 and 0.8% in 2015, but by Budget 2015 it was revised down to -0.1% in 2014 and up to 0.9% for 2015.

Past optimism is being reloaded forward? Or did someone miss their cup of milk before going to bed?

13/10/2014: Germany: Too Old to Read Paul Krugman or Rescue Europe

You want to know WHY Germany ain't 'saving Europe' in a fashion favoured by Paul Krugman? Read this:

Key point, of course, is demographics. Germany already experiencing shrinking working age population pool. And this process is only going to accelerate.

Here are 2009 projections for worker/retired ratios in economies:

Source: http://www.ncpa.org/pdfs/st319.pdf

This shows Germany as second worst-off economy to Italy. And here (from the above source) estimates of pensions and health liabilities:

In 2012, Germany already had second lowest income replacement ratio for new entrants into workforce, meaning its capacity to fund future cost increases without hitting directly the retirees is now pretty much exhausted:

Source: http://www.oecd-ilibrary.org/finance-and-investment/oecd-pensions-at-a-glance_19991363

And here's a table of projections for public spending on pensions, showing Germany accelerating spending as share of GDP earlier than other comparable economies:

All of which means that Germany is not in a position to ramp up leveraged fiscal expenditure or investment. It has no fuel to move itself, let alone the Euro area. So stop calling on Germany 'to do the right thing'. It is too old to read Paul Krugman.

11/10/2014: WLASze: Weekend Links on Arts, Sciences & zero economics

One of my by-now rather irregular WLASze posts: Weekend links of Arts, Sciences and zero economics. Enjoy!

In the week of Nobel prizes, it is worth taking a look at some awards.

Chemistry: a well-deserved award for empirical work on improving our ability to observe sub-cellular activities http://www.nytimes.com/2014/10/09/science/nobel-prize-chemistry.html?partner=rss&emc=rss&smid=tw-nytimes&_r=0 And a lovely story of a scientist leaving a big mark on his field and then leaving the field…

Meanwhile, in Physics, the Prize went for an invention that is rather more about engineering than science: the LED (and a sub-component of that, to boot): http://www.nytimes.com/2014/10/08/science/isamu-akasaki-hiroshi-amano-and-shuji-nakamura-awarded-the-nobel-prize-in-physics.html?rref=science&module=Ribbon&version=context&region=Header&action=click&contentCollection=Science&pgtype=article In my view, nothing earth-shattering as far as knowledge goes, but big item as far as practical applications are concerned.

Physiology (or popularisingly: Medicine): an exciting choice covering the discovery of the structure of the brain responsible for spatial positioning: http://www.nytimes.com/2014/10/07/science/nobel-prize-medicine.html?rref=science&module=Ribbon&version=origin&region=Header&action=click&contentCollection=Science&pgtype=article

And a priceless account by 2011 Nobel Physics Prize winner of his attempt at smuggling the Nobel medal to fargo, North Dakota… http://blogs.scientificamerican.com/observations/2014/10/10/nobel-prize-airport-security/

Stories are the stuff Literature is made of. And Modiano - this year's winner - is no stranger to them. http://www.theguardian.com/books/2014/oct/09/patrick-modiano-wins-nobel-prize-for-literature. Another take on same: http://moreintelligentlife.com/blog/simon-willis/my-first-patrick-modiano.
Let my literary professionals friends take this one over…

While you were on the pages of Scientific American, did you spot this gem? "Is Kindness Physically Attractive": http://blogs.scientificamerican.com/beautiful-minds/2014/10/09/is-kindness-physically-attractive/ . Clearly, there's no end to social 'sciences' experimentation… at which point it is probably worth shouting: "Stop! Leave at least something undiscovered, will you?" To break my own chain of thinking - here's a link I blogged on before, covering the Mathematics of Beauty: http://www.boston.com/ae/theater_arts/articles/2009/02/22/beauty/?page=full

But no, never, reply social 'scientists', deploying a total buzz-killer: the Social Machines to Tackle Twitter http://socialmachines.media.mit.edu/ At least, for now, the machines are chasing us… for now… Half-ironically, earlier today I tweeted:

which relates to the MIT Media Lab's latest Lab nicely and, of course, confirms the self-referential nature of social 'science'. At one point we will get fed up with all this trawling of the  www and start thinking once again.

Meanwhile, for those who still marvel at art and science and thought, a nice essay on one of my favourite artists of all times, Anselm Keifer: http://www.prospectmagazine.co.uk/arts-and-books/anselm-kiefer-inside-a-black-hole

Here are some of the links to his works:
http://www.saatchigallery.com/aipe/anselm_kiefer.htm

https://theartstack.com/artists/anselm-keifer
http://www.tate.org.uk/art/artists/anselm-kiefer-1406
Maybe it's German psyche exposed. Or human one. Or both... just kidding...

And to marvel at something entirely different, a wonderful essay on the Killogram: http://moreintelligentlife.com/content/ideas/tom-whipple/weight-almost-over via The Economist's Intelligent Life supplement.

9/11/2014: New WP on Tsallis Entropy application to FTSE & AIM

Just got a new Working Paper over the line (submission ready over the weekend): "Tsallis Entropy: Do the Market Size and Liquidity Matter?" (October 2014). Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2507977

9/10/2014: Where Did Ireland's Young Ones Go?..

ECB Monthly Bulletin for October: https://www.ecb.europa.eu/pub/pdf/other/art1_mb201410_pp49-68.en.pdf has a nifty chart, mapping proportion of younger people who are not in employment, education or training:

So guess what... Ireland has 3rd highest inactive population of younger people as proportion of total population - in other words, those who are neither unemployed, nor in education or training. And Ireland had the 3rd highest inactive population of the younger people back in 2007 too.

What on earth are these young people doing?! Working in the black economy?

9/10/2014: IMF Lagarde: We Are Out of Ideas, You Are Out of Convictions

In several recent posts, I have highlighted the fact that the IMF - that stalwart of global 'structural' reforms - has now effectively exhausted its toolkit of ideas as to how we can get global growth back on track. And the governments around the advanced economies world are now equally out of conviction to deploy the IMF's old toolkit.

This is evident across the board: from the Fund latest World Economic Outlook update which keeps endlessly banging on about the need for

• Accommodative monetary policies and, simultaneously, de-risking of the financial economy (the two tasks that actually contradict each other, as IMF own GFSR report admits);
• Structural markets reforms (which in the IMFspeak means preciously little more than more reforms of the labour markets, or in distilled terms: more 'activation' efforts to bring the unemployed to still inexistent jobs and push welfare recipients off the dole into still inexistent jobs);
• Credit supply restoration in the economy amidst continued banks deleveraging (which basically means that the banks need to get rid of old - presumably bad risk - loans while increasing their stock of new - presumably better risk - loans);
• Creation of better, more robust risk management frameworks in banking while increasing banking sector concentration (the outcome of the deleveraging process) and increasing risks concentrations by creating more centralised controls and supervision (e.g. the European Banking Union); and so on.

All of the above 'reforms' are clearly self-contradictory in so far as achieving one side of the objective implies undermining the other side.

And with today's release, we have a veritable Map to the Middle-Earth from the Fund's own Christine Lagarde. In today's "The Managing Director's Global Policy Agenda" Ms. Lagarde is navel gazing over 14 pages of text, charts and slides under the sub-heading of "Aiming Higher, Trying Harder". You get the sense of frustration of the Fund stuff with the intransigent Governments unwilling to deploy all of the medicines prescribed to them by the Fund, but you also get a feeling for the out-of-touch banality of the IMF's approach to the crisis.

Take the preamble. "Bold and resolutely executed policies are needed to prevent growth from settling into a “new mediocre,” with unacceptably low job creation and inclusion. Measures should emphasize":

• "Lifting growth. Decisive structural reforms are needed to bolster confidence and lift today’s actual and tomorrow’s potential growth and break the pattern of persistent underperformance and insufficient job-creation. Accommodative monetary policies should continue to support demand and provide breathing space as these reforms are implemented. But it is essential that they are accompanied by macro-critical reforms that remove deep-seated distortions in labor and product markets; improve credit flows to productive sectors; strengthen growth-friendly fiscal frameworks; and eliminate infrastructure gaps." You get a sense that this has been said before, argued many times over and offers nothing new. In effect, the IMF is saying: spend more, cut spending more, re-spend more; and fund it all by printing presses, while making sure the rag-tag of the real economy (SMEs and households) don't get their hands on the printed cash.
• "Building resilience. Easy money continues to increase market and liquidity risks, especially in the shadow banking sector, potentially compromising financial stability. Appropriate regulation and vigilant financial sector supervision, including developing and deploying macro-prudential tools, can help limit excessive financial risk-taking. Preparations for less benign financial conditions also need to be stepped-up. As monetary policy normalization approaches in some major economies, stronger policy frameworks, institutions, and economic fundamentals can mitigate potentially adverse spillovers." But, dear IMF, who creates this 'easy money'? And for who the money is 'easy'? The answer is in the first point above: printing presses do create 'easy money' and Governments and larger banks get 'easy money'. So de facto, IMF advice 1 and 2, taken together mean that creating growth + building resilience to risk = growing the share of Government and big banks in the economy. That should really keep troubles at bay, especially since the current crisis is caused by… yep, you've guessed it, rising role of Governments and big banks in the economy. Apparently, what can't kill you makes you stronger.
• And then there is IMF advice that IMF should learn to follow itself: "Achieving coherence. International cooperation is needed to amplify the benefits from these bold policies and to avoid exacerbating existing distortions, particularly regarding financial stability and global imbalances. Dialogue and policy cooperation can help smoothly rebalance global demand; minimize adverse spillovers and spillbacks from asynchronous monetary unwinding; ensure consistent financial regulation; and maintain an adequate global financial safety net. Fresh momentum must be injected into the global trade dialogue." Where did we hear that? Ah, yes, right - we've heard in Greece (when the IMF quietly stood by as the EU rained chaos onto Greek and Cypriot financial systems and Exchequers by refusing to get Public Sector Participation - or restructuring - going); and we heard it in Ireland (where the IMF stood idly by as the Irish Governments and European partners loaded some EUR70 billion-plus worth of banks debts onto the real economy and then destroyed entire sectors of the economy in the name of Nama-lution); and in Italy (where IMF is still refusing to acknowledge the need for sovereign debt restructuring).

Do not forget that the IMF team has run out of Athens this week in a hissy - the most heavily 'repaired' economy in the world seems to be going off-the-rails again.

Here is the road map for advanced economies as traced by the IMF:

As we have it: in Euro Area the achievements were: 1) 'good progress' on monetary easing (the printing press) but more to be done; 2) 'some progress' on consolidating the banking system eggs in one regulatory basket (and more to be done); 3) basically no fiscal reforms; and 4) no reforms on taxation, no improvement in competition across both labour and product markets (not to mention decline in competition in financial economy).

Are we still talking, Ms Lagarde? Oh yes…

Let's take a look at the first pillar of IMF 'wisdom': the printing press. Here's Fund own assessments of the outcomes: "Despite massive and welcome monetary support in major advanced economies and slowing fiscal consolidation, the recovery remains uneven and sluggish. Growth, and hence policy advice, are increasingly divergent across countries. Inflation is still below target in many advanced economies and is a growing concern in the euro area, while unemployment has stayed high. … The envisaged acceleration in economic activity has again failed to materialize."

So just as with Krugmanomics, the IMFology calls for more printing, cause previous rounds weren't enough: "Growth prospects in advanced economies are expected to remain uneven across regions. The strongest growth rebound is expected in the United States, while growth in Japan will remain modest. The crisis legacy brakes (including high private and public debt) are expected to only gradually ease in the euro area, while inflation expectations continue to drift down and deflationary risks are rising. Growth elsewhere, including other Asian advanced economies, Canada, and the United Kingdom, is projected to be solid."

And with all of those 'structural reforms' - do we have an uplift in at least potential (if not actual) output? Nope: "Growth potential may be lower than earlier assumed… Increasing evidence suggests that potential growth started to decline in advanced economies even before the onset of the crisis—which may be affecting the current pace of recovery. The recent slowdown in EMEs also has a large structural component, raising questions about the sustainability of growth rates achieved prior to the crisis and during the 2010–11 rebound."

So here are two road maps side by side: one for Spring 2014 and another for Fall 2014… and, save for gentle re-phrasing of the same, the two are largely identical when it comes to the advanced economies.

So spend more on infrastructure as opposed to reduce debt overhang... and that will be funded by what? Pears and apples?

Out of new ideas. QED.

9/10/2014: Revisiting that Scariest Chart for the US...

With all the 'good news' on US unemployment out, time to update my Scariest Chart relating to the subject.

Take a look at average duration of unemployment through September 2104:

And now take a look the Scariest Chart plotting duration of unemployment within every historical episode of unemployment duration exceeding pre-recession average:

In other words, positive momentum is retained and average duration of unemployment in the current crisis is falling relative to pre-crisis average, but:
1) Average duration of unemployment remains well above its pre-crisis average during the current episode;
2) Average duration of unemployment over and above pre-crisis average in the current period is well higher than in any other crisis period;
3) The duration of the jobs crisis in the US, measured by the length of period over which average duration of unemployment is above its pre-crisis period is now just 2 months shy of overtaking the third longest crisis in history (although we should really exclude that episode as it covers short-lived sharp 2001 recession during which the duration went up and stayed permanently above pre-crisis period).

So things are significantly better, but they are still epically bad...

9/10/2014: A couple of new black eyes for our Corporate Tax regime

Oh dear... as if Apple news were not pretty bleak for Ireland Inc, Wall Street Journal is now covering Google's tax practices with Ireland featuring prominently: http://online.wsj.com/articles/googles-tax-setup-faces-french-challenge-1412790355 and related explanatory note on how Google tax schemes work: http://blogs.wsj.com/digits/2014/10/08/how-googles-french-tax-structure-works/.

With a handy graph:

And an ugly question: Presumably (per Irish Government and its 'analysts'), Google is in Ireland for the quality of our workforce and R&D capabilities. Which begs asking: is that quality Irish workforce and R&D in Bahama-ed 'Ireland' or in Irish Ireland?

But never mind, bad news keep rolling in. It now looks like the savings of EUR350m per annum on the IMF 'repayment' deal are going to come with some hefty price tags... http://www.independent.ie/business/irish/germans-want-irish-tax-reform-in-return-for-deal-on-imf-loans-30650496.html

Did someone say 'reputational capital' is illusory? How about reputational damage costs?..

8/10/2014: IMF GFSR: That Battleship Potemkin Moment...

In the previous post (http://trueeconomics.blogspot.ie/2014/10/8102014-imf-gfsr-oh-dear-its-headless.html) I covered some of the IMF's discoveries concerning the risks present in financial markets.

Irony aside, the Fund does provide a handy map to these risks. Here it is:

The closer things are to the centre of the spiderweb, the lower are the associated risks. Which is preciously funny, if you are into morbid sense of humour.

You see, here's the same map from October 2013:

First thing first: let's take a look at Risks:

• Emerging Markets risks have scaled up in 12 months through April 2014 and then stayed where they were through October 2014. 
• Credit Risks have gone down - undoubtedly the result of just one thing: write down and insolvencies waves that swept across primarily the US and UK and to a lesser extent (due to slower response) through the EU banking systems.
• Market and Liquidity Risks - the wonder sparks of the Central Banks' attention - have grown, and by much. Now, recall that the entire first stage of the crisis was about providing liquidity. ECB is still forcing more and more liquidity into the system… and the risks are rising, not subsiding.
• Macroeconomic Risks - the gold dust of the Governments and Central Bankers - is not budging. Not a notch decline in these risks for all the efforts over the last 18 months.

Now look at the underlying Conditions:

• Monetary and Financial conditions have eased through April 2014 and then got stuck in the same spot.
• Risk Appetite conditions have improved a little in 6 months through October 2013, then grounded to a halt through April 2014 and deteriorated since back to where they were in April 2013. 18 months of going nowhere policies.

This really does make you wonder - all the heroic efforts of the Central Bankers, Treasuries, Governments and international agencies, all the push for more cash, more 'reforms', more 'deleveraging'... and what? Swimming harder to stand still?..

Mommy, the pram is still rolling moment from Battleship Potemkin anyone?..