MILAN – The growth map of the global economy is relatively clear. The U.S. is in a partial recovery, with growth at 1.5 to 2 percent and lagging employment. Europe as a whole is barely above zero growth, with large variations among countries, though with some evidence of painful re-convergence, at least in terms of nominal unit labor costs. China’s growth, meanwhile, is leveling off at 7 percent, with other developing countries preparing for higher interest rates.
AT THE beginning of the 1980s capital was flooding into the American oil and gas industry. Apache Corporation, an erstwhile conglomerate spanning steel, dude-ranching and car sales, sought to tap into the flow in a novel way. It wrapped a bunch of private oil and gas assets into a new ownership structure that was akin to a partnership but was publicly listed. It was a useful idea—until steep declines in tax rates and energy prices put the Apache Petroleum Company to rest in 1987.
The collapse of Lehman Brothers five years ago, the largest U.S. bankruptcy in history, triggered a global financial meltdown that required repeated government interventions, especially in the U.S. and Europe. Central banks took on new responsibilities, pumping trillions of dollars to shore up the banking system and bolster a fragile recovery. Three experts weigh in on Lehman's legacy.
CAMBRIDGE – After the financial crisis erupted in 2008, many observers blamed the crisis in large part on the fact that too many financial firms had loaded up on debt while relying on only a thin layer of equity. The reason is straightforward: whereas equity can absorb a business downturn – profits fall, but the firm does not immediately fail – debt is less forgiving, because creditors do not wait around to be paid. Short-term creditors cash out or refuse to roll over their loans, denying credit to financially weakened firms. Long-term creditors demand to be “made whole” and sue. Without cash, the firm fails.
The 2008 financial crisis demonstrated how interconnected the global financial system is. What began as a real estate bubble fueled by subprime mortgages in many states ballooned into a global financial panic of unprecedented magnitude.
EDMONTON – Calm discussion of the environment nowadays is about as plausible as reasoned dialogue on witchcraft in colonial Massachusetts. Consider the hyperbolic debate over the Keystone XL pipeline, which would funnel oil from Canada’s Athabasca tar sands in northeastern Alberta to refineries on the Texas Gulf Coast.
In his presidential campaign in 1928, Herbert Hoover promised to help impoverished farmers by increasing tariffs on agricultural products; after the election, he also asked Congress to reduce tariffs on industrial goods. In April 1929, well before Black Thursday, U.S. Representative Reed Smoot, a Republican from Utah, introduced a bill that passed the House in May. The bill increased agricultural and industrial tariffs at levels that had not been seen for a century. This was a relatively benign beginning of what would become one of the most tragic policy measures of the 1930s. Within a few months of the bill being passed in the Senate as the Smoot-Hawley Tariff Act, other countries in response raised their own trade barriers, which started a vicious circle of contracting world trade flows and economic activity, and rising unemployment from 1930 to 1933.
Politicians, pundits and economists are all forecasting horrific impacts on the U.S. economy as sequestration hits Friday. The basis for this view is the standard — Keynesian — claim that spending cuts slow economic growth, perhaps even causing a recession.
As part of our series looking at the future of American energy, The Financialist spoke to Osmar Abib, global head of Credit Suisse’s oil and gas investment banking group, about the rise of natural gas production in the U.S., thanks in large part to the development of shale gas fields.
BERKELEY – America’s recent presidential election answered the question of whether an increase in revenues will be part of the country’s long-run deficit-reduction plan. The answer is yes: there is now bipartisan agreement on the need for a “balanced” approach that includes revenue increases and spending cuts.
But there are still deep political and ideological divisions about how additional revenues should be raised and who should pay higher taxes. If a preliminary agreement on these questions is not reached by the end of the year, the economy faces a “fiscal cliff” of $600 billion in automatic tax increases and spending cuts that will shave about 4% from GDP and trigger a recession.
NEW HAVEN – During the United States’ recent presidential election campaign, public-opinion polls consistently showed that the economy – and especially unemployment – was voters’ number one concern. The Republican challenger, Mitt Romney, sought to capitalize on the issue, asserting: “The president’s plans haven’t worked – he doesn’t have a plan to get the economy going.”
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