Tag: Finance and economics

“EVERY little helps.” The thieves may have found Tesco’s advertising slogan only too apt. Over the weekend of November 5th and 6th, Tesco Bank, the financial arm of Britain’s biggest retailer, detected “suspicious transactions” on 40,000 current (ie, checking) accounts. Online raiders succeeded in stealing from 9,000: some customers spotted dodgy payments to companies in Brazil and Spain. On November 8th Tesco Bank said it had reimbursed all losses, to the tune of £2.5m ($3.1m). Online transactions from current accounts, which it had suspended, were up and running again.

If the bank or other investigators have any idea who stole the money and how, they are not saying. Reports say that GCHQ, a spy agency, has been called in. All this has fed rather than starved speculation: an MP has said “state-sponsored” crime cannot be ruled out. There is little to go on, notes Alfredo Pironti of IOActive, a cyber-security company. One possibility is that the thieves found a weakness in the bank’s web application. Another is that they managed to filch lots of customers’ passwords over a period of time and exploited them in one go. Still…Continue reading

NOT much distinguishes a valuable banknote from any old piece of printed paper, as Indians discovered this week. In a surprise televised address on November 8th, Narendra Modi, the prime minister, announced that the country’s two highest-denomination notes, worth 500 and 1,000 rupees ($7.50 and $15), were to be legally worthless with near-immediate effect. This odd variant of alchemy is the latest in a series of moves to curb illicit income; economists hope long-term gains will justify a chaotic spell as India adapts.

The idea is not as barmy as it might first appear. Mr Modi has implemented a flurry of schemes to flush out “black money”, the term Indians use for cash which is both unaccounted for and outside its formal financial system. Piles of ill-gotten income have long been easy to launder into gold or property, where using notes for at least part of a purchase is the norm. “Demonetising” high-value tender means existing notes must be traded in at banks and post offices before the end of the year. That will force those with suitcases of cash either to come clean or to renounce their loot.

Still, it is dramatic: central banks…Continue reading

Internship: Applications are invited for a Marjorie Deane internship in The Economist’s New York bureau. The award is designed to provide work experience for a promising journalist or would-be journalist, who will spend three to six months at The Economist writing about economics and finance. Applicants are asked to write a covering letter and an article of no more than 500 words, suitable for publication in The Economist. Applications should be sent by December 14th to deaneinternny@economist.com.

The Miami blues

“A TODDLER drowns in the swimming pool of his neighbour’s vacant house. A firefighter dies falling through the floor of a vacant building. A gang take over an empty house…to advertise prostitution.” Thus begins an incendiary supporting brief filed by a trade union for police officers and firefighters in a suit brought by the city of Miami against Wells Fargo and Bank of America. The suit argues that mortgages granted by the banks to black and Hispanic residents who later defaulted caused the city to lose tax revenue and forced it to fork out more for services. This, it contends, entitles Miami to damages.

The case was largely dismissed in the trial court, reversed on appeal and then accepted by the Supreme Court, which heard oral arguments on November 8th. At issue is who can sue for alleged discrimination, and whether irresponsible loans can be blamed for broader economic damage. A separate court will consider whether the banks were actually guilty of discrimination (they deny it).

Part of civil-rights legislation passed in 1968, the “Fair Housing Act”, the statute under which the case…Continue reading

PITTSFIELD, a city of 43,000 on the Housatonic River in western Massachusetts, is a quintessentially American place, but in many ways an unlikely spot for a housing boom. The 255-year-old former industrial hub boasts the country’s earliest written reference to baseball. Its economy was dominated by General Electric for much of the 20th century. But by 2000 it had experienced ten years in which hardly any new jobs had been created. Incomes were 12% below the national average. The city’s population had been shrinking for decades. And yet between 2000 and 2007, amid a nationwide, credit-fuelled property boom, house prices in Pittsfield jumped by 70%, or 8% per year.

These days, such rapid growth in economically struggling cities is rare. Whereas local housing markets rose and fell together during the housing bubble and bust, the housing recovery which began in America in 2012 has been patchy. Cities and towns with growing economies have seen big gains; places like Pittsfield have stagnated (see chart 1). Such trends are contributing to a widening of America’s already unequal distribution of wealth.

According to an annual…Continue reading

THOUGH many outside America are dismayed at the prospect of Donald Trump as president, not everyone is despondent. When the news of Mr Trump’s victory reached the floor of the Duma, Russia’s lower house of parliament, the assembled politicians burst into applause. Such enthusiasm in Russia is in part a reflection of the bromance between Mr Trump and Vladimir Putin, Russia’s president. But it is also because Russia may be one of the few economies that might benefit from—or at least, be indifferent to—a Trump presidency.  

It helps that Russia’s economy has endured a rough time recently and that some kind of rebound is probably due. Its GDP fell by 3.7% last year and will shrink again this year, according to the IMF. Russia has one of the cheapest currencies in The Economist’s Big Mac Index, which compares the relative cost of burgers across the globe. By this measure, the rouble is around 60% undervalued against the dollar. Inflation, which rose to over 16% in early 2015 after a big fall in the rouble, has fallen to around 6%. That has allowed Russia’s central bank gradually to reduce interest rates from a peak of 17% to…Continue reading

IT IS not clear precisely how Donald Trump will govern, the extent to which he will carry out some of his scarier promises on trade and immigration, and who will be his economics top brass at the Treasury and in the White House. But a decent first guess is that President Trump will be bad for the world economy in aggregate; and a second is that his actions are likely to do more harm, in the short term at least, to economies outside America.

When America has in the past stepped aside from its role at the centre of the global economic system, the damage has spread well beyond its borders. In 1971, when Richard Nixon ended the post-war system of fixed exchange-rates that had America at its centre, his Treasury secretary, John Connally, told European leaders, “The dollar is our currency, but your problem.” This election result, to paraphrase Connally, belongs to America but is potentially a bigger economic problem for everyone else.

The scale and nature of that problem depend on the interplay of the two main elements of Mr Trump’s economic populism. The first is action to boost aggregate demand. Mr Trump favours tax cuts and extra public…Continue reading

FOR the second time this year, investors have been hit by a political shock: first, the Brexit referendum; now, Donald Trump’s election victory. And the reaction has been very similar; a knee-jerk sell-off followed by a pause to consider whether there might be some profitable opportunities after all.

As election night unfolded, markets moved pretty much as they had during the campaign when Mr Trump surged in the polls. Equities fell, Treasury bonds rose in price (causing yields to fall) and the Mexican peso took a battering. The futures contract on the Dow Jones Industrial Average dropped by more than 800 points at one stage. Asia followed suit with widespread declines: the Japanese stockmarket dropped by 4.6%. The Mexican peso dived to a new low of nearly 20.8 to the dollar. Gold gained ground, as if often does when investors are nervous.

But the nature of the financial markets is that sharp moves bring out the bargain-hunters. In this respect, the optimists were helped by a fairly emollient acceptance speech from Mr Trump and the very vagueness of his policy proposals. As Fathom Consulting, an economic research group, put it,…Continue reading

GOLD is Donald Trump’s favourite metal. The taps on his private jet are 24-karat gold-plated. His $100 vodka is adorned with a golden “T”. He even hankers after the gold standard. He must have found it gratifying, therefore, that gold soared to its highest price since Brexit after his overnight victory in America’s presidential election. But copper and industrial metals also rallied. They tell a similar story: prepare for reflation.

Gold is both a haven and a hedge against inflation. Initially, its rally appeared to be a rush for safety. The dollar and stockmarkets plunged as Mr Trump headed closer to victory, pushing panic-driven flows into the yellow metal. It pared gains from a high above $1,330 an ounce to below $1,300 as other markets took heart when the president-elect, in his victory speech, promised to double American growth and rebuild the country’s infrastructure. But gold bugs remain bullish because Mr Trump is likely to expand the fiscal deficit, and the uncertainty over the implications of his election may make it harder for the Federal Reserve to raise interest rates. Fiscal expansion and continued monetary looseness are both…Continue reading

Not a model of philanthropy

CAPITALISM has clocked the ethical consumer. Shoe brands like TOMS and Skechers tease in customers by matching purchases with a donation of a pair of shoes to a child in need. So far, TOMS has handed out 60m pairs of shoes, letting fashion-conscious consumers feel good about boosting children’s health, access to education and confidence. But evidence suggests that shoppers’ warm glow is unjustified.

Handing out aid in kind gives plenty to worry about. It could suck life from local markets, and foster a culture of aid-dependency. Handing out goods rather than cash runs the risk of spending money on things people neither need nor want. To find out if its intervention had worked, TOMS, to its credit, asked a group of academics to investigate and gave them assurances that they could publish whatever they liked. In late 2012 they randomly picked which of 1,578 children across 18 rural communities in El Salvador would receive pairs of TOMS’ black-canvas, rubber-soled shoes. By comparing the places and children who received the shoes with ones that did not, they could work out how much these boots…Continue reading