Greg Mankiw is a professor of economics at Harvard. He was an adviser to President Bush and is generally regarded as one of the foremost economists in the world today. In this morning's New York Times he has written an interesting essay on the ideas of economist, John Maynard Keynes (above), and how they might be applicable in the current economic climate.
A steep fall in eurozone inflation and a rise in the jobless rate has raised hopes that the European Central Bank (ECB) will cut rates sharply next Thursday. Analysts said the ECB could now cut rates by up to one percentage point from their current level of 3.25%. 
Today is 'Black Friday' in the US. Black Friday is the Friday after Thanksgiving, and it is the beginning of the traditional Christmas shopping season. Black Friday is not an official holiday, but many employees have the day off, which increases the number of potential shoppers. Many retailers open very early (typically 5am or even earlier) and offer doorbuster deals and loss leaders to draw people to their stores.
B&Q-owner, Kingfisher, has seen third-quarter sales fall 9% amid slowing demand for home improvements. Sales are down nearly 9%. Expensive items such as kitchen and bathroom units are the worst sellers, which is hardly surprising as such items have a high YEd (income elasticity of demand), never mind the collapse of the construction industry.
Irish exports to the U.K., Ireland’s biggest trading partner, dropped 18% in August as the British economy slid into a recession and the euro’s advance against sterling eroded competitiveness. Weak sterling means Irish products are dearer in the U.K. Sales to the U.K. fell to €958m in August from €1.17billion in the same month a year earlier, according to the CSO today. Figures for the three months through September show sales abroad dropped 3.7% from a year earlier in the third quarter to €20.8billion. The euro has increased 14% against sterling this year, eroding Irish companies' profit margins. A housing slump and the financial crisis have pushed the U.K. to the brink of a recession, cooling demand for imports. 
Finnish mobile phone giant, Nokia, has said it will stop selling its handsets in Japan after struggling to grow its market share in the country. Nokia said it would continue selling its luxury Vertu brand in Japan, and would dedicate its Japanese business to research purposes. Samsung and LG have also faced problems in Japan - a market dominated by sophisticated domestic phones. Nokia said recently that it would cut costs because of the global downturn. "In the current global economic climate, we have concluded that the continuation of our investment in Japan-specific localised products is no longer sustainable," said Nokia executive vice president Timo Ihamuotila.
The accelerating economic slowdown in China will lead to huge unemployment and could fuel social unrest, China's top planner has said. Zhang Ping, head of the National Development and Reform commission, said the impact of the global crisis on China's economy was deepening. "Excessive bankruptcies and production cuts will lead to massive unemployment and stir social unrest," he said. A state think tank said annual economic growth would slow to 8% this quarter.The State Information Centre blamed the fall - from 9% in the third quarter - on slowing export and the property market crisis. The 8% growth forecast for the fourth quarter is still faster than any other leading economy but the Chinese authorities have already had to deal with protests from fired workers.
Financial worries are leading to an increase in sleepwalking, researchers claim. Instances of sleepwalking have increased threefold this year compared with last, according to a poll by the hotel chain Travelodge. Some 3,500 adults and 350 Travelodge hotel managers responded to the poll. Economic fears and worries about being sacked are thought to head the reasons for sleepwalking. The survey also found that 98% of sleepwalkers are naked men, and the optimum time for sleepwalkers is 3.27am.
The annual rate of inflation in Iceland has risen to a record high of 17.1% as the country battles the worst financial crisis in its history. The Icelandic statistics agency said prices rose in November alone by 1.74% compared to the previous month. Food prices increased fastest, up 30.6% over the year, as the country's currency plummeted. The agency warned that inflation rate could rise beyond 20% in the future, threatening the economy. 
A car component factory in Tuam in Co Galway is to lay off 25 of its 260 strong workforce. Valeo Vision Systems, which specialises in the manufacture of in car camera systems, says the lay-offs are as a result of falling sales in the international car industry. Valeo, whose headquarters is in France, employs 61,000 worldwide. It bought the Tuam factory, which was previously known as CEL, last July. In a statement, the company says the job losses will be mainly in the production area of the plant.
Ryanair today launched Ireland’s first prepaid MasterCard service which will allow users to make purchases in shops, restaurants and online. Ryanair Prepay, which costs €85 and attracts a reduced stamp duty rate of just €10 (compared to €30 for traditional MasterCard and Credit card products), allows users to place credit on their MasterCard through An Post, online or via mobile phone. The card does not require credit checks or even a bank account and those who sign up will receive four free Ryanair flights as a well as a host of online discounts and cash back offers. The card is ideal for those who wish to have the flexibility and convenience of a credit card but don’t want, or can not access a traditional credit card.
For those interested in development economics, this should be worth watching. Over the last 50 years Western governments have paid out more than £400bn of tax payers' money in aid to Africa, but according to figures released by the World Bank this year, half of sub-Saharan Africans still live in extreme poverty, a figure which has not changed since 1981.
Reports in the English press this morning claim that Korean electrical LG and Saudi Telecom are interested in taking over the sponsorship of Manchester United. United’s current sponsors AIG are in serious financial trouble and have had to be propped up by the American government following the global credit crunch. AIG signed a 56.5 million pound deal in 2006 with the current Premier League and Champions League holders.
British Chancellor, Alasdair Darling (pictured), will announce a reduction in their rate of VAT tomorrow. It's not known when it will come into effect but I suspect it will be with immediate effect. The cut is expected to see the rate drop from its current level of 17.5% to 15% for at least a year - and possibly for as long as two years. That's as low as current EU law allows. He is doing this in an effort to help stimulate the economy by persuading consumers to buy again. The move will cost the British government a hefty £12.5bn a year but they see it as essential to increase consumption/demand, although it is debateable if the move will actually be effective.
David McWilliams is an economist, whose articles I usually enjoy reading. In this morning's Sunday Business Post, he again doesn't fail to deliver. 'Time to face up to reality' details what he feels the next steps in our banking crisis should be. The main points of the piece are:
An article from the BBC examines the economic consequences of the huge drop in the global bee population. As they explain, the phenomenon is far more serious than simply a rise in honey prices.
This week's Economist magazine has a highly-recommended and comprehensive overview of the current contraction of the Irish economy. Their Economist Intelligence Unit expects Irish GDP to decline by a substantial 2.5% over 2008. While in 2009 and 2010 they forecast further contractions of 2.3% and 0.5%, respectively. Factors that will negatively impact on purchasing power and consumer sentiment are falling employment levels, rapidly rising joblessness, strains in the banking system, further tax increases and the negative equity due to declining house prices.
The worsening economy is squeezing Europe’s major airlines, with dwindling sales of premium-class tickets starting to take their toll. On Thursday, Air France-KLM followed British Airways and Lufthansa in reporting a steep fall in quarterly earnings, largely because of high jet fuel prices last summer. Jean-Cyril Spinetta, chief executive of Air France-KLM, said the airline had also started to notice in August “a slide” from the front of the plane to the back as passengers switched to cheaper seats. He said about 8% of the airline’s corporate clients were banks, which had been on the front line of the financial crisis. “When there’s an economic crisis, businesses always want to reduce their general expenses, and individuals are more careful about their spending,” he said.
Ireland's banks were given a clear message tonight that the Government regards consolidation of the country's six Irish banks as key to their long term stability due to the current banking crisis. The Minister for Finance, Brian Lenihan, is meeting with the country's senior bankers at Farmleigh House, in Co.Dublin. Speculation is now rife that we could end up with AIB and Bank of Ireland totally dominating the banking scene. Since the State's guarantee for banks the Finance Minister has the power to force mergers between financial institutions. Various mergers have already been touted such as Bank of Ireland taking over Anglo Irish and Irish Life & Permanent. AIB would take control of the EBS and Irish Nationwide.
Oil prices have fallen below $50 a barrel for the first time since May 2005 amid fears of a recession and expectations that demand will drop. US light sweet crude fell to $49.75, while London-traded Brent crude fell to to $48.90 a barrel. The price of oil is around two-thirds cheaper than in July, when it hit a record above $147 a barrel. As economic slowdown has destroyed fuel demand, oil companies face the prospect of storing millions of barrels of unwanted oil. The falls on oil have mirrored weakness on equity markets, which dropped again today when European stocks hit their lowest level since March 2003.
The leaders of three African trading blocs on Wednesday agreed to create a free trade zone of 26 countries with a GDP of an estimated $624bn (£382.9bn). It is hoped the deal will ease access to markets within the region and end problems arising from the fact several countries belong to multiple groups. The deal also aims to strengthen the bloc's bargaining power when negotiating international deals. Analysts say the agreement will help intra-regional trade and boost growth. The three blocs which struck the deal were the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa). The three blocs are already well-established in their own right but cover varying swathes of land and numbers of people.Comesa was established in 1994 and replaced the Preferential Trade Area. It includes 398 million people and the area has a combined GDP of $286.7bn in 2006. Among its members are Zimbabwe, Zambia, Uganda and Sudan.
EAC is the smallest of the group in terms of GDP, and had a GDP of $46.6bn in 2006. Set up in 1967, disagreements between founding members Uganda, Kenya and Tanzania led to its collapse. A treaty was signed for its re-establishment in 1999 and the new EAC was formed in 2000.
I must admit, my own students can be fairly boring with their excuses, if they don't have their homework done. Reasons usually involve missing locker keys, lost sheets, temporary amnesia and a lack of time due to football/rugby/basketball matches (usually of at least five hours duration). However, according to new research in Britain by pixmania.com, teachers hear fifteen homework excuses a week, on average, and it seems, blaming technology is becoming increasingly popular. The top five most popular tech-related reasons for not doing homework are:
The Central Statistics Office figures show that the number of new cars licensed in October almost halved compared with the same month last year. 2,699 new cars were licensed last month, down 49% on the 5,301 recorded in October last year. Almost 55% of the new cars were diesel, with just over 43% using petrol.
Japan, the world’s second-largest economy, has officially slipped into recession, hurt by weak export growth and steep cuts in corporate spending amid the worsening global slowdown. It is its first recession since 2001 after the GDP shrunk by 0.1% in the third quarter (had previous shrunk by 0.9% in the April to June quarter). Until now, Japan has stood apart from most other developed nations because its banks were relatively unscathed by the financial crisis. But Monday’s data showed that America’s woes reached Japan via its exports, as Americans spend less on Japanese cars, televisions and machine tools. The decline adds to the grim outlook for the global economy, after Hong Kong and the European Union released data on Friday that showed they were in recession. Europe’s largest economy, Germany, also announced last week that it was in recession.
It has emerged, the credit crunch is having a negative effect on Scotland's prawn fishing industry at a time traditionally known for high prices. There is uncertainty over sales as households in Ireland, the UK and throughout Europe spend less. Continental Europe represents more than 80% of the market. Demand for prawns and other shellfish normally increases in winter because catches are limited by bad weather coupled with customers who want the seafood for the festive season. The situation is affecting sales in prawns, scallops, crab and lobster.
Brian Brady writes in this morning's London Independent that as day-to-day upkeep, vets' bills and insurance costs rise, animal shelters are reporting thousands of owners giving up their pets. Animal shelters across Britain report a steep increase in pets being left with them over recent months, as well as a decline in the numbers of people willing to take on their abandoned dogs and cats.
Earlier, this week, we saw Aldi announce the opening of many new stores in Ireland next year. Of course, this is hardly surprising, in the current economic climate, as Aldi (and Lidl) concentrate mainly on selling inferior goods. Remember, 'inferior' is purely an economic term - it implies nothing about the actual quality of the good itself. From an economics perspective, inferior goods are goods whose demand has an inverse relationship with the consumer's income, i.e. as the consumer's income increases, demand decreases and vice-versa. Inferior goods exist because as people's incomes rise they tend to move onto more expensive goods and away from cheaper ones, e.g. own-brand cereals. Likewise, if incomes are decreasing, these inferior goods will become more attractive to consumers.Even as consumers are cutting back on 'normal goods', Spam is among a select group of 'inferior goods' that are selling steadily. Pancake mixes and instant potatoes are booming. So too are vitamins, fruit and vegetable preservatives and beer, according to data compiled, in October, by Information Resources, a US market research firm.“We’ve seen a double-digit increase in the sale of rice and beans,” said Teena Massingill, spokeswoman for the Safeway grocery chain. Kraft Foods said recently that some of its value-oriented products like macaroni and cheese, Jell-O and Kool-Aid were experiencing robust growth.
World leaders are in Washington today for a G-20 summit. The G-20 is basically a group of leaders of emerging economies, the traditional economic powerhouses of the G8, and the EU. Collectively, the G-20 economies comprise 90% of global GNP, 80% of world trade (including EU intra-trade) and 65% of the world population.
The mayor of a city in Turkey called Batman, is suing The Dark Knight director, Christopher Nolan for copyright infringement. Huseyin Kalkan, wants compensation from Nolan and the producers of the film for using his city's name without permission. Even if the case never goes to trial, the free publicity could win Batman a tourism windfall.
A very interesting article in this morning's 'Guardian', by Charles Arthur, raises the issue of the viability of Dell.
According to a new book called '150 Best Recession-Proof Jobs', by US Careers' expert, Laurence Shatkin, the best recession-proof jobs are those that are least sensitive to economic downturn, and which have the highest combined scores for pay, projected workforce growth, and number of openings. The top 20 jobs are listed above. Thanks to Time magazine, you can view the whole list here and read an interview with the author here.
Credit Crash Britain: Property: The End of the Affair?
The German economy, the largest in Europe, has entered a recession, according to data published yesterday that showed its gross domestic product shrank for a second consecutive quarter. The Federal Statistics Office reported that German GDP contracted 0.5% in the third quarter, more than the 0.2% decline that had been anticipated. That follows a decline in the second quarter of 0.4%, a slight revision from the 0.5% decline announced previously. The contraction was caused by the negative impact the global financial crisis was having on German exports, which had been the engine of the country’s growth. At the same time, there was a surge in imports, and the balance of exports and imports had a negative impact on the development of the gross domestic product.The Organization for Economic Cooperation and Development (OECD) forecast on Thursday that all the world’s major industrial countries were headed for a major slowdown. The organization, based in Paris, said the United States and Japan, as well as the eurozone, would undergo economic contractions in 2009 before recovering slightly in 2010. Figures expected later today from Britain, Italy and the Netherlands were likely to show declines as well.
Bookmaker, Paddy Power, has said it is on track to record profits of around €75m for this year. In a trading update, the company said this assumed a 'normal run' of sporting results. Paddy Power said this would translate into earnings growth of 10% for the full year, despite a €5m hit to profits from a weaker sterling. The bookmaker said deteriorating economic conditions were affecting its business, but it was responding by tightly managing costs. It also said online betting now accounted for over 60% of its profits, but turnover in betting shops has declined. It said the increase in betting tax announced in the Budget would hit its profits by €9m/€10m next year. Paddy Power was created by the 1988 merger of three bookmakers and expanded beyond Ireland in 2000, when it first bought a UK outlet. Britain's biggest bookie, Ladbrokes, reported a 2% fall in revenues from bets placed at the window in the four months to the end of October, as it revealed the amounts being staked are falling.
In what will become the norm over the coming months, official figures today show that the annual rate of inflation fell back to 4% last month from 4.3% in September. The Central Statistics Office said lower petrol and diesel prices and falls in the prices of clothes and footwear were the main factors in the fall. The CSO said the figures did not include rises in excise duties announced in the Budget as they took effect after the figures were calculated.
Scientists at Cambridge University have found that entrepreneurs’ brains work differently. Research published this month in Nature Magazine found entrepreneurs' brains are more active in the region responsible for making snappy decisions. These entrepreneurial traits have been linked to the release of dopamine in the brain: the same chemical that swamps your system when you eat chocolate or listen to music. Drugs could be developed to enhance entrepreneurial traits by mimicking these reactions. According to Barbara Sahakian, who headed up the research, entrepreneurs had more developed “medial and orbital sectors of the prefrontal cortex”. But she added that the mental processes required to take greater risks could be taught, or enhanced with drugs.
Discount retailer Aldi has unveiled plans for a significant Irish expansion with 35 new stores and 650 new jobs over the next three years. The German owned group is also setting up its second Irish distribution centre which will be located in Mitchelstown, Co Cork, to supply outlets in the south of the country. Today, Aldi says it will spend €350m as it increases its presence in Ireland. It currently has 59 stores here and will open a further 17 by the end of next year. Unlike conventional outlets discounters, Aldi and its rival Lidl, usually offer one brand of each product. They also have relatively low numbers of staff per store with Aldi employing an average of 14. Over the past decade the two discount retailers have grown their market share at the expense of existing players. Aldi says it has currently a 4.5% share of Irish grocery spending.
In recent months, as the Republic entered a recession for the first time in more than 15 years, the store has done particuarly well with the numbers of customers up 25% in October 2008 compared with the same period last year. The managing director of Aldi UK and Ireland Paul Foley new customers were "trying Aldi because they’re more conscious of seeking out value for money”. He said Aldi customers could expect to spend €60 less on a trolley of goods which would cost €200 elsewhere.
Ireland and most western economies will find itself dealing with the problem of deflation next year. It is widely believed inflation will tumble during 2009 as oil and energy costs drop. Collapsing demand is symptomatic of poor business conditions. Those who anticipate deflation see it occurring because of people losing their jobs, and a continuation of the recession that we've been having. It occurs when the economy is in deep trouble. Irish inflation could even turn negative for the first time since 1946! Shoppers coping with the increased inflation of late could be forgiven for welcoming the potential boost to the euro in their pocket, but they may not be so keen on the prospect of falling wages while saddled with the burden of debts piled up in the good times. The one silver lining for homeowners with inflation was that the value of their big debts such as mortgages was eaten away more quickly. With deflation the opposite is the case. A prolonged bout can lead to businesses and consumers deferring spending amid expectations that prices fall further still.
Deflation is far more difficult to control than inflation, unfolds at a faster rate and leaves more havoc in its wake. So what are the consequences of deflation?
The US Treasury Dept is quickly running out of money to invest in troubled banks. A Time magazine study today shows that nearly one-third, or $216 billion, of the $700 billion that Congress approved to be spent just six weeks ago has already been spent or will soon be spent on just 67 banks. That's a small fraction of the up to 1800 financial firms that are expected to apply for government assistance. It seems very likely that the fund needs to double in size. While the Treasury still has about $480 billion to spend, it's not clear how much of what is left will be used for direct investments into banks.
UK banks have increased interest rates on credit and debit cards held by tens of millions of shoppers despite the cost of borrowing falling to its lowest level for more than 50 years, research for the London Independent reveals today. The Bank of England has almost halved its base rate from 5 to 3% since May, but during the same period the average annual percentage rate for credit cards has climbed from 17.2 to 17.6%. More than £200 billion is owed by Britons in unsecured borrowing, including personal loans, overdrafts and credit and store cards - almost one-fifth of total lending. While the banks have been heavily criticised for failing to pass on the Bank of England's interest rate cut to their customers, so far providers of "plastic" have escaped scrutiny for failing to do likewise with their credit cards. The credit card companies are probably attempting to recoup the cost of bad debts, rising levels of fraud and customers making use of 0% balance transfer discounts.
In an unique initiative, Permanent TSB, one of the largest retail banks in the country, is offering its staff a paid career break in an effort to cut costs. The bank hopes the initiative helps it through a period where it expects less business volumes in the months and years ahead arising from the recession in the Irish economy. It is offering to pay employees up to €20,000 to take a two year 'career break' (€10,000 a year) or €35,000 for a three year break. Permanent TSB hopes the career break will appeal to younger employees who might take the opportunity to travel.
Crunch Time: The Great Property Crash
Sterling hit a new low against the euro this evening. At the low point in trading today, £1 bought just under €1.22 - marking the UK currency's weakest performance against the euro since its launch in 1999. The euro's strength comes in the wake of UK interest rates being slashed by 1.5% to 3% last week by the Bank of England. By 6pm, the euro was trading at $1.2766 and at £0.8167. This means of course that shopping up the north is cheaper but its bad news for Irish companies exporting to Britain because their goods become more expensive there.
Here's an interesting article which appeared on the BBC site today. It concerns Bolivia's resources of lithium and how they could transform the wealth of the country. Why? Well, lithium is a limited resource but one which could help power electric or petrol-electric hybrid vehicles of the future.
China announced an absolutely huge economic stimulus plan on Sunday aimed at bolstering its weakening economy, a sweeping move that could also help fight the effects of the global slowdown. At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7% of its GDP each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.
In his Sunday Business Post article, this morning, David McWilliams, savagely attacks the Irish banks in a manner which I haven't seen in the Irish media for a while. Those who have been reading McWilliams of late will be aware, it is he who recommended the bank guarantee scheme a couple of weeks before it was announced by Lenihan. He said, soon after that, the next necessary stage was for the Irish banks to come clean about their bad debts following the collapse in construction here - but this isn't happening to any great extent. The brunt of his piece is that he believes management of Irish banks won't release the true extent of the bad debts on their books because that will affect their tier one capital ratio, which will mean credit rating agencies downgrading the banks, which will call into question the position of the bank's management. Basically, he's saying management of Irish banks are covering their own ass rather than doing what they can to get the country out of the mess we find ourselves in, and what's worse, they are damaging our economy even more in the process."...The problem is simple: if the bank admitted that the problems were as bad as they were, the management and board would have to resign because they would need new capital. New investors would not trust the same people who got the banks into this mess in the first place. So we are experiencing a game of cat-and-mouse between the market and management and, all the while, share prices keep falling. For the sake of clarity, let’s cut to the chase and do some little calculations. The reason Irish banks are in difficulty is because they are stuffed with Irish - and, to a lesser extent, British - property that nobody wants to buy. AIB has development loans in Ireland of just over €18 billion, as well as €5 billion of development loans in Britain. In all property crashes, development land falls further in value than house prices. Let’s take a conservative view: that house prices will fall by just 25 per cent (it is likely to be far greater, but let’s be positive). This means that the development loan book of AIB will have bad debts of at least 30 per cent and, given a total development loan book of €23 billion, that means bad debts of about €7.5 billion. To date, AIB has provided for €1 billion of bad debts. So it is hardly surprising that the share price has fallen again.
...Our bankers are petrified of the following scenario. If they admit how bad things are and make proper provisions, their tier one capital ratio will fall. The reason for this is that the more bad loans there are on the books, the more these eat into capital adequacy ratios. If their capital adequacy ratios fall to, say, 5 per cent, when similar British banks have a ratio of 9 per cent, the game is over for the management. This means the banks will be downgraded by the rating agencies. Some of the banks will have to look for state help to recapitalise and the positions of the management, chairman and board will be called into question. So it’s simple: all this prevarication is about self-preservation. The banks are hoping to spoof now and recover their tier one capital ratios by reducing lending. This is what we do not need, because our economy will seize up without credit and we may face the Japanese long recession scenario, which is precisely what the guarantee was designed to avoid. Ireland’s financial Know Nothings - the lads who blithely brought us to the abyss - are trying to save their own skins and, in the process, are risking the future of the economy. This is the worst of all worlds".
