What Worries Billionaires? You and Me, Us.

Not since the time of the Carnegies, Rockefellers and Vanderbilts

 at the turn of the 20th century was so much owned by so few 

I'm pretty sure I've never spent time with a billionaire.  I've never had the chance to hear them out, what makes them tick, what troubles them, their deepest worries. It can't be easy, tossing around at night with dreams of guillotines, gilded of course.

Billionaires increased their combined global wealth by almost a fifth last year to a record $6tn (£4.5tn) – more than twice the GDP of the UK. There are now 1,542 dollar billionaires across the world, after 145 multi-millionaires saw their wealth tick over into nine-zero fortunes last year, according to the UBS / PwC Billionaires report.

Josef Stadler, lead author of the report and UBS’s head of global ultra high net worth, said his billionaire clients are concerned that growing inequality between rich and poor could lead to a “strike back”.

“We’re at an inflection point,” Stadler said. “Wealth concentration is as high as in 1905, this is something billionaires are concerned about.

“The problem is the power of interest on interest – that makes big money bigger and, the question is to what extent is that sustainable and at what point will society intervene and strike back?”

Stadler added: “We are now two years into the peak of the second Gilded Age.”

It's not like they're feeling much love these days from the International Monetary Fund that recently prescribed what is essentially confiscatory taxation to relieve billionaires of the burden of their excess wealth and use it to diminish the scourge of inequality.

Billionaires’ fortunes increased by 17% on average last year due to the strong performance of their companies and investments, particularly in technology and commodities. The billionaires’ average return was double that achieved by the world’s stock markets and far more than the average interest rates of just 0.35% offered by UK instant-access high street bank accounts.

And now for something, well, not entirely different.

Toasted, Roasted and Grilled. - Lagarde

IMF chief Christine Legard has added her voice to the call for urgent action on climate change - and growing inequality.

"As I've said before, if we don't do anything about climate change now, in 50 years' time we will be toasted, roasted and grilled."

Both climate change and inequality were "two key issues" that would drive us to either utopia or dystopia, Lagarde stated. "If we don't address those two issues — of climate change and growing inequalities — we will be moving towards a dark 50 years from now," she said.

Legard chose a conference on future investment held in Riyadh, Saudi Arabia, to deliver her remarks. She was somewhat countered by Amin Nasser, CEO of Saudi Aramco, who observed, perhaps ironically, that oil isn't going anywhere anytime soon. 

"Alternatives, electric cars and renewables, are definitely gaining market share, making a lot of progress and we are witnessing that," he said. "However, it will be decades before they take a major share of the global energy supply."

Next Up, Spain

As events unfold over the next few weeks following today's No victory in Greece there'll be plenty of people watching in Spain.  That country's Podemos movement promotes a similar sort of anti-austerity platform to that of Greece's Syrzia.  It's hard to imagine today's defiant events in Greece not having a knock on effect in Spain and perhaps Italy also.

I've spent some time this afternoon prowling the web for online European newspapers, stopping to look at their photos of street celebrations across Greece. What struck me is how generational this seems.  Unlike the earlier protest marches where the crowds were of all ages, today seems to be a day for young Greeks to rejoice.

Greek youth, after all, had the most to lose.  Just coming into adulthood they faced the prospect of either having to emigrate or face a future of perpetual penury.  They grew up with five years of punitive austerity, saw what it did to their parents.  They understood that a Yes win would be "game over" for their future.  They fought and they won even if it victory only means the right to fight again another day.

By contrast it was the wealthiest Greeks who were the most outspoken proponents of the Yes side.  The austerity measures the Euro Bank and IMF were using to crush ordinary Greeks really didn't matter to the oligarchs who, in many cases, were the real tax dodgers contributing to the debt crisis.  The shipping magnates remain unscathed, still venerated as de facto nobility.

The Spanish go to the polls in a general election some time before 20 December. Podemos has gone up and down in the polls but today's events might give a much needed boost to anti-austerity supporters.

Deadlier Than Putin's Missiles. The IMF Pays Ukraine a Visit.

The International Monetary Fund has worked its magic on Ukraine.  The carrot is about $17-billion in bailout funding.  The stick is the market price of natural gas. Soon the democracy-loving Ukrainians will see their gas bills soar nearly threefold.


While Kiev will have to help poorer families pay for pricier gas, the cost of that assistance pales in comparison with what artificially cheap local gas cost the government. The IMFestimated in 2012 that cheap gas cost Ukraine about 5 percent of its prewar GDP per year.

Bringing gas tariffs back to something resembling market prices will also curb energy consumption and provide more incentive for Ukraine to produce its own natural gas. Together, that promises to further reduce Ukraine’s reliance on imported Russian gas, potentially removing one of the sharpest arrows in Moscow’s geopolitical quiver.

Ukrainian gas consumption has fallen from 108 billion cubic meters (bcm) per year in 1993 to about 42 bcm today, thanks in part to a dismal economy in the 1990s and the phaseout of Soviet-era heavy industry. With the reform package, Ukraine could further trim the amount of gas it needs to import from Russia, which last year fell to the lowest level in 15 years.

What's unclear is how Ukraine's already wobbly economy will handle the energy shock.  Josh Cohen, an ex-US State Department staffer who handled economic reform projects in the former Soviet Union thinks the IMF medicine Poroshenko has swallowed will be toxic for Ukraine.

We have seen this story before. During the 1990s, when I worked at the U.S. Agency for International Development (USAID) in the office charged with managing economic reform projects in the former Soviet Union, I observed that the type of austerity now being required of Ukraine was the standard prescription for countries in economic crisis. The leading Washington financial institutions, such as the IMF, World Bank, and U.S. Treasury Department, were passing out this one-size-fits-all solution. And it almost never worked.

Russia was the classic case. In the midst of the political shock caused by the breakup of the Soviet Union, neoliberal reformers supported by the West instituted a policy of so-called "shock therapy" involving an end to price controls and large cuts in government spending and subsidies. The result was a plunge in Russia’s GDP and inflation rates averaging 20 percent per month. As the poverty rate climbed to a full 55 percent of the population, there was a widespread political backlash against austerity led by Russian Vice President Alexander Rutskoy, who termed the reforms "genocide" and led a failed attempt to overthrow President Boris Yeltsin in 1993.

...Kiev’s decision to implement similarly painful austerity measures during its own political turmoil is doomed to fail in the same way, leading to even more instability and crisis in a country that has had more than its share of both over the past year.

...Reforms that reduce corruption and cut government spending and subsidies are necessary if Ukraine is ever going to come close to reaching its economic potential. However, with a collapsing economy and an ongoing war, Kiev needs a semblance of stability far more than shock therapy.

Ukraine is currently in economic free-fall. After estimating that the economy would shrink 5 percent in 2014, the IMF now predicts a 6.5 percent drop in the country’s GDP, while some analysts think it could be as high as 10 percent.

...Despite the economic crisis, the IMF’s loan requires Kiev to enact a series of policy changes, all of which will accelerate the collapse of the economy and decrease the purchasing power of ordinary Ukrainians.

The IMF demands that Ukraine make immediate cutbacks to reduce the fiscal deficit. To meet this requirement, Kiev has already enacted a series of laws raising excise and property taxes, reduced social income support expenditures for retirees and public employees, frozen Ukraine’s minimum wage, and cut public-sector wages.

Another target is the energy sector. Ukraine is required to increase natural gas and heating tariffs for consumers by 56 percent and 40 percent in 2014, respectively, and by 20 to 40 percent annually from 2015 to 2017. At the same time, as gas prices increase sharply, gas subsidies to end users will be completely ended over the next two years.

...This overall combination of increased taxes and energy costs, decreased wages and social expenditures, and growing inflation is more akin to a Kevorkian prescription for Ukraine’s economy then a recipe for a return to economic growth. Given that a USAID-funded opinion survey released in April found that a majority of Ukrainians already oppose higher energy tariffs and prices, the political consequences of austerity could be explosive.

The West could help Ukraine through this economic crisis. As a recent Bloomberg editorial noted, "In Ukraine, the IMF will in essence be trying an economic solution to a geopolitical problem." Indeed, Kiev’s decision to implement austerity in the middle of a bitter civil war is foolhardy for both financial and political reasons: Wars cost money — lots of it — and unsurprisingly, Poroshenko has already announced $3 billion in additional defense spending for this year. Given that the second tranche of the IMF’s loan is $1.4 billion, the ongoing costs of the war make it extremely unlikely that Ukraine will be able to meet the IMF’s fiscal and financial targets.

But the political problems with shock therapy for Ukraine are even greater. The austerity program will further alienate the very citizens of Donbass, the restive eastern region currently hosting the worst fighting. If the country will ever be put back together, the people of the east must feel that Kiev takes their concerns into account. Unfortunately, by implementing austerity when industrial output has as of July declined by 29 percent year-on-year in Donetsk and a whopping 56 percent in Luhansk, the government in Kiev provides just the opposite message to the east.

Oh boy, another failed state to add to our ever growing list of interventions - Kosovo, Libya, Afghanistan and now Ukraine.  Perhaps we should put our plans on shipping them weapons on hold until we get assurances they won't just sell them to Putin's side for pocket money.

They'll Nip This in the Bud

It's enough to give an oligarch chest pain.  Barely a month in power, popular support for the left-wing, anti-austerity government in Greece is soaring.  Syrzia won the January polls with 36% of the votes.  A few weeks later and there's no sign of buyers' remorse.  Instead the party's support has climbed to almost 48%. Not bad for a movement that came out of nowhere just three years ago.

It's not so much the Greek government digging in its heels on debt repayment and austerity demands that will be infuriating the Euro bankers.  It's the attitude of the Greek people that they'll find unnerving.

On the street, optimism has returned. People worn down by gruelling austerity, on the back of unprecedented recession, are smiling. Government officials have taken to walking through central Athens, instead of ducking into chauffeur-driven cars to avoid protesters. Last week, finance minister Yanis Varoufakis – a maverick to many of his counterparts – was mobbed by appreciative voters as he ambled across Syntagma square.

“They’ve given us our voice back,” said Dimitris Stathokostopoulos, a prominent entrepreneur. “For the first time there’s a feeling that we have a government that is defending our interests. Germany needs to calm down. Austerity hasn’t worked. Wherever it has been applied it has spawned poverty, unemployment, absolute catastrophe.”

If there's one thing the ECB and IMF realize it's that this sort of thing can be contagious.  It can spread.  In other countries those populations are also feeling "worn down by austerity" and saddled with governments that are not defending their interests.

It's already taking hold in Spain.  Italy, Ireland, France and even Britain could be susceptible.  I expect the conservative lenders won't sit by idle.  They need the Greek people back in harness to austerity or, before long, everyone will be kicking over the traces.  Optimism, left unchecked, can be a very, very dangerous thing.

The IMF Wades In on Inequality

The hard Right have transitioned seamlessly from the fight to thwart action on climate change to their even more desperate rear guard effort to defend inequality from nasty, money-grubbing reformers.

Well, Movement Conservatives, have just lost a potential ally, the International Monetary Fund.  The IMF has just released a report that undermines every Rightwing Shibboleth on the perils of reversing inequality.

 ...in what is likely to be viewed as its most controversial conclusion, the IMF said analysis of various efforts to redistribute incomes showed they had a neutral effect on GDP growth. This last point is expected to dismay rightwing politicians who argue that overcoming inequality robs the rich of incentives to invest and the poor of incentives to work and is counter-productive.

The paper, written by Jonathan Ostry, the deputy head of the IMF's research department, and the economists Andrew Berg and Charalambos Tsangarides, comes after several years of heated debate over the path that developed and developing countries' economies have taken since the financial crash and whether their recoveries are sustainable.

Anti-poverty charity Oxfam welcomed the report, saying it shows "extreme inequality is damaging not only because it is morally unacceptable, but it's bad economics".

It added: "The IMF has debunked the old myth that redistribution is bad for growth and demolished the case for austerity. That redistribution efforts -essential to fight inequality- are good for growth is a welcome finding. Low tax and low public spending are clearly not the route to prosperity."

IMF Calls on Cameron Tories to Change Course

Britain's Conservative Cameron government are the High Priests of bone-crushing austerity.   David Cameron and his gaggle of privileged Saville Row suiters are not interested in sparing the lash when it comes to Britain's weak and vulnerable.   Meanwhile, Steve Harper looks on with fawning admiration at everything he wishes he could be.

Yet Cameron has now run afoul of that bastion of radical socialism, the International Monetary Fund.  The IMF is crying "enough already" and pleading with Cameron to reverse course if only to boost the British economy.

It said the £10bn-worth of spending cuts and taxes planned for the coming year would be a "drag on growth" and urged the government to do more to stimulate the economy.

The fund's deputy managing director David Lipton said Britain should bring forward investment on infrastructure and defer some near-term spending cuts to kickstart the economy.

"In a range of policy areas, the government should be more supportive of growth. What is important now is not to make a mistake today and presume that all will be well with the economy some years from now. I think it's important to get started on infrastructure projects that will support the economy." He said that would allow the government to push back some of the cuts and bring forward more supportive measures.

The UK could suffer higher unemployment and lose economic capacity permanently if it ignores the fund's advice, he warned.

Living In Butland

It can be a bit of a shock to the system to wake up one day and realize you're living in Butland, part of Butworld on planet But.

It seems that everything these days is delivered with a big, shiny "But." We're winning in Afghanistan, but... . Iraq is a huge success, but... . We're going to tackle the greenhouse gas business, but... .

"But other than that, Mrs. Lincoln, how did you enjoy the play?"

We're stuck in the era of "Ifs, Ands, or Buts." For every proposal, every problem, every event there's bound to be an If or an And or a But thrown in somewhere around the very end to make everything you just heard or read almost completely meaningless. You get your hopes up and then - someone drops the But bomb.

Take this story out of the World Bank and International Monetary Fund. They just came out with some wonderful news. They're on track to cut global poverty by half by 2015. Now that is big news, certainly the best thing I've heard in a while. Until the But arrives.

It seems we're poised to cut global poverty in half but, if we don't want to see that success completely reversed, we'll have to tackle the little problem of - wait for it - global warming. The bank and the fund define extreme poverty as living on less than $1 per day. That bottom rung still stands at about a billion people.

The industrialization of India and China is creating market demands that spread newfound wealth to many impoverished corners of the earth. Unfortunately that wealth can come at the cost of a nation's rain forests and fisheries.

Raising a person's income from under $1 per day to over $1 per day may be significant to the World Bank or the IMF but it isn't that great a blessing for the individual who finds that grain prices and his basic sustenance have increased 100% in just one year. It isn't much of a boon if that individual can no longer find affordable fish to buy.

What it all boils down to is that the World Bank/International Monetary Fund goal of halving global poverty is being assessed in the context of a world that doesn't exist - a world without resource depletion, food shortages and all the environmental effects that are already being felt due to global warming. Give them credit for good intentions, but...