Cry for Argentina

Argentina is currently the second largest economy in South America; it is rich in natural resources, has a diversified economy and importantly a democratic government.  It is a far sight from the Argentina of 2001, where in a similar situation to Greece now, they had to default on massive loans and start their economy again. They had recovered strongly and even fared well during the global financial crisis, with incredible growth of 9.2% during 2010, leading to the comfortable re-election of President Cristina Fernandez in 2011. She is Argentina’s first elected female president and is the widow of former president Nestor Kirchner (2003-2007). But once again not all seems right with the Argentinean economy.

Argentina themselves are sticking with the 5.1% growth they forecasted for this year, but many think otherwise as recent data shows a decline in the economy, with industrial production in May falling by  4.6 % since May last year. A more likely growth rate has been forecasted at between 2-4% with some pessimists even predicting a recession.  This is trend with Argentinean statistics however, as the government likes to manipulate numbers to its advantage, leading to many foreign analysts using unofficial data to evaluate Argentina’s economy. The biggest manipulated statistic is the inflation rate; the Argentinean government reports it at around 10%, but private sources put the number much higher at around 20-25%. The government has taken a stern approach to these numbers being reported, with analysts fired or even sued if they don’t come in line with the government’s figures. This has lead to the IMF giving Argentina a deadline to improve its national statistics or face sanctions, with a decision set to be made in early September (though the IMF has a history of backing down on such issues).

PriceStats a Private sector index, shows how Argentina’s official inflation rate differs majorly from their figures, while most other countries have similar rates.

This isn’t all. The government has also become very involved with the private sector, with heavy subsidies and nationalisation a common sight. Cristina Fernandez, for instance, announced the seizure of a majority stake (51%) in YPF (the country’s biggest oil company), despite it being owned by a Spanish based company – leading to heavy criticism from Spain and the EU.  This proved very popular with the public; with the privatisation of the Argentinean company in 1990’s long resented. The main reason behind this move was to try and reverse the recent change of Argentina from an energy net exporter to an energy net importer, with the current energy deficit estimated at $7 billion this year, by developing very expensive oil fields in the country.  This move will only damage Argentina’s reputation more as a corrupt nation however, with the country rated 113^th in the world for “doing business”. This has followed the nationalisation of Argentina’s private pension funds and its flagship airline, showing a trend of government interference in the private market. The management of these companies have been poor too, with the Aerolíneas Argentinas (the nationalised airline) costing the government an estimated $840 million last year, while the airline ranks very low in most rankings for performance. The subsidies have been just as bad, with inefficient firms being propped up by government money to protect them from the global market. Argentina has spent the money they should have saved during the good times on these subsidies and now they are struggling to find the cash to keep social programmes running during these bad times. Subsidies have helped make Argentina’s public transport the cheapest in the world, but they haven’t improved educational standards (with the Legatum institute rating them 39^th in the world for education) or the attractiveness to big business that can create jobs for the Argentinean people. The subsidies remain a short term boost that can help Cristina Fernandez attract votes but they do little to help Argentina in the long term, something Argentina needs desperately to consider.

Graph showing Argentina’s energy deficit, which has since grown to $7 billion.

Another problem is one that Argentina has had to live with since the 2001 crash. The country faces extremely high interest rates and legal threats (from countries it defaulted on in 2001) when borrowing from the international markets, so the government finds it very hard to borrow money. This has lead to the government finding new alternative sources for its public spending. First up were the nationalised private pension funds, where the government siphoned off $6.8 billion during 2009-11 to spend on public projects. Next was the central bank, where the government has transferred $16 billion from the central bank’s reserves since 2010 to help service public debt and have even forced out the banks governor when he protested against the government’s decision. The central bank is now required to use its reserves (at around $47 billion) to help pay government debt and transfer the treasury cash equal to 20% of the government’s revenue. Now the government can use YPF to help finance their debts, with the company’s profits of $1.3 billion a year a useful bonus to the treasury.

Martin Redrado, the governor of the central bank, was forced out after disagreeing with the government. 

Finally, the country faces problems with a devaluating peso. The country’s currency has dropped in value in comparison to the dollar, with $1 equalling around 4.5 pesos. This has lead to a capital flight as Argentina’s foreign reserves shrank by nearly $6 billion in the last few months, as the public become fearful of hyper inflation making the peso worthless. The government has responded by introducing currency controls, resulting in the limited availability of dollars in the country. This has had a negative effect on the housing sector however, which was mainly conducted in dollars. The lack of dollars in the market has been a major reason in the slowdown in the economy, leaving the government with a hard choice to make, keep restricting dollars and hope the slowdown helps bring inflation down, or stop and allow the economy to pick up but face the threat of hyper inflation.

Shows the drop in the value of the Peso. 

All these problems are inter-related, they stem from poor governmental policies that have been far too short-sighted in the last few years to really help the economy. Heavy government spending wasted during the good times resulted in less cash for the bad times and the ever increasing inflation that Argentina suffers from. This inflation caused the capital flight problem which has restricted the amount of dollars in the economy and therefore caused the slowdown in the economy. The high inflation numbers also caused the government to start lying about important national statistics, which is costing companies billions and making the outside world lose faith in the Argentinean markets. The heavy government spending has had to be financed by alternative means to the international markets too, so domestic markets have been ruined by nationalisation and heavy subsidies making them inefficient and a drag on the economy.

So after years of incredible growth for Argentina, where they averaged above 7% growth each year, they now face an overheating economy and the threat of hyper inflation. Cristina Fernandez recently argued that Europe was failing due to their policies of austerity, Europe’s possible response: Don’t cry for us, Argentina.

Obama’s first term

Barack Obama has been America’s 44^th president since 2009, and the first African American president of the country. He has had a tough time in office with the USA facing one of the biggest economic disasters in its history, but he has also experienced some highs like winning the Nobel Peace Prize in 2009. With Barack Obama running for a second term in office, now seems an appropriate time to review his first term.

First up is the American Economy, which remains a weakness for Barack Obama in the ongoing elections, as Mitt Romney (the republican candidate) continues to use the subject as his biggest weapon against Obama. Unemployment which peaked at around 10% in Obama’s first year has declined to 8.2% (a credible achievement) but remains very high for the world’s biggest economy, with Germany’s unemployment at only 5.6% this year. GDP which declined by 3.6% in Obama’s first year in power has grown slowly since, with the projected 2% growth this year looking set to be under hit. Even more worrying is the fiscal cliff America is heading towards in January, with GDP to drop by 5% if Obama cannot reach a new deal with the Congress over the budget deficit. The budget deficit remains over a trillion for the fourth consecutive year and has already cost the USA their AAA credit status with S & P and could cost them further with more credit agencies if they don’t make an attempt to balance their books. Instead, Obama has spent a higher percentage of GDP than in any other year of America’s history barring WW2 with 25.2% of GDP in 2009, 24.1% of GDP in 2010 and 24.1% of GDP in 2011 while in 2012 they are predicted to spend 24.3% of GDP.

The fiscal cliff that the USA is heading towards at the end of the year, the equivalent to 5% of GDP.

But Barack Obama’s leadership of the economy has not been all bad. Exports contribution to GDP has grown during Obama’s reign, as a weak dollar coupled with increased spending in countries like China has seen American exports revive – with the trade deficit decreasing from 6% to 4%. American banks are also much more secure than their European counterparts now as America reacted much quicker in reforming their financial system, with capital ratios the highest in the world now. Individual debt has also decreased under Obama’s time in power from a high of 133% of income to 114% of income now, showing a realisation in American culture of dealing with their debt. One of the real issues has been the lack of compromise between a democratic president and a republican congress, which has handicapped Obama, slowed down the USA’s recovery and threatens to cause another recession in the future. So in economic terms, Obama has had to work in a tough environment with a republican congress and an underperforming global economy (the euro crisis in particular), while a lot of the problems he is dealing with were passed down from the previous governments. But there is a feeling he could have done more to improve the recovery and increase jobs, so while he has hardly gone backwards, he isn’t exactly racing ahead.

While Barack Obama has created more jobs, the growth in jobs has stalled somewhat recently.

Another area to judge Barack Obama’s first term is in foreign policy. Obama has proved successful in pulling out of Iraq, in establishing an exit date for Afghanistan (where an earlier exit could have thrown the country into chaos) and in killing Osama Bin Laden, the leader of a highly dangerous terrorist group. He has had more mixed success in other situations; with the intervention in Libya seeing France and Britain take the lead, the assignation of Osama Bin Laden in Pakistan causing disputes between the two governments and the concentration on allies neighbouring China increasing the tension between the two global giants. Then there has been the outright failures; with thousands dying in Syria while the USA remain constrained by the UN from intervening, Iran looking increasingly capable of nuclear weapons and his promise to solve the conflict between Israelis and Palestinians remaining un kept. Overall, Barack Obama’s international approval ratings have dropped since he took power in 2009, which makes sense as a lot of his successes were nearer the start of his term, with countries perhaps taking advantage of Obama’s unwillingness to use military intervention in an election year. But in foreign policy terms he remains a big improvement on George Bush, while his decision making has largely proven correct, with a more calm and reserved approach much more favourable to the America of old that jumped into situations with little planning beforehand.

An iconic moment in history as Barack Obama gives the say for the assassination of Osama Bin Laden

Finally, there are the big reforms Barack Obama has implemented domestically. The biggest reform Obama has tried to implement is the new health care act, which resembles a more European approach to health care where everyone is covered from the day they are born, regardless of any disease they already have. In America however, insurance companies are a key part of the industry, so this meant everyone would have to be forced to buy insurance, which was argued to be unconstitutional by critics. The problem was that whichever way the Supreme Court decided to go down, Obama would have difficulties. If they found it unconstitutional then a clear policy of Obama’s would have been rejected and it would have been a massive hit to his re-election hopes. If they found it constitutional (which they eventually did) then Mitt Romney could campaign against the act, with a republican president backed by a republican congress able to scrap the act before it even came into power if he won the elections. Either way the reform is controversial, with many Americans wary of becoming too socialist, while on the other side of the coin the act still remains far away from the praised models that Europeans use, where insurance companies are not part of the health care industry. With America spending much higher percentages of it GDP on health care but still under performing against its European counterparts, a reform was necessary, but it remains to be seen whether it will prove a better system.

Another major change in Obama’s term in charge has been the financial backing of “fracking” technology. This technology has allowed America to access its considerable supply of Shale Gas, which has helped lower energy bills, lower Carbon Emissions (replacing coal) and should see America become a gas exporter in the near future. This will allow the USA to become less exposed to the volatile global oil prices, which helped destabilise the American economy last year. The only big issue is that the technique is not completely safe, which could prove a problem when companies are trying to drill near public places. The Climate and Education sectors have sparked criticism however, with Barack Obama failing to implement needed reforms. He has yet to complete his election promises of introducing cleaner energy and reducing the carbon emissions (though it is arguable they were long term targets that need more time) while the American school system remains union dominated and includes serious flaws in the teaching systems. Higher education continues to rack up a lot of debt too, as money is thrown at students that they will struggle to pay back during the rest of their lives. Finally the immigration system remains imperfect as America are poor at attracting the best talent. They offer visas to foreign investors, but requirements of at least $1 million investment make them unpopular while America offers as many visas to skilled workers as Australia, despite having 14 times the population. Also permanent visas offered to foreigners for economic reasons fell from 18% to 13% in the last 20 years, in comparison to Canada whose offering of the same visas rose from 18% to 67%.

The USA’s carbon emissions remain high.

So how has Barack Obama fared in his first term in charge? It would be very harsh to suggest he has failed in his first term, but equally it hasn’t a shining success. In economic terms he has lead the country out of a recession that was started before he took charge, though the recovery appears to be stalling. While the rivalry between him and the Republican congress over the budget deficit threatens to lead America into big budget cuts that could cost the economy 5% of their GDP. So while he has done a steady job in the short term, he continues to ignore the long term debt problem and that means I can only award him a C grade. In foreign policy, he started off well but has had to face much bigger problems as his term comes to an end. Despite this I think he has acted well and remained calm when others would have acted without thinking, so I am awarding him a B grade. Finally, his reforms of the country have yet to prove very successful. His health care act is unpopular, despite perhaps having the right principles behind it, while the lack of reforms in education and immigration are stifling America and threaten to damage their future, so I am awarding him a D grade. Overall, this averages out at a C grade, so an average first term for Barack Obama.

Still he should win a second term, he remains a better candidate than Mitt Romney and history backs him as most presidents win a second term (if George Bush can win a second term, Barack Obama can). I would also support him for a second term, the USA needs consistency right now not a major over haul while some of Obama’s policies also need some time to take effect. If he does win, he faces some big challenges (mainly not letting the country fall off a fiscal cliff) and has a lot to prove to the country that he really intends to implement his main campaign promise: change.

God’s particle – A boost for particle physics

There are points in the history of mankind that are never forgotten; three days ago such a moment happened. The DNA of the universe, the Higgs Boson, was finally found at CERN (World’s biggest particle-physics laboratory) to the delight of Peter Higgs (now 83) who first predicted the Higgs Boson back in 1964.

Peter Higgs 

The discovery makes sense of everything scientists currently believe, for without it there would be no mass. Without mass we wouldn’t have atoms and consequently no life. The Higgs Boson completes the Standard Model, which along with the general theory of relativity gives us the best explanation of the workings of the universe. The finding of the Higgs Boson has been a long time coming and was finally found using the Large Hadron Collider (LHC) in CERN, where protons were sent crashing into each other at the speed of light. It has taken so long so discover, because it was theorised that the Higgs Boson (by interacting with itself) would have a huge mass, which would consequently (using Einstein’s Theory’s) mean it would take a lot of energy to produce. The LHC provided the scientists with the power they needed, but they still didn’t know the mass of the Higgs Boson, so trial and error through countless experiments was needed. The hard work paid off though on the 4^th July and helps justify the $10 billion it cost to build the LHC.

Showing the history of particle physics. Found at http://www.economist.com/blogs/graphicdetail/2012/07/daily-chart-1

However, contrary to the title of this article, a nick name given to the Higgs Boson, it does not explain the creation of the universe. In fact many are hoping the LHC can now help explain the biggest question mark in science right now, dark matter. The make-up of the universe as we know it is only accounted for by 4% matter. The rest is either dark matter or dark energy, which scientists know little about.  The Higgs boson’s discovery will now let scientists test out theories they hope will help explain such big question marks in the universe we live in.

Showing the make-up of the Universe.

The problem for particle physicists is that the discovery changes little in our society. It won’t change lives like Einstein’s theory of relativity which helped create nuclear weapons, or the discovery of DNA which lead to advances in modern medicine.

This helps explain the down fall in physics. Where once physicists  were key players in the running of the world (after giving governments the key to nuclear technology), they now live within tight budgets and experience little public interest in the discoveries they make. Particle physics has been overtaken by computer science and genetics in the science world, with both getting bigger budgets nowadays. This is especially true in the USA, where the Superconducting super collider was shut down last year (America’s version of LHC) as America allowed CERN to take the front seat in particle physics. In fact a planned mission into space in 2019 by America to study dark matter (discovered by America) will be launched by the European space agency instead, as NASA takes a minor role in a mission that was built up by the Americans themselves. When the biggest economy is the world isn’t taking particle physics seriously, you know there is something wrong.

The superconducting super collider, now shutdown. 

But the Higgs Boson’s discovery should pave way for new theories and explanations. It might not have any practical use right now, but the knowledge gained from the discovery should have a profound impact on the future of science. Indeed the Standard model which the Higgs Boson has now helped to complete is still rather flawed, and a better model could now be established in its place. There shouldn’t be a price on the knowledge of the universe; human beings should strive to know the inner workings of their surroundings. Discoveries could be made in the future that could benefit society, some could be made that make it worse, but regardless we should work towards knowing as much as we can about the laws of existence.

As a British Astrophysicist, Arthur Eddington once said: “Not only is the universe stranger than we imagine – it is stranger than we can imagine”.

10 Famous CEOs Who Think You Should Skip College | OnlineMBA

10 Famous CEOs Who Think You Should Skip College | OnlineMBA.

Good read for those undecided on higher education.

No Diamond in the rough

Bob diamond, Chief Executive of Barclays has resigned amid all the controversy over the banks role in the manipulation of market rates. Barclays along with twenty other global banks (including Lloyds, RBS and HSBC) are being accused of fixing the LIBOR and EURIBOR interest rates between 2005-2009 that affected the cost of nearly every mortgage, loan and credit card in the western world. Barclays has been the first bank to admit its role and has agreed a settlement of £290 million (30% lower after settling early) which might bring an end to Barclays punishment, but not that of the actual traders that are believed to have broken the law. The Serious Fraud Office is conducting an inquiry into the traders, while the FBI is threatening to extradite any individuals involved in the affair. The allegations against the traders are that they have manipulated rates to help save their jobs or worse their bonuses, while there are accusations that during the peak of the financial crisis rates were lowered to stop the damage to the bank’s balance sheets.  Ironically, this was what the Bank of England (a big regulator of the market) actually wanted to happen, as lower LIBOR rates meant credit would have been more easily accessible in the market.

Image summing up the key figures involved with Barclay’s fine. 

So is Bob Diamond to blame? He was not found personally guilty by the FSA (Financial Services Authority) but as the figurehead of Barclays he was always going to come under pressure from such allegations. Indeed, both Lord Turner (Chairman of FSA) and the Bank of England governor Mervyn King pushed Mr Diamond into resigning and as the two biggest regulators of the city of London, Barclays would have been foolish not to listen. Even ignoring this recent fiasco however, Bob Diamond was heavily disliked by both the public and the government. He has become the encapsulation of all that is wrong with bankers today in the public eye, while the government has clashed with him before in arguments over tax and bailouts. He has always lead Barclays close to boundaries of legality and his resignation was the right choice for Barclays if they really want to change their public image.

Both Lord Turner and Sir Melvyn King, plotting the fall of the banking culture?

But Barclays weren’t the only bank involved in this debacle; they were just the first bank to come clean. RBS has already sacked 10 individuals already and I would expect more banks to face even bigger fines than that of Barclays. On top of this the regulators of the markets must surely be questioned for not noticing that rates were being manipulated, as it is their job to ensure such a thing doesn’t happen once, let alone for 4 years. The law and regulation applied to the banking industry must be toughened to ensure such actions cannot be taken again, but they must not choke off the credit market and squeeze profits too much as to have a negative effect on the economy in Britain and other countries. I have always been against the criticism of bankers as the sole reason for the financial crisis, but such allegations if proven right (as they look to be) are hard to defend and show an industry that has gotten out of control. Making unnecessarily risky decisions in lending was a wrong but forgivable action, manipulating market rates to save their jobs/bonuses was immoral and illegal, and should result in severe punishment for those involved.

So it would be unfair to single out Bob Diamond as the scapegoat for all this controversy, a lot of people are to blame and overall the whole banking culture must change. But I can’t feel sorry for a man that has made numerous mistakes in his career and still be leaving with a lucrative payoff and shares worth £22.9 million, not bad for a man reportedly worth £105 million. On top of this he still accepts little blame for his actions, arguing that such activities didn’t always happen on a daily basis (a similar argument to an abusive parent arguing he didn’t hit his kids every day).

Mr Diamond’s resignation will not be the end of this calamity, but it’s been a long time coming for one of Britain’s most hated figures.