EMPLOYMENT | UK Rate Goes to 75.3% High

London, September 14, 2017 – The UK employment rate, a robust indicator of national job creation, has surged above 75 percent.

As of July it is 75.3 percent of the working-age population. The ratio in London is consistently lower, by 1-2 percentage points, than the national ratio.

The UK is right behind, and challenging, Germany on this indicator. The number is current as of July 2017. The UK created 379,000 jobs during the year ending in July. The numbers are reported by the Office for National Statistics. 

The employment ratio is more stable measure than unemployment because it does not depend on assessments by surveyors and interviewees to determine whether someone else in the same household is employed or seeking a job.

U.S. Membership in the Chemical Weapons Convention

At our brunch in support of Congresswoman Carolyn Maloney yesterday, there was many questions about Syria. One question was whether and when the United States signed the Chemical Weapons Convention.

The United States signed the Convention on January 13, 1993, seven days before the end of President George H. W. Bush's term.

It came into force the first year of President Clinton's second term. The UK and USA memberships in the Organization for the Prohibition of Chemical Weapons came into effect the same day, April 29, 1997. They are listed by number on the OPCW website; these numbers do not reflect the order of signature.

The Organization for the Prohibition of Chemical Weapons is NOT a United Nations Agency, but operates as an independent organization in the Hague, the Netherlands. It has 189 member countries, at last count on the OPCW website. Syria is NOT one of the members.

CRIME | Cell Phones, Plus and Minus (Update April 9, 2015)

Crime rates have been falling, maybe because cell phones
 provide a fast way to call police. But in the USA and in the
UK, cell-phone theft is rising. The remedy is now the target. 

The Institute for Economics and Peace recently put out the UK Peace Index, which got me thinking about crime rates.

Five days before, the London Economist included an article, “Down These Not So Mean Streets” (April 20), showing the steady decline of British crime rates over two decades, to half its earlier levels,. despite a continuing serious recession.

The same week, the British Crime Survey (a household survey comparable to the U.S. Victimization Survey - a supplement to the Uniform Crime Report) also reported a continuing drop in crimes.

There has been a steady decline from the 19 million estimated in the mid-1990s to 8.9 million crimes – the same 50 percent drop that the Economist cited from police reports, although the police recorded only 3.7 million crimes. 

Compared with 2011, crimes fell as much as 15 percent in the UK for the category of criminal damage. Robbery (stealing with the threat of violence) was also down more than 10 percent.

The UK Peace Index at the same time showed that the incidence of violent offences – which is higher than in the United States, although injuries and deaths from such events are much less seious – is falling faster in the UK than in other countries in  Europe or in the United States.

The Financial Times the next day pinpointed the incongruity between data and theories propounded by economists about the causes of recent trends in crime rates. The article, “Crime Drop Poses Puzzle for Social Scientists”, cites the following factors as contributing the lowered crime rate:

Police Deployment. The British Government claimed credit for the crime drop through better use of police, as the number of UK police deployed has fallen to the lowest level in more than ten years. Police are used more effectively than in the past, but crime rates have continued to fall, long after police methods changed.

More Perps in Prison. Hard-liners in the USA and Britain argue that tougher sentencing that jails more criminals has pulled criminals off the streets and served as a deterrent others. Since the 1970s, starting with Nixon’s war on drugs, the USA built up the largest prison population in the world, to the recent level of 2.2 million, a fourfold increase in incarceration in 1978-2008. With less than 1/20th of the world’s population, the USA now has one-fourth of its prisoners. The higher incarceration rates and sentences originally targeted drug sales. But later the sum also rises for violent (murder, robbery, assault) and property crimes - and while U.S. incarceration rates have recently been declining, most crime rates continue to fall.

Reduced Air Pollution. If you are a hammer, everything looks like a nail. High lead in the air has been seriously linked to teenage misbehavior, so environmentalists like Jessica Reyes argue that reduction in lead in gasoline could explain lower crime rates. This may well have been a contributory factor. But the reduction in lead has been gradual - is the impact of this likely to have been so rapid and continuous?

Legalized Abortion. Stanford Law Professor John J. Donahue III and Chicago Economics Professor Steven D. Levitt in 2001 argued that legalized abortion meant that fewer children were being born to mothers who could not afford an abortion - or did not dare to get one - when it was illegal. But this event analysis could be confused with something else that is occurring at the same time. The original article is well-constructed. However, the thesis and data, disseminated in Levitt’s Freakonomics book, have been widely disputed. Critics observe that the presumed causality based on national law does not work very well with state data and changes in state laws.

Missing from the FT story is another hypothesis that does a good job of explaining both the decline in general crime rates and an increase in larceny (thefts from people's person without threats, i.e., skillful pickpocketing) and certain robberies.

Growing Cell-Phone Use.  Cell phones and pocket-sized communication and photographic technology started to come into widespread use in the 1990s, when crime rates started to plunge. Cell phones provide users with the ability to call friends and police if they are threatened or come upon a crime, and could explain the rapid drop in crime. The addition of photo-taking capacity to cell phones made them even more effective. This theory is supported at both the national and  the state level, according to >University of Pennsylvania Law School Professor Jonathan Klick; , John MacDonald, chair of Penn’s Department of Criminology; and Thomas Stratmann of George Mason University, in their paper Mobile Phones and Crime Deterrence: An Underappreciated Link,”

Growing Cell Phone Crimes. Now cell phones are increasingly the target of thieves. The fastest-growing area of crime in the USA and Britain is theft of cell phones. Here are some indicators:

• In London, 300 cell phones are stolen every day, half of them iPhones.
• Men tend to robbed, i.e., have the phones taken from them by force, whereas women tend to be victims of larceny, i.e., they have their cell phones taken from them by stealth.
• The likely London victim is a yuppie in their 20s at a club or other "place of entertainment".
• In San Francisco, stealing of cell phones accounts for half of all robberies, and Bay Area Rapid Transit is a likely place for thieves to operate.
• In Oakland, a man came out of an anti-crime meeting at a police precinct house and was relieved of his cell phone at gunpoint.
• In New York City, cell phone theft now accounts for 40 percent of robberies. 
• A young chef from MOMA on his way home was stopped and killed for his iPhone 5. 
• In a widely reported story a few months ago, a Brooklyn cell phone thief had the stolen cell phone swiped from him by another cell phone thief. Thief #1 reported the crime to the police, providing information that allowed them to trace Thief #2. Both of them were arrested in a highly satisfying day for the NYPD.
• From a thief's perspective, the theft of a cell phone has the advantage of removing from the victim the means of calling the police, although in an urban environment there are many ways to get lost in a crowd.

What We Can Do Personally to Protect Our Cell Phones.  The New York Times today devotes two-thirds of a page to "Outsmarting Smartphone Thieves". Seven pieces of advice from Malia Wollan:

• Be aware when you use the iPhone in public. In San Francisco, one M.O. is to slap the victim on the back of the head and catch the iPhone.
• Use the password  - the iPhone can be set up with a four-digit password. Use it.
• Write down the ID number of the iPhone.  You need to know your iPhone's International Mobile Equipment Identifier, the IMEI. The easiest way to find it is to go to the dial pad and type *#06#. Two other ways are in the article. Then record it somewhere where it can be found in a crisis - such as on your partner's iPhone. My IMEI number is 013037000631140. You can have the number recorded by your local policed station. Because of the high incidence of the crime, the NYPD is delighted to register your cell phone IMEI.
• Use location tracking apps. It is free on Apple products.
• Brick the iPhone.  Call the police and your cell phone service carrier. The iPhone can be made inoperative (like a brick) even if the thief changes the SIM card, unless the iPhone is exported. Keep the 800 number for your carrier somewhere other than on the iPhone.
• Change passwords. Having your iPhone stolen is a pain because passwords may be stored in them. Credit cards, banks... Change the passwords.
• Stay one generation behind the latest iPhone. In April a woman in the San Francisco area was relieved of her cell phone at gunpoint. But the thief returned it to her because it wasn't an iPhone 5. Protect yourself by being behind the times a little.

What Can  Companies and the Police Do to Stop This Crime? Here are some ideas:

Senator Chuck Schumer with NYPD
Commissioenr Ray Kelly.

• The police are becoming highly active in encouraging iPhone owners to bring the devices in to have the identification codes recorded. This will help them catch cell phone theft more quickly.
• The police are properly encouraging us all to be more watchful. We can also be on the alert to warn iPhone users about the frequency of iPhone theft.
• Police involvement in identifying cell phones makes it more likely that these thefts will be reported. The robbery/larceny rate is likely to continue to climb until there are better ways to catch the thiefs.
•  Senator Chuck Schumer (D-NY) and NYC Police Commissioner Ray Kelly have advocated a national registry of cell phone numbers. This is coming on line, but not so quickly.

Meanwhile, watch out for theft, report incidents, and support programs to reduce crime.

Update (April 9, 2015). Cell phones are now crime scene records. The implications of this for the police and for crime control are still being figured out.

Regulating Banks and Non-Banks: One Year Later

A year ago today I wrote about financial regulation . As the G20 meeting on April 2 approaches, the topic is more relevant than ever.

I argued last year that when the Glass-Steagall wall between banking and non-bank financial institutions was torn down in 1999, the law should have extended U.S. regulatory authority beyond banking to all the other institutions.

My views were shaped by research I did at the FDIC. I developed a state credit-quality indicator, based on bank examiners' classification of loan quality at insured banks. The indicator deducted 20 percent of the loan value classified as substandard, 50 percent of loans classified as doubtful, and 100 percent of loans classified as loss. The results were included in an article I wrote with Professor George Benston published in the Journal of Money, Credit and Banking, "Bank Examiners' Evaluation of Credit".

Whatever use a state credit-quality indicator might have had as an early warning system (e.g., of mortgage-quality problems in Arizona, California, Florida and Nevada) disappeared when mortgage loans were wrapped up into securitized packages that were beyond easy classification by bank examiners and were camouflaged by AAA ratings by rating agencies and insurance companies.

The Chairman of the UK Financial Service Authority (FSA), Lord Turner, on March 18 has highlighted for the G20 socially undesirable financial innovation as a key source of the global crisis. He recommends regulation of near-bank activities such as hedge funds and credit-rating agencies, with a Europe-wide financial body to set standards and supervise. The UK seems to have joined the hawkish German and French authorities.

While the United States has been considered a dove on financial regulatory issues, the Obama administration may surprise the G20. Stephen Labaton in the NY Times on Saturday says a plan is being prepared that would

regulate the shadow banking system, with heightened standards put in place after the economy began to rebound. A broad consensus has emerged that hedge funds must be registered and more closely monitored, probably by the Securities and Exchange Commission.

The U.S. plan will probably give the government greater authority over large troubled companies not now regulated by Washington. The Treasury secretary would have authority to seize a struggling institution after consulting with the president and upon the recommendation of two-thirds of the Federal Reserve board. The government now can seize only the banking unit that controls federally insured deposits of large troubled institutions.

Enough "Blood on the Streets"?

How low can the market go? In 1815, Nathan Rothschild said that the time to buy stocks was "when there is blood on the streets". Are we there yet?

The Great Depression lasted a decade but the Dow industrial index fell 89 percent from its high of 381 on September 3, 1929 to its low of 41 on July 8, 1932. The economy remained sour for the rest of the decade but the stock market picked up.

For the enthralling story of what happened during those years, I recommend chapters 17-20 of Liaquat Ahamed’s timely Lords of Finance: The Bankers Who Broke the World. I had the pleasure of listening to Liaquat talk at a recent evening event in New York City. He modestly disclaimed knowledge of the financial disasters that were going to happen and simply said that the Time magazine cover showing Robert Rubin, Larry Summers and Alan Greenspan with the caption “Committee to Save the World” suggested to him the idea for his book. The title reminded him of the name given to the top bankers working on global financial problems after World War I, “The Most Exclusive Club in the World.” The book studies the origins of the Great Depression that is clearly told by taking the different perspectives of the four leading actors of the period, the Lords of Finance -- Montagu Norman in the UK, Benjamin Strong at the New York Fed, Hjalmar Schacht in Germany and Emile Moreau in France.

Yesterday’s stock-market drop brings us to a cumulative decline that can only be compared with the 1930s. Fearful of today’s jobs report, investors drove the major U.S. stock averages down 4-7 percent. Jack McHugh has tallied from StockCharts.com how far down this took the markets from their peaks.

I think we can all agree that what ails our economy and markets is worse than anything since that awful time [the Great Depression], and the worst punishment Mr. Market has meted out since the 1930’s was a drop in the S&P 500 of just less than 50% (1974 & 2002).

The cumulative drop from their peaks (October 11, 2007 so far is:
Dow Jones Industrial Average — All Time High: 14,198. March 5 - Down 53.6% to 6594.
Standard & Poor’s 500 — All Time High: 1576. March 5 - Down 56.7% to 683.
Russell 2000 — All Time High: 856.50. March 5 - Down 59.2% to 349.45.
KBW Bank Index (BKX) — All Time High: 121.16. March 5 - Down 84.3% to 18.97.

Barry Ritholtz’s blog provides this list of Blue Clip penny and under-$10 stocks:
AIG (39 cents – less than it costs to mail a letter). Citigroup (98 cents). E*Trade (66 cents). Fannie Mae (39 cents). Freddie Mac (39 cents). Unisys (37 cents). Ford ($1.83). GM ($1.83). Las Vegas Sands ($1.97). MGM ($1.99). CIT ($2). Kodak ($2.50). Bank of America ($3.15). New York Times ($4.00). News Corp ($6.15). Xerox ($4.36). International Paper ($4.22). Alcoa ($5.55). GE ($6.75). Dow Chemical ($6.56). Wells Fargo ($7.95). Dell ($8.50).

In terms of timing, the Dow peaked before FDR came to office – before he was even elected. So the fears are lingering longer than they did then.

In what ways are markets and economies possibly worse off than in 1932?
- Expectations are higher because billions of people in the developing countries who were anticipating joining the global economy are seeing their hopes dashed. The 1930s effects were severe but were concentrated on the industrialized countries. The potential for instability in some countries is great and the proliferation of weapons makes this scarier than it would have been in the 1930s.

- The size of the credit overhang is much larger. The gold standard, for all of its faults in extending the distress in the 1929-33 period, kept a lid on the growth of credit. Today’s system has no natural limit to credit growth. Credit-market exposures today exceed GDP – in the United States by 50 percent, estimates Liaquat, in the UK by four times, and in Iceland by eight times GDP.

- In the world’s second-largest economy, Japan, the stock market has fallen 81 percent from its peak at the end of 1989. This 20-year decline raises questions about how quickly the world's current mess can be cleaned up.

UK Doctors: Fewer Hours Mean Fewer Errors

BBC News is running a medical care story today that has implications for U.S. medical care. Residents who are put on a shorter 48 hour/week limit, in accordance with European Union regulations, made 33 percent fewer medical errors than those on a schedule of up to 56 hours a week. The sample size of National Health Service doctors was small but the results were significant. Thanks to Dr. Elisabeth Paice for the link - .

The relevance of the study for the United States is that U.S. hospital residents are expected to work up to 80 hours a week during their training. The New York-based Commonwealth Fund has shown that patient-reported medical errors are the highest in the United States in a study comparing it with five other countries -- Australia, Canada, Germany, New Zealand and the UK. Of the six countries, the UK had the fewest patient-reported medical errors.

The new study is reported in the Quarterly Journal of Medicine - http://qjmed.oxfordjournals.org/cgi/content/abstract/hcp004v1?ct. The sample size was 19 junior doctors in residence.

[N]ine studied while working an intervention schedule of <48 h per week and 10 studied while working traditional weeks of <56 h scheduled hours in medical wards. Work hours and sleep duration were recorded daily. Rate of medical errors (per 1000 patient-days), identified using an established active surveillance methodology, were compared for the Intervention and Traditional wards. Two senior physicians blinded to rota independently rated all suspected errors.

The results showed significantly lower error rates for the doctors on the new rota with fewer hours:

Average scheduled work hours were significantly lower on the intervention schedule [43.2 (SD 7.7) (range 26.0–60.0) vs. 52.4 (11.2) (30.0–77.0) h/week; P < 0.001], and there was a non-significant trend for increased total sleep time per day [7.26 (0.36) vs. 6.75 (0.40) h; P = 0.095]. During a total of 4782 patient-days involving 481 admissions, 32.7% fewer total medical errors occurred during the intervention than during the traditional rota (27.6 vs. 41.0 per 1000 patient-days, P = 0.006), including 82.6% fewer intercepted potential adverse events (1.2 vs. 6.9 per 1000 patient-days, P = 0.002) and 31.4% fewer non-intercepted potential adverse events (16.6 vs. 24.2 per 1000 patient-days, P = 0.067). Doctors reported worse educational opportunities on the intervention rota.

Letter from London - Big Bang Bugs British Banks

LONDON - It has come to this. London's Big Bang was to open up UK financial markets to stop the grousing by Oxford-Cambridge graduates about how much more money their Wall Street cousins earned. But opening up the UK markets also allowed in the U.S. subprime-CDO-CDS virus that laid low many U.S. institutions and now has more UK victims. Europe's more regulated financial sector has been relatively immune to the disease.

How the right and the left do converge in such a crisis. Dubya's administration with Phil Gramm's leadership was engaged in a methodical deregulation of the financial markets. But it showed no hesitation about swiftly seizing the commanding heights of the mortgage lending and investment banking industries.

In Britain, Gordon Brown's Labour Party - ideologically far more prepared to turn its banks into government bureaucracies - delayed taking action but is now following in Uncle Sam's tracks. The Financial Times calls the bank bailout a "part-nationalization".

Newspaper headlines this morning focus on a £50 billion UK bank bailout. The Times, Daily Mail, Telegraph and Independent have major headlines, all explaining that the number is an estimate of an initial infusion of capital by H.M. Government to buy equity primarily in three major banks - Royal Bank of Scotland, Lloyds TSB and Barclays. A fourth bank, the Halifax Bank of Scotland, is also involved because it is in the process of being absorbed into Lloyds. (The Royal Bank of Scotland has already absorbed National Westminster.)

The Evening Standard, however, perhaps because it has a later deadline, reports that the bailout is for much more, £500 billion or about $870 billion. The larger number is huge for an economy that is substantially smaller than that of the United States. It is also more realistic, because it includes £50 billion to guarantee bank bond issues, £200 billion for short-term lending and another £50 billion for recapitalization.

Besides the big banks that have been huddling with the Chancellor, four other banks are mentioned in the Evening Standard story - Abbey, Nationwide, HSBC and Standard Chartered. The list is still "in formation" as HSBC, for example, isn't convinced that it wants or needs the government's money.

The complaints over here are similar to the ones aired in the United States, except that in addition Her Majesty's Government is being called dilatory. Simon Jenkins of the Guardian describes as "dithering" by Brown's Chancellor Alistair Darling as "dithering" and Parliament as "useless" - postponing action because of a schedule "fixed by the grouse-shooting season." London traders are described by the Evening Standard as calling the new act "Too little, too late." Alistair Osborne of the Daily Telegraph headlines his story: "Action at last - but is it too late?"

Most of the commentary, of which there is much, focuses on the control that the government will exercise and the taxpayer perspective. The Daily Mail says the banks will "fall under state control, the biggest nationalization of modern times."A typical comment is by Alex Brummer, who says that "the heavy hand of government" will exercise "ever more control" over the banks.

The IMF is reportedly about to release a projection that the UK is the "biggest casualty of the world downturn", with bank losses reaching $1.4 trillion and the GDP growth turning negative in 2009 for both the United States and Britain. Brits are asking the same question as Main Street USA - "What do we get for our blank check?"

Armageddon-friendly theorists go further and predict that the financial crisis will be the death knell for the euro and some suggest raises questions even about the future of the EU itself.

EURO | Will It Eclipse the Dollar? Not Yet. (Updated May 4, 2016)

Faith in the Euro peaked at the end of 2009.
Fear peaked ion June 2010. Swings have been
narrowing around €1.30 to the dollar.

March 4, 2008–The following three questions came to me from a former student in one of the finance courses I have taught:
"1. Do you think the euro will become the worldwide dominant currency?
2. Say hypothetically if that would happen, what do you think would happen to the world economy?
3. And how would it affect the U.S. dollar?
If you could give me your personal opinion on these questions, it would be a great."

1. Might Happen, If... It might take 15 years and it would depend on the UK joining the European Monetary Union and the United States continuing to run big current-account deficits. A contributing factor could be that the petroleum states buy mostly in euros. Also, in 15 years the Chinese renminbi and Indian rupee will be more important as trading and reserve currencies.

2. The City of London Would Gain on Wall Street. The pound sterling used to be the world's dominant currency 100 years ago. I don't think that it matters as much for the aggregate world economy whether the dollar or the euro is dominant, but it will matter a lot to the United States and New York City. It would actually be a good sign if the UK joins the EMU because it will mean that the world economy is working well, and specifically the EU is working. The European economy with the UK will be larger than the U.S. economy. On the other hand, the speed with which the euro takes over might be a result more than anything else from  many years of excessive borrowing by the United States–both budget deficits (most money we owe to ourselves) and current-account deficits (scarier money we owe to other countries). If the euro strengthens, it would be possible to speculate more easily against the dollar and it would be harder for the United States to borrow abroad to finance current-account deficits.

3. A Stronger Euro Means a Weaker Dollar.  Economic theory tells us that as the dollar gets weaker, our exports should be cheaper for overseas buyers and our exports should increase. Foreign imports should become more expensive and Americans should cut back on buying them. So supply-and-demand forces are supposed to reduce our trade and current-account deficits. However, these forces are taking a long time to have the predicted effects. One reason is that wage disparities are so great internationally that it takes a lot of adjustment to get within the range where the expected consequences occur. The United States is exporting higher wages and is importing lower wages. Eventually real wages will fall enough here and rise enough elsewhere that we will be competitive. But don't hold your breath waiting for this to happen.

Let me know if I have answered your questions.

Update May 4, 2016

It doesn't look as if the euro is going to replace the dollar yet! The UK is voting on whether to leave the limited partnership it has with the European Union. The idea that a properly functioning monetary union can exist in the absence of full political union is being challenged by the actions of debt-heavy countries like Greece, Spain and Italy. Independent monetary policies are incompatible with a monetary union if that means the sharing of a common currency.

U.S. DEBT | Foreign Holdings

Nov. 20, 2007–Watch what they do, not what they say. Based on the latest available data issued November 16, amid the posturing at the recent OPEC meetings, oil exporters have been adding to their holdings of U.S. securities over the past year, from $114 billion to $126 billion.

Japan has pared $36 billion, but is by far the largest foreign holder of U.S. dollars ($582 billion). The People's Republic of China has added $7 billion (to $397 billion). The biggest friends of the United States have been the UK, which added $204 billion (to $266 billion), and Brazil, which added $64 billion (to $109 billion). These two buyers more than account for the growth in foreign holdings of U.S. securities of $222 billion (to $2,247 billion). The top five holders of U.S. securities (counting oil exporters as one holder) account for 66 percent of all foreign holdings.

The year-over-year increase in holdings uses the dollar measuring stick. It looks differently to someone translating the dollars to yen or renminbi or the euro. The euro rose from $1.27 in September 2006 to $1.39 in September 2007, so from the perspective of someone buying most of their goods from Europe, the value of the U.S. securities fell 9 percent, canceling out what Uncle Sam is paying by way of interest.

Two caveats: (1) The numbers for November and December may have a different look–we will know in January and February 2008. (2) The U.S. Treasury International Capital reports are "estimated" based "on annual surveys ... and monthly data".