Why Hasn’t Loan Growth Generated Economic Growth? China’s Central Bank Explains

For economists, the hot topic is why China’s growth is so much lower than its expansion of credit. Money supply has notched increases of close to 15% year-over-year in recent months, but economic growth for the second quarter was only half that rate.

In its latest monetary policy report (in Chinese), China’s normally tight-lipped central bank offered various explanations, some more reassuring than others:

•Loans going into areas that don’t immediately generate growth — like land needed for construction projects.

•Hoarding of cash by businesses at a time of economic uncertainty, with some businesses using funds to make more loans at a higher interest rate.

•Old industries fading away and new industries firing up both need credit, but neither generates stellar output.

•A more sophisticated financial system takes longer to get credit to end users.

The central bank sees risks — especially with businesses sticking to their credit-hoarding ways despite a shift to lower potential growth. But overall they strike a reassuring tone. Wide gaps between growth in credit and the real economy are not uncommon, they say, especially during slowdowns.

To solve the problem, the central bank highlights the importance of structural reforms.

“The economic structure determines the financial structure,” it says, “the crucial point in increasing the efficiency of capital is accelerating the adjustment of the economic structure, creating new growth areas and new drivers.” The message to China’s top leaders: we can’t fix the financial system till you fix the economy.

The central bank also took a politically correct swipe at the reflation policies of Japan’s Prime Minister Shinzo Abe, warning that Japan might end up creating new asset bubbles.

Avoiding any reference to tensions over disputed islands in the East China Sea, the central bank said that Tokyo’s super loose monetary policy has shown initial results. But without far reaching structural reforms, it added, these policies are hard to maintain and could create asset bubbles and worsen the government’s fiscal position.

If tempers cool over the disputed islands, maybe the two sides can stop the name calling and make loans to the local fishermen. That would generate higher returns than shoveling  more credit to Chinese industries struggling with overcapacity.

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Earthquakes don't kill people, buildings do, seismologists say.

The greatest risk of dying during an earthquake comes from collapsing structures and flying debris. Thanks to Japan's stringent seismic building codes, during the 2011 magnitude-9.0 Tohoku earthquake, fewer than 600 people were crushed by falling rubble, according to Japan's National Police Agency. More than 90 percent of the country's deaths were from drowning during the ensuing tsunami.

But in China, where seismic building codes are often flouted, the magnitude-8.0 Wenchuan earthquake in 2008 killed more than 69,000 people. In 2010, an even smaller quake, a magnitude-7.0, killed more than 220,000 people in Haiti.

Japan spends five times more money on reducing its earthquake damage risk than the United States, said Ross Stein, a seismologist at the U.S. Geological Survey's office in Menlo Park, Calif. Stein is the co-founder of an international nonprofit called the Global Earthquake Model (GEM). GEM's aim is to freely provide the same sophisticated earthquake risk-assessment tools used by Japan to poorer countries. Continue Reading

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Why Hasn’t Loan Growth Generated Economic Growth?

Deep Blue Group, Three Tax Scams to Beware of This September

The IRS wants you to know about three common year-round scams: identity theft, phishing and return preparer fraud.

Are you thinking about taxes while you’re enjoying the warm summer months? Not likely! But the IRS wants you to know that scammers ARE thinking about taxes and ways to dupe you out of your money. 

Tax scams can happen anytime of the year, not just during tax season. Three common year-round scams are identity theft, phishing and return preparer fraud. These schemes are on the top of the IRS’s “Dirty Dozen” list of scams this year. They’re illegal and can lead to significant penalties and interest, even criminal prosecution.

Here’s more information about these scams that every taxpayer should know.

1. Identity Theft. Tax fraud by identity theft tops this year’s Dirty Dozen list. Identity thieves use personal information, such as your name, Social Security number or other identifying information without your permission to commit fraud or other crimes. An identity thief may also use another person’s identity to fraudulently file a tax return and claim a refund. 

The IRS has a special identity protection page on IRS.gov dedicated to identity theft issues. It has helpful links to information, such as how victims can contact the IRS Identity Theft Protection Specialized Unit, and how you can protect yourself against identity theft.

2. Phishing. Scam artists use phishing to trick unsuspecting victims into revealing personal or financial information. Phishing scammers may pose as the IRS and send bogus emails, set up phony websites or make phone calls. These contacts usually offer a fictitious refund or threaten an audit or investigation to lure victims into revealing personal information. Phishers then use the information they obtain to steal the victim’s identity, access their bank accounts and credit cards or apply for loans. The IRS does not initiate contact with taxpayers by email to request personal or financial information. Please forward suspicious scams to the IRS at phishing@irs.gov. You can also visit IRS.gov and select the link “Reporting Phishing” at the bottom of the page.

3. Return Preparer Fraud. Most tax professionals file honest and accurate returns for their clients. However, some dishonest tax return preparers skim a portion of the client’s refund or charge inflated fees for tax preparation. Some try to attract new clients by promising refunds that are too good to be true. 
Choose carefully when hiring an individual or firm to prepare your return. All paid tax preparers must sign the return they prepare and enter their IRS Preparer Tax Identification Number (PTIN). The IRS created a webpage to assist taxpayers when choosing a tax preparer. It includes red flags to look for and information on how and when to make a complaint. Visit www.irs.gov/chooseataxpro.

For the full list of 2013 Dirty Dozen tax scams, or to find out how to report suspected tax fraud, visit IRS.gov.

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Making Progress on Greenhouse Gas Emissions

Discussions about international climate agreements and carbon taxes are at the center of the climate policy debate, but remain completely out of reach. Meanwhile, smaller scale incremental changes continue throughout the United States. Last week, we saw examples of two such changes reported in the New York Times. The first was a voluntary agreement to reduce energy waste in cable TV boxes. The second was an effort in California to utilize existing battery technology to store solar energy.

The cable box wastes an enormous amount of electricity. I first learned that from Luke Falk, an expert in energy efficiency who is a sustainability manager at the Related Companies. Luke also teaches energy efficiency in Columbia's Sustainability Management Program. I remembered how surprised I was when Luke first mentioned it, and now three years later, something is being done to alter the status quo. According to Matthew Wald of the New York Times:

"Generally, a DVR device consumes half as much electricity as a standard refrigerator and freezer. Under an earlier industry initiative, set-top boxes supplied after Jan. 1 will use 15 percent less than was typical in 2009. With the latest agreement, new ones will cut consumption by an additional 20 percent by 2017."

As Wald indicates, the problem is that the people who own the box, namely your cable company, do not pay the electricity bill in your home. They have no incentive to spend money on engineering to reduce the cable box's energy use. You, as the cable viewer do not actually own the box, and in all likelihood have no idea how much energy it uses. This creates a perfect formula for wasted energy.

Energy waste related to the separation between owners and users is not limited to cable boxes. If your landlord owns the central heating and air conditioning units of a building, but only pays to heat and cool common areas, he or she has little incentive to make a capital investment in a new energy efficient boiler or central air conditioner. Most of the savings from those investments are gained by tenants.

There are financial techniques that can be used to change the incentive structure, but they often require action by the government or collective action by those who are wasting energy that might be saved. One of the more interesting trends over the past decade in equipment and appliance engineering is the addition of energy efficiency to equipment design parameters. We have seen dramatic reductions in energy use by air conditioners, refrigerators, and some computers. When engineers are not directed to focus on energy efficiency they don't bother, but when they are directed to focus their brain power on saving energy the gains have been impressive.

"I felt it's important that we continue to raise our voice whenever possible," Yasuro Kawai, a 66-year-old businessman from Chiba prefecture, east of Tokyo, told AFP.

"Today, there is no electricity flowing in Japan that is made at nuclear plants. If we continue this zero nuclear status and if we make efforts to promote renewable energy and invest in energy saving technology, I think it's possible to live without nuclear," Kawai added.

Protesters gathered in Hibiya Park, located close to government buildings, and marched around the national parliament.

Musicians performed using electricity generated by solar panels to help get the demonstrators’ message be heard.

Composer Ryuichi Sakamoto, who played music he wrote in 2011 to mourn the victims, said “the Fukushima incident continues today.” Over 1,600 residents of the stricken area died due to complications related to stress and other disaster-related illnesses, AFP reported.

On March 11, Japan will mark the grim anniversary of the deadly 9.0-magnitude earthquake that hit the country’s north, causing a huge tsunami that swept the northern Pacific coastline in 2011. Over 15,800 people were killed in the disaster and 2,636 remain missing.

The tsunami also triggered the failure of Fukushima nuclear plant’s cooling systems, which in turn led to meltdowns and leaks of radioactive material in the region. Engineers say it will take about 40 years to dismantle the crippled reactors.

Fukushima’s clean-up has been going through hard times throughout the past three years. In the latest incident, just over a week ago, the clean-up system’s alarm went off to alert that one of the cleaning pumps had stopped working.

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