Ben Bernanke is caged like a hamster

...while the Japanese roam free.

The mice are taunting Clementine, our hamster. Clementine spends her whole life gripping the bars of her cage and peering out whilst waiting for the brief time she is allowed to run around in her plastic ball each day. Our free-roaming mouse invaders have taken to standing on the edge of her cage flicking two claws at her and generally behaving like they are in Newcastle on a Friday night. Their relative positions of freedom just increase Clementine’s anguish.

It’s the sort of relationship that reminds me of the caged Ben Bernanke, chair of the US Federal Reserve and the free-roaming Bank of Japan’s Haruhiko Kuroda. America has spent the last 4 years pursuing a policy of quantitative easing, essentially a support programme that involves pumping money into the economy and which has resulted in growth this year of around 2 per cent. The Japanese, by contrast, announced a QE policy in December and have already produced annualized growth of 4 per cent. The US must feel like Clementine does – mocked and helpless; 2 per cent growth seems a meagre reward given the trouble it has caused.

At a recent grilling on Capitol Hill, Bernanke was asked whether the Fed’s quantitative easing program at $3trn had gone too far. He retorted, in words to this effect, “If you think that’s big, take a look at the Japanese…” What Bernanke is talking about is that although the scale of the Japanese target, ¥270trn or $2.6trn in today’s money, is close to the Fed in absolute terms, if you put it into the context of the relative sizes of the two economies, it is truly colossal. To match the Japanese, the Americans would have to put an astonishing $7trn into the US system, which is close to 50 per cent of US nominal GDP.  It’s enough to make you spit your sushi out.

But for America the real question is about the quality of their recovery and what the next downturn looks like. America needs jobs but not any old jobs; they need to be permanent. The measure of unemployment that includes part-time workers shows that over 13 per cent of the US is under-employed because of part-time working. Compare that to unemployment and the measure of part-time work is about 7 per cent of the working population. At the same time the bonus culture that first showed up in the 1970’s is so deeply entrenched that, to this day, about 20per cent of American’s total take home pay is variable whilst the proportion that workers are taking home of company profits has dropped to below 50 per cent. Back in the late-1920’s this was 68 per cent. No wonder Jay Gatsby threw a party.

If you take these factors together then what you find is that the combination of variable pay and uncertain employment means that US growth could be subject to vicious variability. Given that about 65 per cent of the GDP in the US is consumer spending you understand that at the heart of the US economy there is now a level of uncertainty never seen before. Effectively America needs a permanent pay rise and the transfer of profits from owners to workers. But neither of these things is going to happen whilst global competition makes the west look generous on pay and people who place their capital at risk need to be rewarded. So making policy in an economy with an unstable beating heart will remain is a high-risk game.

Head of Fixed Income and Macro, Old Mutual Global Investors

European People's Party via Creative Commons
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Ansbach puts Europe's bravest politician under pressure

Angela Merkel must respond to a series of tragedies and criticisms of her refugee policy. 

Angela Merkel, the Chancellor of Germany, is supposed to be on holiday. Two separate attacks have put an end to that. The first, a mass shooting in Munich, was at first widely believed to be a terrorist attack, but later turned out to be the actions of a loner obsessed with US high school shootings. The second, where a man blew himself up in the town of Ansbach, caused less physical damage - three were seriously injured, but none killed. Nevertheless, this event may prove to affect even more people's lives. Because that man had come to Germany claiming to be a Syrian refugee. 

The attack came hours after a Syrian refugee murdered a pregnant Polish woman, a co-woker in a snack bar, in Reutlingen. All eyes will now be on Merkel who, more than any other European politician, is held responsible for Syrian refugees in Europe.

In 2015, when other European states were erecting barriers to keep out the million migrants and refugees marching north, Merkel kept Germany's borders open. The country has resettled 41,899 Syrians since 2013, according to the UNHCR, of which 20,067 came on humanitarian grounds and 21,832 through private sponsorship. That is twice as much as the UK has pledged to resettle by 2020. The actual number of Syrians in Germany is far higher - 90 per cent of the 102,400 Syrians applying for EU asylum in the first quarter of 2016 were registered there. 

Merkel is the bravest of Europe's politicians. Contrary to some assertions on the right, she did not invent the refugee crisis. Five years of brutal war in Syria did that. Merkel was simply the first of the continent's most prominent leaders to stop ignoring it. If Germany had not absorbed so many refugees, they would still be in central Europe and the Balkans, and we would be seeing even more pictures of starved children in informal camps than we do today. 

Equally, the problems facing Merkel now are not hers alone. These are the problems facing all of Europe's major states, whether or not they recognise them. 

Take the failed Syrian asylum seeker of Ansbach (his application was rejected but he could not be deported back to a warzone). In Germany, his application could at least be considered, and rejected. Europe as a whole has not invested in the processing centres required to determine who is a Syrian civilian, who might be a Syrian combatant and who is simply taking advantage of the black market in Syrian passports to masquerade as a refugee. 

Secondly, there is the subject of trauma. The Munich shooter appears to have had no links to Islamic State or Syria, but his act underlines the fact you do not need a grand political narrative to inflict hurt on others. Syrians who have experienced unspeakable violence either in their homeland or en route to Europe are left psychologically damaged. That is not to suggest they will turn to violence. But it is still safer to offer such people therapy than leave them to drift around Europe, unmonitored and unsupported, as other countries seem willing to do. 

Third, there is the question of lawlessness. Syrians have been blamed for everything from the Cologne attacks in January to creeping Islamist radicalisation. But apart from the fact that these reports can turn out to be overblown (two of the 58 men arrested over Cologne were Syrians), it is unclear what the alternative would be. Policies that force Syrians underground have already greatly empowered Europe's network of human traffickers and thugs.

So far, Merkel seems to be standing her ground. Her home affairs spokesman, Stephan Mayer, told the BBC that Germany had room to improve on its asylum policy, but stressed each attack was different. 

He said: "Horrible things take place in Syria. And it is the biggest humanitarian catastrophe, so it is completely wrong to blame Angela Merkel, or her refugee policies, for these incidents." Many will do, all the same.