Who is Mark Carney?

The man cherry picked by George Osborne himself to become the next Governor of the Bank of England seems to be an angel sent from the heavens but who exactly is Mark Carney? At 48 years of age, Mr Carney has already held several positions of importance such as Governor of the Bank of Canada and is currently the Chairman of the G20’s Financial Stability Board. Moreover, as of 1st July 2013, he will be the first non-Brit to become the Governor of the Bank of England since its formation in 1694.

His birthplace of Fort Smith, Canada is about as distant from the world of high finance as my bank account balance. Yet he has managed to make the strides towards greatness, which has included a bachelor’s degree in economics at Harvard as well as a master’s degree at St Peter’s College, Oxford and a doctorate from Nuffield College, Oxford. Carney worked his way up the ranks through Goldman Sachs moving between London to Tokyo to greater prominence in a 13-year stint before heading his way towards the Canadian Department of Finance and then the Bank of Canada as Deputy Governor and then Governor.

Carney has been credited with shielding Canada from the worst effects financial crisis and has earned praise from the Financial Times and Time magazine as a top figure in the financial world. In 2012, Carney was presented many accolades including “Central Bank Governor of the Year 2012” by Euromoney magazine.

However to say that Canada survived the financial crisis would be a major understatement, they positively thrived through it. Canada’s risk-averse fiscal and regulatory environment meant that their banks were always well capitalised and as a result were poised to take advantage of opportunities that American and European banks could not seize.

The crucial feature of Carney’s tenure as governor remains his decision to cut the overnight rate by 50 basis points in 2008 only a month after his appointment. Wasting time is not something this man is accustomed to and hopefully other interventions will be in place in the near future. This choice was also very monumental because it was ahead of the pack. While the European Central Bank delivered a rate increase in July 2008, Carney anticipated the leveraged-loan crisis would trigger global contagion. He used a nonstandard monetary tool “conditional commitment” to hold the policy rate for at least a year to boost domestic credit conditions and market confidence. Output and employment began to recover from mid-2009 and the Canadian economy outperformed those of tis G7 peers during the crisis. Canada was also the first G7 nation to have both its GDP and employment recover to pre-crisis levels, targets that Britain just don’t seem to be able to hit in the next 5-10 years.

The credentials are everywhere for all to see. Mark Carney has achieved so much and looks like the man to get the UK economy buzzing again. However, an immediate impact is required or else the press will inevitable turn on him as not being good value for the high salary he’s commanded. There is much pressure on him, mostly due to his achievements and at a time when the Government has been trying to claim that recovery is in the air. His first challenge will be dealing with a monetary policy committee (MPC) that is just so accustomed to doing nothing. Lending to firms was negative again last month and given what Capital Economics has called “underwhelming effects” on the Funding for Lending scheme, it is hard to see what the driver for growth is going to be.

The UK economy will be going through a very difficult and delicate process over the next 5 years. Mark Carney is the man who will be in charge of the Bank of England in this period and there is no doubt he will be influential towards whatever the outcome. He has demonstrated his extensive knowledge of the world economy and his ability to take the initiative but is the British economy just a step too far? Or is Carney really the man to lead Britain into its next phase?

 

Contributed by Jordan Naidu

Print vs Digital

The battle of print books versus digital e-books took a surprising twist as the sales of print books were the strongest in over three years over the Christmas period, signalling a fight back. Celebrity titles were especially popular helping the sales of physical books break through the £75 million barrier on the week ending December 22nd. The strongest weekly performance since Christmas 2009 and the first time book sales have overtaken e-book downloads however only for a week.

The most popular was Jamie Oliver’s ‘15-Minute Meals’ which sold 140,155 copies in the UK over this one week period. Miranda Hart’s ‘Is It Just Me?’ was second and Bradley Wiggins’ account of his journey through the Tour de France and the Olympics: ‘Bradley Wiggins My Time’ followed in third. The titles selling 64,691 and 59,524 respectively. Surprisingly, ‘The Guinness Books of World Records 2013‘ dropped two places to fourth from the previous week.

Authors and publishers have saluted the boost in sales and view them as proof that there is still room in the crowded market and, despite the growing popularity of digital e-readers such as the Kindle, there will always be a place for hard copies. Antony Beevor, of whom most notably wrote ‘The Second World War’ and ‘Stalingrad’, said, “This looks to be positive in many ways but the question is, what are the figures for sales of serious fiction? I would fear they are down quite considerably and that is probably true of serious books across the board.” Digital fiction sales have almost tripled during the first half of 2012 whilst children’s books and non-fiction digital titles endured substantive sales increases as well. In comparison to physical books, which fell away over this period, these figures supports Mr Beevor’s statement.

Nielsen BookScan’s General Retail Market panel of booksellers which consist of firms of W H Smith, Waterstones and general independent stores all reported sales grew by 52% week on week to £49.6 million. However, sales were still down 8.4% on the same week last year signifying that supermarkets fared better with celebrity books in the run-up to Christmas while shoppers took advantage of the longer final week to order. Overall despite their sales, printed books are still evidently only second best. Amazon also reported in autumn this year that it was now selling more Kindle e-books than printed books. In the first 10 months of 2012, printed book sales were down 3.5% year on year, in volume terms, and 5.5% down by value indicating a noticeable decline in the market. Retailers also reported that tablets were reportedly selling at a rate of one per second in the run-up to Christmas.

To conclude, we can deduce that printed books are steadily declining year by year in comparison to the rapid rise of e-books. Specifically fiction and children’s books, in general, are converting over to digital books as the popularity of e-book readers has grown. The public are following current fashion trends by following the digital path which has created this growth in e-books and it most likely will continue to grow. However, at the same time, the value of books cannot be and are not being overlooked which is the cause for their steady decline. Schools and businesses rely very heavily on hard copies and their transition to the digital world will be a much longer, slower process. The sluggish state of the economy is also likely to be a factor restricting this switch. Digital e-books are looking more and more like long-term alternatives to printed books. Are we in a makeshift era and if so how long will can books last before they become completely obsolete? Or is this just a phase, can e-books really take over the market? Evidence would suggest digital e-book will triumph over print books, in the long term.

Contributed by Jordan Naidu

Britain to Lose Triple A Status

Following the Bank of England’s announcement that they had halved the countries growth forecast to 1% for 2013, George Osborne was warned by Moody that Britain could lose their triple A credit status if it were to head into a triple-dip recession in the winter. This could create numerous repercussions, especially with Britain set to borrow what is estimated to be between 10-15 billion pounds extra this financial year.

Standard & Poor’s (S&P) has become the latest of the three main rating agencies to put the UK’s AAA rating on negative outlook. This is following Moody and Fitch’s decision to place the UK’s rating outlook to negative earlier in the year. S&P said it could lower the UK’s rating “if fiscal performance weakens beyond our current expectations”.

The AAA rating is the highest possible rating that can be given to a company or a country. S&P says that it only awards AAA when there is an “extremely strong capacity to meet financial commitments”. This top-of-the-table standard means an AAA rated borrower can usually secure a loan at lower interest rates since there is much less risk that the loan will not be repaid. However, the UK really does not seem to be a country in an economic situation able to fulfill such a promise. Thus, is it only fair if UK loses its AAA credit rating?

There are three factors that will affect the decision as to whether or not Britain should lose its AAA status; 1) future growth, 2) its ability to quickly reduce debt, and 3) that debt as a share of national income would not stall but decrease within the next 3-4 years. Current problems with the economy that could affect these factors include the possibility of stagflation, due to increased global food and energy prices, and the worsening Eurozone crisis. It is also expected that national debt, as a percentage of GDP, will continue to rise going into 2015 instead of stalling at 2014; two very contrasting situations.

The problem with stagflation is that prices are going up must faster than income. So many households are saving instead of spending which has created this situation of a weaker-than-predicted economic growth combined with high inflation over the 2% 12 month target. In terms of the Eurozone crisis, it returned into recession as of the 15th November this year due to an average contraction of 0.1%. This has very much increased the UK’s chances of going into a triple-dip recession; a scenario that seems almost inevitable.

A country’s credit rating can influence its borrowing costs because some investors are restricted from lending to borrowers that do not have a high rating but does this really matter? Clearly, the sum of which Britain are expected to borrow next year is quite extensive. However, compare the UK ‘s situation with other countries such as America, of whom lost their Standard and Poor’s AAA rating in August 2011 but it’s economy and money markets have not stalled, and France have also not been affected by their status change to AA, with their cost of funds yet to soar because of the time lag involved in these decisions. Although every country has a different economic situation, there is an argument to be made that a change in credit rating status will not have substantial short term damage.

In the final analysis, by the time rating agencies have acted, economic consequences have already passed and the rating change becomes pointless. So in effect it can be argued that Britain’s triple A credit status change would not have too much of an affect in the immediate future at least.

Contributed by Jordan Naidu

Somaliland a step ahead?

Somaliland is not even recognised internationally as a ‘real’ place, let alone being a country. However, has it already moved ahead of economic giants such as USA and China, with regards to how people carry out their day to day transactions?

Somaliland is an unrecognised, self-declared state that is acknowledged as an autonomous region of Somalia. Due to certain massacres that led up to the 1991 Somali Civil War, the state has since made itself independent from the rest of Somalia. The destruction of economic and military infrastructure left the state in tatters and felt that independence was its best option. The state is now governed by an administration as the Republic of Somaliland. The currency in Somaliland is the Somaliland shilling; although it is very much stable and not even slightly close to going into any kind of recession, it is not recognised as an official currency and thus, there is no exchange rate offered for it. As a result, and due to the fact that the government relies mostly on tax receipts and remittances from the large numbers of Somali diaspora, international aid is very difficult to come by. Furthermore, it also follows that growth of the state, economically speaking, is very much limited.

However, despite all of these restricting factors, the country’s current system for sales is quite phenomenal. Not by means of its complexity but the fact that this state, which is in a very difficult political situation, has managed to leapfrog more commonly used systems which are being deployed in the majority of countries worldwide. In Somaliland, a majority of transactions carried out by its citizens are done through a simple mobile service. Most shops will have a six figure code written on the front of it and customers will come and pay for their goods using this code. An idea so simple that, despite its obvious issues, works incredibly well. The country’s economy is stable but far from robust, to have this kind of infrastructure available to these people is an amazing thought, especially since the area is much like how one would describe a third world country. Nevertheless, the country has this system deployed and functioning well which indicates high hopes for the state. Unlike most other areas in the world which are in a similar position to Somaliland, this state has shown that it is not going to follow the herd but try something else and full credit goes to them.

The obvious issues with this kind of system include the fact that people are now totally dependent on their mobiles. It is not only their main access to spending money but it is also dependent on the phone not suffering any technological problems which anyone in the UK will tell you is an infuriatingly common problem among phones. On the other hand, the phones associated with the people of Somaliland are not ones with the ability to do Wi-Fi tethering or anything of the sorts but are about as simplistic as it can get. As consequence, the phone suffers fewer problems and people are able to be more reliant on the phone working.

The state is also very much in what we would see as stage two of the DTM (Demographic Transition Model) so the people are still in their own ‘tribal’ groups. People work together in order for this system to work effectively. Again, this would be an agenda in a more developed country but not here. This is because there is a huge trust upon fellow citizens to help each other and the benefits could be great for the nation.

To conclude, the sheer thought of a state as minute and futile as Somaliland being able to innovate and successfully implement a system of this kind is beyond belief. The fact that governing administration has been able to do so is incredible and much of this is down to the co-operation of the citizens. Despite all their problems, the state has done their business and is sure to collect its rewards in the not too distant future.

Contributed by Jordan Naidu