The Savior of Europe

By Fareed Zakaria Monday, Mar. 05, 2012

Europe has been rescued. No, I'm not talking about the deal over Greek debt that was much in the news recently. The real rescue of Europe is being managed quietly, away from the headlines, by a low-key Italian, Mario Draghi, the new head of the European Central Bank (ECB). Over the past two months, Draghi has put the ECB to work, and the results show the power of central banks and the importance of using it effectively. Don't start cheering yet. I'm not suggesting that Europe has solved its problems. Despite the recent deal, Greece will not be able to pay back its loans and will face another restructuring, which is a fancy word for default. Portugal might face a similar fate. But now such defaults will not trigger a systemwide panic. There will be no Lehman Brothers--type financial collapse in Europe. Why? There is a famous scene in the movie It's a Wonderful Life: after the Crash of 1929, people run to the bank to pull their money out, and the Bailey Building & Loan just doesn't have enough cash. Thanks to Draghi, Europe's banks will have access to plenty of cash. On Dec. 21, the ECB offered to lend Europe's banks as much money as they wanted for three years at the astonishingly low interest rate of 1%. "In effect, he printed about $600 billion in a day and changed the game," Sebastian Mallaby, a scholar at the Council on Foreign Relations, says of Draghi. Then Draghi suggested that he might do it again, possibly at a larger scale. "To put this in perspective, Europe and the IMF labored for almost a year to put together a rescue fund of about $500 billion. Draghi may end up creating one three times the size in two months," says Mallaby. And he could do more. There is no theoretical limit to a central bank's balance sheet. The market has noticed. European stocks had their best January in nearly 15 years. Bank shares are up 20%. The rates at which governments borrow money have fallen. Investor sentiment is more bullish than it has been in months. Draghi has not fixed Europe's longer-term problems of high debts and low competitiveness. But he has bought crucial time for Europe's leaders to make structural changes to their countries' economies and move toward growth. The ECB's activism is not a new model for what a central bank can do. Here in the U.S., the Federal Reserve did the same thing--four years ago. For its actions, the Fed is under withering criticism from many on the right and left. Newt Gingrich has called Ben Bernanke the most "dangerous" chairman in the Fed's history, Rick Perry practically accused him of treason, and even moderate Mitt Romney has criticized him and announced that he would not reappoint him when his term expires in 2014. This is dangerous demagoguery. Bernanke is the single individual responsible for preventing the financial crash of 2008 from turning into something much worse. Discussions of the Fed's role can get very esoteric, filled with concepts like fiat money and new monetarism. Let me try some common sense and a history lesson The fear that a central bank could cause inflation by printing money is justified--except these days. Inflation in rich countries is caused largely by rising wages. How can that happen at a time when unemployment is sky-high? New autoworkers in Michigan are making $14 an hour, less than half the

union rate of a few years ago. Youth unemployment in Spain is about 50%. Under these circumstances, wages of Western workers are far more likely to fall than rise. In an essay for the Financial Times, Mallaby provides a highly intelligent history lesson. After the Japanese tsunami, the Bank of Japan (the country's central bank) printed trillions of yen to stabilize the economy--and it worked. Mallaby contrasts that with the aftermath of the San Francisco earthquake of 1906, a much smaller natural disaster but one that took place in an America that did not have a central bank. Within a year, GDP collapsed, the stock market declined by 50%, and unemployment almost tripled, to 8%. This was not an anomaly. In the recessions of 1873 and 1893, the economy went into free fall while unemployment rose to more than 10% for years--five years in the case of the 1890s. (By comparison, U.S. unemployment hovered close to 10% for three months in the current crisis.) Modern economies have benefited greatly from having lenders of last resort that act wisely in a crisis. We should discuss how they should use this power. It will take special skill to withdraw, carefully, the cash that all the world's central banks have put into the system in the past few years. But had they not done it in the first place, we would all be discussing a different problem--how to get out of a global Great Depression

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The Two-Faced Economy By Rana Foroohar Monday, Nov. 05, 2012

We've heard plenty about the wealth divide in the U.S. economy. But there's another important divide--the one between consumers and corporations. If you look at how U.S. households have been behaving lately, you'd think it was all blue skies. Consumer confidence is at a five-year high, thanks to higher stock prices and a recovery in the housing market. Home prices have had their biggest jump since 2005. Consumers, finally feeling more flush, are buying that new car or electronic gadget and bolstering GDP growth a bit. Part of the new confidence comes down to the fact that Americans have gotten their financial houses in order. Credit-card delinquencies are at a decade low, and mortgage debt is down, even if foreclosures still loom for some. Companies are even more flush: they've got $2 trillion on their balance sheets and record profits. Yet far from being bullish, the blue chips are hunkering down as they see weakness down the road. Business spending has dropped, and hiring (which already wasn't strong) is on hold at many companies. Exporters in particular are suffering because of a slowdown in emerging markets and continued problems in the euro zone. Even those that are doing well, like Caterpillar, have lowered earnings forecasts for 2012. It's not only industrial firms that are hurting. Tech is down too, with companies such as IBM and Google posting weaker-than-expected earnings. Less than half of all companies that have posted quarterly earnings so far have done better than expected, in part because the comparisons with last year are so difficult. "The U.S. economy appears to be developing a split personality," says Paul Ashworth, chief U.S. economist for the research firm Capital Economics, summing up the consumercorporate bifurcation. It's a divide that speaks volumes about what's real and what's imagined in the American economy. Bullish consumers are responding mainly to the Federal Reserve's latest round of quantitative easing, which has driven interest rates to historic lows and goosed both U.S. stocks and the housing market. In one sense, Ben Bernanke has done his job quite well. People are feeling richer, and you can see it in rising retail sales, only a small fraction of which are due to the iPhone 5. Consumers are oddly oblivious to the fact that their disposable income is likely to fall next year as consensus in Washington starts to build for letting the Bush tax cuts expire. That's as it should be; people base their economic behavior mainly on the here and now. Not companies--they have to do forward planning. At the spate of 2013 look-ahead lunches held by big institutional investors at fancy Manhattan restaurants over the past few weeks, vintage wines were still flowing, but investors may have been drinking to calm their nerves. As one fund manager told me, "I'm grateful to Bernanke, but inflating asset prices is different than creating real growth and jobs." Indeed, many were predicting that beyond a postelection stock-market rally, we could be anywhere from six to nine months away from a bear market. I'm inclined to agree, because without real and sustained underlying growth, corporate profits--and thus stock prices--can levitate for only so long. (In fact, we already saw a dip after third-quarter earnings.) In some ways, we are exactly where experts like Harvard economist Ken Rogoff would say

we should be at this stage of a recovery from a post-financial-crisis recession. Central bankers have primed the economy to give people breathing room. Consumers have repaired their balance sheets and are spending.

What's missing here? Politicians and policymakers who have come together to make a job-creating and investment-inducing grand bargain over debt reduction. While they'll most likely find a way to avert the fiscal cliff, there's yet another bout of Washington gridlock making corporations nervous about spending in the short term. Things would be worse if not for the fact that the rich-country investment alternative is Europe, and it's quite telling that U.S. banks have reduced their exposure not only to euro weaklings like Spain but also to Germany. They believe there's a good chance that the crisis could damage even the strongest link of the euro zone.

What's particularly troubling about all this is that when the market finally dips longer-term, we'll see a further divide between corporations and consumers. While the former will mostly fly above the troubles of individual nations, relocating operations wherever it's most efficient, the latter will be left looking not only at smaller retirement portfolios but also for jobs that are still hard to find at home.

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Can These Jobs Be Saved? By PETER GUMBEL Thursday, Apr. 02, 2009

If you had told hard-charging professionals in the City of London just a few months ago that they should take a 20% pay cut to work one day less per week, they would have likely mocked the idea as a French socialist plot to undermine the British economy. But when the U.K. arm of accounting firm KPMG recently asked its staff if they would be willing to reduce their workweek and thereby save jobs in the event that business dried up, an overwhelming 85% signed on. About 200 employees in the tax division have already shifted to a four-day week, says spokesman Gavin Houlgate, who claims the deal is a first for a British financial services firm. It's unlikely to be the last. "There's been quite a bit of interest from other organizations," Houlgate says. As financial meltdown has turned into global economic crisis, the human cost in terms of lost jobs and displaced workers is growing at a terrifying pace. The International Labor Organization (ILO) predicts that 38 million people around the world could lose their jobs this year alone, sending unemployment rates in Europe and the U.S. into double digits for the first time in years and slowing or in some places reversing the massive jobs growth of recent years in Asia. Alarmed by the social and political consequences, governments, companies and labor unions in countries across the globe are scrambling to put in place a range of measures aimed at minimizing job losses.

For white- and blue-collar workers alike, shifting to shorter working hours and lower pay in exchange for tacit job guarantees is suddenly a no-brainer not just in Britain, but also in Taiwan, Iceland and a swathe of other countries in Europe and Asia. Other schemes being tried include temporary work suspensions at factories, and even work-sharing programs. Two countries stand out as having the most developed and systematic approach: Japan and Germany, which both provide government subsidies to companies who keep on workers even though there's little or no work for them to do. Both have recently extended their schemes. In Germany, the government now subsidizes companies and idled workers for a full 18 months, up from six months, and the number signing up for the socalled short-work programs is soaring. In February, 724,000 workers were registered, more than double the number in January and 20 times the number a year ago. Most of the nation's auto makers including BMW and Porsche have adopted short-work programs in some of their factories. In Japan, too, the number of workers who have applied to the "employment-adjustment subsidy" program leaped sixfold between December 2008 and January 2009, to almost 900,000.

But in this gut-wrenching downturn, the Germans and the Japanese are no longer alone. "It's happening a lot," says Raymond Torres, director of the ILO's International Institute for Labor Studies. "People are trading off their jobs for wage cuts and other measures." There's even some anecdotal evidence that it's starting to happen in the U.S., where companies have traditionally not hesitated to lay off staff in a downturn; last month the New York Times announced a 5% pay cut for some of its staff in return for extra vacation days.

Torres and other labor experts say it's an open question whether these schemes make much of a difference. In the short term, they may well slow the rise in unemployment. But if the current crisis continues, as many economists are predicting, at least for this year and probably into 2010, even pay cuts, work-sharing schemes and shorter working hours won't be enough to safeguard jobs. "The real issue is can it be sustained?" Torres asks.

At the 30-nation Organization for Economic Cooperation and Development in Paris, chief economist Klaus Schmidt-Hebbel argues forcefully that governments should do more to retrain workers and overhaul their labor-market policies to ensure that once recovery comes, new jobs are created in sufficient numbers to swiftly bring the jobless rate back down again. But ask him about the German short-work measures, and he's skeptical. "They can't stop rising unemployment," he says, "they just delay it." Indeed, in its latest economic forecast released March 31, the OECD expects unemployment in Germany to rise from its current 8.6% to 11.6% by the end of 2010 higher than many of its European neighbors despite the special job-preservation measures. The organization expects Japan's unemployment rate will also rise, although less dramatically, to above 5.5% next year from 4% in 2008.

For all the economists' doubts, there's immense political pressure on authorities to do something to slow growing joblessness. Several national and regional governments are subsidizing jobpreservation efforts along German and Japanese lines, sometimes for the first time. Regional authorities in Wales, for example, have just introduced an on-the-job-retraining scheme under which companies in trouble can receive a subsidy of up to $2,800 per worker if they keep them on the payroll and teach them new skills.

Where nothing else works, there's always political pressure. In India, airline Jet Airways reversed a decision to lay off 1,900 staff after the government made its displeasure known and weeping victims melted Chairman Naresh Goyal's heart. "I could not sleep at night," Goyal confessed at a press conference. "I was mentally disturbed when I saw tears in their eyes." Civil Aviation Minister Praful Patel said he told Goyal that "the ministry would certainly not be very happy with the approach of Jet Airways." Something similar happened in France last month when the French oil company Total announced the closure of two refineries, with the loss of 550 jobs. The move provoked a furious public outcry including denunciations from two government ministers, and the firm quickly backtracked, saying it had been a "communication error." For companies receiving government bailout money, the pressure is even more intense: French President Nicolas Sarkozy has told Renault and Peugeot that the price for receiving subsidies during the crisis is that the auto makers cannot cut jobs in France. Government suasion is particularly strong in China, where the global economic crisis has led to the closure of 7.5% of the country's small and mid-size companies since the end of 2008. In February, the central government's powerful State Council ordered companies throughout the country to notify local government-backed labor unions if they planned to cut either 10% of staff or more than 20 employees. In Beijing, state-owned enterprises have been ordered not to lay off any of their

employees this year. The government is also looking to make positive examples of private businesses that keep on staff. That's why Liu Jingyu, a local entrepreneur in a suburban district of Beijing called Daxing, was recently handed the keys to an expensive Audi A8L; he'd created more than 1,600 jobs at his company, most of them for local Daxing citizens. Jingyu is promising not to cut either jobs or salaries, to take on more employees and to pay end-of-year bonuses as usual.

In some parts of Asia, palliative measures to combat a sudden surge in joblessness were first tried out a decade ago, during the region's economic crisis in the late 1990s. That doesn't mean they're always popular, especially if they involve involuntary pay cuts. Several Taiwanese high-tech companies, for example, began a forced policy of unpaid leave at the end of last year, prompting hundreds of workers to protest in front of the government's Council of Labor Affairs. The council requires that employers pay at least minimum wages and sign agreements with their employees on the terms of the unpaid leave. Even so, workers often feel they have little choice but to accept the policy. Michael Kramer works at Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest semiconductor foundry. Since January, he and all the other 20,000 employees have been required to take at least one day a week of unpaid leave. That's quite a change from a year ago a time when workers put in

12-hour days and Kramer had to take unpaid leave to prepare for his Aikido black-belt test. Even so, he's not thrilled. "I actually literally thought to myself before that I'd be willing to take a 20% pay cut to work 20% less hours," Kramer says. "But now that it's actually happened, I'm thinking work isn't so bad after all."

At Taiwan's Hsinchu Science and Industrial Park where over 90% of the world's notebook computers, motherboards and cable modems are made three-quarters of the nearly 130,000 workers took at least one or two days of unpaid leave a week during the first two months of 2009. For firms with an eye on an eventual recovery, one of the main reasons to cut working hours and not jobs is that it reduces costs at the same time as preserving the talent base. But cutting hours also adds to the bigger macroeconomic problem currently hammering the world economy: lack of demand. Pay cuts eat into consumer spending, which in turn amounts to more bad news for a world economy in need of stimulus. "If you go too far, you'll just aggravate the demand crisis," says Torres of the ILO.

There are other drawbacks to these employment measures, subsidized or not. The biggest is that only workers on fixed full-time employment contracts tend to be covered by the schemes. But they aren't necessarily the most vulnerable to job cuts in hard times; rather, it's the millions of part-time or temporary workers on more precarious labor contracts who are the first to lose their jobs. Numbers vary widely from country to country, but in Spain, for example, around one in three workers are in temporary employment. Unemployment there has soared to more than 14%, up from 9% in the beginning of last year. Migrant workers are also especially vulnerable. The World Bank

estimates that, after years of heady growth, remittances sent by international migrants back to their home countries in the developing world will drop this year by between 5% and 8%.

In Taiwan, at least, there are the first signs that the jobs crisis may be easing. TSMC and its rival chipmaker United

Microelectronics Corporation have already gone back to normal hours, and the Hsinchu Science Park Administration predicts that only around 25% of hi-tech park professionals will be on forced leave in April. Back in London, John Philpott, the public-policy director of a lobby group called the Chartered Institute for Personnel and Development, sees the rise of short-work programs and pay cuts in industry as a natural reaction to the crisis. In the case of accountants KPMG, he says, "if you have a highly skilled workforce that you don't want to lose, it can make a lot of sense." But the idea of governments getting involved with big subsidies for such schemes on a regular basis makes him shudder. "There will always be jobs that disappear, and in the long run it's not in our interest to keep them," Philpott says. In many places, in the current dire economic circumstances, that's no longer an argument that carries much weight.

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I enjoyed baked ziti for lunch today, but the best part of my mid-day outing was reconnecting with an old CUNA friend and colleague, now working at a credit union. We chatted about old times and mutual friends. Then the conversation shifted to discussion of changein our careers, our families, thoughts about our respective futures, and to musings about the credit union movement itself. We wondered how might things evolve in our unique work environments as our institutions respond to shifting demands of the financial services industry. It was an invigorating talk. We left on a high note, optimistic about whatever lies ahead. As we careened out of the parking lot, the navigational system flew off the dashboard. My friend was about to make a pithy comment; hastily amended with the interruption. What I was going to say, Lora, is drop that GPS and see where life takes you! We laughed. In our jobs, are we enslaved to road maps directing us to carefully planned destinations, when perhaps a free-wheeling openness might ultimately lead us to better places? Or, perhaps our destination might be the same, but interesting detours or varied routes are advantageous as we learn and grow. Appearance of the unexpected and our responses to it can make for interesting journeys rich in opportunity, if we allow. Employment news in the fast lane Lots of news on the employment scene this week. Lets begin with, Number of jobs held, labor market activity, and earnings growth among the youngest baby boomers: Results from a longitudinal survey summary. Here, the Bureau of Labor Statistics (BLS) outlines trends of worker boomers: Individuals held an average of 11.3 jobs from ages 18 to 46, and, The inflation adjusted earnings of these workers increased most rapidly while they were youngFor men and womengrowth rates in inflationadjusted hourly earnings generally were higher for workers with more education. Motoring along to a world view, Gallup tells us the world is pessimistic about job prospects. Surveys conducted in 146 countries reveal, Fifty-seven percent of adults worldwidesaid it was a bad time to find a job in their local communitiesEuropeans were most pessimisticOptimism was highest in the Americas, where a still dismal 38% said it was a good time. Public sentiment on employment is an indicator of economic confidence, so this is important news. For more on American employment realities, see An Overview of U.S. Occupational Employment and Wages in 2011, also by BLS. Most of the 10 largest occupations in May 2011 were relatively low-payingoccupations associated with manufacturing, construction, retail trade, and transportation were among those with the greatest job losses. Further, the largest public sector occupations were in education and found mainly in local government.

Where are your members working? What are their incomes? What are their thoughts on future employment prospects? The Industry-Occupation Mix of U.S. Job Openings and Hires by the Federal Reserve Bank of San Francisco constructs estimates of job openings by industry and occupation yielding an estimate of the number of job openings and the average number of hires per job opening. This data-rich study constructs time series between 2005 and 2011. Can we apply some of these lessons and practices as we look forward to member employment opportunities? Lets put things in reverse with a glimpse at unemployment issues. In Racial and Ethnic Differences in Receipt of Unemployment Insurance Benefits During the Great Recession by the Urban Institute, we learn that even after accounting for variances in education, employment history, and reasons for unemployment, The Great Recession hit black workers harder; the unemployment rate was higher for non-Hispanic blacks than for non-Hispanic white or Hispanic workers, and black unemployed workers had the lowest receipt of unemployment insurance benefits; 23.8 percent compared to whites 33.2 percent. Retirement exit ramp New Report Finds Public Sector Employees Uncertain about Retirement, notes the TIAA-CREF Institute. Only 19 percent of full-time public sector workers are very confident in their retirement income prospects, with many expressing concern about the impact of rising health care costs. What interesting conclusions can we draw based on the earlier data revealing public sector employment realities? Along the same side of the street, theres Little Thought Put into Retirement Date, surmises Boston College. Apparently, most of us give more thought to the acquisition of car or mattress than retirement date implications. Individual decisions about the timing of an application to start up Social Security benefits depend simply on the order in which the person thinks about the benefits of his actions: those who first think about the advantages of claiming early, and vice versa. Thats it! Would members benefit from information on making prudent retirement decisions? Before we screech to a halt, look at Fraud Insights Derived from Stories of Auditors at Financial Institutions. Here, The analysis of fraud risk factors is a proactive audit tool in todays environment. The current study used hindsight to analyze fraud risk factors from a convenience sample of one audit partners recollections of the financial institutional environment of credit unions (It) used content analysis to uncover emerging themes in a sort of ethnographic study of five fraud and five non-fraud stories pertaining to credit unions. The result is a published fraud risk assessment checklist that was applied to the fraud stories.

It seems we can ensure that we dont run out of gas on our journeys with the incorporation of a simple attitude. The secret, I think, is to remain nimble. Flexibility is essential in not only living daily life but in meeting the needs of our jobs and members. Of course, planning is essentialwe need to know what we want to achieve. But an open attitude and mind will allow us to successfully navigate detours and bumps in the road along the way. Hop in the drivers

A 12-Step Program for Indias Economic Recovery? By Krista MahrJune 06, 2012 Add a Comment

Indian industry leaders gathered on June 4 in New Delhi to unveil their solution to Indias unfolding fiscal crisis: a 12-step program to economic recovery. The dozen measures recommended by the Federation of Indian Chambers of Commerce and Industry (FICCI) are all aimed at soothing the troubled macroeconomic environment in the country by paving the way for more investment and pushing reforms that would usher in more labor-intensive industries. The intervention was spurred by numbers released last week that painted a grim picture of the direction Indias economy is heading. Namely, down. GDP growth plummeted to a nine-year low of 5.3% in the first quarter, down from 9.2% the same time last year. A yawning deficit, a falling rupee and major slowdowns in key sectors like manufacturing have economists and business leaders alike saying if India wasnt facing a crisis before, it is now. With 550 million Indians under the age of 25, R.V. Kanoria, FICCIs president, said at the briefing, India cant afford to not continue on a path of high growth that creates millions more jobs. We are sitting on a time bomb, he warned. One of the concerns voiced by Kanoria and others was that the fractious ruling coalition has been unable to overcome its internal differences to face the problem head-on. For the past year, many have said the government is in the grips of a policy paralysis, unable to push through reforms that would pave the way for more investment, or flip-flopping on measures that would do the same. When it comes to natural disasters or security emergencies, Kanoria said, Indias politicians pull together. But, he said, Somehow we dont seem to be treating the economic disaster with the same kind of emotion that brings the nation together. (MORE: Indias Petrol Hike: Gas Goes Up, and a City Melts Down) Industry leaders at the meeting also said Delhi places a disproportionate amount of blame for its problems on the crisis in the euro zone. This is a crisis of Indias making, they said, and blaming Europe is only buying time. Let us not concentrate on situations that are out of our hands, said Y.K. Modi, former president of FICCI, at the press briefing. We are all talking about Greece, and I dont know why. Another major bone FICCI has to pick, not surprisingly, is over the governments tendency to focus its attention on populist measures like subsidies, rather than reforms that would give industry a boost. (An immediate moratorium on doles was the first recommendation of the 12-step program.) In 200708, government revenue amounted to $97 billion, while expenditures were $128 billion. In 201112, revenue was $139 billion and expenditures were $238 billion, meaning, according to FICCIs calculations, the government now borrows almost two-thirds of what it earns and one-third of what it spends. It wont be an easy situation to change. The government announced limited new austerity measures last week and rolled out committees to fast-track development that could help kick-start the growth needed to offset the rise in spending and create millions of jobs. But when the government recently

announced a steep hike in fuel prices, which are heavily subsidized, nationwide protests erupted around the country, prompting retailers to cut prices again. Others argue that business-driven growth is part of the problem, not the solution, and that the government should be listening more to the people and less to industry. You get this clamor on the part of the rich to the extremely rich that there is paralysis, says Mani Shankar Aiyar, a Congress Party India MP. The government, he says, should be listening to the bottom.

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seat!