MUST WATCH! Masters Of Money

In Masters of Money, produced in partnership with the Open University, BBC economics editor Stephanie Flanders examines how three extraordinary thinkers, Keynes, Hayek and Marx, helped shape the 20th century and continue to exert a huge influence on our world today. Stephanie begins by looking at John Maynard Keynes. Many argue only Winston Churchill had a greater impact on British life than Keynes over the last century. Even today his ideas remain crucial to one of the most important debates of our time: how can we escape from the economic crisis? Should governments borrow and spend their way out of trouble or slash spending and reduce the national debt?

With contributions from some of the world's leading economic thinkers including a Nobel laureate and the governor of the Bank of England, Stephanie Flanders argues Keynes has never been more relevant or controversial than now.

During his life, Keynes was credited with, amongst other things, helping to save capitalism from the Great Depression, funding the war against the Nazis and building post-war decades of growth and rising prosperity. And when the global crisis struck in 2008, it was his ideas that the world's leaders turned to to help avoid another depression.

John Maynard Keynes, 1st Baron Keynes,[1] CB FBA (5 June 1883 -- 21 April 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, and informed the economic policies of governments. He refined earlier work on the causes of business cycles, and advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. Keynes is widely considered to be one of the founders of modern macroeconomics, and the most influential economist of the 20th century. His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots.

In the 1930s, Keynes spearheaded a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. Keynes instead argued that aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment. Following the outbreak of World War II, Keynes's ideas concerning economic policy were adopted by leading Western economies. During the 1950s and 1960s, the success of Keynesian economics resulted in almost all capitalist governments adopting its policy recommendations.

Keynes's influence waned in the 1970s, partly as a result of problems that began to afflict the Anglo-American economies from the start of the decade, and partly because of critiques from Milton Friedman and other economists who were pessimistic about the ability of governments to regulate the business cycle with fiscal policy. However, the advent of the global financial crisis in 2007 caused a resurgence in Keynesian thought. Keynesian economics provided the theoretical underpinning for economic policies undertaken in response to the crisis by Presidents George W. Bush and Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other heads of governments.

In 1999, Time magazine included Keynes in their list of the 100 most important and influential people of the 20th century, commenting that: "His radical idea that governments should spend money they don't have may have saved capitalism." In addition to being an economist, Keynes was also a civil servant, a director of the British Eugenics Society, a director of the Bank of England, a patron of the arts and an art collector, a part of the Bloomsbury Group of intellectuals, an advisor to several charitable trusts, a writer, a philosopher, a private investor, and a farmer.

Masters Of Money: John Maynard Keynes ( 1/3 BBC)


According to conventional wisdom, today's global financial crisis happened because markets were not regulated enough. But what if the opposite is true? That it was excessive government meddling in the markets that caused the crash?

In Masters of Money produced in partnership with The Open University, BBC economics editor Stephanie Flanders examines the extraordinary influence of three intellectual titans - Keynes, Hayek and Marx and shows how they shaped the 20th century and continue to have a huge impact on our world today.

Stephanie turns her attention to the radical free-market economist Friedrich Hayek. Travelling from London to Vienna and America, she unravels the extraordinary life and influence of the only free-market thinker whose reputation has grown post-crisis.

With contributions from Central bankers, politicians and a Nobel laureate, she explores why despite his enormous influence, no government has ever dared to fully implement Hayek's solution to the problems of capitalism - set it virtually totally free from state control.

Friedrich August Hayek CH (8 May 1899 -- 23 March 1992), born in Austria-Hungary as Friedrich August von Hayek, was a British economist and philosopher best known for his defense of classical liberalism. In 1974, Hayek shared the Nobel Memorial Prize in Economic Sciences (with Gunnar Myrdal) for his "pioneering work in the theory of money and economic fluctuations and... penetrating analysis of the interdependence of economic, social and institutional phenomena."

Hayek is considered to be a major economist and political philosopher of the twentieth century. Hayek's account of how changing prices communicate information which enables individuals to coordinate their plans is widely regarded as an important achievement in economics. He also contributed to the fields of systems thinking, jurisprudence, neuroscience and the history of ideas.

Hayek served in World War I and said that his experience in the war and his desire to help avoid the mistakes that had led to the war led him to his career. Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938. He spent most of his academic life at the London School of Economics (LSE), the University of Chicago, and the University of Freiburg.

In 1984, he was appointed as a member of the Order of the Companions of Honour by Queen Elizabeth II on the advice of Prime Minister Margaret Thatcher for his "services to the study of economics." He also received the US Presidential Medal of Freedom in 1991 from president George H. W. Bush. In 2011, his article The Use of Knowledge in Society was selected as one of the top 20 articles published in the American Economic Review during its first 100 years.

Masters Of Money: Friedrich Hayek (2/3 BBC)


Stephanie Flanders examines one of the most revolutionary and controversial thinkers of all. Karl Marx's ideas left an indelible stamp on the lives of billions of people and the world we live in today. As the global financial crisis continues on its destructive path, some are starting to wonder if he was right.

Marx argued that capitalism is inherently unfair and therefore doomed to collapse, so it should be got rid of altogether. Today as the gap between rich and poor continues to cause tension, his ideas are once again being taken seriously at the heart of global business.

Stephanie travels from Marx's birthplace to a former communist regime detention centre in Berlin and separates his economic analysis from what was carried out in his name. She asks what answers does Marx provide to the mess we are all in today.

Masters of Money: Marx (3/3 BBC)

GREECE REVOLT - Clashes erupt as thousands of Greeks protest austerity

Greek police clashed with hooded rioters hurling petrol bombs as tens of thousands took to the streets of Athens on Wednesday in Greece's biggest anti-austerity protest in more than a year.

Violence erupted after nearly 70,000 people marched to parliament chanting "We won't submit to the troika (of lenders)" and "EU, IMF Out!" on the day of a general strike against a new round of cuts demanded by foreign lenders.

As the rally ended, dozens of black-clad youths threw stones, petrol bombs and bottles at riot police, who responded with several rounds of teargas. Police chased the protesters through Syntagma square in front of parliament as helicopters clattered overhead. Smoke rose from small blazes in the streets.

About 120 people were detained after angry protesters smashed bus stop kiosks and set fire to garbage cans.

"We can't take it anymore - we are bleeding. We can't raise our children like this," said Dina Kokou, a 54-year-old teacher and mother of four who lives on 1,000 euros a month.

"These tax hikes and wage cuts are killing us."

The 24-hour nationwide strike, called by the country's two biggest unions representing half the four-million-strong work force, is shaping up to be the first test of whether Prime Minister Antonis Samaras can stand his ground.

Police officials estimated the demonstration was the largest since a May 2011 protest, and among the biggest since near-bankrupt Greece first resorted to aid from international lenders in 2010 - which has come at the price of painful austerity cuts.

The traditional summer break has allowed the fragile conservative-led coalition to enjoy relative calm on the streets since narrowly coming to power on a pro-euro, pro-bailout platform, but unions say the lull is over.

"Yesterday the Spaniards took to the streets, today it's us, tomorrow the Italians and the day after - all the people of Europe," Yiorgos Harisis, a unionist from the ADEDY public sector group told demonstrators.

"With this strike we are sending a strong message to the government and the troika that the measures will not pass even if voted in parliament, because the government's days are numbered."

About 3,000 police - twice the number usually deployed - stood guard in the centre of Athens, which last saw serious violence in February when protesters set shops and banks ablaze as parliament approved an austerity bill.

Police formed a barricade outside parliament, and officers blocked a pensioner who tried to move towards Samaras's office holding a banner with pictures of Greek prime ministers under the title: "The biggest traitors in Greek history".

Ships stayed docked, museums and monuments were shut to visitors and air traffic controllers walked off the job for a three-hour stoppage. Train service and flights were suspended, public offices and shops were shut, and hospitals worked on skeletal staff as part of the general strike.

Continue reading - Reuters - Clashes erupt as thousands of Greeks protest austerity

Greece Molotov Rampage: Video of protesters fire petrol bombs at police

SPAIN REVOLT - Spain prepares more austerity, protesters battle police

Protesters clashed with police in Spain's capital on Tuesday as the government prepared a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday.

Thousands gathered in Neptune plaza, a few meters from El Prado museum in central Madrid, where they formed a human chain around parliament, surrounded by barricades, police trucks and more than 1,500 police in riot gear.

Police fired rubber bullets and beat protesters with truncheons, first as protesters were trying to tear down barriers and later to clear the square. The police said at least 22 people had been arrested and at least 32 injured, including four policemen.

As lawmakers started to leave the parliament shortly after 2100 GMT in official cars or by foot, a few hundred people were still demonstrating in front of the building. Most dispersed shortly afterwards.

The protest, promoted over the Internet by different activist groups, was younger and more rowdy than recent marches called by labor unions. Protesters said they were fed up with cuts to public salaries and health and education.

"My annual salary has dropped by 8,000 euros and if it falls much further I won't be able to make ends meet," said Luis Rodriguez, 36, a firefighter who joined the protest. He said he was considering leaving Spain to find a better quality of life.

With this year's budget deficit target looking untenable, the conservative government is now looking at such things as cuts in inflation-linked pensions, taxes on stock transactions, "green taxes" on emissions or eliminating tax breaks.

The 2013 budget is the second conservative Prime Minister Mariano Rajoy has had to pass since he took office in December. Spain must persuade its European partners that it can cut the budget shortfall by more than 60 billion euros by 2014.

Rajoy has already passed spending cuts and tax hikes worth slightly more than that over the next two years, but half-year figures show the 2012 deficit target slipping from view as tax income forecasts will not be hit due to economic contraction.

He said earlier this month the 2013 budget would cut spending further in all areas of government apart from pensions and borrowing costs.

Spain is at the center of the euro zone debt crisis on concerns the government cannot control its finances and those of highly indebted regions, bitten by a second recession since 2009 which has put one in four workers out of a job.

Continue reading - Reuters - Spain prepares more austerity, protesters battle police

Surround Congress clashes: Dramatic footage of night violence in Spain

The Price of Money: Consequences of the Federal Reserve's Zero Interest | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

United States House of Representatives
Committee on Financial Services
Subcommittee on Domestic Monetary Policy
Hearing on

"The Price of Money: Consequences of the Federal Reserve's Zero Interest Rate Policy"
September 21, 2012

Hearing on the Price of Money Sept 21, 2012

MUST READ! Quantitative easing isn't magic | James K Galbraith

What should we make of the latest moves to kickstart the US economy, and to save the euro? As the late, great Harvard chaplain Peter Gomes said to my graduating class many years ago, about our degrees: "There is less there than meets the eye."

Quantitative easing, the third tranche of which was announced in the US last week (QE3), is just a fancy phrase for buying bonds, notably mortgage-backed-securities, in which operation the Federal Reserve takes assets from the banks and gives them cash. This raises the bond price and lowers the yield. It also tends to boost stock prices – very nice for people who own stock – and it can spur mortgage refinancing, improving the cashflow of solvent homeowners.

And the effect on the economy of all this is? Mostly indirect and quite small. People don't generally spend capital gains as windfalls. Saving on mortgage debt helps to support spending but some of it goes to paying down other debts. People who are already underwater on their mortgages can't refinance anyway, and are not affected. Yes, there is some effect. But powerful stimulus, this is not.

Meanwhile, the European Central Bank is buying the dregs of the European bond market, propping up their price. The operation is similar to QE but the help for the economy is even less. Mario Draghi, the bank chief, aims to save the euro, not the eurozone; his conditions actually prevent beneficiaries from using the money they save; in fact, to get the aid they must spend less. So long as this goes on, unemployment, budget deficits and debt will get worse. It's no surprise that sensible countries refuse the deal for as long as they can.

Some people in high places – Tim Geithner, the US treasury secretary, for example – profess that restarting bank lending is the key to economic recovery, and increasing bank reserves will spur them to lend. (What else are banks really good for?) But if anyone believes that reserves are key to lending, they deeply misunderstand what banks do.

As Hyman Minsky used to say: banks are not moneylenders! Banks don't lend reserves, and they don't need reserves in order to lend. Banks create money by lending. They need a client willing to borrow, a project worth lending to, and collateral to protect against risk. If these are lacking, no amount of reserves will turn the trick. And especially not when the government is willing to pay interest on their reserves: the truest form of welfare, income for doing nothing.

In a debt-deflation, actually there's even worse news. When asset prices are falling, how do banks make money? Not by fighting the trend but by riding it. If they withhold loans, prices will fall even further, and the assets can be bought later for even less. You might call this shorting the entire economic system. You can't blame the banks for this, it's how money makes money in hard times. But to expect them to act as the agents of economic growth in such conditions is foolish.

Among the deluded in this matter are Republican members of Congress who rushed to attack QE3 for overstimulating, and urge laws constraining the Federal Reserve to a single price stability objective, in the manner of the European Central Bank. Obviously if the policy won't work – and it won't – they have nothing to fear on inflation. But the move toward a "price stability only" mandate for the Fed would have an effect that you might think legislators would disfavour: it would destroy the honest accountability of the central bank to Congress.

The Fed today operates under what is called a "dual mandate" – full employment and price stability. The law, originally known as the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978, is one for which I drafted the monetary sections, as the responsible staff member of the House Banking Committee, around 1976. It actually states a range of economic objectives and was deliberately kept general; the purpose was not to dictate economic theory but to foster an honest dialogue between the Fed and Congress over what monetary policy is and does. This framework for accountability has been remarkably durable – the hearings we started have held up as the basic method of monetary policy oversight for 34 years.

Changing to a price-stability objective would oblige Ben Bernanke, the Fed chairman, to claim, as ECB officials do, that he is motivated solely by his charter, even if obviously doing something else. And Congress, having imposed the price-stability straitjacket, would not be able to complain about unemployment, foreclosures or anything else. The Fed-Congress dialogue would be reduced to a tissue of ritual incantation and lies.

What we need instead, today, is a candid review of what central banks cannot do. Yes, they can usually forestall panic. Yes, for better or worse they can keep zombie banks alive. No, they cannot bring on economic recovery or solve any of our deeper economic problems, from unemployment and foreclosures in America to unemployment and economic collapse in Greece and elsewhere. The sooner we stop thinking of central bankers as wizards and magicians, the better.

Source: Guardian - Quantitative easing isn't magic

BREAKTHROUGH! Computing with a Single Atom

Quantum vision: Computing with a single electron in silicon

A research team led by Australian engineers has created the first working quantum bit based on a single atom in silicon, opening the way to ultra-powerful quantum computers of the future.

In a landmark paper published today in the journal Nature, the team describes how it was able to both read and write information using the spin, or magnetic orientation, of an electron bound to a single phosphorus atom embedded in a silicon chip.

“For the first time, we have demonstrated the ability to represent and manipulate data on the spin to form a quantum bit, or ‘qubit’, the basic unit of data for a quantum computer,” says Scientia Professor Andrew Dzurak. “This really is the key advance towards realising a silicon quantum computer based on single atoms.”

Dr Andrea Morello and Professor Dzurak from the UNSW School of Electrical Engineering and Telecommunications lead the team. It includes researchers from the University of Melbourne and University College, London.

“This is a remarkable scientific achievement – governing nature at its most fundamental level – and has profound implications for quantum computing,” says Dzurak.

Dr Morello says that quantum computers promise to solve complex problems that are currently impossible on even the world’s largest supercomputers: “These include data-intensive problems, such as cracking modern encryption codes, searching databases, and modelling biological molecules and drugs.”

The benefits of quantum computing

A functional quantum computer will provide much faster computation in three key areas: searching large databases, cracking most forms of modern encryption, and modelling atomic systems such as biological molecules and drugs. This means they’ll be enormously useful for finance and healthcare industries, and for government, security and defence organisations. Functional quantum computers will also open the door for new types of computational applications and solutions that are, at this stage, difficult to conceive or comprehend.

How quantum computers work

In current computing, information is represented by classical bits, which are always either a zero or a one – the equivalent to a transistor device being switched on or off. For quantum computing you need an equivalent: and in the UNSW design the data will be encoded on the spin – or magnetic orientation - of individual electrons, bound to single phosphorus atoms. These are known as quantum bits, or qubits.

A clockwise (or “up”) spin would represent a 1 and a counter-clockwise (or downward) spin would represent a 0 – but in the quantum realm, particles have a unique ability to exist in two different states at the same time, an effect known as quantum superposition. This gives rise to the unique ability envisioned for quantum computers to rapidly solve complex, data-intensive problems.

Multiple, coupled qubits can exist in states that have no classical analog, and they can be in many of such states at the same time. These special states are called “entangled states” because the information they contain tells you something about the correlations between the particles, but not the individual state of each particle. Using two qubits, the operation could be performed using four values, for three qubits on eight values, and so on. As you add more qubits, the capacity of the computers to perform operations increases exponentially. In fact, with just 300 qubits it is possible to store as many different numbers as there are atoms in the universe.

The silicon approach: UNSW leading the way

In recent years, scientists around the world have been developing completely new systems based on exotic materials or light to build a quantum computer. At UNSW, however, the approach has been to use silicon – the material currently used in all modern-day microprocessors, or computer chips. Silicon offers several advantages: the material is cost-effective, already used in almost all commercial electronics, and its properties are very well understood – the result of trillions of dollars of investment into R&D by the computer and electronics industry. Silicon electron “spins” also have very long “coherence times” – this means the quantum data encoded on the spin can remain there for longer periods than it would in most materials, before it is scrambled and lost. This is important for performing successful calculations.

In 1998, former UNSW researcher Bruce Kane first proposed the idea of using silicon as a base material for quantum computing. In a paper in Nature he outlined the concept for a silicon-based quantum computer, in which single phosphorus atoms in an otherwise ultra-pure silicon chip define the qubits.

His visionary work spawned an international effort to develop a quantum computer in silicon, and this latest result represents the biggest achievement en route to realising that dream – a result, researchers say, that could perhaps one day be seen as comparable to the invention of the transistors used in conventional computers.

A functional quantum bit – or qubit

In order to employ the electron spin, a quantum computer needs both a way of setting the spin state (writing information) and of measuring the result (reading information). These two capabilities together form a quantum bit or qubit – the equivalent of the bit in a conventional computer.

The research team, led by engineers from UNSW, have now completed both stages. Their new result follows on from a 2010 study also published in Nature, in which the same group demonstrated the ability to read the state - or “direction” - of an electron’s spin. Now, with the ability to write the spin state, they have completed the two-stage process required to operate a quantum bit.

The new result was achieved by gaining unprecedented control over an electron bound to a single phosphorous atom, implanted next to a specially-designed silicon transistor.

Professor David Jamieson from the University of Melbourne’s School of Physics led the team that implanted the phosphorous atom into the silicon device.

“Our team has the unique expertise to implant a single phosphorus atom into the correct location of a nanoscale quantum device”, says Professor Jamieson.

Next to the single phosphorous atom is a silicon transistor so small that electrons have to travel along it one after the other. The engineers designed their circuit so that the current would only flow if the electron from the phosphorus atom moved to an ‘island’ at the centre of the transistor. They also set up their device so the electron could only make this jump if it had a particular spin state. If the electron spin was up, then it could jump into the transistor, but if it was down then it couldn’t move. This meant the researchers could tell whether the electron’s spin was up or down simply by measuring the current through the transistor.

The latest finding shows they can now ‘write’ information onto the spin of the electron that is bound to the phosphorus atom in their qubit device. What this means is that they can manipulate the spin state of the electron, pointing it in any direction they choose, which gives them full control of the quantum bit. This result, like their work on the spin reader, has now been published in Nature.

The researchers will now work to combine pairs of these devices to create a two-bit logic gate – the basic processing unit of a quantum computer. While building a full-scale quantum computer remains a daunting and ambitious engineering challenge, the main scientific hurdle of demonstrating a functioning quantum bit in silicon has now been realised.

Source: Computing with a Single Atom

Landmark in quantum computing

US REVOLT - Occupy Wall Street Reignited

Hundreds of protesters marking the first anniversary of the Occupy Wall Street movement were met by a heavy police presence as they converged on lower Manhattan Monday morning.

Officers on horseback and some in riot gear limited access to Wall Street and the surrounding area to workers or residents who have identification.

Police made 146 arrests by 3:30 p.m. Monday, mainly for disorderly conduct when protestors impeded vehicular or pedestrian traffic, NYPD chief spokesman Paul Browne said. Browne also confirmed 43 arrests were made over the weekend, including for disorderly conduct, assault and resisting arrest,.

The protesters had hoped to shut down Wall Street by blocking access to the New York Stock Exchange and create chaos in the Financial District. But while commutes were snarled and workers were inconvenienced by having to show identification to get into buildings, business appeared to go on as usual Monday.

About 1,000 protesters commemorating last year’s kick-off of the income inequality movement gathered early in the morning at four meeting points. One group met across the street from Zuccotti Park, where protesters camped out for weeks last year, and marched south along Broadway.

The group was met by police officers at the entrance to Wall Street, and a handful sat down on the sidewalk. When they refused to move, they were arrested.

Around 8:15 a.m, another group of about 400 people clogged the four corners of Nassau and Pine Streets, some hanging off scaffolding, taunting traders and police officers.

Others were more festive, popping off confetti, volleying a balloon or chatting politics with police officers. Hundreds of protesters at Bowling Green sang a version of “Happy Birthday” to the movement.

Working musicians David Ross, 28, Washington Heights and Ben Laude, 26, Washington Heights, were dressed in suits for the protest. They both attended last year and were pleased by the turnout. “It is encouraging getting 1,000 people out to do anything,’’ Ross said.

Laude was convinced of the relevance of the movement a year later.

“There are dozens of Occupy meetings happening every week that nobody reports on,’’ Laude said. “As long as the economy keeps tanking, there will always be something like Occupy Wall Street.’’

Continue reading - WSJ - Nearly 150 Protesters Arrested on Occupy Wall Street Anniversary

Dozens Arrested at Occupy Protest in NY