A Central Banking Domino Effect Is in Motion

Policy U-turns from the Fed and ECB are cascading around the world

Abrupt changes in the policies of the world’s largest central banks have rippled through smaller economies, leaving them with the prospect of low and even negative interest rates for years to come despite having mostly healthy economies.

The danger is that these easy-money policies could fuel destabilizing bubbles in real estate and other asset markets. They may also leave banks with little ammunition to respond to the next economic downturn.

Economies like Switzerland’s, whose central bank signaled no change in its negative-rate policies for years to come, are small compared with the U.S. and eurozone. Still, they are home to major global banks and companies that are sensitive to exchange rates and financial conditions. With financial markets so interconnected, problems in small countries can quickly spread to larger ones.

.. The Swiss National Bank said Thursday that it would keep its policy rate at minus 0.75%, where it has been since January 2015, and reduced its inflation forecast to 0.3% this year and 0.6% in 2020. The SNB cited weaker overseas growth and inflation and “the resulting reduction in expectations regarding policy rates in the major currency areas going forward.”

.. Here’s why Fed and ECB decisions matter for countries that don’t use the dollar or euro: Switzerland and countries near the eurozone but not part of it—like Sweden and Denmark—rely on the bloc for much of their exports and imports. That makes growth and inflation highly dependent on the exchange rate. Central-bank stimulus tends to weaken a country’s exchange rate, so when the ECB embraces easy-money policies as it did two weeks ago it tends to weaken the euro against other European currencies such as the Swiss franc. Because the ECB is so large, Switzerland and others can do little to offset it.

.. “They are hostage to the fortunes of what the ECB does,” said David Oxley, economist at Capital Economics.

.. “The gravity pull is very strong” from the Fed and ECB, said Sebastien Galy, macro strategist at Nordea Asset Management. “The consequence is [non-euro central banks in Europe] mostly end up importing policy from the ECB, so you end up with housing bubbles and a misallocation of capital.”

Urs Hölzle: Google

Urs Hölzle (German pronunciation: [ˈʊrs ˈhœltslɛ]) is a Swiss software engineer and technology executive. He is the senior vice president of technical infrastructure and Google Fellow at Google. As Google’s eighth employee and its first VP of Engineering, he has shaped much of Google’s development processes and infrastructure

.. Before joining Google, he was an Associate Professor of Computer Science at University of California, Santa Barbara. He received a master’s degree in computer science from ETH Zurich in 1988 and was awarded a Fulbright scholarship that same year. In 1994, he earned a Ph.D. from Stanford University, where his research focused on programming languages and their efficient implementation. Via a startup founded by Hölzle, David Griswold, and Lars Bak (see Strongtalk), that work then evolved into a high-performance Java VMnamed HotSpot, acquired by Sun’s JavaSoft unit in 1997 and from there became Sun’s premier JVM implementation.[2]

He led the design of Google’s very efficient data centers which are said to use less than half the power of a conventional data center.[3] In 2014 he received The Economist’s Innovation Award for his datacenter efficiency work.[4] With Luiz Barroso, he wrote The Datacenter as a Computer: An Introduction to the Design of Warehouse-Scale Machines.[5] In June 2007, he introduced the Climate Savers Computing Initiative together with Pat Gelsinger which aims to halve the power consumption of desktop computers and servers.

Also in 2007, he and Luiz Barroso wrote “The Case for Energy Proportional Computing” which argued that servers should be designed to use power in proportion to their current load, because they spend much of their time being only partially loaded. This paper is often credited for spurring CPU manufacturers to make their designs much more energy efficient.[6] Today, energy proportional computing has become a standard goal for both server and mobile uses.

In 2011, Hölzle announced a shift in Google.org’s alternative energy investment strategy, dropping development of “solar thermal” electricity (for example with BrightSource Energy) because ST was not keeping pace with the rapid price decline of another solar technology – photovoltaics.[7]

In 2012, Hölzle introduced “the G-Scale Network” on which Google had begun managing its petabyte-scale internal data flow via OpenFlow, an open source software system jointly devised by scientists at Stanford and the UC Berkeley and promoted by the Open Networking Foundation. The internal data flow, or network, is distinct from the one that connects users to Google services (Search, Gmail, YouTube, etc.). In the process of describing the new network, Hölzle also confirmed more about Google’s making of its own networking equipment like routers and switches for G-Scale; and said the company wanted, by being open about the changes, to “encourage the industry — hardware, software and ISP’s — to look down this path and say, ‘I can benefit from this.'” He said network utilization was nearing 100% of capacity, a dramatic efficiency improvement.[8]

He is credited for creating Google Gulp for April Fool’s Day in 2005.

He is member of the National Academy of Engineering,[9] and a Fellow of the Association for Computing Machinery (2009)[10], the AAAS (2017)[11], and the Swiss Academies of Arts and Sciences.[12] He is also a board member of the US World Wildlife Fund.[13]

How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)

The United States loses, according to my estimates, close to $70 billion a year in tax revenue due to the shifting of corporate profits to tax havens. That’s close to 20 percent of the corporate tax revenue that is collected each year. This is legal.

Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal.

 ..  In 2015, $15.5 billion in profits made their way to Google Ireland Holdings in Bermuda even though Google employs only a handful of people there.
.. 63 percent of all the profits made outside of the United States by American multinationals are now reported in six low- or zero-tax countries:
  • the Netherlands,
  • Bermuda,
  • Luxembourg,
  • Ireland,
  • Singapore and
  • Switzerland.
.. After learning Irish authorities were going to close loopholes it had used, Apple asked a Bermuda-based law firm, Appleby, to design a similar tax shelter on the English Channel island of Jersey
Appleby duly obliged, and Jersey became the new home of the (previously Irish) companies Apple Sales International and Apple Operations International.
.. In 2015, the Swiss Leaks revealed the owners of bank accounts at HSBC Switzerland, and in 2016 the Panama Papers revealed those of the shell companies created by the Panamanian law firm Mossack Fonseca. These showed that 50 percent of the wealth held in tax havens belongs to households with more than $50 million in net wealth
.. In the Paradise Papers, we see that these are not only Russian oligarchs or Belgian dentists who use tax havens, but rich Americans too.
.. For a long time, the bulk of it was held in Switzerland, but a fast-growing fraction is now in Hong Kong, Singapore and other emerging havens.

The most compelling way to do this would be to create comprehensive registries recording the true individual owners of real estate and financial securities, including equities, bonds and mutual fund shares.
.. One common objection to financial registries is that they would impinge on privacy. Yet countries have maintained property records for land and real estate for decades.
.. comprehensive registries would make it possible to not only reduce tax evasion, but also curb money laundering, monitor international capital flows, fight the financing of terrorism and better measure inequality.

Switzerland’s Niche in Global Gold Trade Draws Scrutiny

Argor-Heraeus and other Swiss gold refiners are starting to be held accountable for their industry’s alleged role in unlawful transactions and mining abuses.

 All four Swiss-based refiners have been accused in recent years of lapses related to the alleged facilitation of money laundering, human rights abuses and war crimes… a parliamentary proposal made last year for new restrictions on the industry’s acquisition of gold. Voters may have a say in about two years on a measure that could force refiners and other multinationals to disclose data on the human-rights records of their suppliers.

.. Switzerland imports gold in quantities nearly equal to the amount officially taken from the earth in any given year. Last year, Switzerland imported the equivalent of 81% of the world’s gold production from mines

.. According to a decision Swiss federal prosecutors issued last year, gold looted in the Democratic Republic of Congo to fund armed conflict was refined by Argor roughly a decade ago. Argor “provided assistance” to war crimes