News & Commentary:

February 2009 Archives


Reflexivity as the New Paradigm
George Soros (Project Syndicate) Feb 2009
The prevailing interpretation of financial markets – the Efficient Market Hypothesis (EMH) – has been well and truly discredited by the Crash of 2008. The current financial crisis was not caused by some exogenous factor – like the formation or dissolution of an oil cartel – but by the financial system itself. This puts the lie to the assertion that financial markets tend towards equilibrium and deviations are caused by external shocks. But the alternative theory of how markets work that I am proposing – the theory of reflexivity – has not taken its place. It has not even received serious consideration by the economics profession.

My Outlook for 2009
George Soros (Project Syndicate) Feb 2009
The future of the global economy will depend greatly on whether President Barack Obama launches a comprehensive and coherent set of measures, and on how successfully he carries them out. How the Chinese, Europeans, and other major players respond will be almost as important. If there is good international cooperation, the world economy may start climbing out of a deep hole by the end of 2009. If not, we will face a much longer period of economic and political disorder and decline.

The Euro at Ten
Michael Boskin (Project Syndicate) Feb 2009
The beginning of 2009 will long be remembered for terrible economic news and controversial economic policy in virtually every country. It also marks the 10th anniversary of the euro, the common currency further knitting together several hundred million Europeans in their economic and financial affairs. It is worth pausing to commemorate this remarkable event, and the effect the euro’s existence has had on the current global crisis.

Davos Man’s Depression
Joseph E. Stiglitz (Project Syndicate) Feb 2009
For 15 years, I have attended the World Economic Forum in Davos. Typically, the leaders gathered there share their optimism about how globalization, technology, and markets are transforming the world for the better. Even during the recession of 2001, those assembled in Davos believed that the downturn would be short-lived.

Is China Really Immune to the Crisis?
Kenneth Rogoff (Project Syndicate) Feb 2009
Addressing the annual World Economic Forum in Davos, Switzerland, Chinese Premier Wen Jiabao explained his government’s plans to counter the global economic meltdown with public spending and loans. He all but guaranteed that China’s annual growth would remain above 8% in 2009. Wen’s words were like warm milk to the recession-numbed audience of global political and business leaders.

Banks, States, and Financial Crises
Harold James (Project Syndicate) Feb 2009
The most recent phase of the financial crisis, since the collapse of Lehman Brothers in September 2008, has been characterized by large bank losses and the continued threat of bank collapses. The size of the calamity raises the question of whether small countries can really afford bank bailouts.

The Storm in Sub-Saharan Africa
Dominique Strauss-Kahn (Project Syndicate) Feb 2009
As the world struggles with the most serious financial turmoil of the post-war era, attention has focused on the advanced and emerging-market economies most immediately affected. But the impact on poor countries is far more severe.

Coming Soon: Capitalism 3.0
Dani Rodrik (Project Syndicate) Feb 2009
Capitalism is in the throes of its most severe crisis in many decades. A combination of deep recession, global economic dislocations, and effective nationalization of large swathes of the financial sector in the world’s advanced economies has deeply unsettled the balance between markets and states. Where the new balance will be struck is anybody’s guess.

Unfreezing Credit
Raghuram Rajan and Douglas Diamond (Project Syndicate) Feb 2009
Little political enthusiasm exists for further support to the banking sector. One reason is that banks that received money in the initial rescues do not seem to have increased their lending, without which monetary and fiscal stimulus are unlikely to be effective. For banks to start lending again, even more intervention may be needed.

The Future of the Chiang Mai Initiative: An Asian Monetary Fund? Adobe Acrobat Required
C. Randall Henning (PIIE) Feb 2009
Senior officials of East Asian governments and central banks will hold several meetings between February and May 2009 to consider, among other things, transforming the Chiang Mai Initiative (CMI) from a network of bilateral swap arrangements into a collectively managed fund—which they refer to as "CMI multilateralisation." The region's disaffection from the International Monetary Fund (IMF), stemming from the 1997-98 financial crisis, sustains the attraction of such a fund among the ten members of the Association of Southeast Asian Nations plus China, Japan, and South Korea (ASEAN+3). The present financial crisis presents a moment of truth for ASEAN+3: Are they serious about regional financial cooperation? Creating a common regional fund would require addressing questions of obligations, contributions, and rights of members as well as the size, governance, and borrowing arrangements. ASEAN+3 officials appear to be converging on $120 billion as the size of the fund. But they have yet to decide on the specific contributions from each member and exactly how joint decisions will be made. The shares of China and Japan are particularly important, because they will determine the relative influence of the two countries. Henning argues that CMI multilateralisation could contribute to the global financial architecture by supplementing the resources of the IMF and streamlining negotiations over financial rescues. ASEAN+3 should develop their own surveillance mechanism further with assistance of international financial institutions. Given the current weakness of regional surveillance, however, East Asian governments should continue to link their bilateral swaps and any common fund to the IMF. Henning urges the international community to establish guidelines for the respective roles of regional facilities, the IMF and other international financial institutions.

Cracks in the System: World Economy Under Stress Recommended!
Finance and Development Dec 2008/Feb 2009
This issue explores the rapidly changing institutional and policymaking landscape around a financial crisis that now threatens a deep and prolonged global recession. The lead article looks at how the world got into the mess and what to do about it, both now and over the medium term. Other articles review options for changing the rules of world finance, examine the case for modernizing the way countries coordinate their policies, and try to draw some lessons from past financial crises. The "other crisis" of high food and fuel prices is also assessed, as the effects extend past the mid-2008 price peak. "People in Economics" profiles Robert Shiller; "Picture This" illustrates how middle-income economies can reach high-income status; "Back to Basics" looks at all the components that make up gross national product; and "Country Focus" spotlights Saudi Arabia.

The Great Crash, 2008
Roger C. Altman (Foreign Affairs) Jan/Feb 2009
The financial crisis has called into serious question the credibility of western governments and may precipitate an eastward shift of power.

From Doha to the Next Bretton Woods
Aaditya Mattoo and Arvind Subramanian (Foreign Affairs) Jan/Feb 2009
Trade problems are an underlying cause of the financial crisis. To truly revive the world economy, a new trade consensus is necessary.

The Myth of the Autocratic Revival
Daniel Deudney and G. John Ikenberry (Foreign Affairs) Jan/Feb 2009
Autocracies such as China and Russia do not represent a sustainable alternative to liberal democracy. In fact, the pull of liberal democracy is stronger than ever.

The Poor Man’s Burden
William Easterly (FP) Jan/Feb 2009
Eighty years ago, a depression changed the way we think about poverty. It took decades for the world to recover and to remember that if people are given freedom, they will prosper. Now, in the wake of another massive meltdown, the fear that shocked us into depending on government to fix poverty is spreading once again—and threatening to undo many of the gains we’ve made.

The Worst Is Yet to Come Recommended!
Various (FP) Jan/Feb 2009
Five economists whose prophetic warnings went unheeded preview the next stage of the global financial crisis.

Fighting the Urge For Protectionism Far Eastern Economic Review Subscription Required
Razeen Sally and Fredrik Erixon (FEER) Jan/Feb 2009
The risk of 1970s-style creeping barriers to trade.

Lax Governance and Poor Supervision Adobe Acrobat Required
Adam S. Posen (TIE) Winter 2009
In the current atmosphere, one could be forgiven for thinking that the current financial meltdown was due to a technical engineering problem, or at least that the US Treasury thinks so. The complex proposals Treasury recently put forward—for stress tests, bad asset pricing, and bank recapitalization without government control—seem consistent with this belief. They treat the financial crisis as a failure of specific mechanisms subject to a technical fix by the more clever engineers now in charge. If only the risk models used by investors and supervisors were less short-sighted, less blindly reliant on so-called Gaussian copulas; if only banks' private managers and public supervisors had the intellectual or computational firepower to see how various risks interacted; and thus, if only we can carefully realign incentives and information flows, we can fix the financial system. Yet it was not technical failures, mistaken models, misaligned incentives, computational errors, or gaps in risk monitoring that led us to the financial wreckage we see today.

Out of Gaps In Treaties, First Salvos Of Trade War
Anthony Faiola (WP) Feb 1, 2009
The world may be on the brink of a gentler kind of trade war.

Humbled Masters At Davos
David Ignatius (WP) Feb 1, 2009
"How could we have been so stupid?" That was the refrain of several experts at a session of the World Economic Forum last week about "What Went Wrong" to produce the global financial crisis. Not that they had been wrong, mind you. It being Davos, the chosen commentators had mostly been right in warning several years ago of disaster ahead. But there was at least a note of collective chagrin.

Protectionism and stimulus (wonkish)
Paul Krugman (NYT) Feb 1, 2009
Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.

International economic cooperation and the home front
Jeffry A. Frieden (VoxEU) Feb 2, 2009
If the crisis turns into a new Great Depression, it will most likely be due to a breakdown of cooperation among the major economies. But sustaining international cooperation requires domestic support; ignoring the demands of poor and middle-class citizens for relief will inflame more extreme anti-globalisation views, making international cooperation much more difficult.

Beyond the age of leverage: new banks must arise
Niall Ferguson (FT) Feb 2, 2009
There is a better way to go – in the opposite direction. The aim must be not to increase debt but to reduce it.

When globalisation goes into reverse
Gideon Rachman (FT) Feb 2, 2009
Intellectually, world leaders are convinced of the need to keep markets open. Politically, they are under pressure to respond to voters who are angry, frightened and demanding protection. Recent developments suggest angry citizens will take priority.

Reforming the financial supervision architecture
Donato Masciandaro & Marc Quintyn (VoxEU) Feb 3, 2009
Central banks that have historically been involved in financial supervision often resist reforms that would unify supervisory powers in an agency other than the bank. This column argues that regulatory innovation is necessary to keep pace with financial innovation. Policymakers should be open to changes, including unification, and adopt reforms needed in their circumstances.

What Other Financial Crises Tell Us
Carmen M. Reinhart & Kenneth S. Rogoff (WSJ) Feb 3, 2009
The lesson of history is grim: Expect a prolonged slump.

IMF to Assist Africa Hit Hard by Global Downturn
IMF Survey Feb 3, 2009
Although Africa will grow by more than 3 percent in 2009, the continent is likely to be hard hit by the global economic downturn, threatening to set back progress made across the region in recent years, the IMF says.

Asian Growth Losing Steam Fast, but Rebound Expected
IMF Survey Feb 3, 2009
Growth in Asia is forecast to slow to 2.7 percent in 2009, dragged down by the global economic and financial crisis, but the region should see a sharp recovery once the world economy regains its footing, the IMF says.

Why Davos Man is waiting for Obama to save him
Martin Wolf (FT) Feb 3, 2009
However easy it is to blame the US for global economic woes, it is also to the US that the world looks for a solution. Concerted action is needed to reverse the downward spiral of despair, and that will only occur if the US gives leadership.

China warns against protectionism
Antoaneta Bezlova (AT) Feb 4, 2009
China is worried that the global financial crisis could unleash a spiral of protectionist policies among its trade partners, threatening further damage to its export-dependent economy.

'Buy American' Provision in Stimulus Bill Rankles US Trading Partners
Bridges Weekly Vol. 13, No. 4 Feb 4, 2009
Free trade advocates and US trading partners are up in arms over the 'Buy American' provision included in the US$ 819 billion economic stimulus bill that was passed by the US House of Representatives last week. Critics of the provision say the move is a blatant resort to protectionism, but proponents argue that the import restriction is in line with international trade rules and will create thousands of vital manufacturing jobs amidst the economic downturn.

Brazil Slams EU for Seizure of Generic Drugs
Bridges Weekly Vol. 13, No. 4 Feb 4, 2009
The Brazilian ambassador to the WTO condemned the EU on Tuesday for seizing a shipment of generic drugs that was bound for his country, claiming that the move "sets a dangerous precedent" for public health.

World's top financial businesses seek help to free up lending in emerging markets
IHT Feb 4, 2009
The Institute for International Finance says urgent action is needed to help the flow of funding to subsidiaries of Western banks in emerging markets, especially Eastern Europe.

Buy American is bad for America (and everyone else)
Gary Clyde Hufbauer & Jeffrey J. Schott (VoxEU) Feb 5, 2009
The “Buy American” provision in the US stimulus package would violate US trade obligations, damage the US' reputation, and have almost no real impact on US jobs. Moreover, the provisions will be read as an Obama trade policy that leans toward protectionism – with severe consequences abroad.

Obama must fight the protectionist virus
Jagdish Bhagwati (FT) Feb 4, 2009
A passionate response is required to the Buy American provisions that have infiltrated the US stimulus package and to the China-bashing on 'currency manipulation'.

Slumdog Paradox
Sadanand Dhume (YaleGlobal) Feb 4, 2009
Every city, every nation, has its riches and flaws – and globalization exposes them all.

Congress Wants a Trade War
Burton G. Malkiel (WSJ) Feb 5, 2009
The president should veto "Buy American" if he doesn't want to be remembered like Herbert Hoover.

IMF Urges G-20 States To Take More Decisive Action to Combat Crisis
IMF Survey Feb 5, 2009
The IMF has urged the Group of Twenty industrialized and emerging market countries to take more decisive policy action to combat the corrosive global financial and economic crisis by bolstering demand and cleaning up the financial sector.

Up to $500 million pledged for microloan institutions
IHT Feb 5, 2009
The World Bank and the German government on Thursday said they would inject as much as $500 million into microcredit banks, fledgling institutions in the developing world that are being starved of funding as financial markets in rich nations constrict.

Financial globalisation goes into reverse
Economist Feb 5, 2009
A great financial retrenchment is under way, the product of both market forces and political pressure on banks to lend at home rather than abroad

How undervalued is the yuan?
Economist Feb 5, 2009
Attacks on China's cheap currency are overdone.

Emerging nations call to supersize the IMF
Economist Feb 5, 2009
The IMF needs more than just money if it is to tackle global imbalances.

Fiscal expansions in submerging markets; the case of the USA and the UK
Willem Buiter (FT) Feb 5, 2009
On a number of occasions I have cautioned against deficit-financed fiscal stimuli in countries whose governments have weak fiscal credibility, that is, countries where current tax cuts or public spending increases cannot be credibly matched by commitments to future public spending cuts and tax increases of equal present discounted value. I believe that both the US and the UK fall into this category.

Wanted - a world central bank
Hossein Askari (AT) Feb 6, 2009
It is time to establish a world central bank, free of political control, to help get us out of this global financial quagmire that threatens the future of us all.

Obama's Trade Deflection
WSJ Feb 6, 2009
Will he stand up to his own party's protectionists?

False hope of protectionism
Chan Akya (AT) Feb 6, 2009
It didn't take too long for protectionist impulses to rear up across the Group of Seven leading industrialized countries as the initial bouts of Keynesian spending failed to provide any relief. Yet demographic factors dictate that any salvation for developed countries waits on increased consumption in the Asian region.

Global: Credit Confusion
Joachim Fels & Manoj Pradham (MS GEF) Feb 6, 2009
We present several pieces of evidence suggesting that credit lags rather than leads recoveries. Recessions in a large number of OECD countries end before, not after credit crunches ease. By contrast, money supply growth leads both the business cycle and credit growth.

Is Protectionism Unavoidable?
Jeffrey E. Garten (YaleGlobal) Feb 6, 2009
China's coupon schemes, aimed at boosting domestic consumer spending, ignite heated debate

Those Who Ignore History ...
NYT Feb 6, 2009
The beggar-thy-neighbor policy-making that spread in late 1920s and early 1930s should provide United States Congress and other governments with a bleak warning.

Reforming the IMF
John Williamson (PIIE) Feb 6, 2009
It is widely recognized that many of the small economies of the world do not possess the resources to expand demand in order to limit their contraction of output in the face of the adverse gales now blowing. Over sixty years ago the world created an institution (the IMF) intended inter alia to help them act against cyclical downturns. Today most countries do not wish to use it except as a last resort, and so it sits hardly utilized in the face of what some people regard as the most severe shock the world has faced since the outbreak of the First World War.

Repairing a failed system
Viral Acharya & Matthew Richardson (VoxEU) Feb 7, 2009
How did global finance become so fragile that a collection of bad mortgages in the US could bring the entire system to its knees and the global economy along with it? How can this fragility be eliminated? This column describes the answers provided in an important new book which has been written by a team of world-class scholars from NYU’s business school.

Stimulus Measures Bolstering Demand Amid Crisis, IMF Says
IMF Survey Feb 7, 2009
Most of the world's leading advanced and emerging market economies have adopted stimulus measures to counter the growing financial and economic crisis, according to an analysis by the IMF that estimates the collective impact on growth of around ½ -1¼ percentage points.

It’s No Time for Protectionism
N. Gregory Mankiw (NYT) Feb 7, 2009
What approach will the Obama administration and the Democratic majority in Congress take on international economic policy? It is too early to say for sure, but the signs so far are worrying.

Do not destroy the essential catalyst of risk Recommended!
Lloyd Blankfein (FT) Feb 8, 2009
Since the spring, and most acutely this autumn, a global contagion of fear and panic has choked off the arteries of finance, compounding a broader deterioration in the global economy.

The devil is in the details: Financial information and systemic problems
Michael Pomerleano, Harald Scheule & Andrew Sheng (VoxEU) Feb 9, 2009
This column explains how the collective use of inappropriate market information and flawed models led to systemic financial problems. It suggests one of the keys to global financial stability is the revision, diversification, and publication of risk models.

How Government Created the Financial Crisis
John B. Taylor (WSJ) Feb 9, 2009
Research shows the failure to rescue Lehman did not trigger the fall panic.

Economic Crisis Complicates Offshoring of Services
Thomas Meyer (YaleGlobal) Feb 9, 2009
Global recession and other problems challenge China's plans to extend its offshoring reach into services

Hazardous Materials?
James Surowiecki (New Yorker) Feb 9, 2009
In the course of the ongoing financial crisis, we’ve been ceaselessly reminded of the dangers of moral hazard—the idea that if people are insulated from the negative effects of their gambles they are more likely to act rashly. When Bear Stearns was bailed out, last spring, the move was attacked for exacerbating the threat of moral hazard. When Lehman Brothers was allowed to go bankrupt, in mid-September, the decision was praised by some for reducing the risk of moral hazard. These days, moral-hazard concerns are making policymakers cautious about stemming the rise in foreclosures, and about dealing with ailing banks: if we bail out banks or homeowners, we’re told, it will only encourage more recklessness.

Whence Cometh Beggar-Thy-Neighbor?
Steven R. Weisman (PIIE) Feb 10, 2009
How did a children’s card game played in the 1800s become a central concern of economists in the 21st century?

Bonus Babies
Paul Wilmott (NYT) Feb 10, 2009
Diversification may be in the interest of the shareholders and depositors but not necessarily the trader.

Geithner at the Improv
WSJ Feb 11, 2009
Amid more public uncertainty, private capital flees.

The Financial Crisis, a Development Emergency, and the Need for Aid
Homi Kharas (Brookings) Feb 11, 2009
The global economy is in a mess. That is not news. But the degree to which the global crisis has spread across all countries, even the poorest that are only marginally integrated with the world, is alarming. Just four months ago, the World Bank forecast growth for Africa for 2009 at 6.8 percent. Last week it narrowed that forecast to 3.5 percent with the prospect of 2.5 percent growth for 2010. That would mean zero growth in average incomes for some of the poorest people on the planet. Closer to home, Haitian President Preval has just visited Washington, DC seeking $100 million to stop his country sliding into anarchy.

Put the puritans in charge of the punchbowl
Arvind Subramanian and John Williamson (FT) Feb 11, 2009
Asset price zones must be set and made public, providing a signal that any departures would elicit policy action.

Liquidity insurance for systemic crises
Enrico Perotti & Javier Suarez (VoxEU) Feb 11, 2009
Most financial system reform proposals rely on better managed, anti-cyclical capital requirements, or some sort of insurance. This column argues that mandatory liquidity insurance would be more effective. The insurance premiums – linked to maturity mismatch and term structure – would essentially be pre-payment for the cost of future financial crises and held in an Emergency Liquidity Insurance Fund.

How We Were Ruined & What We Can Do
Jeff Madrick (NYRB) Feb 12, 2009
Some prominent figures in the financial markets insist that unchecked opportunism by financiers was not a root cause of the current credit crisis.

Financial innovation, regulation, and reform
Charles W. Calomiris (VoxEU) Feb 12, 2009
The financial crisis happened because the rules of the game – shaped by government policy – promote the wilful undertaking of excessive, value-destroying risks by managers who were not effectively disciplined by shareholders. This column outlines the six key areas where regulatory reform is essential to preventing a repeat.

Fiscal Policy for the Crisis Recommended!
Olivier Blanchard, Carlo Cottarelli, Antonio Spilimbergo & Steven Symansky (VoxEU) Feb 12, 2009
The global crisis demands bold initiatives to i) rescue the financial sector, and ii) boost aggregate demand, with early resolution of financial sector problems being a necessary condition for the stimulus to work. Since monetary policy is at the end of its rope, early, strong, and carefully thought-out fiscal policies are urgently needed. Time and action are of the essence if we are to avoid a contraction larger than any we’ve seen since the 1930s.

Local currency bond markets and financial stability
Frank Warnock (VoxEU) Feb 12, 2009
Global finance is made more fragile by the inability of most nations to borrow in their own currencies. This means depreciations often lead to debt and/or banking crises, and it encourages global imbalances. Capital flows out of emerging markets into US debt securities, returning to those same nations in the form of corporate and sovereign borrowing, with this roundtrip adding a currency and maturity mismatch. Encouraging the development of local currency bond markets would be one way of reducing the global financial system’s instability.

Crisis lessons from Irving Fisher: Fix the debt-deflation disease, not its symptoms
Enrique G. Mendoza (VoxEU) Feb 12, 2009
This column rehabilitates Irving Fisher’s debt-deflation theory to explain the current crisis. It suggests that fiscal stimulus will do little to prevent the crisis from becoming a protracted slump because the problem lies in finance. A cure will require reversing deflation and restarting the credit system.

US Senate Passes Stimulus Bill with Tempered 'Buy American' Requirements
Bridges Weekly Vol. 13, No. 5 Feb 12, 2009
The United States Senate passed a stimulus bill on Tuesday that includes controversial 'Buy American' purchasing requirements for iron, steel and manufactured products, but also carries a clause guaranteeing that the domestic-sourcing provisions do not violate the US' international trade obligations.

WTO Warns against Protectionism, Promises Increased Monitoring
Bridges Weekly Vol. 13, No. 5 Feb 12, 2009
The WTO is set to step up its monitoring of trade policies introduced by governments struggling to cope with the worldwide economic crisis, amidst growing concern that tit-for-tat protectionism could deepen what is already the worst downturn in decades.

'Buy American' Is No Hit in Korea
Joseph Sternberg (WSJ) Feb 12, 2009
The rest of the world cares about free trade.

How science can prevent the next bubble
Richard Olsen and Clive Cookson (FT) Feb 12, 2009
The data markets spew out can offer an early warning of dangerous misalignments between prices and risk premiums.

America's crisis in a historical context
Economist Feb 12, 2009
Look carefully and America's crisis could be worse than Japan's.

Out of Keynes's shadow
Economist Feb 12, 2009
Today’s crisis has given new relevance to the ideas of another great economist of the Depression era.

Canada and NAFTA
Economist Feb 12, 2009
Some Canadians think they are more important than Mexicans.

The value of the middle classes
Economist Feb 12, 2009
Why the new middle classes are so good for their countries' economies.

Two billion more bourgeois
Economist Feb 12, 2009
The rise of a new middle class has changed the world. What if they sink back into poverty?

Global: Depression Angst
Joachim Fels & Spyros Andreopoulos (MS GEF) Feb 13, 2009
Comparisons with the Great Depression (GD) of the 1930s are becoming ever more popular. We therefore review the evidence from the GD and conclude that the comparisons are misplaced.

What Caused The Crisis?
Peter Robinson (Forbes) Feb 13, 2009
A new book blames government, not capitalism.

Poland's currency woes
Economist Feb 12, 2009
The government of Poland contemplates upsetting investors, as companies' bets on the currency go wrong.

Rise in Jobless Poses Threat to Stability Worldwide
NYT Feb 14, 2009
High unemployment rates have led to protests in countries as varied as Latvia, Chile, Greece and Iceland and to strikes in Britain and France.

IMF Gains New Funding, Puts Focus on Bank Clean Up
IMF Survey Feb 14, 2009
Warning that the global economic crisis is set to bite emerging markets and low-income countries harder this year, IMF head Dominique Strauss-Kahn says he aims to double the Fund's lendable resources to $500 billion and boost loans for poorest.

G-20 needs joint efforts, not talk of a 'new order'
John Vinocur (IHT) Feb 16, 2009
Nicolas Sarkozy talks of a meeting to "remake capitalism." That sounds messianic. And it's a problem.

Active Governments Must Work Together
Mohamed El-Erian (PIMCO) Feb 16, 2009
I am mesmerized, concerned and hopeful by the surge in policy activism around the world. It is fascinating to see governments forced into even more unconventional policy responses.

Protectionism Anew
Anne Applebaum (WP) Feb 17, 2009
Trade barriers are a bad idea whose time has come -- again.

Dealing with the global crisis: A view for the South
Ricardo Hausmann (VoxEU) Feb 17, 2009
A lot of effort has been put into discussing issues such as global imbalances and the voting rights at the international financial institutions, but too little effort has been dedicated to thinking about what these institutions should do in the context of the current global crisis. Global and regional international institutions need to step up to a much bigger role than is currently envisioned. If this strategy is successful, it will lead to a more balanced and sustainable global recovery.

Doubling up
Economist Feb 17, 2009
The IMF is sharply increasing its lending capacity. It expects that more countries may need its help

This is not the time to attack China
Michael Pettis (FT) Feb 17, 2009
The world must recognise that China can adjust, but not immediately. It will take several years and require big changes in its financial system and its development model.

Japan's lessons for a world of balance-sheet deflation
Martin Wolf (FT) Feb 17, 2009
How far is that experience relevant to today? Japan was able to rely on exports to a buoyant world economy. This crisis is global: the bubbles and financial mania spread across much of the western world.

Kazakhstan pays for devaluation
Marik Koshabaev and Daulet Kanagatuly (AT) Feb 18, 2009
The devaluation this month of the Kazakhstan currency was too sudden and too late and as a result is fueling inflation, according to critics of the way the measure was introduced.

Obama, an economic unilateralist
Spengler (AT) Feb 18, 2009
The silliest thing that clever people are saying about the world economic crisis is that the United States will lose its position as the dominant world superpower in consequence. On the contrary: the crisis strengthens the relative position of the United States and exposes the far graver weaknesses of all prospective competitors. It makes the debt of the American government the world's most desirable asset. America may deserve to decline, but as Clint Eastwood said in another context, "deserve's got nothing to do with it". President Barack Obama may turn out to be the most egregious unilateralist in American history.

Debating global financial governance on Vox: Where do we stand?
Biagio Bossone (VoxEU) Feb 18, 2009
This column summarises the global crisis debate on institutional reforms to build global financial governance. While various authors disagree about the G20’s suitability and effectiveness, there is agreement that a number of IMF reforms are needed. Moreover, many call for the IMF to significantly increase its lending resources.

The $2 trillion dollar question: How about US demand and output?
Giancarlo Corsetti & Panagiotis Th. Konstantinou (VoxEU) Feb 18, 2009
The US net international investment position declined by an astounding magnitude in 2008. Does that imply a massive contraction in US consumption? This column provides empirical evidence that large swings in the US current account are driven by transitory shocks that don’t significantly alter consumption.

A Short History of the National Debt
John Steele Gordon (WSJ) Feb 18, 2009
Deficits are nothing new. It's the trend that should worry us.

Synchronized Boom, Synchronized Bust
Marc Faber (WSJ) Feb 18, 2009
Bad U.S. monetary policy had global consequences.

Criticism Grows as 'Buy American' Rules Written into Law
Bridges Weekly Trade News Digest, Volume 13, Number 6 Feb 18, 2009
'Buy American' provisions in the US$ 787 billion stimulus bill that was signed into law yesterday by US President Barack Obama have sparked sharp rebukes and threats of legal challenges from US trading partners. But Washington maintains that the domestic-sourcing requirements are in line with its international trade commitments and that the measures will create vital manufacturing jobs at home.

EU, Andean Nations Struggle Forward in Trade Talks
Bridges Weekly Trade News Digest, Volume 13, Number 6 Feb 18, 2009
Intellectual property, a potential regional customs union, human rights, and bananas triggered heated debate last week in Bogota during the first round of negotiations toward a free trade agreement between the European Union and Andean nations Columbia, Ecuador and Peru.

Crisis Breeds 'Fear Psychosis'
IMF Survey Feb 18, 2009
Talk of recession has created a fear psychosis among consumers that has little basis in reality, leading to underutilized capacity and job cuts. To break the vicious circle, governments should promote sectors that foster employment and growth, writes Mahendra Dash.

EU considers possibility of a small-country bailout
IHT Feb 18, 2009
The German finance minister has raised the prospect of a rescue of one country by the rest of the bloc becoming necessary.

Zoellick urges EU to help east Europe
FT Feb 18, 2009
Bank outlines plan for global $25bn trade finance facility set up by states, banks and international bodies

Why the regulators must have a global 'risk map'
Otmar Issing and Jan Krahnen (FT) Feb 18, 2009
Credit registers are basically still national. This is an anachronism when companies borrow and banks lend globally.

The eurozone needs a government bond market
George Soros (FT) Feb 18, 2009
It would lend credence to the rescue of the banking system and allow extra support to newer, more vulnerable EU members.

The Saga of Larry Summers
Stephan Richter (Globalist) Feb 18, 2009
Why should Larry Summers now shift his focus away from the global economy?

Trade Wars: Will Protectionism Win out over Recovery?
K@W Feb 18, 2009
The $787 billion stimulus plan that U.S. President Barack Obama signed on February 17 contained a provision that was hardly unexpected but nevertheless worrisome to proponents of global free trade. It was a requirement that projects funded by the bill buy American-made goods whenever possible. When governments around the world spend vast sums to stimulate their economies, it seems only reasonable for each to invest at home. After all -- or so the argument goes -- why should American taxpayers pay for steel from Canada when U.S. steelmakers are struggling?

Laissez-Faire Capitalism Has Failed
Nouriel Roubini (Forbes) Feb 19, 2009
The financial crisis lays bare the weakness of the Anglo-Saxon model.

Global Slowdown Will Hurt African Growth
Oxford Analytica (Forbes) Feb 19, 2009
The collapse of foreign direct investment may weaken Africa's infrastructure.

A grand bargain for the London G20 summit
Morris Goldstein (VoxEU) Feb 19, 2009
The global crisis has laid bare the inadequacies of the existing global financial architecture. Absent a grand bargain to address the need for major reforms, countries will resort to beggar-thy-neighbour policies. This column outlines a major package –including increased IMF lending, significant IMF governance reform, coordinated fiscal stimulus, and greater WTO discipline – that could meet the needs of both developed and developing economies. Negotiations should start at the London summit.

G-7 points to more instability
Hossein Askari and Noureddine Krichene (AT) Feb 20, 2009
The declaration by the Group of Seven countries that stabilization of the global economy and the financial markets was their highest priority unfortunately came with a resolution to continue with policies that created the present crisis. Their meeting was not a step towards stability but fuel for instability.

Trade and oil on agenda as Obama visits Canada
IHT Feb 19, 2009
President Barack Obama arrived here Thursday for a tightly scheduled six hours with the leaders of a country where he is hugely popular but where pressing issues awaited him, including the fragile world economy, trade, energy, the sagging auto industry and stepped-up violence in Afghanistan.

Smart ways to prepare for a world beyond recession
Samuel Palmisano (FT) Feb 19, 2009
Governments need to shape stimulus investments that envision and enable a smarter future.

An anatomy of so-called "deglobalisation"
Economist Feb 19, 2009
The integration of the world economy is in retreat on almost every front.

Protectionism Doesn't Pay
Chen Deming (WSJ) Feb 20, 2009
China calls on the world's governments to learn from history.

Global Crisis Spurs Long-Needed Change in China
David Dollar (YaleGlobal) Feb 20, 2009
Diversifying China's economy into the services arena could serve a global good.

The return of capital controls
Willem Buiter (VoxEU) Feb 20, 2009
It looks like capital controls for central and eastern European countries as well as emerging markets everywhere. This column argues that imposing capital outflow controls – while sometimes unavoidable – discourages future capital inflows and creates rents. This is why they should be explicitly made temporary.

European government bailouts: Should we let one go broke?
Charles Wyplosz (VoxEU) Feb 21, 2009
Some European governments are contemplating bailouts of other European governments. This column argues that violating the Eurozone’s no-bailout clause this soon would be a mistake. Much as it was necessary to let Lehman Brothers go down before bailing out the remaining banks, it may be necessary to let a profligate government default and ask for IMF assistance.

How to fix the banks and launch a virtuous cycle
Ricardo Caballero (VoxEU) Feb 22, 2009
Banks must be fixed as their troubles are at the heart of the economic recession. In this column, one of the world’s most distinguished macroeconomists suggests a radical alternative to current policies. Governments should promise to buy twice the number of outstanding bank shares in 5 years at twice their recent prices. Markets would immediately price-in this pledge, and the resulting price boom would allow banks to raise necessary capital from private sources.

Developing countries and the global crisis
Francisco Rodríguez (VoxEU) Feb 23, 2009
The development theme in the Global Crisis Debate has elicited many important and novel contributions on what the crisis means for the developing world and how developing nations should react. This column provides a synthesis and commentary of the key proposals.

Eastern crisis that could wreck the eurozone
Wolfgang Münchau (FT) Feb 22, 2009
The smartest answer to the prospect of meltdown is the adoption of the euro in the region as quickly as possible.

Flexibility gives way to rigidity's virtues
Paul De Grauwe (FT) Feb 22, 2009
Rigidities in wages, employment and social security allow countries to deal better with the great rigidity that the fixed levels of debt impose on households and companies.

Let's turn Group of Seven rhetoric into action
William Rhodes (FT) Feb 22, 2009
We must help emerging market economies through the crisis. The G7 communiqué is a basis for action . Any hesitation gives the upper hand to those who support protectionism.

Lustre lost
Economist Feb 22, 2009
Nice glister, but equities are a better long-term bet.

The First Global Financial Crisis of the 21st Century Part II: June – December, 2008
The Editors (VoxEU) Feb 23, 2009
Vox’s first compilation of columns on the crisis – what was called the Subprime crisis back then – was not the end of the story. Far from it. Since the publication of that volume in June 2008, the global crisis has both deepened and widened. Today, the editors are pleased to launch publication of the second volume of collected Vox columns edited again by Andrew Felton and Carmen Reinhart.

Global: Prognosis? Protectionism!
Joachim Fels & Manoj Pradhan (MS GEF) Feb 23, 2009
Until recently, globalisation appeared unstoppable. Not any longer. Attitudes towards free trade and capital flows had been souring for a while. But the recession and the policy responses will likely trigger a return of protectionist policies on a global scale.

EU prepares trade duties for U.S. biofuels
IHT Feb 23, 2009
The European Union is preparing to impose trade duties on biofuels imported from the United States to prevent American producers from putting European producers of biodiesel out of business, diplomats said Monday.

Boosting Global AIDS Funds
NYT Feb 23, 2009
There are strong moral and strategic arguments for why the United States should do more to help fight AIDS around the world.

Reforming financial regulation, supervision, and oversight
Morris Goldstein (VoxEU) Feb 24, 2009
This column sketches proposed reforms for regulation, supervision, and oversight of international financial markets. At both the national and international levels, there will be plenty of work to do for the IMF, the FSF, international standard-setting bodies, and national regulators and supervisors.

The good/bad bank debate: A new proposal
Robert E. Hall & Susan Woodward (VoxEU) Feb 24, 2009
Japan’s woes in the 1990s were prolonged by allowing ‘zombie’ banks to continue doing business (deleveraging slowly). Preventing this is a priority in today’s crisis, hence the many schemes for creating good/bad banks. This column, coauthored by one of the world’s leading macroeconomist, suggests a novel way of separating existing banks into good and bad entities.

Dollar Is Best Looker in Ugly-Currency Parade
Michael R. Sesit (Bloomberg) Feb 24, 2009
... but relative to other currencies, it’s looking better by the day.

China's Great Trade Surplus: Part I
Brent T. Ranalli (Globalist) Feb 24, 2009
Is China's trade policy today affected by its collective memory of 19th century dealings with Europe?

Saving Eastern Europe before the contagion starts
Daniel Gros (VoxEU) Feb 25, 2009
The European periphery faces significant economic turmoil. This column argues that Eastern European woes threaten the core of Europe and necessitate a systemic response. It proposes a new, massive European Financial Stability Fund (involving about 5% of EU GDP) run through the European Investment Bank.

Buying assets, recapitalising banks, and getting incentives right
Salvatore Rossi (VoxEU) Feb 25, 2009
There are two schools of thought on how to get credit flowing again. One suggests buying the toxic assets, the other says to recapitalise banks. This column says that both approaches are necessary, though the right balance will vary across nations. The real difficulty is aligning incentives – in both pricing assets and recapitalising banks, bank managers’ interests may thwart governments’ objectives.

Bankers Need More Skin in the Game Recommended!
James K. Glassman & William T. Nolan (WSJ) Feb 25, 2009
Partnerships may be a more trustworthy business model than corporations.

Lamy Renews Calls to Resist Protectionism, Conclude Doha Round
Bridges Weekly Trade News Digest, Volume 13, Number 7 Feb 25, 2009
On a trip through Asia this week, the head of the World Trade Organization repeated his recent appeals for a swift conclusion to the Doha Round of trade talks, which he called "the best insurance policy against protectionist moves."

India Moves to Protect Traditional Medicines
Bridges Weekly Trade News Digest, Volume 13, Number 7 Feb 25, 2009
The Indian government has effectively licensed 200,000 local treatments as 'public property', making the local remedies free for everyone to use, but not to be branded for sale.

China and the Global Politics of Trade, Then and Now: Part II
Brent T. Ranalli (Globalist) Feb 25, 2009
How were the foundations of modern trade policy created during the 1800s?

We face a long wait for the Seventh Cavalry
Jonathan Guthrie (FT) Feb 25, 2009
Hope is fading in business that state intervention can restore credit to "normal levels" and brake plunging economic growth.

Hey Washington - it's a global crisis
Sam Gardiner (AT) Feb 27, 2009
United States President Barack Obama seemed at best to underplay, at worst to forget, in his address to the joint Houses of Congress the global dimensions of the economic crisis. The need for US leadership and responsibility extends beyond US borders.

Taxing financial pollution: Mandatory liquidity charges
Enrico Perotti & Javier Suarez (VoxEU) Feb 27, 2009
Correlated liquidity risks caused subprime mortgage problems to spread widely and sow panic that led to the credit crisis. This column proposes a mandatory liquidity charge to insure against collective bank runs in the future. It argues for charges proportional to securities’ maturity mismatches so as to discourage practices that create systemic risk.

Can eastern Europe avoid meltdown?
Economist Feb 26, 2009
Eastern Europe's woes are not unmanageable. But they are not being managed. The result could be catastrophe ... more

Getting state control of banks right
Economist Feb 26, 2009
State control of some banks is sadly unavoidable. Don't run away from it; focus on doing it well

Which are the wobbliest emerging countries?
Economist Feb 26, 2009
Where could emerging-market contagion spread next?

Vulnerable China and the Trade Surplus: Part III
Brent T. Ranalli (Globalist) Feb 26, 2009
How does China's trade surplus affect its role in the global economy?

Argentina Has a Bond It Wants to Sell You
Robert Shapiro & Nancy Soderberg (WSJ) Feb 27, 2009
Deadbeat nations should be kept out of U.S. capital markets.

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