Youth in the Balance
Finance and Development Volume 49 Number 1 Mar 1, 2012
Young people, hardest hit by the global economic downturn, are speaking out and demanding change. Coming of age in the Great Recession, the world’s youth face an uncertain future, with lengthening job lines, diminished opportunities, and bleaker prospects that are taking a heavy emotional toll. In this issue of F&D, we look at the need to urgently address the challenges facing youth and create opportunities for them. -Harvard professor David Bloom lays out the scope of the problem and emphasizes the importance of listening to young people in Youth in the Balance. -“Making the Grade” looks at how to teach today’s young people what they need to get jobs. -IMF Deputy Managing Director, Nemat Shafik shares her take on the social and economic consequences of youth unemployment in our “Straight Talk” column. -“Scarred Generation” looks at the effects the global economic crisis had on young workers in advanced economies, and we hear directly from young people across the globe in “Voices of Youth.” Renminbi’s rise, financial system regulation, and boosting GDP by empowering women. -Also in the magazine, we examine the rise of the Chinese currency, look at the role of the credit rating agencies, discuss how to boost the empowerment of women, and present our primer on macroprudential regulation, seen as increasingly important to financial stability. People in economics: C. Fred Bergsten, American Globalist. Back to basics: The multi-dimensional role of banks in our financial systems. The best of our Back to Basics columns are now available in one convenient page.
The Case for Space
Neil deGrasse Tyson (FA) Mar 1, 2012
Why investing in NASA and the race to Mars will lead to innumerable benefits here on earth.
Why We Still Need the World Bank
Robert B. Zoellick (FA) Mar 1, 2012
More than 60 years after the World Bank was founded, developing countries still turn to it for financing and expertise. But the world is changing, and so must the bank.
Making Modernity Work
Gideon Rose (FA) Mar 1, 2012
Today's troubles are real, but not ideological: they relate more to policies than to principles. The postwar order of mutually supporting liberal democracies with mixed economies solved the central challenge of modernity, reconciling democracy and capitalism. The task now is getting the system back into shape.
A Farewell to Fossil Fuels
Amory B. Lovins (FA) Mar 1, 2012
With the costs of oil and coal rising, the United States needs to wean itself off fossil fuels, a goal best accomplished by making buildings and vehicles more efficient and switching to renewable power. The task might seem quixotic, but it actually will not require miracles -- just the widespread application of existing technology.
A Devaluation Option for Southern Europe
Gita Gopinath, Emmanuel Farhi & Oleg Itskhoki (Project Syndicate) Mar 1, 2012
The eurozone’s survival demands a credible solution to its sovereign-debt crisis, which in turn requires addressing the two macroeconomic imbalances – external and fiscal – that are at the heart of that crisis. But such a solution requires neither a euro breakup or a major austerity-induced recession.
Europe Be Saved?
Alfred Gusenbauer (Project Syndicate) Mar 1, 2012
As 2012 begins, a crisis that originated in Greece has ended up raising doubts about the very viability of the euro, even of the EU itself. Difficult choices regarding the Union's governance and economy must be made, and Europe is running out of time.
An African Horn of Plenty
José Graziano da Silva (Project Syndicate) Mar 1, 2012
The famine in Somalia has ended, but, across the Horn of Africa, 14.5 million children and adults remain without enough food. No one can prevent droughts from occurring, but the international community can make the region more resilient to them..
A World Awash in Money
WSJ Mar 1, 2012
Central bank stimulus can't last forever.
Everyone Loves Mario
WSJ Mar 1, 2012
Round II of Europe's back-door bank bailout.
How Debt-Ridden Housing Holds Back US Recovery
Atif Mian and Amir Sufi (Bloomberg) Mar 1, 2012
There is an emerging consensus that housing is weighing down the U.S. economy. The Federal Reserve’s housing white paper in January declared that “ongoing problems in the U.S. market continue to impede the economic recovery.” The 2012 Economic Report of the President argued that “declines in housing wealth can have a far greater effect on the economy than equivalent losses in other financial assets.”
Brinkmanship in Brussels, Sturm and Drachma for Greece and Europe
Jacob Funk Kirkegaard (VoxEU) Mar 1, 2012
Brinkmanship has produced an early-morning deal in Europe to extend a new lifeline to Greece and clear the way for the biggest sovereign bond restructuring in history. This column takes a detailed look at the EU deal, the ongoing brinkmanship between the Eurozone and the IMF, and the general focus on austerity.
What will the golden rule mean for the Eurozone?
Stijn Verhelst (VoxEU) Mar 1, 2012
Eurozone countries have recently agreed to adopt a ‘golden rule’ for fiscal policy, forcing governments to be stricter about balancing their books. This column compares the golden rule to existing EU fiscal policies. It argues that the successful implementation of the golden rule would overturn much of the existing economic governance in the Eurozone to become the main determinant of fiscal discipline.
How to end panics and impose market discipline
William Isaac and Richard Kovacevich (FT) Mar 1, 2012
Requiring big institutions to increase common equity capital to breathtaking levels is no answer.
Cheap Chinese finance rolls into Bahamas
Henny Sender (FT) Mar 1, 2012
Beijing has found that funding projects such as Baha Mar’s $3.5bn resort with its reserves is far more productive than buying Treasuries
Dignity and the Wealth of Nations
Chrystia Freeland (Reuters/NYT) Mar 1, 2012
Political movements backed by middle-class protesters are undermining an academic consensus that argues that correct economic policies alone will ensure continuing prosperity.
How I would lead the World Bank
Jeffrey Sachs (WP) Mar 1, 2012
I am eager for this challenge.
What Economist Arvind Subramanian Thinks of "China 2030"
WSJ Mar 2, 2012
The 52-year-old economist, a former International Monetary Fund senior researcher, visited Beijing recently to participate in a panel discussing a new report by the World Bank and China’s Development Research Center, “China 2030.” The report warns that China risks economic crisis unless it carries out sweeping reforms.
Jeremy Lin and the Political Economy of Superstars
Kenneth Rogoff (Project Syndicate) Mar 2, 2012
High salaries for athletes and movie stars are easily accepted by the public. So why, if a financial trader or a corporate boss is paid a fortune, does the public suspect that he or she must be undeserving or, worse, a thief?
The Greek crisis: When political desire triumphs economic reality
Jon Danielsson (VoxEU) Mar 2, 2012
The Eurozone’s problems are political as well as economic. The European leaders establishing the euro were, according to this column, guilty of putting political desire above economic reality. Their successors now trying to resolve the sovereign debt crisis are repeating that mistake, with potentially devastating consequences.
Financial Crisis Amnesia
Tim Geithner (WSJ) Mar 2, 2012
My wife looks up from the newspaper with bewilderment at another story about people in the financial world or their lobbyists complaining about Wall Street reform.
The Blessing of a Strong Currency
David Howden (Mises Daily) Mar 2, 2012
To hear some commentators talk, one would think that America's trade-deficit woes would be miraculously erased with a swift devaluation. A too highly valued greenback makes imports "too cheap" and incentivizes Americans to buy from their foreign competitors. The corollary is that the expensive dollar is making American exporters unattractive to the rest of the world. The result is a trade deficit, whereby Americans buy more imports than they export each year, a phenomenon that seems to have gotten especially worse since the early 1970s.
Global: QE Q&A
Spyros Andreopoulos (MS GEF) Mar 2, 2012
We answer five of the more frequently asked client questions on QE.
Key functions of asset management
Bernard Delbecque (VoxEU) Mar 3, 2012
Professional asset managers are responsible for investments worth around €40 trillion worldwide. This column looks at the role of asset managers in investing society’s long-term savings, highlighting the key differences with investment banks.
The Export Subsidy Boomerang
WSJ Mar 3, 2012
Helping some U.S. companies at the expense of others.
Indian takeovers abroad: Running with the bulls
Economist Mar 3, 2012
Are Indian firms really going to take over the world?
China’s capital controls: Set the money free
Economist Mar 3, 2012
But China should liberalise finance at home before unleashing capital flows across borders
Global poverty: A fall to cheer
Economist Mar 3, 2012
For the first time ever, the number of poor people is declining everywhere.
Credit demand, supply, and conditions: A tale of three crises
Sarah Holton, Martina Lawless & Fergal McCann (VoxEU) Mar 4, 2012
As the Eurozone crisis continues, lending to the real economy has fallen significantly. But it is difficult to know if this is due to a drop in demand for loans or a drying up of supply. Using data for small- and medium-sized companies in 11 Eurozone countries, this column identifies the effects of the crisis on credit demand, supply, and conditions.
Emerging markets must lead banking refor
Guillermo Ortiz (FT) Mar 4, 2012
Emerging Europe and Latin America are the two regions that have the most to fear from eurozone lenders’ weaknesses.
The Rise of Mexico's Middle Class
Mary Anastasia O'Grady (WSJ) Mar 4, 2012
A stable peso and freer trade have allowed the majority of the population to escape poverty.
The High Cost of the Fed's Cheap Money
Andy Laperriere (WSJ) Mar 4, 2012
Encouraging consumption at the expense of saving inhibits long-term economic growth.
Walt Whitman, First Artist of Finance (Part 1)
Robert Shiller (Bloomberg) Mar 4, 2012
One of the myths surrounding economic inequality in our society is that high incomes are often the result of selfishness and narrow-mindedness, rather than idealism and humanity. We tend to think that those in careers other than our own are fundamentally different kinds of people.
Finance Isn’t as Amoral as It Seems (Part 2)
Robert Shiller (Bloomberg) Mar 5, 2012
Many people assume there is something sleazy about the business of finance, or the people who practice it. This impression is probably behind the commonly voiced opinion that it is a shame so many young people today are going into finance-related occupations, when they could be doing something more high- minded in other fields.
Is Japan set to boom?
John H. Makin (AEI) Mar 5, 2012
Japan has suffered two "lost decades" of stagnant growth, but new quantitative easing by the Bank of Japan may finally resuscitate the country’s economy. Though reflation is not an ideal course, if Japan allows deflation to persist, its massive debt burden will grow as its economy shrinks and its currency depreciates. Japan's experiment could provide lessons on the effects of quantitative easing for other nations and may offset weak outlooks in the United States and Europe.
Alexander Hamilton’s Eurozone Tour
Harold James (Project Syndicate) Mar 5, 2012
Alexander Hamilton’s Eurozone Tour For many Europeans, Alexander Hamilton’s negotiation in 1790 of the new US federal government’s assumption of the states’ large debts like a tempting model. But, as Hamilton knew well – and as subsequent US history showed – debt mutualization by itself could not guarantee political union.
Greece’s Soft Budgets in Hard Times
Daniel Gros (Project Syndicate) Mar 5, 2012
Having gone through a de facto default on its foreign debt, real problem in Greece is no longer the fiscal deficit, but a combination of deposit flight and continuing excessive consumption in the private sector. As long as inflows of cheap ECB financing continues, the necessary adjustment in consumption will not take place.
In the slipstream of the Greek debt exchange
Mitu Gulati & Jeromin Zettelmeyer (VoxEU) Mar 5, 2012
One of the most interesting questions arising from the ongoing Greek debt restructuring is what it implies about the feasibility of voluntary debt restructurings. Indeed, why would anyone voluntarily take a debt-exchange offer that promises a large reduction in repayments? This column argues creditors might feel safer with new debt instruments issued under English law than with old Greek-law regulated ones.
Corporate balance-sheet adjustment: New stylised facts and their relevance for the Eurozone
Eric Ruscher & Guntram Wolff (VoxEU) Mar 5, 2012
It is not just governments, banks, and households that need to look again at their finances: big businesses do too. This column looks at balance-sheet adjustments by large companies in Germany and Japan and argues that a better understanding of how companies adapt will help policymakers trying to bring about structural change in their economies – particularly within the Eurozone.
The World Bank is flirting with irrelevance
Ian Goldin (FT) Mar 5, 2012
The bank’s ability to realise its potential has been stymied by a culture where failure is hidden and success exaggerated.
Beijing’s lessons for central banks
Stephen S. Roach (FT) Mar 5, 2012
Classic central banking at its best from the PBoC means China’s economy will avoid a hard landing.
Japan’s Resilience Lessons
Margareta Wahlström (Project Syndicate) Mar 6, 2012
Buried in the coverage of last year’s Great East Japan Earthquake is a success story that it tells us much about how we should manage disaster risk in the twenty-first century. It is the story of how the Japanese people, through centuries of memory and shared experience, have built up their resilience to catastrophic natural events.
Information Apartheid
Zohra Dawood (Project Syndicate) Mar 6, 2012
South Africa has been a global example of freedom and equality since it ended apartheid two decades ago. But, with a new proposed law that will curtail the right to government information, that freedom is in jeopardy.
Burma’s Turn
Joseph E. Stiglitz (Project Syndicate) Mar 6, 2012
Political change in Myanmar has been numbingly slow for a half-century, but a new leadership is trying to embrace rapid transition from within. But now the country is being held back by the international sanctions that were imposed before its leaders turned away from authoritarianism and isolation.
A tale of two depressions redux
Barry Eichengreen & Kevin H O’Rourke (VoxEU) Mar 6, 2012
The debate over stimulus versus austerity continues unabated. This column shows that, while industrial production and trade recovered much more quickly than during the Great Depression, both series now appear to be slowing down. It suggests that, as St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalisation, but not yet.
The pain in Spain will test the euro
Martin Wolf (FT) Mar 6, 2012
There is little to suggest that a way has been found towards the necessary rebalancing of the eurozone economy.
We should stop talking of an Asian century
Chandran Nair (FT) Mar 6, 2012
Encouraging the 5bn Asians who will be alive mid-century to consume as Americans do now is the height of irresponsibility.
Asia's Perilous Inequality
Frederic Neumann (NYT) Mar 6, 2012
In Asia, rising income disparities are a drag on productivity and make populist policies very tempting.
Money or Die
Laurie Garrett (FA) Mar 6, 2012
Global health programs now teeter on the edge of disaster. The world economic crisis and the politics of debt reduction are threatening everything from malaria control and AIDS treatment to well-baby programs and health-care worker training efforts. And even if the existing global public health architecture survives this time of parsimony and austerity, it will have been remodeled along the way. Read
Don’t Resent the Rich; Fix the Tax Code (Part 3)
Robert Shiller (Bloomberg) Mar 6, 2012
We have ample reason to believe that financial markets are quite useful. And yet our wonderful financial infrastructure has not yet brought us the harmonious society we might consider ideal. There remains the ugliness of extreme economic inequality, of some who endure hardship while others are pampered.
History Blinds Europe to a Germany Worth Emulating
Harold James (Bloomberg) Mar 6, 2012
A familiar specter is haunting Europe: How to live with a powerful Germany that seems to act according to its own interests, and whose policies are driven by domestic politics.
Logic of Finance Can Banish Corruption (Part 4)
Robert Shiller (Bloomberg) Mar 7, 2012
The economic power that some in the financial community attain bothers many people deeply. It offends our ideal of a society that aspires to respect, appreciate and support everyone. The pursuit of power that often drives financial capitalism seems contrary to the concept that finance should be about the stewardship of society’s assets.
Women on the Verge of an Economic Breakthrough
Heidi Hautala & Janamitra Devan (Project Syndicate) Mar 7, 2012
Women entrepreneurs in developing countries face special challenges starting companies and expanding them into firms with growth potential. But equality for women can create economic opportunities and boost efficiency and productivity, as can be seen in developing countries that have embraced gender-parity reforms.
The Age of Authoritarian Democracy
Sergei Karaganov (Project Syndicate) Mar 7, 2012
Growing social inequality in the West is undermining democratic capitalism's allure, while people living under authoritarian regimes are demanding greater freedom. Authoritarian countries’ middle classes may push their leaders towards greater democracy, but Western democracies will also likely become more authoritarian.
TARGET imbalances: Financing the capital-account reversal in Europe
Fabian Bornhorst & Ashoka Mody (VoxEU) Mar 7, 2012
While the fall in Germany’s current-account surplus may have alleviated the Eurozone’s imbalances, another problem has arisen. German exporters and banks are no longer Europe’s financiers but Germany is instead now filling this financing gap through so-called TARGET claims – the system for central bank settlements within the Eurosystem. At stake is not just academic curiosity but the financial architecture of the Eurozone.
US Congress Takes Aim at Beijing, Preserves Anti-Subsidy Tariffs
Bridges Weekly Trade News Digest Volume 16, Number 9 Mar 7, 2012
Washington lawmakers in both chambers of Congress passed legislation this week that will allow the US Department of Commerce to continue applying countervailing, or anti-subsidy, duties to imports from non-market economies such as China. The legislation - which was quickly lambasted by Chinese officials - overrides a 2011 ruling by a federal court that held that US law did not permit such a practice.
Brazil Sounds New Warning of 'Currency War'
Bridges Weekly Trade News Digest Volume 16, Number 9 Mar 7, 2012
Over a year after Brazilian Finance Minister Guido Mantega first warned of an "international currency war," tensions are once again rising among the world's major economies over currency values and their impacts on export competitiveness, with Brazilian officials announcing a series of new policies last week to protect domestic industries.
Services Openings Eyed by Some WTO Members
Bridges Weekly Trade News Digest Volume 16, Number 9 Mar 7, 2012
A subgroup of WTO members is currently holding "exploratory talks" on the possibility of a services liberalisation agreement, sources close to the talks have confirmed. The subgroup currently includes 16 of the organisation's members, including the US, Australia, and the EU.
The Inequality Trap
Kemal Dervis (Project Syndicate) Mar 8, 2012
In the early twentieth century, some argued that capitalism tends to generate chronic weakness in effective demand, as growing concentration of income leads to a “savings glut.” Nowadays, with income inequality on the rise, that argument has returned.
Old wine in new bottles? Non-traditional sources of FDI
Christiane Krieger-Boden, Peter Nunnenkamp & Maximiliano Sosa Andrés (VoxEU) Mar 8, 2012
Investors from emerging and developing economies are becoming bigger players in FDI, particularly in developing countries. While some raise concerns that emerging economies might gain control over raw materials, others are hopeful that non-traditional investors might provide new opportunities for development. This column analyses these new FDI flows and finds that while fears may be exaggerated so too is the optimism.
Greece’s private creditors are the lucky ones
Nouriel Roubini (FT) Mar 7, 2012
Official creditors will suffer most of the huge additional losses that remain likely on Greece’s still unsustainable debt.
China’s Economy a Bigger Worry Than Yuan
Samuel Sherraden (Bloomberg) Mar 8, 2012
When it comes to economic relations with China, U.S. political leaders are responding to the problems of yesterday rather than preparing for tomorrow.
America and the Crisis of Global Power
Zbigniew Brzezinski (Globalist) Mar 8, 2012
The rise of China, the global financial crisis, the fatigue of two long wars — all have compromised the United States' standing around the globe. But an America in pursuit of a new, timely strategic vision will be crucial in helping the world avoid a dangerous slide into international turmoil.
The poor half billion in South Asia: Is there hope for change?
Ejaz Ghani, Lakshmi Iyer & Saurabh Mishra (VoxEU) Mar 9, 2012
While the rate of economic growth in India and other South Asian countries is impressive, it does raise the question of whether this growth is inclusive. This column looks at a range of poverty measures over time and finds that while not all extremely poor people in the world are trapped in poverty, in India and South Asia the poorest are not catching up with the richest fast enough.
Free-Trade Blinders
Dani Rodrik (Project Syndicate) Mar 9, 2012
Too many economists are prone to attribute concerns about globalization to crass protectionist motives or ignorance, even when genuine ethical issues are at stake. By ignoring the fact that international trade sometimes involves redistributive outcomes that we would consider problematic at home, they fail to engage the public debate properly.
A Look at the Global One Percent
Allan Meltzer (WSJ) Mar 9, 2012
The remarkable similarity in income distribution across countries over the past century means domestic policy has less effect than many believe on who gets what.
Black sheep of finance
Ellen Brown (AT) Mar 10, 2012
Public-sector banking is anethema to high finance in many countries, while it is a feature of fast growing economies such as China and Russia. The opportunity for corruption is one factor - but with the backhanders linked to private banking and weak regulation in the West.
The end of cheap China
Oil and the world economy: The new grease?
Fed versus ECB: How TARGET debts can be repaid
Hans-Werner Sinn (VoxEU) Mar 10, 2012
In February 2012, the Bundesbank had a TARGET claim of €547 billion on the Eurosystem. This column proposes a US-like system of marketable covered treasury bills that could be applied to a yearly settlement of TARGET liabilities.
Dynasties in democracies: The political side of inequality
Ronald U Mendoza (VoxEU) Mar 11, 2012
Inequality in the world’s poorest countries is considered one of the main barriers to development. But this column points out that the inequality is about much more than the über-rich and the destitute – it is about access to political power. This column looks at political dynasties, where leadership is passed down through family ties, to see if these are a cause of the persistent social and economic divides.
Welcome to the new China-bashing
Edward Luce (FT) Mar 11, 2012
Usually the Democrat bashes China on trade while the Republican holds back. But in 2012 it is the Republican who has taken the lead.
What Greece Means
Paul Krugman (NYT) Mar 11, 2012
Like other European nations forced to impose austerity in a depressed economy, Greece seems doomed to many more years of suffering.
Greece Will Suffer Less If It Leaves Euro Now
Megan Greene (Bloomberg) Mar 11, 2012
The mood on the ground in Athens has shifted palpably over the past few months. Everyone has firsthand stories of sorrow and bitterness to tell, as austerity measures bite. They speak of retired parents on rapidly shrinking pensions struggling to meet higher taxes and prices, or of young siblings with multiple masters degrees forced to work in call centers or cafes.
The Pig, the Wolf, and the Dragon
Sin-ming Shaw (Project Syndicate) Mar 12, 2012
Political mayhem has broken out in Hong Kong over the election of the territory's next Chief Executive. China’s government, already in the midst of a delicate political transition of its own, has been caught completely unprepared.
Europe’s Trust Deficit
Barry Eichengreen (Project Syndicate) Mar 12, 2012
There is no shortage of talk nowadays about Europe’s deficits – fiscal, external, institutional – and the need to correct them. But the deficit that prevents Europe from drawing a line under its crisis is a deficit of trust.
Financial Repression Has Come Back to Stay
Carmen M. Reinhart (Bloomberg) Mar 12, 2012
As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt.
Greece's Credit Non-Event
WSJ Mar 12, 2012
Bond default insurance is triggered. World does not end.
Whose Sovereignty?
Javier Solana (Project Syndicate) Mar 12, 2012
From crisis-stricken Greece to bloodstained Syria, the old issue of national sovereignty has resurfaced with a vengeance. To adhere to a narrow concept of sovereignty in this world is an unwise anachronism at best, and a dangerous gamble at worst.
Can the Poor Save the World?
Jean-Michel Severino (Project Syndicate) Mar 12, 2012
The second decade of the twenty-first century is witnessing a reversal of fortune: developed economies are mired in crisis, while emerging-market countries' prospects look bright. But it is the poorer developing world that holds the key to a new global rebalancing strategy.
Climate-Smart Smallholders
Paul Kagame (Project Syndicate) Mar 12, 2012
In order to build a global green economy, global leaders must recognize the linkages between climate change, the environment, and food security. And that means that small farmers, who account for 60% of global agriculture and provide up to 80% of developing countries’ food supply, must part of the discussion.
ECB intervention is the only way to end the crisis
Paul De Grauwe (FT) Mar 12, 2012
The ECB’s banking liquidity operations have created a moral hazard problem worse than if it had bought bonds itself.
Investment bankers remain masters - for now
Patrick Jenkins (FT) Mar 12, 2012
Those who understand risk, capital allocation and financing are even more valuable post-crisis amid tough new regulatory capital and liquidity rules.
Contagion from Greece still threatens euro
Axel Merk (FT) Mar 12, 2012
Greece and others must learn to own their own problems rather than rely on central banks and other people’s money.
The Future of Capitalism
Pascal Lamy (Globalist) Mar 12, 2012
Dramatically higher income inequality. Unsustainably high unemployment. A financial system unmoored from its macroeconomic foundations. Repairing these three failures will be essential to the future of capitalism and the market economy. This will require putting an end to the underinvestment in education and building stronger domestic safety nets.
How to Help African Children At Risk
Anne C. Richard (FA) Mar 12, 2012
The success of the "KONY 2012" video shows the vast reserves of idealism and concern out there. Here is how to turn that concern into useful action.
KONY 2012 and the Prospects for Change
Mareike Schomerus, Tim Allen, and Koen Vlassenroot (FA) Mar 13, 2012
With more than 70 million views, KONY 2012 has achieved its aim of reaching a mass audience. But the film is a quintessentially American fable printed on an African canvas, one that will turn out to be a brief diversion, just a bit of Internet chatter.
Why Some Countries Go Bust
Adam Davidson (NYT) Mar 13, 2012
A rock-star economist says it's much simpler than you think.
Seven principles for better banking regulation
Xavier Vives (VoxEU) Mar 13, 2012
The global crisis has raised many questions. High on any list would be how regulators and supervisors missed the warning signs so spectacularly, particularly those responsible for overseeing the dangerously exposed financial system. This column, by one of CESifo’s European Economic Advisory Group, provides a diagnosis of the problem and outlines what can be done about it.
Three-year refinancing operations: ECB kills two birds with one stone
Christian Weistroffer & Heiko Peters (DB Research) Mar 13, 2012
End-February, the ECB provided banks with EUR 530 bn of liquidity for three years via its longer-term refinancing operations (LTRO). As with the first three-year LTRO in December 2011, the provision of liquidity is designed to avert tensions over bank lending. The first three-year tender has also had an effect on European government bond markets. As mainly Italian and Spanish banks increased their exposure, yield curves for Spanish and Italian bonds shifted downwards at the short end.
Can the Poor Save the World?
Jean-Michel Severino & Olivier Ray (Project Syndicate) Mar 13, 2012
The second decade of the twenty-first century is witnessing a reversal of fortune: developed economies are mired in crisis, while emerging-market countries' prospects look bright. But it is the poorer developing world that holds the key to a new global rebalancing strategy.
A hard slog in the foothills of debt
Martin Wolf (FT) Mar 13, 2012
It is essential to map out the road to deleveraging, including towards post-crisis fiscal consolidation.
China needs a new growth model
Michael Pettis (FT) Mar 13, 2012
Chinese monetary easing doesn’t work the `normal' way. Loosening monetary policy actually reduces consumption.
Brazil’s blinkered focus on currency
Joe Leahy (FT) Mar 13, 2012
Brasília must do more than manipulate its exchange rate to ensure the long-term survival of its industry in the face of a flood of imports.
BRICs lose their shine
Martin Hutchinson (AT) Mar 14, 2012
Only China of the much-lauded "BRIC" countries is (possibly) living up to its fast-growth billing. The economies of Russia, Brazil and India are facing slowing or suspect expansion, and given their political leadership their outlook is far from bright.
Democratic Inequality
Raghuram Rajan (Project Syndicate) Mar 14, 2012
Why did the US household savings rate plummet before the Great Recession? It turns out that the economicinequality that most Americans face – between, say, the incomes of typical readers of this commentary and the rest – has had deep pernicious effects.
Blowing Away Nuclear Power
Christian Kjaer (Project Syndicate) Mar 14, 2012
Last year's nuclear accident in Fukushima underscored the need for alternatives to replace nuclear power, but many question whether renewable energy up to the task. But, given that wind power is cleaner, safer, and quickly becoming cheaper than new nuclear capacity, the answer should be obvious.
Capital shortfall: A new approach to ranking and regulating systemic risks
Viral Acharya, Robert Engle & Matthew Richardson (VoxEU) Mar 14, 2012
The effective regulation of banks requires identification of systemically important financial institutions. This column discusses a method to estimate the capital that a financial firm would need to raise if we have another financial crisis. This measure of capital shortfall is based on publicly available information but is conceptually similar to the stress tests conducted by US and European regulators.
Systemic Risk, Multiple Equilibria and Market Dynamics – What You Need to Know and Why
Mohamed A. El-Erian and A. Michael Spence (PIMCO) Mar 14, 2012
This is a world in which expectations can and do play a major role in determining economic and market outcomes. In assessing the possibility, duration and impact of systemic risk factors, we need to analyze the interaction of expectations with market (endogenous) and policy (exogenous) circuit breakers. In the current environment, the prevalence of some subjective bimodal expectation distributions (e.g. Europe related) speaks to the multiple equilibrium features of sovereign debt markets. Multiple equilibria give rise to a range of scenarios, each quite different and each with its own distribution of returns, risks, correlations, and market functioning. In today's global context, investors (as well as policy makers, researchers and opinion leaders) need to supplement their analyses of fundamentals, historic risk premia, correlations and relative value with a clearer delineation of the expectation formation process itself.
US, EU, Japan Challenge China on Rare Earths
Bridges Weekly Trade News Digest Volume 16, Number 10 Mar 14, 2012
Following months of speculation, the US, Japan, and EU have jointly launched a WTO challenge against China's export restrictions on rare earths, as well as tungsten and molybdenum. The move - announced yesterday - comes just over a month after the global trade arbiter's highest court confirmed that Beijing violated WTO law and its accession protocol by restricting the exportation of nine raw materials.
WTO Appellate Body Finds US Support for Boeing Illegal
Bridges Weekly Trade News Digest Volume 16, Number 10 Mar 14, 2012
The WTO's highest court confirmed this week that Washington had violated international trade rules by providing its flagship aircraft manufacturer, Boeing, with billions of dollars worth of illegal subsidies. The decision, which largely upholds an earlier panel ruling (DS353), is the latest twist in a high-profile row between the two sides over domestic support to their respective airplane industries.
European Air Industry, Brussels Spar over EU Aviation Emissions Rule
Bridges Weekly Trade News Digest Volume 16, Number 10 Mar 14, 2012
A group of Europe's top aviation companies have jointly called upon the bloc's political leaders to stop an escalating conflict over the inclusion of aviation into its emissions trading scheme (ETS). Brussels insists, however, that the legislation requiring airlines to surrender carbon permits for the emissions they produce during all incoming and outgoing flights will stand until a global agreement regarding aviation emissions has been reached.
India Grants First Compulsory License to Generic Drug Producer
Bridges Weekly Trade News Digest Volume 16, Number 10 Mar 14, 2012
In a landmark move, the Indian Patent Office announced on Monday that it has issued its first compulsory license to a domestic generic drug-maker. The decision effectively ends German pharmaceutical company Bayer AG's monopoly over an anti-cancer drug and authorises the production of a low-cost version for the Indian market.
The ‘Vampire Squid’ spills its ink
William Cohan (FT) Mar 14, 2012
Goldman Sachs has been in and out of trouble its whole existence. This is another existential moment for the bank.
China must stop its poor-country pretence
John Gapper (FT) Mar 14, 2012
The rare earths case is a sideshow but it shows how credibility gained from Beijing’s Made in China policy has expired.
The end of Asia’s demographic dividend
David Pilling (FT) Mar 14, 2012
The region’s free ride is nearly over. The workforces of China, Hong Kong, South Korea and Taiwan will start to shrink soon.
Stock market rally is running on empty
David Rosenberg (FT) Mar 14, 2012
There is little of susbstance to justify the current rebound.
Will EU Fail Stress Tests?
Anil K Kashyap, Kim Schoenholtz and Hyun Song Shin (Bloomberg) Mar 14, 2012
The Federal Reserve’s 2012 stress tests of U.S. banks suffered from some of the same weaknesses as the ones it conducted last year. We hope the same won’t hold true of the European Banking Authority, which has delayed another round of exams of the region’s banks until 2013, after failing to credibly carry out its supervisory mandate in 2011.
The World Bank’s Next President Must Arrest Its Institutional Decline
Anders Aslund (PIIE) Mar 14, 2012
The World Bank is the second best international organization after the International Monetary Fund (IMF) in terms of reputation and quality, but it is an institution of diminishing significance. Its current president, Robert B. Zoellick, is stepping down at the end of his five-year term, and the Obama administration has announced that it will nominate an American to replace him. Other countries will put forth their candidates, and there could be a spirited worldwide contest for the job. Thus it is important that the selection be based, not on the politics of an American versus someone from another country, but on the challenges the Bank faces. The automatic American monopoly on the presidency should give way to a worldwide meritocratic selection process.
The Alchemical Roots of the Financial Revolution
Carl Wennerlind (Berfois) Mar 14, 2012
When the philosopher Baruch de Spinoza received word of a successful transmutation of lead into gold in December of 1666, he quickly sought to quell his skepticism by personally visiting the adept, and the visit left him fully convinced of the veracity of the adept’s account. Spinoza was just one of many seventeenth century intellectual luminaries who seriously engaged with alchemical thought and practice: others included John Locke, Robert Boyle and Isaac Newton. In England, confidence in the utility of alchemy was widespread. It was therefore unsurprising that metallic transmutation was pursued as a solution to the stubborn scarcity of money problem that had severely curtailed England’s commerce for decades.
A proposal for Greek financing: Self-help with ‘reconstruction bonds’
Alain De Crombrugghe & Eric De Keuleneer (VoxEU) Mar 15, 2012
Even with the latest bailout and debt restructuring, Greek debt is still projected to be 120% of GDP by 2020. With no access to foreign markets, Greece will have to fund any future deficits by calling on more funds from foreign governments or international institutions. This column suggests a novel solution: force ordinary Greeks to save some of their earnings by purchasing government bonds.
Offshoring of high-skilled workers is not a zero-sum game
Laura Abramovsky, Rachel Griffith & Helen Miller (VoxEU) Mar 15, 2012
Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.
Scary Oil
Nouriel Roubini (Project Syndicate) Mar 15, 2012
Today’s fragile global economy faces many risks: the risk of another flare-up of the eurozone crisis; the risk of a worse-than-expected slowdown in China; and the risk that the US economy's recovery fizzles (again). But no risk is more serious than that posed by a further spike in oil prices.
Default and the Nature of Government
Alex Pollock (WSJ) Mar 15, 2012
Because governments always promote government debt and can pressure banks into buying it, future sovereign debt crises are inevitable.
China's Rare Earths Are Not So Rare
Joseph Sternberg (WSJ) Mar 15, 2012
Today the U.S. is whining they're too expensive. Soon we'll complain they're too cheap.
Debt Can Reshape Current Economic, Political Order—Coggan
IMF Survey Mar 15, 2012
Current debt levels, which have led to a sovereign debt crisis in Europe and turmoil in world markets, threaten to reshape our economic and political world order, says economist Phillip Coggan.
The Future of China’s Growth
Justin Yifu Lin (Project Syndicate) Mar 15, 2012
China’s economy is slowing, and Premier Wen Jiabao suggests that this was both inevitable and beneficial. Whether or not Wen is right, the Chinese authorities have much work to do in laying the groundwork for strong economic performance in the medium and long term.
Memo from Beijing: China model has lost all its lustre
Lifen Zhang (FT) Mar 15, 2012
I asked a senior adviser if there was nothing Beijing could learn from western-style democracy. His answer: ‘Voting’.
What do they do at MF Global?
Gary Silverman (FT) Mar 15, 2012
If you strip away the jargon and the attitude, much of what goes on in the world of high finance isn’t all that complicated.
Regulators must get grip on traders’ hormones
Gillian Tett (FT) Mar 15, 2012
Fluctuations in traders’ biochemistry have big consequences, and could be easily tracked, according to a forthcoming book.
Macroprudential policy: What instruments and how to use them?
Francesco Columba, Alejo Costa & Cheng Hoon Lim (VoxEU) Mar 16, 2012
In the wake of the 2008 financial crisis, there has been burgeoning interest in macroprudential policy as an overarching framework to address the stability of the financial system as a whole rather than only its individual components. This column, based on a new dataset from 49 countries, shows that some macroprudential instruments are effective in reducing procyclicality in the financial system, and thus systemic risks.
The Global Innovation Revolution
Laura Tyson (Project Syndicate) Mar 16, 2012
As countries around the world struggle to lay the foundations for faster sustainable growth, they would do well to focus on policies that encourage innovation, which is the primary source of technological change and productivity growth. Over the past decade, Asia has done that, whereas Europe, the US, and Japan have not.
What's Behind Rising Gas Prices?
Daniel Yergin (WSJ) Mar 16, 2012
With so many ships trawling the crowded waters of the Persian Gulf, there is always the risk of an 'accident' or 'collision' with unintended consequences.
Greece Is Making Historic Reforms
Vassilis Kaskarelis (WSJ) Mar 16, 2012
There are significant changes in the labor market, including the liberalization of 108 restricted professions.
Global: Barrel Bill (2012 Edition)
Spyros Andreopoulos & Sung Woen Kang (MS GEF) Mar 16, 2012
We revisit our barrel bill framework, given the renewed oil price run-up.
China’s Politics of the Economically Possible
Minxin Pei (Project Syndicate) Mar 16, 2012
When sound economic advice is divorced from political reality, it probably will not be very useful advice. Unfortunately, that is true of the World Bank's impressive new report on China, which the country's one-party regime has a strong interest in ignoring.
India and China: Asia’s Giants Discuss Way Forward
IMF Survey Mar 16, 2012
Rising Asian giants China and India discuss the impact of the global economic crisis on their two pace-setting emerging markets and ways of further tackling poverty and inequality at a conference in New Delhi as Managing Director Christine Lagarde visits the region March 17-20 to meet with leaders of both countries.
In Europe, North Battles South
Joergen Oerstroem Moeller (YaleGlobal) Mar 16, 2012
To save the EU, competitive northern nations expect troubled southern economies to sacrifice now
Free exchange: Body of evidence
A new era for global financial standards
Nicolas Véron (VoxEU) Mar 17, 2012
Are the regulators finally fighting back? This column argues that behind the headlines, those responsible for setting global financial standards are growing steadily more confident and assertive. Rather than simply set the standards, they are finally making sure they get enforced.
De-fragmenting Africa
Paul Brenton (VoxEU) Mar 17, 2012
Africa trades too little with itself. This column argues that what is needed is an approach that reforms policies that create non-tariff barriers; puts in place appropriate regulations that allow cross-border movement of services suppliers; delivers competitive regionally integrated services markets; and builds the institutions that are necessary to allow small producers and traders to access open regional markets.
Brazil vows to deploy ‘arsenal’ in currency war
Thierry Ogier (Emerging Markets) Mar 17, 2012
Finance minister pledges bold action to safeguard economic competitiveness.
Shock ‘n’ oil
Marco Annunziata (VoxEU) Mar 18, 2012
Oil prices are again on the rise – will this derail the economic recovery? And what if there is an oil shock on the horizon? This column presents an overview of the oil market and its possible effects on the global economy. It argues that if there is a shock, the list of casualties will have Europe at the top with the US close behind.
Greece’s exit from the Eurozone would be all pain, no gain
Miranda Xafa (VoxEU) Mar 18, 2012
With Greece in deep recession for the fifth year running, several prominent observers have been calling on it to exit the Eurozone. This column argues this would not help Greece’s economy recover faster from its deep recession. Greece will still be the most heavily regulated country in the OECD and returning to a drachma would only add to the debt burden.
The Euro’s Imagined Community
Robert J Shiller (Project Syndicate) Mar 18, 2012
Many believe that a eurozone breakup – if, say, Greece reintroduced the drachma – would constitute a political failure that would ultimately threaten Europe’s stability. But, if Europe focuses on preserving the symbols of its unity, it might be able to avoid the worst outcomes of even the direst economic scenarios.
Causes of the crisis
Robert J. Samuelson (WP) Mar 18, 2012
The long view of the U.S. economic crisis.
America’s three takes on the crisis
Edward Luce (FT) Mar 18, 2012
Only in the US, which for now is probably the least crisis-ridden portion of the western world, is the capitalism question being addressed.
There is no Spanish siesta for the eurozone
Wolfgang Münchau (FT) Mar 18, 2012
If you think that the ECB’s policies have ‘bought time’, you should be asking yourself: time for what?
End the monopoly: let’s make it a real World Bank at last
François Bourguignon, Nicholas Stern and Joseph Stiglitz (FT) Mar 18, 2012
It is time the pious declarations of commitment to an open selection procedure showed some sincerity.
Finance and the Good Society
Robin Harding (FT) Mar 18, 2012
Robert Shiller argues that no one will benefit in the long term from ripping off the muppets.
The Hungarian crisis
Akos Valentinyi (VoxEU) Mar 19, 2012
Hungary was, until recently, the trailblazer in Eastern Europe. This column outlines the missteps that have seen it become one of the most financially vulnerable countries in the region.
Central banks and gold puzzles
Joshua Aizenman & Kenta Inoue (VoxEU) Mar 19, 2012
The patterns of gold holding remain a debatable topic at times when the relative price of gold has appreciated while the global economy has experienced recessionary effects. This column studies the curious patterns of gold holding and trading by central banks from 1979 to 2010. It suggests that a central bank’s gold position signals economic might, and gold retains the stature of a ‘safe haven’ asset at times of global turbulence.
The Greek Tragedy, Act II
Luigi Zingales (Project Syndicate) Mar 19, 2012
A Greek tragedy is typically composed of three acts, with the first setting the scene and the second containing the plot's climax. For current-day Greece, the imposition of “voluntary” losses on the country’s private creditors represents just the end of the beginning.
The Bailout Bias
Leszek Balcerowicz (Project Syndicate) Mar 19, 2012
The debate over the eurozone’s fiscal problems is focusing excessively on official bailouts, particularly proposed purchases of government bonds on a massive scale by the ECB. But the key to resolving the eurozone crisis lies in properly structured reforms in the ailing countries – indeed, experience shows that there is no substitute.
Central banks must address rising oil prices
Andrew Sentance (FT) Mar 19, 2012
Energy inflation is the biggest threat to global recovery and needs an appropriate response from policymakers.
Progress, not panic
Michael Gerson (WP) Mar 19, 2012
World Bank has helped struggling nations recover.
Move Over, OPEC---Here We Come
Ed Morse (WSJ) Mar 19, 2012
In energy, North America is becoming the new Middle East. The only thing that can stop it is domestic politics.
Fiscal consolidations for debt-to-GDP containment?
Gianluca Cafiso & Roberto Cellini (VoxEU) Mar 20, 2012
As fiscal-consolidation policies are being implemented across the EU, a debate has been developing concerning the effects of such policies on the dynamics of the debt-to-GDP ratio. This column examines past episodes and finds that following fiscal adjustment may have favourable effects in the short term but that the two-year cumulated changes have been mainly adverse.
What to do about Japan’s current exchange rate?
Takatoshi Ito & Junko Shimizu (VoxEU) Mar 20, 2012
Last year, the yen reached a post-war high against the dollar and a record high against the euro. This column looks at the recent trend in the Japanese currency and outlines what Japan’s policymakers should do about it.
Transmission Channels
Neel Kashkari (PIMCO) Mar 20, 2012
A disorderly Greek default, if it occurs, would likely shock the eurozone and the globe via at least four transmission channels: the European banking system, European sovereign debt markets, corporate financing markets and regional trade. The shock of a massive Greek default would likely swing investor sentiment strongly toward “risk off,” putting pressure on equity markets globally. In this environment, focus on carefully understanding overall risk within equity portfolios. A lower risk exposure will very likely suffer a far lower drawdown in times of crisis, leading to greater return potential over the long term.
Captured Europe
Daron Acemoglu & Simon Johnson (Project Syndicate) Mar 20, 2012
International bankers argued long and hard that a restructuring of Greek debt would generate contagion far and wide within the eurozone – and perhaps more broadly. But, given that financial markets reacted meekly to the Greece's "credit event," perhaps it is time to stop listening to what banks say, and start focusing on what they do.
The Energy Deficit
Michael Spence (Project Suyndicate) Mar 20, 2012
Having underinvested in energy efficiency and security when the costs of doing so were lower, the US today is poorly positioned to face the prospect of rising energy prices. Rather than anticipating and preparing for change, Americans have waited for change to be forced upon them.
China Quietly Relaxes Controls on Foreign Capital
Keith Bradsher (NYT) Mar 20, 2012
Chinese officials are making it easier for foreign investors to put money into China's stock market, indicating that they are eager to counter capital flight.
How to blow away China’s gathering storm clouds
Martin Wolf (FT) Mar 20, 2012
The past record of economic success under Communist party rule does not guarantee a comparably successful future.
The world can’t referee two trade games
Clyde Prestowitz (FT) Mar 20, 2012
The problem is not a matter of a few discrete instances of rule-breaking. It is a much broader free-trade charade.
Anger mounts over power of China’s banks
Simon Rabinovitch (FT) Mar 20, 2012
Disgruntled savers are reacting to banking rules loaded against them, not through complaints or protests but by withdrawing their money.
Banking system fragility: A regional perspective
Muhammad Ather Elahi, Hans Degryse & María Fabiana Penas (VoxEU) Mar 21, 2012
As we are learning time and again, if a big bank goes down it takes a lot of other things down with it. This column looks at the effect of bank fragility and failure on other nearby countries and outlines what can be done to mitigate the cross-border contagion.
Greece’s new bonds: Is another default coming?
Jacob Funk Kirkegaard (VoxEU) Mar 21, 2012
Last week’s historical restructuring of Greek debt appears to have gone smoothly. This column argues that appearances may be deceptive.
Why Fair Trade?
Robert Skidelsky (Project Syndicate) Mar 21, 2012
Despite its shaky economics, the fair-trade movement should not be despised. While cynics say that it only makes consumers feel better about their purchases, the movement represents a spark of protest against mindless consumerism, grass-roots resistance against an impersonal logic, and an expression of communal activism.
Ending the Rich-World Bias in Global Economic Statistics
Branko Milanovic (Globalist) Mar 21, 2012
Rather than focusing only on total economic output as we do now, we ought to refocus calculations on how individuals' incomes across the world are affected. Such a statistical rebalancing would lead to a world where we move from caring about quantities to caring about people.
New Book Weighs IMF Response to a Crisis-Filled Decade
IMF Survey Mar 21, 2012
The 1990s was a tumultuous period that witnessed the collapse of the Soviet Union, the transition of former Eastern bloc countries to market economies, and a series of crippling financial crises—all of which posed new challenges for the IMF and transformed its role.
US Lawmakers Begin Debate on Russia Trade Restrictions
Bridges Weekly Trade News Digest Volume 16, Number 11 Mar 21, 2012
The highly-anticipated debate over whether to lift a decades-old law restricting trade with Russia is in full swing in the US Congress, with a Senate committee holding an initial hearing on the subject on 15 March. Meanwhile, leaders of anti-government protests in Moscow are also pushing for the repeal of the trade restrictions, arguing that keeping them intact would only benefit President-elect Vladimir Putin.
India Expected to Ask Airlines Not to Comply with EU Emissions Rule
Bridges Weekly Trade News Digest Volume 16, Number 11 Mar 21, 2012
The ongoing controversy over the EU's plan to include aviation in its Emissions Trading System (ETS) ramped up another notch this week, with India reportedly planning to urge its airlines to boycott the scheme. Brussels, meanwhile, continues to stand firm in support of the ETS in the absence of a global agreement on aviation emissions.
US-China Solar Panel Conflict Reaches Next Stage
Bridges Weekly Trade News Digest Volume 16, Number 11 Mar 21, 2012
The US Commerce Department will begin imposing duties on solar panel imports from China, after finding that Chinese solar manufacturers receive unfair government support. Though the announced duties were far below the complainants' requests, the decision is still expected to increase trade tensions between Beijing and Washington, which have already been running high in recent weeks.
Ukraine Launches WTO Challenge Against Australia Cigarette Packaging Law
Bridges Weekly Trade News Digest Volume 16, Number 11 Mar 21, 2012
An Australian law intended to make the packaging of cigarettes less appealing to consumers is now facing a WTO challenge, with Ukraine formally lodging a complaint at the global trade body last week. (DS434) The move follows heated discussions between WTO members in recent months over the law's conformity with multilateral trade rules.
EU Trade Ministers Agree to Approve Deal with Colombia, Peru
Bridges Weekly Trade News Digest Volume 16, Number 11 Mar 21, 2012
EU trade ministers have agreed to approve a much-anticipated free trade pact with Colombia and Peru, which is expected to slash €500 million in duties alone. The 16 March decision is the next step toward eventually bringing the pact into force. Meanwhile, Ecuador - which had withdrawn from the trade talks in 2009 - is looking to re-launch discussions with the EU over a possible accord.
Austerity or Stimulus? What We Need Is Growth
John H. Cochrane (Bloomberg) Mar 21, 2012
Austerity isn’t working in Europe.
Pushing Back Against Austerity
NYT Mar 21, 2012
Political leaders across Europe have begun to push back against the campaign of unrelenting fiscal austerity favored by Chancellor Angela Merkel of Germany. It is about time.
Corruption threatens China’s future
Edward Chancellor (FT) Mar 21, 2012
The problem could be sidelined if the economy was to keep growing rapidly, but old policies are losing their efficacy.
No more inaction on income inequality
Roger Altman (FT) Mar 21, 2012
Two solutions stand above the rest. The US needs a more progressive tax system and one that raises more revenue.
Too early to call end of bonds’ bull run
Richard Milne (FT) Mar 21, 2012
The clamour of voices calling for a turning point in the bond markets has been growing louder, but the influence of policymakers cannot be ruled out.
How Mexico Creates American Jobs
Andrew Selee and Christopher Wilson (WSJ) Mar 21, 2012
Our southern neighbor buys 13% of all U.S. exports.
The Fed and ECB should be trading places
Sebastian Mallaby (FT) Mar 22, 2012
In Europe, self-defeating austerity budgets may turn yesterday’s inflationary heresy into tomorrow’s logic.
Why the Global Warming Skeptics Are Wrong
William D. Nordhaus (NYRB) Mar 22, 2012
At a time when we need to clarify public confusions about the science and economics of climate change, skeptics have muddied the waters. I will describe their mistakes and explain the findings of current climate science and economics.
Africa’s Dirty Wars
Jeffrey Gettleman (NYRB) Mar 22, 2012
In Africa we are seeing the decline of the classic wars by freedom fighters and the proliferation of something else—something wilder, messier, more predatory, and harder to define. There are no front lines, no battlefields, no clear conflict zones, and no distinctions between combatants and civilians.
The other World Bank scandal
Uri Dadush and Moisés Naím (WP) Mar 22, 2012
Presidential selection isn’t the only farce.
The American Recovery
Mohamed A El-Erian (Project Syndicate) Mar 22, 2012
The US has gone through an arduous period of intervention and rehabilitation since the global financial crisis in 2008 sent it to the economic equivalent of the emergency room. The question now is whether the US economy is ready not just to walk, but also to run and sprint.
The Cracks in the BRICS
Brahma Chellaney (Project Syndicate) Mar 22, 2012
As it prepares to hold its latest annual summit, the BRICS grouping – Brazil, Russia, India, China, and South Africa – remains a concept in search of a common identity and institutionalized cooperation. In the coming days, we might find out whether the BRICS will ever be more than a catchy acronym with an annual boondoggle attached.
A Brief History of Supply Chains
Sanjeev Sanyal (Globalist) Mar 22, 2012
Before there were Chinamax cargo ships, cloud computing and satellite communications, there were steamships and the telegraph. Before that were sailing vessels and pack animals. Tracing the technological developments that have changed the way the world moves its imports and exports.
Spillover effects of exchange rates
Aaditya Mattoo, Prachi Mishra & Arvind Subramanian (VoxEU) Mar 23, 2012
Do exchange rate movements in one country affect its competitors? This column suggests that a 10% appreciation of the renminbi increases other developing countries’ exports by about 2%. Where competition with China is especially intense, the increase could be as large as 6%. The results imply that an appreciation of the renminbi could provide a boost to developing country exports.
The logic and fairness of Greece’s programme
Olivier Blanchard (VoxEU) Mar 23, 2012
The Greek package has cheered up markets. In this column, the IMF’s Chief Economist Olivier Blanchard argues that the programme deals squarely with the two most fundamental issues facing Greece – high debt and low competitiveness. And it is also fair, asking for sacrifices of both Greece and its creditors.
China Adjusts
Jeffrey Frankel (Project Syndicate) Mar 23, 2012
Not long ago, the renminbi was substantially undervalued and China’s trade surpluses were very large. But the situation is changing: forces of adjustment are at work in the Chinese economy, and foreign perceptions need to adjust as well.
Global: Oil Spills
Manoj Pradhan & Patryk Drozdzik (MS GEF) Mar 23, 2012
Compared to 2011, we believe that EM central banks will find it easier to ease or not hike.
From growth to green growth
Marianne Fay, Stéphane Hallegatte, Geoffrey Heal & David Tréguer (VoxEU) Mar 24, 2012
What can be done to combine the need for growth with environmental constraints? This column argues that what is needed is to reconcile developing countries’ urgent need for rapid growth and poverty alleviation with the need to avoid irreversible and costly environmental damage.
Does inequality lead to a financial crisis?
Michael Bordo & Christopher M. Meissner (VoxEU) Mar 24, 2012
Did inequality in the US lead to the global financial crisis? This column presents evidence from 14 countries between 1920 and 2008 and argues that while inequality can be blamed for many things, the global crisis is not one of them.
Building euro-zone competitiveness: Ports in the storm
The Bank Run, Updated
Tyler Cowen (NYT) Mar 24, 2012
It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions but in a redefined form.
The global financial crisis: What caused the build-up?
Erlend W Nier & Ouarda Merrouche (VoxEU) Mar 25, 2012
Five years into the global crisis there is still little agreement on its root causes. Had central banks kept policy rates too low for too long? Or were rising global imbalances the underlying cause of the crisis? This column suggests that the strength of net capital inflows, rather than the monetary-policy stance, emerges as the key determinant of differences in the growth of financial imbalances across OECD countries over the pre-crisis period.
How to ensure stimulus today, austerity tomorrow
Lawrence Summers (FT) Mar 25, 2012
Contingent commitments can stipulate near-term expansion and medium-term prudence – exactly what we need right now.
Europe’s bailout bazooka is proving to be a toy gun
Wolfgang Münchau (FT) Mar 25, 2012
Call it a eurobond, or what you like, but if you do not want one then you must accept there is no backstop for Spain.
Right time for China to liberalise renminbi
Eswar Prasad (FT) Mar 25, 2012
Selling the move domestically will be tricky because it could be seen as yielding to external forces.
Jim Kim to the World Bank
WSJ Mar 25, 2012
The Dartmouth president is better than the bank deserves.
Financial repression: Then and now
Jacob Funk Kirkegaard & Carmen M Reinhart (VoxEU) Mar 26, 2012
Rich nations worldwide have a problem with debt. In the past, such problems have been dealt with by several tactics, including 'financial repression'. This column explains how the tactic works and documents its resurgence in the wake of the global and Eurozone crises.
Decentralising education: Evidence from the BRICs
Latika Chaudhary, Aldo Musacchio, Steven Nafziger & Se Yan (VoxEU) Mar 26, 2012
A recent article in The Economist praises Florida’s unique success at school reform, in contrast to the nationwide effort to improve public schools. But this column presents evidence from the education policies in Brazil, Russia, India, and China that decentralisation doesn’t always work.
China’s Stability Gambit
Stephen S. Roach (Project Syndicate) Mar 26, 2012
Given centuries of turmoil in China, today’s leaders will do everything in their power to preserve political, social, and economic stability. That is why they removed Bo Xilai, the powerful Party Secretary of Chongqing, just before a major conference that attacked the economic model that he personified.
Whither Europe?
Michael Boskin (Project Syndicate) Mar 26, 2012
With the likelihood of a contagious sovereign-debt implosion and European bank failures reduced by the Greek debt deal and the ECB’s lending program, it is time to look ahead. There are three broad scenarios, each with implications for the European and global economy, the financial system, and relations between member states and EU institutions.
Emerging Asia: Two Paths through the Storm
Galina Hale and Alec Kennedy (FRBSF) Mar 26, 2012
The overall effect of the global financial crisis on emerging Asia was limited and short-lived. However, the crisis affected some countries in the region more than others. Two main crisis transmission channels, exposure to U.S. financial markets and reliance on manufacturing exports, determined how severely countries in the region were affected. Countries that were relatively less connected to global financial markets and relied less on trade fared better and recovered more quickly than countries that were more dependent on global financial and trade markets.
France is the source of its own problems
Philippe Manière (FT) Mar 26, 2012
Globalisation fits the Anglo-Saxon outlook but not the French view. For a people in love with theories, this matters.
Investors must not be cowed by end of bond run
Rick Rieder (FT) Mar 26, 2012
The confluence of profound supply and demand factors and monetary policy distortion will keep a lid on the market.
In the Middle Kingdom's Shadow
Yukon Huang (WSJ) Mar 26, 2012
Americans worry about competition from China. So do some of its Asian neighbors.
Abandoning Gold Helped Dollar Gain Preeminence (Part 2)
Simon Johnson and James Kwak (Bloomberg) Mar 26, 2012
The birth of the U.S. was paid for by both a debauched paper currency and large debts that it soon defaulted on. When Alexander Hamilton became Treasury secretary in 1789, his job was not just restoring the country’s credit by restructuring the debt and imposing new taxes; he also had to clean up the mess that was money in the early U.S.
How the US Became Banker to the Post-War World (Part 3)
Simon Johnson and James Kwak (Bloomberg) Mar 27, 2012
Both the international monetary system and American fiscal policy began to change in the 1960s. The system developed at the United Nations Monetary and Financial Conference, held in Bretton Woods, New Hampshire, in July 1944, fixed exchange rates to a dollar backed by gold. It worked successfully for years. But it couldn’t last forever.
From a vicious to a virtuous circle in the Eurozone
Marco Buti & Pier Carlo Padoan (VoxEU) Mar 27, 2012
The economic and financial crisis in the Eurozone is in its fourth year. This column argues that, by providing a confidence bridge, decisive and credible policy action can turn the economy around and bring it towards a good equilibrium of debt sustainability and sustainable growth.
Breakthrough Leadership for the World Bank
Jeffrey D. Sachs (Project Syndicate) Mar 27, 2012
The Obama administration's appointment of Jim Kim as President of the World Bank is a breakthrough for the Bank – and for the cause of global peace and stability. Finally, the US seems to have understood that development experts, not bankers and political insiders, must be in charge.
Obama Has Made a Mess of the World Bank Succession
Clive Crook (Bloomberg) Mar 27, 2012
Barack Obama’s decision to nominate Dartmouth College President Jim Yong Kim to head the World Bank has been well received.
Has the ECB hit a limit?
Aaron Tornell & Frank Westermann (VoxEU) Mar 28, 2012
“Should the inflation outlook worsen, we would immediately take preventive steps”. So said Mario Draghi, President of the European Central Bank. This column argues that these are brave words given that the ECB has hit a limit in its ability to prevent an acceleration of inflation.
Nudges to nudge up the savings rate
James Choi, Emily Haisley, Jennifer Kurkoski & Cade Massey (VoxEU) Mar 28, 2012
As if today’s problems aren’t enough, in the coming years Europe faces what economists are calling a ‘demographic timebomb’, with ageing populations placing an unsustainable burden on already precarious public finances. In order to encourage more people to save for themselves, this column argues that using a psychological intervention can increase contributions to retirement savings accounts by up to 2.9% of income.
Time to set banking regulation right
Jacopo Carmassi & Stefano Micossi (VoxEU) Mar 28, 2012
Excessive risk-taking by large banks was among the main causes of the 2008–09 financial crisis. This column argues that the antidote to excessive risk-taking should come from the elimination of the subsidies of the banking charter and the implicit promise of bailout in case of major losses, and the introduction of strong incentives for management and shareholders to preserve the capital of their bank. This requires deep changes in Basel prudential rules.
Prepare for a new era of oil shocks
Martin Wolf (FT) Mar 27, 2012
The world will be vulnerable to high prices so long as supply is stagnant, demand buoyant and unrest likely – as it now is.
Obama made the wrong World Bank call
Edward Luce (FT) Mar 27, 2012
Not only should the US support meritocracy, it should be conspicuously seen to support that principle where it matters.
Reserve managers have acquired an appetite for risk
John Plender (FT) Mar 27, 2012
Political pressure to raise the return on vast foreign exchange reserves has pushed central bankers into equity investments.
The Ex-Im Bank Keeps Americans in Business
Robert E. Rubin and Vin Weber (WSJ) Mar 27, 2012
A government agency that increases U.S. jobs and earns money for the Treasury deserves bipartisan support.
Teetering Europe
WT Mar 27, 2012
European markets may have calmed recently, but the debt crisis is far from over. Trouble looms over Italy and Spain. The European Union has been scrambling to find the resources to help them. The magnitude of Italy's and Spain's liabilities makes that impossible, so the EU is looking to build a firewall.
China’s Struggle to Slow
Yu Yongding (Project Syndicate) Mar 28, 2012
With the global economy still struggling to recover, Chinese Premier Wen Jiabao's recent announcement that the government’s target for annual economic growth in 2012 was 7.5% sparked widespread concern around the world. But most Chinese economists rightly believe that the growth rate will remain well above 8% this year.
Katherine Boo, India, and China
Arvind Subramanian (PIIE/Business Standard) Mar 28, 2012
The evenhandedness that stems from Katherine Boo's natural and abundant empathy is one of the many appeals of Behind the Beautiful Forevers, her gorgeous book on one of Mumbai's slums, Annawadi. Thus, both cassandras-cum-state interventionists such as Amartya Sen and hope purveyors-cum-market enthusiasts such as the late management guru C. K. Prahalad can claim vindication in the book.
Assessing Debt Levels in Poorer Countries
IMF Survey Mar 28, 2012
Following a comprehensive review, the IMF and World Bank are introducing improvements to their joint Debt Sustainability Framework developed to assess borrowing levels in low-income countries. Stakeholder feedback showed that the framework needs to adapt to new trends in borrowing countries.
India Confirms Boycott of EU Aviation Emissions Rule
Bridges Weekly Trade News Digest Volume 16, Number 12 Mar 28, 2012
Tensions continue to run high over the inclusion of aviation in the EU's Emissions Trading System (ETS), after Indian government officials confirmed last Thursday that New Delhi would be asking its airlines not to participate in the scheme. Meanwhile, the trade group representing the largest US airlines is now calling upon the White House to pursue a case against the Brussels plan at the International Civil Aviation Organization.
US Suspends Argentina from Trade Preference Scheme
Bridges Weekly Trade News Digest Volume 16, Number 12 Mar 28, 2012
Trade frictions are on the rise between Washington and Buenos Aires, after US President Barack Obama announced on Monday that the US would be suspending Argentina from its Generalised System of Preferences programme - which waives duties on thousands of imports from developing countries - for failure to pay arbitration awards in two disputes involving US investors.
WTO Panel Hearing: Canada Defends Feed-in Tariff as Necessary Govt Procurement
Bridges Weekly Trade News Digest Volume 16, Number 12 Mar 28, 2012
The legality of government support for renewable energy initiatives took centre stage in Geneva this week, with a landmark case against Canada being heard at the WTO. A three person dispute panel heard opening arguments in cases launched by Japan and the EU - DS412 and DS426, respectively - over the Canadian province of Ontario's local content requirements in its feed-in tariff (FIT) scheme.
European Commission Eyes Tit-for-Tat Mechanism to Open Govt Procurement Markets
Bridges Weekly Trade News Digest Volume 16, Number 12 Mar 28, 2012
EU officials outlined a plan last week that would allow Brussels to block companies from non-EU countries from bidding for government contracts, should European firms continue to face difficulty in winning public contracts abroad. The move is expected to escalate tensions with EU trading partners, particularly China.
My call for an open, inclusive World Bank
Jim Yong Kim (FT) Mar 28, 2012
The Bank has taken significant steps to become more transparent and accountable: it must continue on this path.
Saudi Arabia will act to lower soaring oil prices
Ali Naimi (FT) Mar 28, 2012
There is no rational reason for high crude prices.
Europe's Firewall Follies
WSJ Mar 28, 2012
Squabbling over the size of the ESM looks like deck-chair management.
Housing bubbles and interest rates
Christian Hott & Terhi Jokipii (VoxEU) Mar 29, 2012
Visit Ireland and Spain and you will find row upon row of empty houses – the remnants of a housing boom turned bust. Were low interest rates to blame? This column looks at the effect of a deviation in interest rates from the Taylor rule and finds that keeping interest rates ‘too low’ can explain up to 50% of the overvaluation of the property market in these countries and elsewhere.
“Kipper und Wipper”: Rogue Traders, Rogue Princes, Rogue Bishops and the German Financial Meltdown of 1621-23
Mike Dash (Smithsonian) Mar 29, 2012
The great German hyperinflation of 1923 is passing out of living memory now, but it has not been entirely forgotten. Indeed, you don’t have to go too far to hear it cited as a terrible example of what can happen when a government lets the economy spin out of control. At its peak in the autumn of that year, inflation in the Weimar Republic hit 325,000,000 percent, while the exchange rate plummeted from 9 marks to 4.2 billion marks to the dollar; when thieves robbed one worker who had used a wheelbarrow to cart off the billions of marks that were his week’s wages, they stole the wheelbarrow but left the useless wads of cash piled on the curb. A famous photo taken in this period shows a German housewife firing her boiler with an imposing pile of worthless notes.
Sky-High Protectionism?
Jean Pisani-Ferry (Project Syndicate) Mar 29, 2012
A new controversy has emerged between the EU and several of its main trade partners since the Union decided to include in its CO2 emission-control scheme all flights to and from its territory. The EU's trade partners are up in arms about the new policy, mainly because they fear a hidden protectionist agenda.
Ireland must vote for an end to its humiliation in Europe
Michael O’Sullivan (FT) Mar 29, 2012
The risk is that the European project as a whole and the eurozone in particular will destroy, rather than save us.
The age of natural gas
Fareed Zakaria (WP) Mar 29, 2012
The biggest shift in energy in generations.
Excessive risk-taking by banks: A new eReport
Richard Baldwin (VoxEU) Mar 30, 2012
Risk-taking by banks played a critical role in the global crisis and Eurozone crisis. This column introduces a new eReport that focuses on four aspects of excessive risk-taking by banks, highlighting the causes and the cures. The eReport applies the best available theory and data, bringing together the main insights and views that have emerged from the crisis.
Austerity According to St. Augustine
Andres Velasco (Project Syndicate) Mar 30, 2012
The key to the Europe's debt problems lies in St. Augustine’s plea: “Grant me chastity and continence, but not yet.” Up-front gradualism must be the name of the game – and adjustment must be wedded to a growth strategy.
Global: Policy Prop for BBB Expansion
Joachim Fels (MS GEF) Mar 30, 2012
A lot has changed in the four months since our last global economic forecast update, but our baseline scenario for the global economy has hardly changed.
The problems with the Eurozone
Andrea Boltho & Wendy Carlin (VoxEU) Mar 31, 2012
Divergent behaviour from Eurozone countries that have very different economic, social, and political structures is threatening the existence of the single currency. This column argues that the Eurozone is a fragile bureaucratic creation that has hardly ever raised much popular enthusiasm anywhere. If behaviour across the area remains as asymmetric as it has been over the last decade or so, the project could run into even stronger headwinds in the long run.
Limits to currency momentum trading
Lukas Menkhoff, Lucio Sarno, Maik Schmeling & Andreas Schrimpf (VoxEU) Mar 31, 2012
Momentum trading – buying past winners and selling past losers – is a popular trading strategy in many assets. In foreign exchange high returns to momentum trading have fuelled concerns that it is little more than destabilising speculation. This column argues that, for better or worse, such strategies are likely to continue.
An African Story
WSJ Mar 30, 2012
Not all transitions on the continent are military coups.
The French Don't Know Their Place (In the Global Economy)
Sophie Meunier (FA) Mar 30, 2012
In the run up to this month's elections, the thesis that globalization is more of a threat than an opportunity has made a comeback in French politics. This is surprising given that the country is highly dependent on the global economy and has benefitted from it more than most.
Oil prices: Keeping it to themselves
Mar 31, 2012
Gulf states not only pump oil; they burn it, too.
The World Bank: Hats off to Ngozi
Economist Mar 31, 2012
A golden opportunity for the rest of the world to show Barack Obama the meaning of meritocracy