News & Commentary:

July 2009 Archives


IMF austerity chills crisis countries
Bretton Woods Update No. 66 Jun/Jul 2009
Plus: World Bank health work flawed: still pushing privatisation of services; Will rights and gender be at heart of World Bank's climate response; International monetary reform: IMF not in the game; Economic crisis: rich countries block reform at UN summit; and more.

The Science of Economic Bubbles and Busts Recommended!
SciAm Jul 2009
The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money.

Can Asia Free Itself from the IMF?
Barry Eichengreen (Project Syndicate) Jul 2009
There has never been a question about the ultimate purpose of the Chiang Mai Initiative (CMI), the system of Asian financial supports created in 2000 in that Thai city. That purpose, of course, is to create an Asian Monetary Fund, i.e., a regional alternative to the International Monetary Fund, whose tender ministrations during the 1997-98 financial crisis have not been forgotten or forgiven.

Avoiding the Next Crisis Recommended!
Ravi Jagannathan & John Boyd (Economists' Voice) Jul 2009
The rise of huge quasi-banks that are too big to fail caused the financial crisis. We propose a cure.

The Return of the Siloviki
Anders Åslund (Project Syndicate) Jul 2009
Russian Prime Minister Vladimir Putin recently announced that Russia, Belarus, and Kazakhstan have abandoned their separate talks to join the World Trade Organization. Instead, they would seek to enter the world trade body as a single customs union. In effect, this means that Russia seems to be casting aside its accession to the WTO – a major reversal of Russian strategy.

The Crises Nexus
Graciana del Castillo (Project Syndicate) Jul 2009
Policymakers, academics, and journalists usually discuss the global financial crisis and the wars in Afghanistan and Iraq as if they somehow exist on parallel tracks. But today’s financial and foreign-affairs crises are in fact closely linked. Indeed, the way the world has sought to resolve the financial crisis offers interesting insights about how the foreign-affairs crisis should be approached.

The UN Takes Charge
Joseph E. Stiglitz (Project Syndicate) Jul 2009
While discussions about economic “green shoots” continue unabated in the United States, in many countries, and especially in the developing world, matters are getting worse. The downturn in the US began with a failure in the financial system, which quickly was translated into a slowdown in the real economy. But, in the developing world, it is just the opposite: a decline in exports, reduced remittances, lower foreign direct investment, and precipitous falls in capital flows have led to economic weakening. As a result, even countries with good regulatory systems are now confronting problems in their financial sectors.

Asia’s Hour?
Jamie F. Metzl (Project Syndicate) Jul 2009
As Asia emerges from the global economic crisis faster than the rest of the world, it is increasingly clear that the world’s center of gravity is shifting from the Atlantic to the Pacific. It is equally clear that Asian states are not yet ready to assume the more meaningful leadership in global affairs that will be necessary to ensure that this tectonic shift can make the world more stable and secure than it has been. Asian states have a tremendous opportunity to rise to this challenge.

Will Europe’s Economies Regain Their Footing?
Kenneth Rogoff (Project Syndicate) Jul 2009
What will Europe’s growth trajectory look like after the financial crisis? For some Europeans, still nervous that their economies and banking systems might collapse, this is a little like asking a passenger on the Titanic what they plan to do when they arrive in New York. But it is a crucial question to ask, especially when Europe has been facing so much outside pressure from the likes of the United States and the International Monetary Fund to focus on short-term Keynesian stimulus policies.

Keeping Africa's Turnaround on Track
Ellen Johnson-Sirleaf (Project Syndicate) Jul 2009
For more than a decade, much of Africa has been moving forward. Economic growth is rising, poverty is falling and democratic governance is spreading. But the global financial crisis threatens to undo this progress by reducing investment, exports and aid just as they should be expanding to build on these successes.

African Opportunities, Global Benefits
Kofi A. Annan (Project Syndicate) Jul 2009
The global economic recession has translated into a development crisis for Africa, which is revealing the continent’s vulnerability not only to economic contraction but also to climate change. Changing weather patterns are already affecting the lives of millions of Africans by reducing food security, facilitating the spread of diseases like malaria, and prompting mass migration. The livelihoods and lives of millions of people are at risk.

Ban the Common Bond
Otmar Issing (Project Syndicate) Jul 2009
With the deepening of the global financial crisis, spreads between the government bonds of different European Monetary Union (EMU) countries for a while widened dramatically. Relative to German bonds, the spreads in February of secondary-market yields of government bonds with maturities of close to ten years were 141 basis points for Italy, 257 for Greece, and 252 for Ireland, compared to just 32, 84, and 25 basis points, respectively, in 2000.

Mercantilism Reconsidered
Dani Rodrik (Project Syndicate) Jul 2009
A businessman walks into a government minister’s office and says he needs help. What should the minister do? Invite him in for a cup of coffee and ask how the government can be of help? Or throw him out, on the principle that government should not be handing out favors to business?

Finance Agonistes
Howard Davies (Project Syndicate) Jul 2009
For at least a quarter-century, the financial sector has grown far more rapidly than the economy as a whole, both in developed and in most developing countries. The ratio of total financial assets (stocks, bonds, and bank deposits) to GDP in the United Kingdom was about 100% in 1980, while by 2006 it had risen to around 440%. In China, financial assets went from being virtually non-existent to well over 300% of GDP during this period.

The Joblessness Threat
Nouriel Roubini (Project Syndicate) Jul 2009
Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the US, the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies, too.

A Big Chance for Small Farmers
Project Syndicate Jul 2009
The G-8’s $20 billion initiative on smallholder agriculture, launched at the group’s recent summit in L’Aquila, Italy, is a potentially historic breakthrough in the fight against hunger and extreme poverty. With serious management of the new funds, food production in Africa will soar. Indeed, the new initiative, combined with others in health, education, and infrastructure, could be the greatest step so far toward achieving the Millennium Development Goals, the internationally agreed effort to reduce extreme poverty, disease, and hunger by half by 2015 .

One World, One Europe
Dominique Moisi (Project Syndicate) Jul 2009
G-8, G-5, G-20, G-2, G-3, and now the G-14 (the G-8 plus the G-5 plus Egypt): never have the “mathematics” of world order seemed more complex and confusing.

All Stimulus Roads Lead to China
Barry Eichengreen (Project Syndicate) Jul 2009
Now that the “green shoots” of recovery have withered, the debate over fiscal stimulus is back with a vengeance. In the United States, those who argue for another stimulus package observe that it was always wishful thinking to believe that a $787 billion package could offset a $3 trillion fall in private spending. But unemployment has risen even faster and further than expected. Combine this with the continued fall in housing prices, and it is understandable that consumer spending remains depressed.

Of Banks and Bailouts
Michael Boskin (Project Syndicate) Jul 2009
Early signs of a manufacturing rebound, already strong in Asia, lend hope for some modest recovery from today’s deep global recession. But a strong and durable economic expansion is unlikely until progress is made in dealing with the toxic assets poisoning the balance sheets of financial institutions and bedeviling policymakers almost everywhere.

Financial sector pro-cyclicality: Lessons from the crisis, Part II
Francesco Columba, Wanda Cornacchia & Carmelo Salleo (VoxEU) Jul 1, 2009
As discussed in the first column in this series, greater leverage and incentives encouraging managers to take excessive risks drove a pro-cyclical new financial accelerator. This column discusses policy options to keep those forces in check.

Obama Criticises Border Tax Adjustments in House Climate Bill
Bridges Weekly Trade News Digest, Volume 13, Number 24 Jul 1, 2009
US President Barack Obama is pushing back against provisions in an important energy and climate bill passed by the House of Representatives that would levy extra import charges on goods from countries that fail to cap greenhouse gas emissions.

WTO, UNEP Issue Joint Report on Trade and Climate Change
Bridges Weekly Trade News Digest, Volume 13, Number 24 Jul 1, 2009
As the world's governments work towards a new international treaty on reducing greenhouse gas emissions, the trade implications of countries' climate change policies have emerged as a point of serious contention.

Ministers Call For Green Growth at OECD Summit
Bridges Weekly Trade News Digest, Volume 13, Number 24 Jul 1, 2009
"Green growth" is the solution to the global financial crisis, declared ministers from 40 countries at the Organisation for Economic Co-operation and Development's (OECD) annual ministerial meeting last week. The participants also pledged to resist protectionism, promote business transparency, and collaborate with international actors in order to get the global economy back on its feet.

People protectionism
Economist Jul 1, 2009
Rich countries respond to the economic downturn by trying to limit the flow of migrants.

Wall Street’s Toxic Message Recommended!
Joseph E. Stiglitz (Vanity Fair) Jul 2009
When the current crisis is over, the reputation of American-style capitalism will have taken a beating—not least because of the gap between what Washington practices and what it preaches. Disillusioned developing nations may well turn their backs on the free market, posing new threats to global stability and U.S. security.

Dollar's future in US hands
Henry C K Liu (AT) Jul 2, 2009
China's moves to have its exports paid for in yuan should not be interpreted as a push to make the yuan a reserve currency for international trade. The US dollar will continue to play this role - if the United States puts its own financial house in order.

How imposed institutional reforms can work
Daron Acemoglu, Davide Cantoni, Simon Johnson & James A. Robinson (VoxEU) Jul 2, 2009
Can external agents successfully impose significant institutional reforms? Many economists are sceptical. This column assesses major reforms the French imposed upon their conquered European neighbours in the years after the French Revolution. The reforms, imposed suddenly without concern for being “appropriate to local conditions”, appear to have spurred significantly faster economic growth.

New Evidence on the Foreclosure Crisis
Stan Liebowitz (WSJ) Jul 3, 2009
Zero money down, not subprime loans, led to the mortgage meltdown.

Explaining the trade collapse
Caroline Freund (VoxEU) Jul 3, 2009
The collapse in trade has been unprecedentedly severe. This column examines potential explanations. While the global fragmentation of production has increased the responsiveness of trade flows to drops in demand, trade also responds more sharply to GDP during global slowdowns than during tranquil times.

Reforming finance: the EU's proposals
Economist Jul 3, 2009
In the first of an occasional series on the reform of finance, we look at the European Union's proposals.

Global: Global QE, Global Inflation
Joachim Fels & Manoj Pradhan (MS GEF) Jul 3, 2009
We think that markets are too sanguine about longer-term inflation risks, for three reasons: most observers overestimate the size of the ‘output gap’ and its importance for inflation; the ‘secular’ forces will likely be less prevalent in the years ahead; and global QE is still in full swing and we think that central banks will be slow to exit.

Securitisation reinvented to cut costs
FT Jul 5, 2009
Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks' balance sheets, in the latest sign that financial market innovation is far from dead.

Liquidity injections alone are not enough
Wolfgang Münchau (FT) Jul 5, 2009
Stimulus measures by a central bank, however large, cannot restore health to the banking sector in a sufficiently short period of time if the underlying problem is lack of solvency.

The world must learn to live and farm sustainably
Taro Aso (FT) Jul 5, 2009
Investment not charity is the only viable solution for a sustainable solution to food security. Japan will work with key partners to agree on principles and compile good practices.

Trade policy and the crisis
Simon J Evenett & Bernard Hoekman (VoxEU) Jul 6, 2009
For most nations in the world, this is a trade crisis. Leaving China and India aside, income of developing nations is expected to drop 1.6% this year, even though these nations had nothing to do with subprime assets or the financial shenanigans that triggered the crisis. A new CEPR-World Bank e-book reports that protectionism is not yet a problem, but argues that the “fateful allure of protectionism” is a threat. To counter the threat, four concrete steps should be taken to reinforce the global trade and financial architecture.

Poor you
Economist Jul 6, 2009
The world's rich are suffering too.

IMF Moves to Boost Resources to Combat Global Crisis
IMF Survey Jul 6, 2009
The International Monetary Fund is putting in place bilateral borrowing arrangements to strengthen its lending war chest to combat the ongoing global economic crisis and plans its first issuance of interest-bearing promissory notes to supplement its lendable resources, the Fund's finance chief says.

Kinship and conflict
Enrico Spolaore & Romain Wacziarg (VoxEU) Jul 7, 2009
Can trade and democracy promote peace or is armed conflict deeply rooted in cultural, ethnic, and religious differences? This column introduces a novel way to estimate the direct effect of long-term relatedness on the risk of international conflict and finds that, while democracies and open economies are less conflict-prone, the risk of conflict is actually greater among more closely related populations.

Rich nations must act on free trade
William Rhodes (FT) Jul 7, 2009
The danger of retaliation against trade limits, leading to an ever more threatening spiral, is now the gravest risk.

The Impact of the Global Financial Crisis on the Development Agenda
John Williamson (PIIE) Jul 7, 2009
Six questions for the development agenda posed by the financial crisis. The crisis has underscored the previously recognized dangers of relying too much on export-led growth and on accumulating large external debt. Analysis of the crisis will likely prompt even more developing countries to accumulate large currency reserves as self-insurance in future years, and the international financial system must find a way to accommodate this demand without creating dangerous global imbalances. Finally, the crisis has again demonstrated the need for strong international financial institutions and suggested some ways of improving financial regulation so as to prevent or mitigate future crises.

The Crisis Is Morphing Again
Mohamed El-Erian (PIMCO) Jul 8, 2009
Dr. Laura D’Andrea Tyson’s comments at the Nomura Equity Forum in Singapore were attracting considerable market attention on Wednesday, and rightly so. They come at a time when policy indications – actual, expected and perceived – have already become important drivers of relative and absolute valuations in a number of markets.

Contractionary Forces Receding But Weak Recovery Ahead
IMF Survey Jul 8, 2009
The global economy is beginning to pull out of a recession unprecedented in the post-World War II era, but stabilization is uneven and the recovery is expected to be sluggish, according to the IMF's latest forecast.

Robert McNamara’s Other Legacy: Transforming the World Bank
Nancy Birdsall (PIIE) Jul 8, 2009
Predictably, and perhaps appropriately, the flood of remembrances of Robert McNamara is focusing on his role as the architect of the Vietnam War. Yet McNamara was also a transformative president of the World Bank, shaping both that institution and the larger development enterprise in ways that are still felt today.

The Great Synchronisation: The trade crisis of 2008-2009
Sónia Araújo, Joaquim Oliveira Martins (VoxEU) Jul 8, 2009
What’s driving the unprecedented collapse in global trade flows? This column shows that the magnitude of the global decline reflects greater synchronisation of trade flow declines across countries. Globalisation has brought the world in sync.

Aid for Trade Review Urges Trade Opening to Combat Global Recession, Draws Donor Support
Bridges Weekly Trade News Digest Volume 13, Number 25 Jul 8, 2009
Developing countries should open their borders to trade in order to stimulate economic growth, according to participants at the Second Global Review of Aid for Trade, which was held at WTO headquarters in Geneva this week. The two-day meeting, which brought together the heads of regional and global financial institutions, international development agencies, as well as the Membership of the WTO, considered strategies for improving trade capacities for developing countries amid the ongoing global economic slowdown.

WTO Finds 'Further Slippage' Toward Protectionism, Predicts Rise in Anti-Dumping Cases
Bridges Weekly Trade News Digest Volume 13, Number 25 Jul 8, 2009
The world economy has witnessed 'further slippage' toward protectionism, a new report from WTO Director-General Pascal Lamy concluded last week, but the use of 'high-intensity' trade-restricting measures remains "contained overall, albeit with difficulties." The report, the third in a series of periodic analyses of WTO Members' trade policies, predicted that anti-dumping cases could increase amid the ongoing economic turmoil, and warned that 'buy local' provisions in national stimulus plans could distort trade.

Would You Let This Girl Drown?
Nicholas D. Kristof (NYT) Jul 8, 2009
Why we're so willing to try to assist a stranger before us, yet so unwilling to send donations to save strangers from malaria half a world away.

China's Dollar Delusion
Swaminathan Aiyar and Arvind Subramanian (PIIE/Guardian) Jul 8, 2009
The People's Bank of China has reiterated its proposal to expand the role of Special Drawing Rights (SDRs) in the world financial system at the expense of the US dollar. While this proposal may serve some of China's short-term political purposes, it runs contrary to China's long-term self-interest. It is unrealistic to think that the SDR could ever truly replace the dollar in the world financial system; only the currency of a country with a GDP and tax capacity to match the United States can do so. China, through its strong growth and increasing influence, is moving rapidly in this direction, and when the renminbi inevitably attains hard-currency status, it will find nothing but disadvantages in a reduced role for hard currencies in favor of the SDR.

More Than One Path to Globalization?
Karl Moore and David C. Lewis (Globalist) Jul 8, 2009
How does geography affect economic decisions?

Short Cuts
Daniel Finn (LRB) Jul 9, 2009
There was an awfully genteel protest organised by the Tax Justice Network in Jersey earlier this year. The TJN had joined up with a group of Jersey campaigners who would like the island to wean itself off its dependence on the more creative aspects of modern finance. Christian Aid have estimated that Southern countries lose at least $160 billion every year in unpaid taxes as a result of dodgy accounting by corporations operating on their territory. According to the OECD, there is $5 trillion (or more) parked in offshore tax havens, beyond the reach of impertinent governments and their demanding citizen bodies.

After the $147-Barrel Bubble (Part I)
Matthew Hulbert (Globalist) Jul 9, 2009
What lessons can be learned from tumbling oil prices?

Appetite suppressant
Economist Jul 9, 2009
Capital rules now seem the only way to tame the banks. They will need to be tighter than in the past.

Yuan small step
Economist Jul 9, 2009
The dollar’s role as the world’s main reserve currency is being challenged

Robert McNamara
Economist Jul 9, 2009
Robert McNamara, systems analyst and defence secretary, died on July 6th, aged 93.

Central bankers return to gold and dollars
Terrence Keeley (FT) Jul 9, 2009
In a crisis, correlation and diversification arguments break down: only the most liquid instruments are useful.

A new guide for the perplexed
Samuel Brittan (FT) Jul 9, 2009
Attempts to make sense of the financial crisis often lead to even more confusion. Here is an attempt to outline the main issues.

Justin Lin on finance in low-income countries
Economist Jul 9, 2009
In a guest article Justin Lin, the chief economist at the World Bank, argues that low-income countries need to make small, local banks the mainstay of their financial systems.

Faith, economics and ecology
Economist Jul 9, 2009
As the world heats up and economic dislocation ravages the poor, religious leaders offer up their diagnoses and prescriptions

The Global Financial Crisis and Development Strategy for Emerging Market Economies Adobe Acrobat Required
William R. Cline (PIIE) Jul 9, 2009
The global financial crisis of 2008–09 is a watershed event that cries out for a reexamination not only of industrial countries' financial systems but also of growth strategies in developing countries. I will argue that the worst of the crisis is over, and that the developing countries are emerging with less damage than in the debt crisis of the 1980s, for Latin America, and the financial crisis of the late 1990s, for East Asia. Nonetheless, serious fiscal challenges will confront the industrial countries in the coming years, as a consequence of bailout costs and recessionary fiscal losses. Moreover, several key emerging market economies will need to reorient their growth strategies away from mercantilist trade surpluses toward production for domestic demand and greater expansion of balanced trade among themselves.

After the $147-Barrel Bubble (Part II)
Matthew Hulbert (Globalist) Jul 10, 2009
How do domestic politics in oil-producing countries affect oil prices?

Asia's growth hopes crumble
Chee Yoke Heong (AT) Jul 10, 2009
Early hopes that Asia would be largely immune from the global financial crisis have been shattered as a collapse in export markets has thrown millions of people out of work and wrecked prospects millions more had of escaping poverty.

The clearinghouse that saved foreign exchange trading from the crisis
Richard M. Levich (VoxEU) Jul 10, 2009
How can markets prevent counterparty failure from cascading into broad financial turmoil? This column looks at the seven-year-old clearing and settlement bank that handles 60% of foreign exchange transactions. The institution’s effective mitigation of counterparty risk throughout the financial crisis may be a model for a centralised derivatives trading exchange.

Growing Aid
WP Jul 11, 2009
Food prices have moderated considerably since a year ago, when a sudden spike in the cost of staples triggered riots from Haiti to Egypt. Yet food security in many poor countries remains precarious; the global economic crisis has pushed 100 million more people into extreme poverty,

Did a productivity slowdown cause the financial crisis?
David Brackfield & Joaquim Oliveira Martins (VoxEU) Jul 11, 2009
Most narratives of the crisis start with problems in the financial sector that then spilled over into the real economy. This column looks at the real side first and shows that labour productivity growth declined significantly in the years prior to the crisis, particularly in the US construction sector. Financial markets may have failed in that they didn’t detect the deterioration of structural productivity trends in the early 2000s.

Curbing instability: Policy and regulation
Axel Leijonhufvud (VoxEU) Jul 11, 2009
The current financial system poses three major sources of risk to macroeconomic stability – price level instability, the increased system-wide leverage, and the increased global connectivity of the financial system. This column proposes policy alternatives to deal with these challenges.

The Tipping Point: Fascinating but mythological?
William Easterly (VoxEU) Jul 13, 2009
The tipping point is a popular theory of social behaviour with many applications. This column says that Thomas Schelling’s original model of racially segregated neighbourhoods, while theoretically attractive, is strongly rejected by US data.

Don't Shoot the Speculators
WSJ Jul 13, 2009
They predict prices, not set them.

Time to tackle the real evil: too much debt
Nassim Taleb and Mark Spitznagel (FT) Jul 13, 2009
We need to rebuild the world to make it resistant to the economist's mystifications.

Max Baucus's Fish Sense
WSJ Jul 14, 2009
Surprise! Interfering with free trade can hurt the protectionist as much as the exporter.

Obama Gets It Right on Africa
WSJ Jul 14, 2009
We'd be glad if the government only skimmed 20%.

Timelines of policy responses to the global financial crisis
Rebecca Hellerstein, William Ryan & Jeffrey Shrader (VoxEU) Jul 14, 2009
This column introduces timelines, produced by the New York Fed, that organise and illustrate policymakers’ responses to the global financial crisis.

After the storm comes a hard climb
Martin Wolf (FT) Jul 14, 2009
The worst of the financial crisis may be behind us, but the financial system remains undercapitalised and weighed down with an as yet unknown burden of doubtful assets. The probability of mischief down the road is close to 100 per cent.

Will the Crisis Reverse Global Migration?
Jayati Ghosh (YaleGlobal) Jul 14, 2009
The crisis will affect migration, but less than feared and in more complex ways.

China's War for Ore
Holman W. Jenkins, Jr. (WSJ) Jul 15, 2009
Business is being reshaped around the world.

EU reforms to increase potential output
Declan Costello, Alexandr Hobza, Gert Jan Koopman, Kieran Mc Morrow , Gilles Mourre & István P. Székely (VoxEU) Jul 15, 2009
The crisis may reduce the EU’s potential output by 5% of GDP or more. This column warns that the crisis may permanently reduce the EU’s supply-side capacity unless policymakers respond with reforms. It outlines measures to address the crisis and address long-run concerns about demographic shifts, public finances, and climate change.

Why Poor Countries Won't Curb Emissions
Shikha Dalmia (Forbes) Jul 15, 2009
And new U.S. tariffs won't make them.

G8+G5 Call for Doha Conclusion in 2010
Bridges Weekly Trade News Digest Volume 13, Number 26 Jul 15, 2009
Heads of state from 13 major world economies vowed last week "to seek an ambitious and balanced conclusion to the Doha Development Round in 2010," just as trade officials at WTO headquarters in Geneva prepared to ramp up their negotiations before the organisation's annual summer break.

Climate Talks in US Senate Expose Divide among Democrats
Bridges Weekly Trade News Digest Volume 13, Number 26 Jul 15, 2009
The US Senate is grappling with political pressure from home and abroad as it moves forward on a climate bill that was passed by the House of Representatives in June. Carbon border tariffs have emerged as a flashpoint issue in the discussions, especially among Democrats.

Conference Signals Growing WIPO Engagement on Public Policy
Bridges Weekly Trade News Digest Volume 13, Number 26 Jul 15, 2009
A high-profile conference hosted by the World Intellectual Property Organization held in Geneva this week reflected WIPO’s growing willingness to engage on public policy issues such as climate change, public health, biodiversity and food security.

The World Finance Crisis & the American Mission
Robert Skidelsky (NYRB) Jul 16, 2009
The true roots of the current economic crisis lie in the privileging of the US dollar as the chief reserve currency during the Cold War—an arrangement that allowed the US to pursue an imperial mission that was greatly to the satisfaction of its partners and allies, but also led to huge macroeconomic imbalances. Until the US renounces this mission, it may be impossible to end them.

Keynes is not enough
Walden Bello (AT) Jul 16, 2009
One of the most significant consequences of the collapse of neo-liberal economics, with its worship of the "self-regulating market", has been the revival of the great English economist John Maynard Keynes.

India prays for rain as it reaches for the skies
James Lamont (FT) Jul 15, 2009
For all the breathless talk of superpower status, India's leaders rightly play down the global heft of a country where many still live on less than $2 a day.

Drawing conclusions about the crisis and its management
Guido Tabellini (VoxEU) Jul 16, 2009
It’s time to start drawing conclusions about the global crisis. This column, the first of a two-part series, assesses the causes and nature of the problems. Although the crisis originated in financial market failings, policymakers are much to blame. Regulatory failure amplified private sector errors, and poorly planned policy responses exacerbated the troubles.

Global: From Inflation Targeting to Price Level Targeting?
Joachim Fels & Spyros Andreopoulos (MS GEF) Jul 16, 2009
Inflation targeting should no longer be the holy grail of modern central banking. It doesn’t correct for past policy errors and it seduced central banks into (largely) disregarding asset prices. We think that replacing inflation targeting with price level (path) targeting would have many advantages.

What went wrong with economics
Economist Jul 16, 2009
And how the discipline should change to avoid the mistakes of the past.

Keeping up with the Goldmans
Economist Jul 16, 2009
Goldman Sachs’s record profits are not a signal to relax.

Banks and bonuses: Going overboard
Economist Jul 16, 2009
Are investment banks run for employees or shareholders?

Politics and the Fed: Unwelcome attention
Economist Jul 16, 2009
Congress threatens the central bank's independence.

Whither the efficient-markets hypothesis?
Economist Jul 16, 2009
The efficient-markets hypothesis has underpinned many of the financial industry's models for years. After the crash, what remains of it?

The state of macroeconomics: The other-worldly philosophers
Economist Jul 16, 2009
Although the crisis has exposed bitter divisions among economists, it could still be good for economics.

Are the golden years of central banking over?
Stefan Gerlach, Alberto Giovannini & Cédric Tille (VoxEU) Jul 17, 2009
What lessons should central bankers take away from the financial crisis? This column summarises concerns about macro-prudential regulation, inflation expectations, and the interaction between monetary policy and financial regulation

Drawing conclusions about the crisis and the future
Guido Tabellini (VoxEU) Jul 17, 2009
What should we conclude about the implications of the global crisis for the future of the world economy? This column, the second of a two-part series, outlines the exit strategies required for fiscal and monetary policy. It says that the crisis ought to be seen as a temporary period of turmoil, rather than a paradigm-shifting event.

Leadership Imperatives for a Post-Crisis World
Stephen S. Roach (Globalist) Jul 17, 2009
Should national regulators rethink central banking, itself?

Historic moment for Asian finance
Scott B MacDonald (AT) Jul 18, 2009
The financial panic of 2007-08 and the ensuing great recession have changed the balance of wealth in the global financial arena. The big question is whether Asian institutions can take advantage of the change and step up into a leadership role - or hold back and further delay parity between East and West.

Financial Invention vs. Consumer Protection
Robert J. Shiller (NYT) Jul 18, 2009
James Watt, who invented the first practical steam engine in 1765, worried that high-pressure steam could lead to major explosions. So he avoided high pressure and ended up with an inefficient engine.

Notable & Quotable
Martin Wolf (WSJ) Jul 18, 2009
From Financial Times columnist Martin Wolf's 2004 book, "Why Globalization Works."

Rescue, recovery, reform
Stephen Cecchetti (VoxEU) Jul 18, 2009
The current financial crisis has been the most challenging for policymakers around the world. This column introduces the 79th Annual Report of the Bank for International Settlements, discusses the risks posed by the massive policy initiatives undertaken in response to the crisis, and offers suggestions for systemic reforms.

Designing a politically feasible multilateral climate change agreement
Jeffrey Frankel (VoxEU) Jul 18, 2009
Is a credible multilateral climate change agreement feasible? This column says that such global cooperation is necessary and attempts to address the political hurdles. The proposed emissions reduction plan develops formulas to cap atmospheric concentrations of carbon dioxide at 500 ppm while obeying political constraints regarding cost, fairness, and timing.

Insiders cannot provide answers on finance
Philip Augar (FT) Jul 19, 2009
That those involved in the inception of the financial services industry's problem should now lead the public debate on its solution is astonishing.

Why Toxic Assets Are So Hard to Clean Up
Kenneth Scott and John Taylor (WSJ) Jul 20, 2009
Securitization was maddeningly complex. Mandated transparency is the only solution.

Europe Thumps U.S., Again
WSJ Jul 20, 2009
First lower taxes, now freer trade.

Systemic risk?
Economist Jul 20, 2009
The size of Switzerland's big bank pose a risk to the economy.

Idea: Globalisation
Economist Jul 20, 2009
Globalisation is the more or less simultaneous marketing and sale of identical goods and services around the world.

IMF Plans to Inject $250 Billion Into Global Economy
IMF Survey Jul 20, 2009
The International Monetary Fund plans to inject $250 billion into the global economy to bolster countries' reserves as part of measures to combat the world economic crisis. The IMF's Executive Board backs an allocation of Special Drawing Rights to provide liquidity to the global economic system.

Latvia Defies the American Conventional Wisdom
Anders Aslund (PIIE) Jul 20, 2009
For nearly a year, prominent American economists, such as Paul Krugman, Nouriel Roubini, and Kenneth Rogoff, have maintained that Latvia is just another Argentina (as Krugman has put it) and that it was only a matter of when, not whether, Latvia would be forced to devalue its currency. Well, despite these warnings, devaluation seems less rather than more likely. This conventional wisdom appears increasingly doubtful.

America is for now still blowing bubbles
Richard Bernstein (FT) Jul 20, 2009
By preserving capacity to avoid taking pain today, the US is following the approach that led Japan into a lost decade.

The euro-dollar exchange rate during the crisis
Anton Brender, Emile Gagna & Florence Pisani (VoxEU) Jul 21, 2009
The crisis has broken the close correlation between differences in expected interest rates and the euro-dollar exchange rate. This column attributes that to the sharp increase in risk aversion triggered by the collapse of Lehman Brothers. It argues that fluctuations in risk aversion explain the path followed by the euro-dollar exchange rate since the beginning of the financial crisis.

Systemic Risk: Are Some Institutions Too Big to Fail and If So, What Should We Do about It? Recommended!
Simon Johnson (PIIE) Jul 21, 2009
While the United States has relatively effective methods of handling the insolvency of small or medium-sized financial institutions, US authorities have few options for dealing with insolvent large institutions, and the collapse of large firms can have serious negative, systematic consequences for the US economy. Recent measures taken by the Obama administration have helped to stabilize financial markets generally, but they have not resolved the systematic risk posed by large institutions. In testimony before the US House Committee on Financial Services, Simon Johnson discusses several policy options for reducing systematic risk, such as through tighter regulation, extending regulators' resolution authority over large institutions, and changing the size structure of the financial system to prevent the emergence of institutions that are "too big to fail." These measures should all be pursued together, both because of the difficulty of forecasting which will prove most effective in practice and because of the dangerously high level of systematic risk besetting the US economy.

Asia's rise far from inevitable
Brad Glosserman (AT) Jul 22, 2009
Conventional wisdom has it that the global economic crisis is accelerating the transfer of power and influence from the West to Asia, yet in reality there are few signs of the vaunted "decoupling". The real gainers will be those countries that adopt a new production mindset.

China to deploy foreign reserves
FT Jul 21, 2009
Beijing will use its huge foreign exchange reserves to support and accelerate overseas expansion and acquisitions by Chinese companies, says Wen Jiabao, the country’s premier.

Economics is in crisis: it is time for a profound revamp
Paul De Grauwe (FT) Jul 21, 2009
We need a new science of macroeconomics. A science that starts from the assumption that individuals have severe cognitive limitations; that they do not understand much about the complexities of the world in which they live.

Research conflicts point way for ratings agencies
Sallie Krawcheck (FT) Jul 21, 2009
Paying analysts on the accuracy of their stock recommendations and research quality improved performance, and you get what you pay for from the ratings agencies too.

The Perils of De-Globalisation
Joe Quinlan (FT) Jul 21, 2009
Government protectionism could foil economic rebound it helps to promote.

Asia keeps the west's betrayed faith Recommended!
Kishore Mahbubani and William Weld (FT) Jul 21, 2009
Asian economies are adhering to western ideas on economic development as western societies effectively backtrack from them.

Crisis resistant or crisis prone?
Economist Jul 21, 2009
Uzbekistan's economy is growing but so are the risks.

Winners and losers of the next CAP reform
Valentin Zahrnt (VoxEU) Jul 22, 2009
The 2013 Common Agricultural Policy reform will involve EU members competing with each other for subsidy funds. This column calculates potential CAP payments under three different reform scenarios to identify winners and losers. Several traditional defenders of the CAP are indeed likely to lose from reform, but other countries that defend the status quo would – surprisingly – gain from reform.

Goldman Sachs Alum Decries Second Banking Crisis
John F. Wasik (Bloomberg) Jul 22, 2009
Banks continue to feast at the bailout banquet while consumers are getting thrown the crumbs.

President Obama's Agenda Needs Greater Focus on Global Development
Homi Kharas, Johannes F. Linn & Noam Unger (Brookings) Jul 22, 2009
Although the Obama administration faces serious challenges at home and abroad, Homi Kharas, Johannes Linn and Noam Unger call for greater attention to the world's poor. The experts provide recommendations on how the Obama administration can begin to improve America's critical role in global development assistance and engagement with developing countries.

US Trade Rep Vows Strict Enforcement of Trade Rules
Bridges Weekly Trade News Digest, Volume 13, Number 27 Jul 22, 2009
Washington is about to get tougher on countries that violate trade agreements, Ron Kirk, the Obama administration's top trade official, said in a major policy speech last week. Speaking to a crowd gathered in a steel plant in the industrial city of Pittsburgh on 16 July, Kirk announced several new enforcement initiatives and pledged to "to identify and solve problems at the source."

NAMA, Ag Talks Pick Up at the WTO, with a Focus on Scheduling
Bridges Weekly Trade News Digest, Volume 13, Number 27 Jul 22, 2009
Although an accord in the Doha Round negotiations remains far on the horizon, trade negotiators spent much of last week looking at how to calculate and present future tariff levels for thousands of agricultural and industrial products arising from a multilateral trade agreement.

Procurement: Taiwan Accedes to GPA, Controversy over 'Buy American' Continues
Bridges Weekly Trade News Digest, Volume 13, Number 27 Jul 22, 2009
The WTO's Committee on Government Procurement welcomed Taiwan as a new member last week. In other business, delegates continued to debate the 'Buy American' provisions included in the stimulus bill signed by US President Barack Obama earlier this year.

BRICs Drive Global Economic Recovery
IMF Survey Jul 22, 2009
We may be witnessing the emergence of a new world order, with countries such as Brazil, Russia, India, and China supplanting the industrial countries as the lead economic powers, write Mario Lettieri and Paolo Raimondi.

Bankers warn over financial protectionism
FT Jul 23, 2009
The Institute of International Finance has called for resolute steps to counter the danger of ‘a loss of global integration and co-operation, as happened between 1914 and 1945.

Only local business can end global poverty
Glenn Hubbard (FT) Jul 23, 2009
The past 40 years of development aid have been a spectacular failure. But that failure was not inevitable.

A Retreat From Global Banking
NYT Jul 23, 2009
Countries are retreating to national regulations to protect themselves from international financial risk.

Reforming finance: Rating agencies: Downgraded
Economist Jul 23, 2009
Rating firms could lose their special status.

Iceland's banking crisis: Pelt tightening
Economist Jul 23, 2009
A country staggers back to its feet

Protectionism in the 1930s: Great barrier grief
Economist Jul 23, 2009
Countries that clung fast to the gold standard in the early 1930s resorted most to protectionism ... more

The bumpy revival of world trade: Unpredictable tides
Economist Jul 23, 2009
World trade is no longer collapsing and fears of rampant protectionism have not been realised. Even so, the way to revival looks far from smooth

Emerging Markets: EMerging Challenges for Central Banks
Manoj Pradhan & the EM economics team (MS GEF) Jul 24, 2009
The return to growth raises different challenges for EM central banks. The EM team discusses whether recent ‘green shoots’ have changed the outlook for monetary policy, and whether inflation is likely to act as a constraint on the ability of central banks to provide monetary stimulus to their economies.

Sri Lanka secures IMF lifeline
AT Jul 24, 2009
After months of being at the receiving end of international criticism for human-rights violations, Sri Lanka has clinched agreement with the International Monetary Fund for a standby credit facility of US$2.5 billion.

The Fed Can Lead on Financial Supervision
R. Glenn Hubbard, Hal Scott & John Thornton (WSJ) Jul 24, 2009
We need fewer regulators, not more. Congresss populist attacks are misguided.

WTO highlights protectionist concern
AT Jul 25, 2009
The World Trade Organization, in an annual report that untypically does not make trade projections for the following year, focuses on protectionist concerns - a topic chosen, it says, when the trade body had little idea of what it would be confronting now.

The systemic regulation of credit ratings agencies and rated markets
Amadou Sy (VoxEU) Jul 25, 2009
Current efforts to regulate credit rating agencies focus on micro-prudential issues and aim at reducing conflicts of interest and increasing transparency and competition. Yet, the current crisis has shown that credit ratings can have systemic effects. This column says that policymakers should assess how credit ratings downgrades can endanger financial stability and take appropriate macro-prudential measures.

WTO-consistent protection in times of crisis
Roberta Piermartini (VoxEU) Jul 26, 2009
In times of economic difficulty, governments are often under pressure to adopt measures to restrict trade. This column says that contingency measures allowing trade policy flexibility can play an important role in maintaining a rule-based system of multilateral trade in such circumstances. But there is sufficient latitude for WTO-compliant protectionism that vigilant monitoring remains necessary.

Evaluating restructuring plans for systemically important banks
Augustin Landier & Kenichi Ueda (VoxEU) Jul 25, 2009
Bank restructuring is a source of disagreement on both sides of the Atlantic, and no clearly preferred policy approach has emerged. This column compares the costs to taxpayers of using recapitalisation, asset guarantees, and asset sales. In many circumstances, asset sales are an inferior tool.

There is no easy way out for central banks
Wolfgang Münchau (FT) Jul 26, 2009
They would not readily adopt policies they knew would lead to excessive inflation later on. The point is that they may not have a choice.

The myth of decoupling
Sébastien Wälti (VoxEU) Jul 27, 2009
Have emerging market economies decoupled from advanced economies’ business cycles? This column, looking at emerging markets’ trend growth rates, argues that decoupling was always a myth and that globalisation brings national business cycles closer together.

It’s Time to Recognize Reserve Currency Realities
Edwin M. Truman (PIIE) Jul 27, 2009
Over the past six months, officials and commentators have raised questions about the reserve currency role of the US dollar and the structure of the international monetary system. None of their questions is new; they all date back at least to the break-up of the Bretton Woods system of fixed exchange.

IMF Backs Rebalancing of China's Economy
IMF Survey Jul 27, 2009
The IMF praises Beijing's swift and concerted response to the global economic downturn, but says in its latest assessment of the world's third-largest economy that China needs to adjust its economic model for continued strong growth.

Malcolm Gladwell (New Yorker) Jul 27, 2009
The roots of the financial crisis were not structural or cognitive so much as they were psychological

Has China de-industrialised other developing countries?
Jörg Mayer & Adrian Wood (VoxEU) Jul 28, 2009
Did China’s engagement with the global economy de-industrialise other developing countries? This column uses a factor-endowment approach to assess the magnitude of its impact. China’s opening to trade diminished labour-intensive manufacturing in other developing economies, primarily in East Asia, but its impact was not massive, and other developments often swamped its influence.

Wars, plagues, and Europe’s rise to riches
Nico Voigtländer & Hans-Joachim Voth (VoxEU) Jul 29, 2009
In modern economic thinking, peace and prosperity go hand in hand. However, there are good reasons why in pre-modern societies, the opposite relationship held true – war, disease, and urban death spelled high incomes. This column explains why Europe’s rise to riches in the early modern period owed much to exceptionally bellicose international politics, urban overcrowding, and frequent epidemics.

Asia rises, one economic giant at a time
Shankar Acharya (FT) Jul 28, 2009
There is really only one new economic giant in town, and that is China. The other potential giant, India, is still a relative stripling. For all its apparent sense, the pervasive bracketing of the two often masks critical differences and impedes understanding of the challenges posed by their expansion.

Watchdogs of the world, unite!
Mario Monti (FT) Jul 28, 2009
The world's key competition authorities should issue a strong joint statement explaining why vigorous enforcement is crucial during the economic crisis.

The Politics of 'Speculation'
WSJ Jul 29, 2009
Some pre-emptive scapegoating over rising oil prices.

IMF Backs New Package To Support World's Poorest During Crisis
IMF Survey Jul 29, 2009
The IMF, stepping up lending to low-income countries to combat the impact of the global recession, announces a new framework for loans to the world's poorest nations, including increased resources, a doubling of borrowing limits, zero interest rates until the end of 2011, and more flexible terms.

Red all over
Economist Jul 29, 2009
Mapping the global recession.

Chatter about a new global currency is overblown
Robert Pozen (FT) Jul 29, 2009
Sovereign drawing rights lack one of the key defining characteristics of money – serving as a medium of exchange.

WTO Delegates Decry 'Gap' between Talk and Action on Eve of Summer Break
Bridges Weekly Trade News Digest Volume 13, Number 28 Jul 29, 2009
WTO Director-General Pascal Lamy set out an ambitious autumn schedule for technical work in the Doha Round trade talks in two addresses to delegates just before the organisation breaks for its annual August holiday. But many officials were quick to point out the 'mismatch' between strong ambitions for the talks at the political level and a lack of progress in the negotiations in Geneva.

ECOSOC Meeting in Geneva Tackles Global Public Health
Bridges Weekly Trade News Digest Volume 13, Number 28 Jul 29, 2009
The United Nations Economic and Social Council (ECOSOC), one of the principal organs of the United Nations, recently held its Annual Ministerial Review (AMR) from 6-9 July. The gathering focused on meeting global public health objectives, with the ultimate aim of achieving the Millennium Development Goals (MDGs). During its General Segment, which runs from 23 - 30 July, ECOSOC addressed further health related matters, particularly HIV/AIDS.

Can Bubbles Also Be Made in China?
Tim Swanson (Mises Daily) Jul 30, 2009
Despite all of the shimmering skyscrapers and industrial output, unless market forces are allowed to truly dictate economic exchanges, today's Chinese megacities and their residents will merely be facades and actors within a 21st-century Potemkin village, and growth will remain stagnant for years to come. This is due in large part to continual state intervention through centrally planned investment.

Can China consume enough? Recommended!
Economist Jul 30, 2009
Rebalancing the world economy.

Transatlantic trade negotiations in services
Patrick A. Messerlin (VoxEU) Jul 31, 2009
Opening protected services markets would deliver large benefits to consumers – business, communication, and distribution services in the EC, US, and eight other economies represent almost one-third of world GDP. This column suggests the US and EC should launch transatlantic negotiations in services that would trigger plurilateral negotiations.

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