China’s rising stature in global finance
Richard Dobbs, Nick Leung, and Susan Lund (McKinsey Quarterly) Jul 1, 2013
The country's financial markets are deepening, foreign investment keeps pouring in, and capital is flowing outward. What would it take for China to assume a new role as world financier?
Boom-bust is an emerging-market norm
Ruchir Sharma (FT) Jul 1, 2013
The unrest in Turkey and Brazil and slowdowns across regions that had previously experienced fast growth mark the end of an unusually placid decade.
Let Croatia lead the Balkans into the EU
Joe Biden (FT) Jul 1, 2013
Every country that binds itself to the union’s rules and institutions brings us closer to the goal of a Europe whole, free and at peace.
Aussie will struggle to regain its highs
Mansoor Mohi-uddin (FT) Jul 1, 2013
The behaviour of the currency reflects sentiment towards the global commodity cycle and, given Australia’s trading links, to China too.
Punishing Bangladesh
WSJ Jul 1, 2013
Obama comes down hard on factory workers in Dhaka.
Africa, empowered
Michael Gerson (WP) Jul 1, 2013
The White House wants to empower Africa — literally.
A global view of cross-border migration
Julian di Giovanni, Andrei Levchenko & Francesc Ortega (VoxEU) Jul 1, 2013
There is growing interest in understanding and quantifying the costs and benefits of migration. This column presents new research suggesting that migration benefits practically all origin and destination countries. OECD countries benefit because of greater domestic product variety and, in turn, most countries that are the source of migration countries benefit because the remittances sent by migrants more than offset the costs associated with smaller market size.
The Global Trust Deficit
Peter Blair Henry (Project Syndicate) Jul 1, 2013
Preoccupied with fiscal deficits, developed-country policymakers are neglecting another, equally critical, shortfall: the trust deficit between advanced and emerging economies when it comes to global governance. Only by giving emerging markets more influence in international institutions can the world economy reach its potential.
Ireland and the Austerity Debate
Mohamed A. El-Erian (Project Syndicate) Jul 1, 2013
People on both sides of the austerity debate are trying to position Ireland as the poster child for their case. Though neither side can claim victory, this tug-of-war illustrates the complex range of arguments in play – and highlights why conclusive economic policy making is proving so elusive.
Can Silicon Valley Save the World?
Charles Kenny and Justin Sandefur (FP) Jul 1, 2013
Defeating global poverty is the latest start-up trend. But is there really an app for that?
The Cookbook Theory of Economics
Tyler Cowen (FP) Jul 1, 2013
Why Chinese and Mexican dominate the market.
Mutual Assured Production
Richard Katz (FA) Jul 1, 2013
Tensions between China and Japan are rising, but an economic version of mutual deterrence is preserving the uneasy status quo. Put simply, China needs to buy Japanese products as much as Japan needs to sell them.
Giant cities not the future
Martin Hutchinson (AT) Jul 2, 2013
Once interest rates return to normal levels, much urban real estate will become completely unaffordable as capital gains will turn into losses. In wealthy countries at least, big cities will suffer a loss of population and status similar to London in 1939-91 - and the world will be a happier place.
The Risk of European Centralization
Otmar Issing (Project Syndicate) Jul 2, 2013
Given Europe’s history of war and ideological division, and today’s challenges of globalization, a peaceful, prosperous, and united Europe that wields influence abroad is surely a desirable goal. But there remain major disagreements about how to achieve it.
Beware of Greeks Bearing Debts?
Edwin M. Truma (PIIE)n Jul 2, 2013
Since the debt crises of the 1980s, private sector involvement (PSI) has been a source of debate and controversy. The term PSI refers to the imposition of financial contributions on private sector investors to help finance or reduce the present or future financial obligations of governments of countries in financial crisis.
Dealings in the danger zone
Lina Saigol and Andrew England (FT) Jul 2, 2013
South Africa’s MTN has a presence in some of the world’s most troubled states but its ventures in Iran and Syria have dented its reputation and rattled shareholders.
Risks of a hard landing for China
Margin Wolf (FT) Jul 2, 2013
To sustain demand, Beijing might need to take actions that its new leaders neither want nor expect.
US spying has imperilled EU trade deal
François Heisbourg (FT) Jul 2, 2013
One must wonder who in Washington decided it was worth risking the EU relationship for the dubious joys of eavesdropping on the eurocracy.
China curb on credit growth means trouble
John Plender (FT) Jul 2, 2013
Moving from strong investment-led growth to slower consumption-led growth will be a hard trick for China’s new leaders to pull off.
Pity the banks after Beijing’s blunt move
Simon Rabinovitch (FT) Jul 2, 2013
The cash crunch, triggered by the central bank to warn that markets are unpredictable, has shown that financial policy in China is not reliable.
Don't Think of a Tiger
Joseph Sternberg (WSJ) Jul 2, 2013
How to make an Asian economic miracle in three easy steps.
Real-estate valuation, current-account and credit growth patterns, before and after the 2008-09 Crisis
Joshua Aizenman & Yothin Jinjarak (VoxEU) Jul 2, 2013
The Global Crisis sparked a vibrant debate about what factors were to blame. This column addresses one of the core questions of this debate: are global imbalances or excessive credit growth key suspects? Presenting new research, it’s clear that the painful adjustment in the real-estate markets of the US, Spain and other affected countries in the aftermath of the Crisis, and the key importance of momentum effects, call for further research on policies that can mitigate possible bubble-dynamics.
Retail: A difficult brief
Andrea Felsted (FT) Jul 3, 2013
Like chains across the developed world, Britain’s Marks and Spencer is being squeezed between cheaper rivals and the internet.
Regulators are finally closing in on banks
John Gapper (FT) Jul 3, 2013
One of the biggest weaknesses exposed by the 2008 crisiswas that banks held too little capital for the risks they were unwittingly taking Read
Bail-in regime risks old-style bank runs
Gene Frieda (FT) Jul 3, 2013
Efforts are needed to restructure corporate debt, clean up banks’ balance sheets and fortify the European Stability Mechanism for bail-in to work.
Clean bills or bust in Myanmar
David Logan (AT) Jul 3, 2013
Instability in Asian currencies has led to some populations viewing the US dollar less as an alternative form of exchange and more as a possesion of intrinsic value such as gold or precious metals. In Myanmar, more than anywhere, this means that notes deemed too new, old or crumpled are summarily rejected.
India's problem blacker than gold
Kunal Kumar Kundu (AT) Jul 3, 2013
The Indian government is pointing to increased gold imports as the main reason for the full-year current account deficit widening to a historic high of 4.8%. That conveniently masks the real reason - higher demand for imported oil and coal that is due to the government's own mismanagement.
America vs. China in Africa
Gordon G. Chang (World Affairs) May 3, 2013
The unmistakable subtext of President Obama’s trip to Africa was China’s growing influence on the continent. Luckily for Washington, Beijing’s strength there might be peaking.
Financial Crisis and War
Harold James (Project Syndicate) Jul 3, 2013
In 1907, a major financial crisis emanating from the US affected the rest of the world, demonstrating the fragility of the entire international financial system – and ultimately contributing to the outbreak of World War I. The response to the current financial crisis is replaying a similar dynamic.
Privatizing Development Aid
Meghnad Desai (Project Syndicate) Jul 3, 2013
While eliminating extreme poverty is undoubtedly an urgent moral imperative, official development aid – which often suffers from poor allocation and inefficient delivery – may not be the best way to achieve it. Indeed, there is a strong case for involving the private sector in development assistance.
The impact on the financial sector of long-term low nominal-interest rates
Viral Acharya, Richard Portes & Richard Reid (VoxEU) Jul 3, 2013
Many central banks have recently employed unprecedented expansionary monetary policy, keeping interest rates at near-zero levels for an extended period of time. Quantitative easing interventions have been employed to affect asset prices directly, most notably in government-bond and mortgage markets, in order to keep sovereign and mortgage borrowing costs low. CEPR recently organised a conference to discuss existing theory and empirical evidence on the implications of an extended phase of unconventional monetary policy. This short column outlines the key issues and also includes a Vox Views video summary of the event.
Qatar: what next for the deal hunter?
Camilla Hall, Simeon Kerr, Roula Khalaf, Lionel Barber, Patrick Jenkins and Ed Hammond (FT) Jul 4, 2013
Gas revenues have fed a voracious appetite for acquisitions, but as the global economy recovers, the nation must decide whether to accept that the days of sky-high returns are over.
Pay nations to keep carbon in the ground
Bard Harstad (FT) Jul 4, 2013
If demand equals supply, it makes sense to regulate the quantity extracted from the earth rather than subsequent use.
Portugal in Crisis
WSJ Jul 4, 2013
Austerity hits a dead end in Lisbon.
A rating agency for Europe – A good idea?
Bernhard Bartels & Beatrice Weder di Mauro (VoxEU) Jul 4, 2013
US-based credit-rating agencies are regularly subject to condemnation for causing or amplifying financial crises – the Eurozone Crisis in particular. Should Europe try to set up a European agency to counter this? This column discusses evidence that shows that the largest German rating agency was more aggressive than the US Big Three both in terms of a lower level and a higher propensity to quickly downgrade Eurozone problem countries.
Four decades of terms-of-trade booms
Gustavo Adler & Nicolas Magud (VoxEU) Jul 4, 2013
Commodity exporters have been both blessed and cursed by the boom-and-bust nature of commodity-price and demand swings. This column presents a new metric that computes the additional income arising from changes in the real purchasing value of output as a result of changes in relative prices. Focusing on Latin America, it’s clear that although its recent terms-of-trade boom is of similar magnitude to that seen in the 1970s, the associated income windfall has been much larger. The current weakening of external current-account balances in Latin America – even if driven by higher domestic investment – warrants close monitoring.
The Free-Trade Charade
Joseph E. Stiglitz (Project Syndicate) Jul 4, 2013
The negotiations to create a free-trade area between the US and Europe, and another between the US and much of the Pacific (except for China), are not about establishing a true free-trade system. Instead, the goal is a managed trade regime – managed, that is, to serve the special interests that have long dominated trade policy in the West.
China’s Risky Finances
Zhang Monan (Project Syndicate) Jul 4, 2013
In the coming years, China’s government will have to confront significant challenges to achieve stable, inclusive, and sustainable economic growth. But, with mounting fiscal and financial risks threatening to derail its efforts, policymakers must design and implement prudent, forward-looking policies.
The Rupee’s Wake-Up Call
Ashoka Mody (Project Syndicate) Jul 4, 2013
The Indian rupee is depreciating sharply, provoking anxiety about inflation, financial instability, and diminished debt-repayment capacity. But the rupee's decline is a symptom of a deeper problem: India's economy is in trouble, and the country's dysfunctional political system is undermining its prospects for recovery.
European Parliament Approves Carbon Permit "Backloading" Plan
Bridges Weekly Trade News Digest, Volume 17, Number 24 Jul 4, 2013
The European Parliament has signed off on a proposal that would allow for delaying the auctions of millions of carbon permits, in an effort aimed at propping up prices in the EU’s struggling carbon market. The measure passed in a narrow vote of 344 to 311 on Wednesday afternoon, reversing the results of an earlier decision blocking the plan.
Obama Unveils Trade, Energy Initiatives on Africa Trip
Bridges Weekly Trade News Digest, Volume 17, Number 24 Jul 4, 2013
Trade and energy topped the agenda during US President Barack Obama's visit to Africa this week, with the announcement of various initiatives aimed at doubling electricity access in the sub-Saharan region, facilitating intra- and inter-regional trade, and combating illegal wildlife trafficking
EU-US Talks to Begin As Scheduled, Despite Spying Claims
Bridges Weekly Trade News Digest, Volume 17, Number 24 Jul 4, 2013
The first round of EU-US trade talks will begin in Washington next week as scheduled, the European Commission confirmed on Tuesday, despite growing unease among EU member states over claims that US intelligence agencies have engaged in spying on their trans-Atlantic partners.
The Biggest Scandal of All
John Lanchester (LRB) Jul 4, 2013
As anyone who’s been there recently can testify, the blame in Spain falls mainly on the banks – as it does in Ireland, in Greece, in the US, and pretty much everywhere else too. But the cacophony of accusations is now so loud that it’s become hard to hear specific complaints of wrongdoing. That’s lucky for the banks, because one particular scandal really deserves to stand out: that of mis-sold payment protection insurance.
Gold prices depend on market microstructure
Stefano Ugolini (VoxEU) Jul 5, 2013
The current wave of monetary expansion by central banks has reignited calls for a return to the gold standard. But would this monetary system work today? This column argues that it probably would not. The successful pre-1914 gold standard was based a very peculiar gold-market microstructure, which provided central bankers with non-negligible discretionary power. Such microstructural foundations would be neither replicable nor desirable today.
China’s Great Rebalancing Act
James Parker (Diplomat) Jul 5, 2013
The government is at last showing signs of resolve, but the road ahead will be testing.
On the rocks
Economist Jul 6, 2013
The Portuguese government seems close to collapse.
Fund management: The rise of smart beta
Economist Jul 6, 2013
Terrible name, interesting trend.
Economic history: A trio of trilemmas
Economist Jul 6, 2013
The gold standard holds worrying lessons for the single currency.
In Brazil, a Reminder of Emerging-Market Risks
Tim Gray (NYT) Jul 6, 2013
Brazil has seen its economic growth slow, while protests have flared nationwide. And its stock market, a powerhouse over the last decade, has recently turned much lower.
The impact of sovereign-debt exposure on bank lending: Evidence from the European debt crisis
Alexander Popov & Neeltje van Horen (VoxEU) Jul 6, 2013
The European sovereign-debt crisis has raised many questions regarding the link between sovereigns and banks. This column goes to the heart of one and shows that tensions in Eurozone government-bond markets were transmitted internationally through the bank lending channel. Lending by European banks with sizeable exposures to sovereign debt from the troubled Eurozone countries became impaired after the start of the crisis, resulting in a reallocation away from foreign (especially US) markets.
The Politics of a Slowing China
Minxin Pei (Project Syndicate) Jul 6, 2013
The recent financial turmoil in China, with interbank loan rates spiking to double digits within days, provides further confirmation that the world’s second-largest economy is headed for a hard landing. So, what impact will the coming era of financial deleveraging and falling growth rates have on Chinese politics?
Nigeria: Hungry for progress
Xan Rice (FT) Jul 7, 2013
The West African state is on course to become one of the biggest consumer markets in the world but its prospects are threatened by an Islamist insurgency, corruption and divisive politics.
Challenging times await asset managers
John Authers (FT) Jul 7, 2013
While large managers are facing increased pressure over fees their stock performance and capital structures offer them a potential lifeline.
America flunks vacation
Robert J. Samuelson (WP) Jul 7, 2013
The U.S. lags behind other advanced economies in time off.
Obama’s Opportunity to Improve U.S. Investment in Africa
Bloomberg View Jul 7, 2013
Which continent is home to six of the world’s 10 fastest-growing economies and is projected to grow by 5 percent in 2013, more than twice the U.S. rate? And which one gets only 1 percent of U.S. foreign direct investment?
‘Likonomics’ policies in China
Yiping Huang (EAF) Jul 7, 2013
Since taking office in mid-March, the Li Keqiang government has taken a different policy path from that of its predecessor. Its key economic policy framework, although yet to be fully detailed, can be summarised as ‘Likonomics’, and appears to consist of three key pillars — no stimulus, deleveraging and structural reform. If so, this implies further downside risks for the economy and markets in the near term. But such policy measures are necessary now for China in order to avoid much more disruptive outcomes in the future.
Payoff from the world trade agenda 2013
Cathleen Cimino, Gary Clyde Hufbauer & Jeffrey J. Schott (VoxEU) Jul 7, 2013
In the wake of the Great Recession, world trade has faltered. Responsible officials turned a blind eye to fresh liberalisation and condoned a quiet resurgence of protectionist measures. This column argues that the global economy needs strong medicine to rebound, and that successful WTO trade talks are part of the elixir.
Fed needs change along with its policies
Henry Kaufman (FT) Jul 8, 2013
Whether or not Bernanke stays, the US central bank faces the twin challenges of disengaging from quantitative easing and reforming its structure.
China faces difficult bubble workout
Gavyn Davies (FT) Jul 8, 2013
The country is not facing a crisis, yet, but the reformist administration will need to spend several years tackling excess credit and over-investment.
Dispatch From Europe: Learning, or Not, From Policy Mistakes
Jared Bernstein (NYT) Jul 8, 2013
The continued insistence on austerity in Europe flies in the face of increasing evidence that a focus on public debt is hurting economic growth, an economist writes.
A U.S.-China win-win
Yang Jiechi (WP) Jul 8, 2013
This week’s dialogue offers the two countries a chance to forge a more cooperative relationship.
FDI surges: Not all capital waves are alike
Salvatore Dell'Erba & Dennis Reinhardt (VoxEU) Jul 8, 2013
FDI flows tend to come in waves and concentrate in certain sectors. This column examines episodes of large gross foreign direct investment inflows - surges – at the sectoral level in emerging markets. It suggests that surges in the financial sector are associated with boom-bust cycles in domestic GDP and with expansions of credit in foreign currency. Moreover, restrictions on other forms of capital inflows tend to increase the likelihood of surges in financial-sector FDI.
Golden Slumbers
Kenneth Rogoff (Project Syndicate) Jul 8, 2013
From the onset of the global financial crisis, the price of gold has often been portrayed as a barometer of global economic insecurity. So, does the collapse in gold prices – from a peak of $1,900 per ounce in August 2011 to under $1,250 at the beginning of July 2013 – represent a vote of confidence in the global economy?
European Bank's 'Forward Guidance' Is a Murky Path
Evan Soltas (Bloomberg) Jul 8, 2013
The European Central Bank made history last week, committing for the first time in its 15-year existence to future monetary policy. It's good news that the bank has stopped disdaining the practice, known as "forward guidance," but this is far too small of a baby step.
Why I Became a Chinese Shadow Banker
Joe Zhang (Bloomberg) Jul 8, 2013
In the fall of 2010, as deputy head of China investment banking at UBS AG, I spoke to a group of wealthy investors in Beijing about the outlook for Chinese stocks. A rumpled, 50-something man from Hangzhou named Wang Zhigang pulled me aside afterward and asked for my advice about investing. Until then, he had made his money through curbside lending, not stocks. But, he lamented, his returns had dropped from more than 30 percent a year to a mere 23 percent. He worried about his personal fortune, which he had built up from nothing to almost 3 billion yuan (about $445 million back then).
Koreans Find Breaking Up With Chaebol Hard to Do
William Pesek (Bloomberg) Jul 8, 2013
Everyone loves a good perp walk. For South Koreans, Lee Jay Hyun’s made great theater.
The Richest Land in Africa
Patrick Radden Keefe (NYRB) Jul 8, 2013
How did Beny Steinmetz get control of Guinea’s iron ore?
Global Shipping Contends with Oversupply Problems
Stratfor Jul 8, 2013
The global shipping industry is oversupplied. Because supply far exceeds demand, shipping rates have plummeted, as have the prices of ships. Some shipping companies have sought to capitalize on this trend by purchasing newer, larger ships at lower prices so that they can remain price competitive. But unless demand rebounds by the time these ships become operational, the industry's oversupply problem will only worsen.
Transatlantic Trade: Data Privacy First
Sabine Muscat (Globalist) Jul 8, 2013
How might the NSA PRISM scandal help the EU land a win on data privacy in trade talks with the US?
Supercomputers: Battle for speed
Chris Nuttall (FT) Jul 9, 2013
The US is falling behind China in the race to produce the world’s fastest computers and reap the resulting scientific and economic gains.
Why China will not buy the world
Martin Wolf (FT) Jul 9, 2013
Western paranoia about the country is unwarranted because the striking feature of the Chinese economy is its dependence on the knowhow of others.
The US is falling behind China in the race to produce the world’s fastest computers and reap the resulting scientific and economic gains.
Quantitative easing and the leaky bucket
John Kay (FT) Jul 9, 2013
The one certain outcome of boosting asset prices, as through QE, is that those with assets benefit relative to those without.
The US is falling behind China in the race to produce the world’s fastest computers and reap the resulting scientific and economic gains.
Europe gears up for a final confrontation
Tony Barber (FT) Jul 9, 2013
There are some encouraging signs but they provide no real evidence that the crisis is fading, merely that it is entering a different phase.
Argentine bondholders need day in court
Aldo Caliari and José Antonio Ocampo (FT) Jul 9, 2013
A ruling in favour of the holdouts will make voluntary debt restructurings almost impossible in the future
Seoul braces for a slowdown
Henny Sender (FT) Jul 9, 2013
To many investors, the country is resisting market forces as it always has done. But what is going on is a little more nuanced than that.
Wrong Prescription for Greece
NYT Jul 9, 2013
The austerity demanded by the agreement for continued bailout payments in a country already in critical condition will only make things worse.
How to Avoid the Next MF Global Surprise
James Giddens (WSJ) Jul 9, 2013
Change cross-border rules to stop raids on U.S. customer accounts.
Urbanisation and migration externalities in China
Pierre-Philippe Combes, Sylvie Démurger & Li Shi (VoxEU) Jul 9, 2013
Economic geography typically predicts positive returns to urban scale. This column argues that China faces unprecedented challenges in the face of a new wave of urban migration. Accelerating urbanisation has been and will continue to be – if managed correctly – an opportunity for sustaining economic growth by capturing the benefits from urban agglomeration.
Time for China to become more Brazilian
Markus Jaeger (DB Research) Jul 9, 2013
What could China possibly learn from Brazil, economically? After all, real GDP growth in Brazil averaged 2.75% annually over the past three decades, compared to 10% in China. Moreover, Brazil’s consumption-oriented growth model is about to exhaust itself, while China’s investment-focussed strategy continues to generate high, if somewhat diminished economic growth. Factor in the social, environmental and political consequences and it becomes clear that China’s growth model needs to change as well. Therefore: Brazil would be well-advised to become more 'Chinese' in terms of savings and investment behaviour, while China would benefit from becoming more 'Brazilian' in terms of consuming more (saving less).
The New Penn World Tables: A Valuable Tool Becomes More Valuable
Arvind Subramanian (PIIE) Jul 9, 2013
July 3 was a special day for all researchers and practitioners of economics, especially those who work in development and international economics. The new version (version 8) of the Penn World Tables (PWT) was released.
Big banks and macroeconomic outcomes
Franziska Bremus, Claudia M. Buch, Katheryn Russ & Monika Schnitzer (VoxEU) Jul 10, 2013
The regulation of big banks has been in the spotlight for many reasons. This column adds to the list. Examining evidence for more than 80 countries for the years 1995-2009, banking systems are shown to be highly concentrated. In many cases, the banks are so big that bank-specific credit-growth fluctuations affect the macroeconomy.
The protectionist dog that has not barked
Arvind Subramanian (FT) Jul 10, 2013
By the time the China trade shock arrived, the US had few unskilled labour-based industries left in direct competition with imports.
Enter the sci-fi world of central banks
Mohamed El-Erian (FT) Jul 10, 2013
Inversion of capital structure due to central bank policy has led some analysts to characterise equities as being ‘safer’ than bonds.
Markets: The investor’s dilemma
John Authers (FT) Jul 10, 2013
With stocks and bonds looking expensive, some predict the next decade will bring pitiful returns. Making more money may require resorting to the ‘three dirty words of finance’.
China's Growth Woes Could Force Government Response
Bill Bishop (NYT) Jul 10, 2013
The Chinese government’s response to weak economic data will be a test of the nation’s new leadership, the author writes.
Team Obama Plays Small Ball in U.S.-China Talks
Michael Auslin (WSJ) Jul 11, 2013
The fifth Strategic and Economic Dialogue is under way. Don't count on any breakthroughs.
Good and Bad Bank Capital
WSJ Jul 11, 2013
Too big to fail gets a bigger backstop but more Basel confusion too.
Move Over Economists; Time to Give Physicists a Turn
Didier Sornette (WSJ) Jul 10, 2013
Let’s face it, economists make lousy economists.
Coordinate Currencies or Stagnate
Thomas I. Palley (Globalist) Jun 10, 2013
What can be done to prevent a wave of competitive devaluation of currencies?
Emerging Markets Are Stuck on Fed’s Elevator Ride
Jim O’Neill (Bloomberg) Jul 10, 2013
Back in the 1960s, a French finance minister called the U.S.’s ability to borrow in its own currency -- thanks to the dollar’s pre-eminence and reserve-currency status -- an “exorbitant privilege.” It’s an advantage that the rest of the world has to pay for, one way or another. This has lately given many emerging-market governments cause for complaint.
Broken Systems Plus Bad Ideas Equals Lame Recovery
Clive Crook (Bloomberg) Jul 10, 2013
Five years after the financial meltdown, the global economic recovery is hardly worthy of the name. The International Monetary Fund has just revised its forecasts for the world economy down -- again.
Europe’s Zombie Banks
Daniel Gros (Project Syndicate) Jul 10, 2013
Europe's banking sector is too large, has too little capital, and contains too many players that lack a viable long-term business model. It is the combination of the last two factors – an overabundance of banks with no sustainable way to turn a profit – that constitutes the most serious and most difficult problem.
A new Bretton Woods
Supachai Panitchpakdi (AT) Jul 10, 2013
The world has yet to take steps to avoid a repeat of the global financial crisis. Initiatives such as reining in the large volumes of speculative capital flows will, in effect, require a new Bretton Woods, one that gives greater voice to developing nations in international financial institutions.
Improving the National Accounts of the United States
David J. Stockton (PIIE) Jul 10, 2013
Every five years, the Commerce Department’s Bureau of Economic Analysis (BEA) undertakes a comprehensive revision of what are known as the National Income and Product Accounts (NIPA) in an endeavor to provide a more complete and accurate picture of the US economy. This year the revision due on July 30 is awaited with some anticipation because it will include an ambitious effort to expand the concepts of “investment” and “capital” to include spending on such activities as research and development, which should improve considerably our ability to track an increasingly knowledge-based economy. One by-product of this new analysis is likely to be that the nation’s GDP will be shown to have been bigger than it was under previous measures. There will also be an improved accounting for pension benefits and liabilities, furnishing a clearer picture of the current and evolving financial conditions of households, businesses, and governments. By themselves, the innovations to be introduced by the BEA are unlikely to change substantially the contours of the Great Recession and the subsequent pattern of slow recovery. But they should shed a brighter light on important longer-term developments in the US economy.
Talking to a China in Disarray
Gordon G. Chang (World Affairs) Jul 10, 2013
Since Nixon’s visit to Beijing, the US has talked to China in every conceivable format, yet relations continue to strain. It’s time for American leadership to show strength rather than conciliation.
Coordinate Currencies, or Stagnate
Thomas I. Palley (Globalist) Jul 10, 2013
What can the United States, China and other nations do to prevent a wave of competitive devaluation of currencies?
EU Launches First-Ever WTO Dispute Against Russia
Bridges Weekly Trade News Digest, Volume 17, Number 25 Jul 11, 2013
The EU has formally lodged a WTO complaint against Russia, in what marks Moscow's first dispute at the global trade body since it joined in August 2012. At issue in the case (DS462) is a vehicle recycling fee, which Brussels claims discriminates unfairly between imports and their domestic equivalents.
EU, Bangladesh Agree on "Sustainability Compact" in Wake of Factory Collapse
Bridges Weekly Trade News Digest, Volume 17, Number 25 Jul 11, 2013
EU and Bangladeshi officials announced on Monday that they have agreed on a "sustainability compact" aimed at addressing concerns over labour conditions in the Asian country, particularly in its garment sector. The initiative, which will also involve participation from the International Labour Organization (ILO), was developed in response to a series of disasters in Bangladesh, with the most recent being a factory collapse in April that claimed 1129 lives.
Global Value Chains in Focus as WTO Reviews Aid for Trade's Progress
Bridges Weekly Trade News Digest, Volume 17, Number 25 Jul 11, 2013
Ministers, delegates, civil society, and private sector representatives gathered in Geneva this week to review the progress of the WTO's Aid for Trade initiative, an eight-year-old effort designed to help developing countries better integrate into the world trading system. While the emergence of global value chains has created new opportunities in this area, participants broadly stressed that challenges remain, particularly given that donor countries have had to tighten their aid budgets as a result of the financial crisis.
Finance: Money for nothing
Henny Sender (FT) Jul 11, 2013
China’s $1tn shadow banking sector has become a source of concern for regulators but an unmissable profit-making opportunity for hedge funds.
Feedback loops heighten risk of contagion
Gillian Tett (FT) Jul 11, 2013
Regulators and investors alike need a better understanding of interconnections and how they might change, harnessing the powers of Big Data to do so
The North American Global Powerhouse
George P. Shultz (WSJ) Jul 11, 2013
Discussions of rising economies usually focus on Asia, Africa and the BRIC countries—Brazil, Russia, India and China. But what may well be the most important development of all is often overlooked: the arrival of North America as a global powerhouse. What's going on?
The Tibetan Plateau: The World's 21st Century Water Battleground
Jean-Pierre Lehmann and Nina Ninkovic (Globalist) Jun 11, 2013
How will the Tibetan Plateau determine the course of Asia's future and that of the whole world?
Hedge Funds Are for Suckers
By Sheelah Kolhatkar (Bloomberg Businessweek) Jul 11, 2013
Once seen as a ticket to obscene wealth, hedge funds have hit the skids. What's behind the industry's reversal of fortune?
Are private schools really better? Not for everybody and not everywhere
Giuseppe Bertola (VoxEU) Jul 11, 2013
School voucher programmes that are meant to allow students who could not otherwise afford private schools to attend them are often hotly, and often emotionally, debated. This column presents findings based on the PISA survey of private education in 72 countries and regions. Evidence suggests that in countries with basic government-provided education, private schools occupy a high-quality market niche. Overall, the education policy menu should include improvement of public education standards as well as vouchers, which policymakers in countries with better public education should not adopt without considering their distributional and efficiency implications. While they can be beneficial, voucher schemes do not enhance overall equality of opportunities and efficiency in countries where governments supply high-quality education.
Europe’s Bad Trade Gamble?
Zaki Laïdi (Project Syndicate) Jul 11, 2013
The start of official talks on a free-trade agreement between the EU and the US reinforces both sides’ shift away from multilateral trade policy in recent years. But, while bilateralism might be the right strategy for America, it could spell serious trouble for Europe.
The Right Green Industrial Policies
Dani Rodrik (Project Syndicate) Jul 11, 2013
Although ending the mispricing of carbon would be the best way to address climate change, most governments prefer to rely on subsidies and regulations that increase the profitability of investments in renewable energy. Better that than taxing foreign green industries or restricting their market access.
A Tale of Two Tapers
Barry Eichengreen (Project Syndicate) Jul 11, 2013
The US Federal Reserve and the People’s Bank of China are not typically seen as two peas in a pod. But they have had similar experiences in recent weeks – and neither has been a pleasant one.
The Economic Blunders Behind the Arab Revolutions
David P. Goldman (WSJ) Jul 12, 2013
In Egypt and Syria, misguided food and water policies set the stage for revolt and civil war.
How to limit the ECB’s OMT?
Harald Benink & Harry Huizinga (VoxEU) Jul 12, 2013
How well has OMT done? This column attempts to temper Mario Draghi’s recent plaudits that “it’s really very hard not to state that OMT has been probably the most successful monetary policy measure undertaken in recent times”. Yes, OMT should provide unlimited liquidity to troubled countries, but not at the expense of necessary structural reforms. The ECB should cover Eurozone countries’ current expenditures, but should not pay off all long-term debt holders. That way, capital markets will be disciplined and incentives for implementing economic reforms will be maintained.
The Second Great Depression
J. Bradford DeLong (FA) Jul 12, 2013
Why the economic crisis is worse than you think.
Twenty-first Century Trade Integration in Eight Figures
Arvind Subramanian and Martin Kessler (PIIE) Jul 12, 2013
In this short post (based on our recent paper), we present eight attributes of the current phase of trade integration which began towards the end of the last millennium. Hyperglobalization Since 1870, there have been four phases of trade integration, as figure 1 shows. The first three were (1) globalization of the late 19th century; [...]
New roads to export: Insights from the Inca roads
Jerónimo Carballo, Ana Cusolito & Christian Volpe Martincus (VoxEU) Jul 13, 2013
Expanding road infrastructure is often justified on the basis of its presumed effects on exports. Yet, available evidence on to what extent these effects really materialise is very limited due to difficulties faced in convincingly identifying true casual relationships. Historical road networks can help overcome this endogeneity challenge. This column provides evidence for Peru based on the Inca road network and suggests that improvements in road infrastructure have had a significant impact on firms’ exports and thereby on job creation.
A World of Vulnerability
Jomo Kwame Sundaram (Project Syndicate) Jul 13, 2013
Rising unemployment and falling incomes demonstrate that poverty is not an unchanging attribute of a fixed group; it is a condition that threatens billions of vulnerable people. But most people living below, or just above, the internationally recognized poverty line lack basic social protection, making them even more vulnerable.
Should Fed’s Policies Rule the World?
Alexander Friedman and Kiran Ganesh (Bloomberg) Jul 14, 2013
Up to 60 percent of global transactions are conducted in U.S. dollars, more than one-third of world economic output is produced in dollar bloc economies, and an even greater share of global assets are priced in the currency, or linked currencies. This role as the de facto global currency for more than six decades has made the Federal Reserve’s monetary policy one of the U.S.’s greatest exports.
Don’t Believe the Banks’ Warnings About Capital
Bloomberg View Jul 14, 2013
Would a safer financial system be bad for the economy? Big banks say it would, because tougher banking rules will squeeze their lending and hold back investment. Markets don’t seem to agree.
Fundamentals and sovereign risk of emerging markets
Joshua Aizenman, Yothin Jinjarak & Donghyun Park (VoxEU) Jul 14, 2013
The Global Crisis hit sovereign credit ratings in very different ways. This column discusses research into the determinants of emerging markets’ sovereign credit-default swap spreads from 2004 to 2012. The key factors are trade openness and state fragility in the pre-Crisis period, external debt/GDP ratio and inflation in the Crisis period, and inflation and public debt/GDP ratio in the post-Crisis period. Asian countries enjoy lower sovereign spreads than Latin American countries, and this gap widened during and after the Crisis.
Finance: Upsetting the narrative
Patrick Jenkins and Tracy Alloway (FT) Jul 14, 2013
Goldman Sachs has worked to improve its post-crisis reputation but a case this week against a former trader could dent its progress.
Tunisia is the model for a new Egypt
Marwan Muasher (FT) Jul 14, 2013
If secular forces assume a winner-takes-all position and Islamists refuse to learn from their mistakes, the country will be back at square one.
China takes foot off growth turbocharger
Simon Rabinovitch (FT) Jul 14, 2013
Times have changed in Beijing as finance minister’s slip on growth target shows the government is less fixated on GDP than in the past.
The Next Big Free-Trade Breakthrough
Mary O'Grady (WSJ) Jul 14, 2013
As a single region, the Pacific Alliance will be the eighth largest economy in the world.
The Slowing of Two Economic Giants
Pranab Bardhan (NYT) Jul 14, 2013
Will China or India come out ahead? It depends on reform.
UNCTAD chief slams US, EU sanctions against Bangladesh
Ravi Kanth Devarakonda (AT) Jul 15, 2013
The decisions of the United States and the European Union to demand implementation of controversial labor standards in Bangladesh, recalling differences that stirred violent protests at the Seattle World Trade Organization conference of 1999, are distracting from the WTO's authority, warns United Nations Conference on Trade and Development secretary-general Supachai Panitchpakdi.
Outdated IT could lead to banking crisis
Andrew Freeman (FT) Jul 15, 2013
A bigger freezing of the money transmission system would quickly lead to social breakdown. It is that serious – think of that ‘almost’ pandemic.
Central bankers face ‘loose lips’ warning
Michael Steen (FT) Jul 15, 2013
It is hard to resist temptation of wondering whether central bankers have heeded warning about effect of comments on euro area sovereign bond yields.
Emerging world needs a new economic model
Dominic Rossi (FT) Jul 15, 2013
Emerging markets should abandon cheap currencies and export-led growth and dust down the ‘structural reform’ agenda.
Morocco: Dance with the deep state
Borzou Daragahi (FT) Jul 15, 2013
The country is cited as a model for Arab monarchies facing demands for change, but others say it shows how impervious such nations are to reform.
China Grows Down
Andrew Sheng and Xiao Geng (Project Syndicate) Jul 15, 2013
China's GDP growth in recent decades has been impressive, but also, as former Premier Wen Jiabao put it, "unstable, unbalanced, uncoordinated, and unsustainable." With growth slowing, China must now adopt a more sustainable model that focuses less on GDP and more on fostering innovation and competition.
China’s Economy Depends on Its Politics
Bloomberg View Jul 15, 2013
The news that China’s gross domestic product grew 7.5 percent from April to June -- down from 7.7 percent in the first quarter -- has provoked fewer gasps of horror than one might have expected. Chinese officials have been talking down the importance of the number for days. The mainland economy might ultimately grow 7 percent this year instead of at its usual double-digit rate, they’ve hinted. Nothing to worry about.
Technopessimism Is Bunk
Joel Mokyr (PBS) Jul 15, 2013
The developed world enjoys the benefits of running hot and cold water, refrigerators and electric stoves, all of which have been around for generations. But can we innovate beyond that? Can today's inventions -- the iPod, for example -- even compete with those "low-hanging fruit" that dramatically altered our homes and daily lives? That's just not so.
The Financial Instability Council
WSJ Jul 15, 2013
Regulators want to make insurers too big to fail. Uh-oh.
Don't Get Distracted by China's GDP Data
William Pesek (Bloomberg) Jul 15, 2013
Ignore China's new GDP numbers---the situation on the mainland is much worse than it looks.
Pseudo-flexible exchange-rate regimes
Laura Alfaro & Fabio Kanczuk (VoxEU) Jul 15, 2013
According to the IMF, last decade saw a number of countries actively managing their exchange rates. Is this a good way for emerging economies to protect themselves from the large swings of international markets? This column presents a new ‘pseudo-flexible’ exchange rate policy for emerging economies that is both sustainable and allows for accumulating reserves in conjunction with domestic debt; resulting in low exchange-rate volatility.
Redesigning the ECB
Michael Burda (VoxEU) Jul 15, 2013
Eurozone national central banks that take a national perspective risk politicising the ECB’s monetary policy. This column argues that this is a significant risk that should be overcome with a fundamental overhaul of the Eurosystem. A central element would be to take the ‘national’ out of the EZ’s national central banks. Just as US regional Fed banks encompass more than one US state, EZ ‘national’ central banks area of responsibility should be redrawn along economic geography lines rather than nation lines. An example of such a proposal is provided.
Sub-Saharan Africa: A bright spot in spite of key challenges
Claire Schaffnit-Chatterjee (DB Research) Jul 15, 2013
Sub-Saharan Africa (SSA) is growing fast with annual real GDP growth of over 5% in the last decade, second only to developing Asia. Medium-term growth remains robust, on the back of a recovering global economy, still high commodity prices and investment in productive capacity. SSA is at a crossroads. It has a window of opportunity to capitalise on its youth surge and resource wealth to create employment and inclusive growth. Political change and reforms are key. It will not be easy but democratisation, urbanisation and virtual connectedness bode well. Investments in infrastructure/logistics and education, economic diversification, market reforms and improved governance are critical for long-term success.
Europe's missing pieces
Martin Hutchinson (AT) Jul 16, 2013
Croatia's entry to the European Union leaves six Balkan countries outside the trade bloc. Economically their integration is problematic for varied reasons, including the EU's unattractive economic policies, though membership would complete the geographical union of Europe.
Germany's 'success' poses threat to China
Michael Pettis (AT) Jul 16, 2013
Germany is running the world's largest trade surplus, and is hoping to foist its imbalances onto the rest of the world now that the rest of Europe is too sick to absorb them. European trade policies are going to put additional pressure on China's own economic rebalancing, even as Beijing appears more determined to pursue it.
Globalisation in a time of transition
Martin Wolf (FT) Jul 16, 2013
Trade is a success but will remain an insecure one so long as our world is threatened by problems such as financial crises and inequality
Don’t look for fair prices on the market
John Kay (FT) Jul 16, 2013
What happened at Enron, and in the banks, was that assets were marked to values which had been set by biased traders
Central banks risk sharing too much with investors
John Plender (FT) Jul 16, 2013
A tentative statement about the Federal Reserve’s intentions on reducing the rate of asset purchases saw bond and stock markets swoon across.
Central Banking Needs Rethinking
Amar Bhidé and Edmund Phelps (WSJ) Jul 16, 2013
The Fed's monetary policy is hazardous, its bank supervision ineffectual.
The amazing, surprising, Africa-driven demographic future of the Earth, in 9 charts
Max Fisher (WP) Jul 16, 2013
The United Nations Population Division, which tracks demographic data from around the world, has dramatically revised its projections for what will happen in the next 90 years. The new statistics, based on in-depth survey data from sub-Saharan Africa, tell the story of a world poised to change drastically over the next several decades. Most rich countries will shrink and age (with a couple of important exceptions), poorer countries will expand rapidly and, maybe most significant of all, Africa will see a population explosion nearly unprecedented in human history.
Frantic Rule-Writing Won’t Avert New Banking Crisis
Clive Crook (Bloomberg) Jul 16, 2013
Five years after the great financial meltdown, have the U.S. and other advanced economies done enough to head off the next calamity? The short answer is no.
Is Germany Repeating American Errors at Bretton Woods?
Benn Steil (Bloomberg) Jul 16, 2013
At the founding of the Bretton Woods international monetary system in 1944, the world’s dominant creditor nation, the U.S., set out to revive a fixed exchange- rate system by offering a war-torn, debt-ridden world a new deal in monetary relations, one to be supported by concessionary dollar loans from a new International Monetary Fund.
Indonesia’s Cautious Confidence
Dewi F. Anwar (Project Syndicate) Jul 16, 2013
In recent years, Indonesia has emerged as a robust democracy with a dynamic economy. Now, as the largest and most influential member of ASEAN, Indonesia must leverage its newly acquired strength to confront the challenges facing it and its regional partners, while avoiding foreign-policy recklessness.
Transatlantic Trade Goes Global
Michael J. Boskin (Project Syndicate) Jul 16, 2013
Negotiations have now commenced between the US and the EU on the Transatlantic Trade and Investment Partnership, potentially the largest regional free-trade agreement in history. If successful, the TTIP would cover more than 40% of global GDP and account for large shares of world trade and foreign direct investment.
Hardening Brazil’s Soft Power
Celso Amorim (Project Syndicate) Jul 16, 2013
Brazil’s peaceful foreign policy has enabled it to avoid conflict as it built up its soft power, which it has used to advance peace and cooperation in Latin America and elsewhere. But Brazil cannot rely on soft power alone to defend its interests; it also needs a robust defense policy.
Aid for Egypt is only short-term lifeline
John Sfakianakis (FT) Jul 17, 2013
Money should help restore economic confidence and support currency reserve, but in the longer term must become a trigger for real reform.
China’s biggest test
Fareed Zakaria (WP) Jul 17, 2013
Can the country fix its slowing economy?
Bubbles Forever
Robert J. Shiller (Project Syndicate) Jul 17, 2013
In 2006, the largest global real-estate bubble in history imploded, and the collapse of a major worldwide stock-market bubble a year later triggered the global financial crisis. Although one might think that we have been living in a "post-bubble" world since then, talk of new bubbles keeps reappearing.
Starved for Science
Louise O. Fresco (Project Syndicate) Jul 17, 2013
With global food demand set to rise by 40% by 2030, the need to increase agricultural output is becoming increasingly urgent. In the coming decades, the advancement and proliferation of agricultural technology – from more efficient machinery to higher-yielding crop varieties – will play a pivotal role in enhancing food security.
How Many European Recessions?
Jeffrey Frankel (Project Syndicate) Jul 17, 2013
If European countries used similar criteria to those used in the US for determining economic cycles, the Great Recession in many of them would quite possibly be considered an ongoing five-year slump. Such measurement issues may sound like a matter of minor technical details, but they can have significant real-world implications.
Is Economics a Science or a Religion?
Mark Buchanan (Bloomberg) Jul 17, 2013
Is economics a science or a religion? Its practitioners like to think of it as akin to the former. The blind faith with which many do so suggests it has become too much like the latter, with potentially dire consequences for the real people the discipline is intended to help.
Should China Deregulate Finance?
Kevin P. Gallagher (Globalist) Jul 17, 2013
Why China should not succumb to the lures of financial globalization prematurely.
The global race for inventors
Carsten Fink, Ernest Miguelez & Julio Raffo (VoxEU) Jul 17, 2013
Migration is a hot-button issue across the globe. This column summarises new evidence on the patterns of skilled-worker migration, focusing on the specific case of inventors. A novel data source that traces worldwide migration flows for inventors suggests that, excluding a few nuances, the economic incentives for general migration also seem to influence inventors’ migration decisions.
Welcome to the Global Middle-Class Surge
Alan Murray (WSJ) Jul 18, 2013
World-wide prosperity is rising, but Western values have gotten a mixed reception.
German fear of past jeopardises Europe
Mark Mazower (FT) Jul 18, 2013
With the era of US largesse over, the onus on Berlin is to show whether it can accept the responsibilities of leadership.
The world can learn from the US recovery
Jack Lew (FT) Jul 18, 2013
For world growth to be sustainable, other G20 nations must pursue macroeconomic policies that increase domestic demand and employment.
Indonesia faces big value chain obstacles
Henny Sender (FT) Jul 18, 2013
Analysts love to trumpet a young population whose demand will propel the Indonesian economy. However, Indonesia’s circumstances are neither that simple nor so rosy.
Hitting China’s Wall
Paul Krugman (NYT) Jul 18, 2013
All the signs coming from the economic data show that China is in big trouble.
US-China Talks Yield Renewed Push for Investment Deal, Climate Action
Bridges Weekly Trade News Digest, Volume 17, Number 26 Jul 18, 2013
The US and China have renewed their plans to negotiate a sweeping bilateral investment treaty, while agreeing also to implement a series of climate-focused initiatives. Meeting in Washington last week, the two trading partners – and often rivals – also pledged to work together in helping Beijing submit a new offer later this year for joining the WTO's plurilateral deal on government procurement, and discussed other topics such as currency and the pace of Chinese economic reforms.
The Myth of China’s Economic Reform
William Pesek (Bloomberg) Jul 18, 2013
Can we please have a moratorium on the word “Likonomics”? Premier Li Keqiang’s plans to overhaul the Chinese economy have hardly earned such a grand moniker yet.
The Next Social Contract
Kemal Dervis (Project Syndicate) Jul 18, 2013
Around the world, unemployment, skill mismatches, and retirement have become central to fiscal policy. A new social contract is needed – one based on fiscal realism, room for individual preferences, and strong social protection against shocks stemming from personal circumstances or a volatile economy.
German Banks on Top
Luigi Zingales (Project Syndicate) Jul 18, 2013
Germany opposes the new bank-resolution mechanism proposed by the European Commission, arguing that it must protect German taxpayers. In fact, Germany’s position is a ploy to hide its anticompetitive behavior, whereby the government subsidizes German banks and industry at the expense of everyone else – including German taxpayers.
Asymmetric oil: Fuel for conflict
Francesco Caselli, Massimo Morelli & Dominic Rohner (VoxEU) Jul 19, 2013
Oil has often been linked to interstate wars. This column argues that asymmetries in endowments of natural resources are important determinants of territorial conflict. When one country has oil near its border with an oil-less country, the probability of conflict is between three and four times as large as when neither country has oil. In contrast, when the oil is very far from the border, the probability of conflict is not significantly higher than between countries with no oil.
Supranational supervision: How much and for whom?
Thorsten Beck & Wolf Wagner (VoxEU) Jul 20, 2013
The proper level for bank supervision is mired in detail. This column argues that the higher the cross-border externalities and the lower the country heterogeneity, the more likely supranational regulation is desirable. This framework informs the various initiatives for improving cross-border supervision, including a better understanding of the sources of political-economy constraints that so frequently are an obstacle to integration.
A Grexit begins to look more feasible
Wolfgang Münchau (FT) Jul 21, 2013
Wolfgang Schäuble’s preferred option for Greece – for the country to reform and not default – makes sense only from the German point of view.
Summertime and the trading is easy
John Authers (FT) Jul 21, 2013
Even though the Federal Reserve’s plans for monetary stimulus have driven intense volatility in currencies and interest rates, equities remain calm.
A New Twist in Argentina's Bid to Dodge Its Debts
James Glassman (WSJ) Jul 21, 2013
Now the International Monetary Fund may aid an effort to stiff creditors.
What’s in a Number? In China, Not Much
Michael Pettis (Bloomberg) Jul 21, 2013
As the debate in Beijing intensifies over the quality and sustainability of China’s economic growth, a shift in thinking is taking place. China’s most thoughtful economists are increasingly skeptical about the need for high gross domestic product growth rates.
Banks’ Size Is Greater Threat Than Complexity
Red Jahncke (Bloomberg) Jul 21, 2013
Senators from both sides of the political divide are displaying an encouraging resolve to break up the country’s biggest banks. Unfortunately, they’re focusing too much on the complexity of big bank operations and ignoring the greater threat entailed in their enormous size.
Euro Gives Latvia Escape From Geography’s Bear Hug
Aivis Ronis (Bloomberg) Jul 21, 2013
Of all the trips I took as Latvia’s ambassador to the U.S., one of the most memorable was a drive a decade ago across west Texas.
Does education lead to more innovation?
Otto Toivanen & Lotta Väänänen (VoxEU) Jul 21, 2013
Policymakers are worried that the number of inventors coming from the West is dwindling. Is the rising cost of higher education putting off innovative individuals? And are China, India and other emerging economies right to invest so heavily in academic subjects that produce inventors? This column argues that the number of inventors can be increased through the right educational policy. New research based on data from Finland and the US provides a justification for the policies adopted by emerging economies, and for Western policymakers’ worries about the decline of interest in Engineering and Science.
Civilization Means Privacy
Ben O'Neill (Mises Daily) Jul 22, 2013
Since the details of the NSA programs became publicly known a short time ago, already there are signs of market pressures being brought to bear to curtail the actions of the agency and its partner companies.
Wrong to portray Germany as the winner
Hans-Werner Sinn (FT) Jul 22, 2013
The eurozone should be closer to the old Bretton Woods currency system, under which countries could exit and re-enter at different prices.
Bailouts can turn a profit for lenders
Andreas Utermann (FT) Jul 22, 2013
Bailouts by central banks acting as lender of last resort typically end up profitable for those taking on the risk.
Why Buffett Bailed on India
Willie Pesek (Bloomberg) Jul 22, 2013
India has long been viewed as a value investor’s dream: rapid growth, 1.2 billion people pining for a taste of globalization, and underdeveloped industries ripe for turnarounds. So it surprised few when the genre’s guru, Warren Buffett, placed a bet on the world’s ninth-biggest economy.
The 'alternative' discourse on Asia's rise
Namrata Goswami (AT) Jul 22, 2013
Asian countries neighboring China are concerned about its recent territorial aggression in the South and East China Seas, and India's border, yet are alarmed that the dominant discourse points to increasing militarization and conflict. Regional determination is growing to create the regional institutional mechanisms to avert the negative impacts of China's rise and instead showcase the positive aspects of the China success story.
Trouble in Emerging-Market Paradise
Nouriel Roubini (Project Syndicate) Jul 22, 2013
Some of the better-managed emerging-market economies will continue to experience rapid growth and asset outperformance in the coming decade. But many BRICS countries and a few other emerging markets may hit a thick wall, with growth and financial markets taking a serious beating.
A Global Revenue Grab
WSJ Jul 23, 2013
The G-20 unveils a plan to limit international tax competition.
China: Slower but steady
Chris Giles (FT) Jul 23, 2013
Growth of 7.5% still contributes more to global demand than expansion in any other economy but rebalancing will create winners and losers.
Low inflation worries central bankers
Robin Harding (FT) Jul 23, 2013
Fed officials think inflation will move back to its target of 2 per cent, but the fickleness of prices makes them wary of their own confidence.
China’s bank reform is a damp squib
Paul Davies (FT) Jul 23, 2013
Although the notion of reform has been kept alive, the step towards market-driven rates has been so small that it is expected to have no impact whatsoever.
China’s End of Exuberance
Michael Spence (Project Syndicate) Jul 23, 2013
China’s growth has slowed considerably since 2010, and it may slow even more – a prospect that is rattling investors and markets well beyond China’s borders. In short, many investors are nervous because China’s future growth story is unclear to them.
Recognizing the End of the Chinese Economic Miracle
George Friedman (Stratfor) Jul 23, 2013
Major shifts underway in the Chinese economy that Stratfor has forecast and discussed for years have now drawn the attention of the mainstream media. Many have asked when China would find itself in an economic crisis, to which we have answered that China has been there for awhile -- something not widely recognized outside China, and particularly not in the United States. A crisis can exist before it is recognized. The admission that a crisis exists is a critical moment, because this is when most others start to change their behavior in reaction to the crisis. The question we had been asking was when the Chinese economic crisis would finally become an accepted fact, thus changing the global dynamic.
GDP is a clumsy test of economic health
Richard Lambert (FT) Jul 24, 2013
The measure should be supplemented with a broader indicator of economic wellbeing – ideally tracking median household incomes.
Case for investing in EM still intact
Russ Koesterich (FT) Jul 24, 2013
Investors should also consider expanding into frontier markets, as they are among the fastest growing and least indebted economies.
Asian Economies Encounter Stiff Winds
Bettina Wassener (NYT) Jul 24, 2013
Over the last couple of months, the economic engines of developing Asia have shifted downward, and that may hurt the rest of the world.
3D Fantasies
Esther Dyson (Project Syndicate) Jul 24, 2013
Like computers and the Internet, as 3D printing grows from a novelty into something useful, it will transform business and behavior around the world and across industries. In the long run, it will allow more efficient use of physical resources and faster diffusion of the best designs, boosting living standards around the world.
Lamy: "Clearer" Road to Bali Ministerial, Though Work Remains
Bridges Weekly Trade News Digest, Volume 17, Number 27 Jul 25, 2013
Negotiations for the WTO's upcoming Ministerial Conference in Bali have picked up the pace in recent weeks, WTO Director-General Pascal Lamy reported on Monday, keeping hopes alive for potentially achieving a successful outcome in December. However, many members have warned, much more work remains if the WTO wishes to harvest an ambitious set of Doha Round deliverables in time for this winter's high-level gathering.
"Transformation" of Global Trade to Pose Fresh Challenges, WTO Says
Bridges Weekly Trade News Digest, Volume 17, Number 27 Jul 25, 2013
Global trade is set to undergo a series of rapid changes in the coming years, moulded by economic, political, and social factors as well as the rise of emerging powers, according to a new report published by the WTO last week.
Oil price shock lurks on the horizon
Paul Stevens (FT) Jul 25, 2013
Pressures borne of political unrest in the Arab world and the boom in shale gas present Opec with a dilemma.
Global Narrative About the Chinese Economy Darkens
Gordon G. Chang (Forbes) Jul 25, 2013
China’s economy has been ailing for years, but among most commentators it could do no wrong. With some opinion now turning, will confidence be enough to save broken policies?
The Conglomerate Way to Growth
Ricardo Hausmann (Project Syndicate) Jul 25, 2013
Many developing countries do not have the capabilities that growth industries demand, yet developing these capabilities is impossible unless the industries that require them are present. One way to solve this problem is through vertical integration – that is, firms that can coordinate the supply and demand for any new capability.
The Psychology of an Irish Meltdown
Tana French (NYT) Jul 26, 2013
If the Celtic Tiger had simply wandered in, that meant it could wander out again.
What explains the recent rise in non-traditional reserve currencies?
Roland Beck & Arnaud Mehl (VoxEU) Jul 26, 2013
The intensification of the crisis has led to concerns about a possible shortage of global safe assets. At the same time, major reserve-currency issuers are losing their AAA-rating. This column considers new evidence on the recent rise of non-traditional currencies such as the Australian and Canadian dollars in global reserve portfolios. Evidence suggests that sovereign risk in advanced economies typically considered as safe is a key determinant of the growing importance of non-traditional reserve currencies.
Budging (Just a Little) on Investing in Gold
N. Gregory Mankiw (NYT) Jul 27, 2013
Should gold be a part of one's portfolio? My instinct was to say no. I dived into the small academic literature on gold as a portfolio investment, and here is what I learned.
Holiday hassles
Economist Jul 27, 2013
There is scope for the markets to have another summertime wobble.
China will slow down but it can handle it
Michael Pettis (FT) Jul 28, 2013
The growth rate that really matters, as a number of prominent Chinese economists have pointed out, is that of median household income.
The fabric that made the modern world
James Crabtree (FT) Jul 28, 2013
Giorgio Riello’s account of the history of cotton provides a neat illustration that globalisation is not necessarily a contemporary phenomenon.
A Scientific Case for Immigration's Benefits
Peter Coclanis (WSJ) Jul 28, 2013
The Simons Foundation has chosen its top 13 young investigators. Guess how many were born abroad?
A Little Inflation Is Just What Europe Needs
Melvyn Krauss (Bloomberg) Jul 28, 2013
The European Central Bank has faced criticism lately for failing to give a clearer blueprint of future monetary policy in its new “forward guidance.” The critics are missing the point.
What the World’s Middle Classes Are Really Protesting
Ruchir Sharma (Bloomberg) Jul 28, 2013
Still-smoldering protests from Egypt to Brazil have set off a race among scholars and journalists to identify the roots of this summer of discontent in the emerging world. Each major theory starts at the bottom, with the protesters on the street, and notes a common thread: young, Twitter-savvy members of a rising middle class. In this telling, the protests represent the perils of success, as growing wealth creates a class of people who have the time and financial wherewithal to demand from their leaders even more prosperity, and political freedom as well.
How much capital should banks have?
Lev Ratnovski (VoxEU) Jul 28, 2013
After much negotiation, Basel III regulations set capital requirements to be between 8% and 12%. This column suggests this may not be enough. It looks at how much capital banks would need to fully absorb asset shocks of the size seen in OECD countries over the last 50 years. The answer is 18% risk-weighted capital, corresponding to 9% leverage. This benchmark is highly conservative, so the true 'optimal' bank capital may be lower.
‘Green’ but cheaper fuels required
Bjorn Lomborg (FT) Jul 29, 2013
There is a climate problem, but the best long-term strategy is to increase dramatically investment in environmental research and development.
Equity stakes best risk-sharing device
Olivier Garnier (FT) Jul 29, 2013
The eurozone has been suffering ‘mal-integration’, with debt flowing from core to periphery, and equity investment from periphery to core.
China Opts for Only Small Steps to Stimulate Economy
Bill Bishop (NYT) Jul 29, 2013
Even as new economic reports signal that China’s economy is slowing, Beijing continues to resist a large stimulus package.
The Near-Zero Interest Rate Trap
Ronald McKinnon (WSJ) Jul 29, 2013
If long-term rates rise to normal levels, banks holding government bonds would be de-capitalized—a disaster.
Italy: On the Brink Again?
Alexander Privitera (Globalist) Jul 29, 2013
Is Italy in for a renewed period of political turbulence — and delayed economic reforms?
Misreading Chinese Rebalancing
Stephen S. Roach (Project Syndicate) Jul 29, 2013
China's economic slowdown has caused Western pundits to succumb, once again, to the “China Crash” syndrome. But, though the composition of Chinese GDP growth appears disconcerting, the rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight.
Decoding Bernanke
Martin Feldstein (Project Syndicate) Jul 29, 2013
Federal Reserve Chairman Ben Bernanke has been struggling since his May 22 testimony to the US Congress to deliver a clear message about the future of Fed policy. Two months later, financial-market participants remain confused about what his message means for the future of US monetary policy and market interest rates.
Currency wars and the fall of empires
Frances Coppola (Pieria) Jul 29, 2013
The rise of China as a new superpower, and the increasing indebtedness of the US, has led to calls for reintroduction of the gold standard. Could this end currency wars and preserve US dominance?
Looking back, moving forward
Pascal Lamy (VoxEU) Jul 29, 2013
After heading the WTO for eight years, Pascal Lamy offers his farewell remarks. This column reproduces them in full. Despite global turmoil including the Great Trade Collapse and an historic shift of economic power towards emerging markets, the WTO is larger and stronger. Regional trade arrangements can contribute trade opening but they are not sufficient. There is no escape from achieving positive results in the Doha Round, but this requires adjusting the agenda to today's realities by adding new elements.
The world must learn to deal with failure
John Kay (FT) Jul 30, 2013
Regulators that seek to eliminate the risk of collapse will ossify incumbent industries and pour public money into ailing companies.
Fundamentals vs the Fed: which will win?
Mohamed El-Erian (FT) Jul 30, 2013
Rather than a decisive win by economic fundamentals, the contest could end up being dominated by Fed policy tools that become increasingly ineffective.
Karel De Gucht: Frustrated and outflanked
Joshua Chaffin (FT) Jul 30, 2013
The EU commissioner has been outmanoeuvred by China, which has exposed deep weaknesses in the bloc’s trade policy by lobbying national capitals in a dispute over solar panels.
The PC16: Identifying China's Successors
George Friedman (Stratfor) Jul 30, 2013
China has become a metaphor. It represents a certain phase of economic development, which is driven by low wages, foreign appetite for investment and a chaotic and disorderly development, magnificent in scale but deeply flawed in many ways. Its magnificence spawned the flaws, and the flaws helped create the magnificence.
The Stock Market Beats GDP as an Economic Bellwether
Edward Lazear (WSJ) Jul 30, 2013
The initial quarterly numbers are usually wrong—and they're poor predictors of future economic growth.
Black Holes at China's Shadow Banks
Megan McArdle (Bloomberg) Jul 30, 2013
When I speak of cracks in China’s institutional foundation, I’m thinking in large part of China’s banking system … which as far as I can tell, isn’t really a banking system the way that we think of it.
Whose Economic Reform?
Jean Pisani-Ferry (Project Syndicate) Jul 30, 2013
Together with fiscal consolidation, structural reform is the new European mantra. But an economic-reform agenda cannot result from a mechanical exercise by international organizations or the EU, because, at some point, hard choices about priorities and sequencing must be made, and this is what governments are elected to do.
Banks should learn from Habsburg Spain
Hans-Joachim Voth and Mauricio Drelichman (FT) Jul 31, 2013
Risk transfers that failed during the subprime crisis worked well in the 16th century, The practices of the bankers, too, offer lessons for today.
The risks of riding China’s coat-tails
David Pilling (FT) Jul 31, 2013
Many Latin American nations have bet the mine on eternal demand from an economy that is now slowing.
Eurozone calm masks brewing political storm
Peter Spiegel (FT) Jul 31, 2013
The current market calm appears at odds with the political turmoil in peripheral eurozone nations such as Spain, Portugal, Greece and Italy.
The IMF and Greek Losses
WSJ Jul 31, 2013
The Fund supports writedowns—just not on its own loans.
Which Chinese City Will Become the Next Detroit?
Adam Minter (Bloomberg) Jul 31, 2013
Where is China’s Detroit? A few weeks ago, the answer to that question would have been an optimistic shortlist of towns with thriving automobile industries. But since Detroit filed for bankruptcy on July 18, the question has become this: Which Chinese city will be the poster child for the country’s growing multitrillion-dollar local-government-debt problem?
Banks’ Role in Metal Trade Deserves Scrutiny
Rosa M. Abrantes-Metz (Bloomberg) Jul 31, 2013
Are big U.S. banks colluding to drive up the price of a metal crucial to the production of everything from beer cans to airplanes? A first look at the empirical evidence suggests the possibility is worthy of authorities’ attention.
Game Changers for Growth
Laura Tyson (Project Syndicate) Jul 31, 2013
New information and communications technologies were game changers that boosted the potential growth rate of the US economy in the 1990’s. New research suggests that shale energy and big-data analytics will be game changers with similar benefits for the US economy’s potential growth over the next several years.
China’s New Inflation Constraint
Yu Yongding (Project Syndicate) Jul 31, 2013
Today, for a given rate of GDP growth in China, the corresponding inflation rate is substantially higher than it was over the past two decades. In other words, inflation has become an important constraint on policymakers' efforts to return China to a path of rapid growth.
"Men make their own history, but they do not make it as they please"
Unlearning Economics (Pieria) Jul 31, 2013
The ongoing financial crisis has reignited debates about the legitimacy of capitalism as a system. Yet the grounds upon which the 'capitalism versus socialism' debate is conducted needs revising.
Who benefits from aid for trade?
Philipp Hühne, Birgit Meyer & Peter Nunnenkamp (VoxEU) Jul 31, 2013
One of the few areas where multilateral trade talks are making progress is the so-called Aid-for-Trade Initiative designed to remove frictional barriers to trade such as in transportation, communication and energy infrastructure. This column discusses research suggesting that both donors and recipients benefit from the aid. Aid-for-Trade, however, seems to best promote the exports of middle-income countries rather than, for instance, sub-Saharan African ones.