News & Commentary:

August 2011 Archives


The New Grammar of Power
Javier Solana & Daniel Innerarity (Project Syndicate) Aug 1, 2011
Our globalized world has a dark side: contamination, contagion, instability, interconnection, turbulence, shared fragility, universal effects, overexposure. In this environment, we cannot continue to pursue strategies that ignore our common exposure to global risks and the mutual dependence to which it has given rise.

The “Out of Africa” hypothesis: Human genetic diversity and comparative economic development
Quamrul Ashraf & Oded Galor (VoxEU) Aug 1, 2011
The reasons given for the vast divide in standard of living between different parts of the world are many, with some economic historians claiming the roots lie in the colonial period. This column goes back even further to the cradle of humankind in East Africa, suggesting that the genetic diversity of the tribes that dispersed to different parts of the globe determined their success many thousands of years later.

Germans Abetted Greek 'Kleptocrats' as Odious Debt Grew
James Pressley (Bloomberg) Aug 1, 2011
If you’re still wondering how an Aegean wonderland of sun, sea and sand slid into a money pit and began dragging the euro with it, pick up Jason Manolopoulos’s “Greece’s ‘Odious’ Debt.”

Deal or no deal, a US downgrade is deserved Financial Times Subscription Required
Carmen Reinhart and Vincent Reinhart (FT) Aug 1, 2011
The pact does little to address vulnerabilities. Rating agencies are likely to make good their threat.

Japan’s tsunami supply chain comeback Financial Times Subscription Required
George Olcott and Nick Oliver (FT) Aug 1, 2011
Recovery is taking place with remarkable speed, thanks to the co-operative capitalism that underpins the business system.

Asian growth will cement HSBC’s dominance over Citi Financial Times Subscription Required
Patrick Jenkins (FT) Aug 1, 2011
The investment appeal of the UK bank versus Citigroup comes down to the former’s beefed-up commitment to expansion in the region.

The Need to Challenge Conventional Economic Wisdom: Part I
Adair Turner (Globalist) Aug 1, 2011
How the global financial crisis has forced policymakers to reconsider conventional economic wisdom. He shows the way to a new, more balanced economics.

The Need to Challenge Conventional Economic Wisdom: Part II
Adair Turner (Globalist) Aug 2, 2011
What does the economics profession really know about generating economic growth? Adair Turner explores in part two of his series.

Beware the guns of August Financial Times Subscription Required
Gideon Rachman (FT) Aug 2, 2011
World leaders are kidding themselves if they think that late summer is a safe month in which to head for the hills or the beach.

China’s banks bring new meaning to stress tests Financial Times Subscription Required
Jamil Anderlini (FT) Aug 2, 2011
The remarkable turnround in the country’s financial sector does not, apply to customer service.

Switchback ride puts premium on resilient stocks Financial Times Subscription Required
Derek Scott (FT) Aug 2, 2011
Crisis puts a premium on stocks that will be resilient against anything other than Armageddon (and, relatively, even with it!).

The Second Great Contraction
Kenneth Rogoff (Project Syndicate) Aug 2, 2011
Why is everyone still referring to the recent financial crisis as the “Great Recession”? The term, after all, is predicated on a dangerous misdiagnosis of the problems that confront the US and other countries, leading to bad forecasts and bad policy.

Germany’s capital exports under the euro
Hans-Werner Sinn (VoxEU) Aug 2, 2011
With the fire in the Eurozone still burning, this column asks how it started. It highlights three phases in capital flows since the introduction of the euro. First, capital flowed out of Germany to the booming periphery countries. Second, as the crisis hit, TARGET2 caused a forced capital export from the Bundesbank . Third, public capital flows, which again rely on money from Germany, have only just begun.

Demographic pressure versus labour market space: A global view
Ard den Reijer & Loek Groot (VoxEU) Aug 2, 2011
Fiscal pressure from demographic changes is mounting across the globe. This column asks whether labour markets will create enough jobs. Cross-country comparisons suggest that, until at least 2050, the countries most under pressure will be Poland, Turkey, and Greece.

The Need to Challenge Conventional Economic Wisdom: Part III
Adair Turner (Globalist) Aug 3, 2011
Economic growth may be less important as a pursuit than the economic freedoms that allow growth to occur, argues Adair Turner in the final installment in his three-part series.

China's Wreckage Under Wraps Wall Street Journal Subscription Required
WSJ Aug 3, 2011
Without accountability, each tragedy sparks greater public anger.

Stimulus Optimists vs. Economic Reality Wall Street Journal Subscription Required
Kevin Hassett (WSJ) Aug 3, 2011
Financial crises create long periods of slow growth, for which increased spending isn't the solution.

AAA Rating Is a Rarity in Business New York Times Subscription Required
Eric Dash (NYT) Aug 3, 2011
Hanging over the debt ceiling talks has been the threat of the United States losing its AAA credit rating, but in corporate America, the top status long ago became an anachronism.

Fannie, Freddie Role in the Financial Crisis
Phil Angelides (Bloomberg) Aug 3, 2011
In the six months since the Financial Crisis Inquiry Commission’s report was released, a small band of critics -- with many Congressional Republicans in tow -- has labored mightily to undermine the credibility of the FCIC’s work. They have attacked the report, even as its accuracy has withstood the scrutiny of the financial industry, the media and others.

The coming crises of governments Financial Times Subscription Required
Robert Barro (FT) Aug 3, 2011
The raucous debt-ceiling debate represents a good start in forging a serious long-term fiscal plan, but substantial additional progress will be needed.

Why America deserves to stay triple A Financial Times Subscription Required
Roger Altman (FT) Aug 3, 2011
Now there is no basis for a downgrade. The risks of a default have been removed and deficit reduction is ironclad.

Debt deal darkens fragile US economic outlook Financial Times Subscription Required
Mohamed El-Erian (FT) Aug 3, 2011
Other than eliminating default risk emanating from a self-manufactured crisis, there is nothing good about America’s debt ceiling debacle.

Only the ECB can halt eurozone contagion Financial Times Subscription Required
Paul De Grauwe (FT) Aug 3, 2011
The EFSF will never have the necessary credibility to stop contagion because it cannot actually print money.

Shadow currencies head for bigger future Financial Times Subscription Required
Mansoor Mohi-uddin (FT) Aug 3, 2011
Canada's currency is a proxy for America's, Switzerland's behaves as the former Deutschmark would have and Australia's is a shadow for China's.

The Root of All Sovereign-Debt Crises
Amar Bhidé & Edmund S. Phelps (Project Syndicate) Aug 4, 2011
Irresponsible borrowing by governments in international credit markets requires irresponsible lending. Bank regulators should just say no to such lending by institutions that are already under their purview.

The U.N.'s Imaginary Babies Wall Street Journal Subscription Required
Jonathan Last (WSJ) Aug 4, 2011
Low fertility threatens the world's economic future, but a new report ignores the danger.

Europe's Plan Won't Cut Greek Debt
Peter Allen, Barry Eichengreen and Gary Evans (Bloomberg) Aug 4, 2011
Postmortems of last month’s European Union summit meeting have now turned to why the Greek debt rescue failed to restore investor confidence in the country’s finances. Many reasons are advanced: the failure to communicate clearly; the complexity of the plan; the inability to coordinate with the International Monetary Fund.

World Market Rout Is a Loud No-Confidence Vote in Leaders
Bloomberg Aug 4, 2011
Global markets have issued a vote of no confidence in the management of the world’s two largest economies, the U.S. and the euro area. To regain credibility, leaders on both sides of the Atlantic need to recognize the magnitude of the crisis they face.

China can break free of the dollar trap Financial Times Subscription Required
Yu Yongding (FT) Aug 4, 2011
The lesson China must draw from the US debt ceiling crisis is that it must stop accumulating foreign reserves.

The Global Rout Wall Street Journal Subscription Required
WSJ Aug 5, 2011
The Keynesians have fired all their ammo and here we are.

A Contagion of Bad Ideas
Joseph E. Stiglitz (Project Syndicate) Aug 5, 2011
There has been much concern about financial contagion between Europe and America. But the real problem stems from another form of contagion: bad ideas move easily across borders, and misguided economic notions on both sides of the Atlantic have been reinforcing each other.

From Pain to Gain on the EU Frontier
Daniel Gros (Project Syndicate) Aug 5, 2011
Governments in the eurozone’s periphery, including Spain and Italy, now face a dilemma: they must undertake structural reforms to increase their long-term potential growth, but at the cost of even greater short-term pain. The debt crisis will end only when they have shown that they have understood this and accepted the inevitable sacrifices.

Italy and the euro: Rabbit in headlights
Economist Aug 6, 2011
Silvio Berlusconi appears to have no response to Italy’s deepening economic crisis.

Economics focus: Why the tail wags the dog
Economist Aug 6, 2011
Emerging economies now have greater heft on many measures than developed ones.

Where on earth is everybody? Global migration 1960-2000
Çaglar Özden, Christopher Parsons, Maurice Schiff & Terrie Walmsley (VoxEU) Aug 6, 2011
Migration is an issue not helped by misleading statistics and poor data. This column presents a study bringing together over 1,000 national censuses and population registers for 226 countries and regions between 1960 and 2000.

An historical view on government defaults: Lessons from the 17th century
Steven CA Pincus & James A Robinson (VoxEU) Aug 7, 2011
As financial markets around the world turn in fear of further government defaults, this column asks what lessons can be taken from a fiscal crisis that occurred over 200 years ago.

Mission impossible: stop another recession Financial Times Subscription Required
Aug 7, 2011
The best bet is for those countries that have not lost market access – the US, UK, Japan, and Germany – to introduce new short-term fiscal stimulus while committing to medium-term fiscal austerity, writes Nouriel Roubini

Time for the US to take decisive action Financial Times Subscription Required
FT Aug 7, 2011
In terms of underlying servicing capacity, US Treasuries surely remain among the safest obligations in the world

Europe needs some flexible German thinking Financial Times Subscription Required
Ralph Atkins (FT) Aug 7, 2011
Germany’s policymakers are badly prepared for the crisis management needed to cope with irrational global bond markets.

U.S. Downgrade Heralds a New Financial Era
Mohamed A. El-Erian (PIMCO) Aug 8, 2011
There will be endless debate on whether Standard & Poor’s, the rating agency, was justified in stripping America of its triple A rating and – adding insult to injury – even attaching a negative outlook to the new AA+ rating. But this historic action has taken place, and the global system must now adjust.

The bullets yet to be fired to stop the crisis Financial Times Subscription Required
Kenneth Rogoff (FT) Aug 8, 2011
Any inflation above 2 per cent may seem anathema to many, but a once-in-75-year crisis calls for outside-the-box measures.

Banks need a holiday away from Basel Financial Times Subscription Required
Patrick Jenkins (FT) Aug 8, 2011
Regulatory responses made the mistake of addressing symptoms of the crisis without thinking through potential pitfalls.

Slithering to the wrong kind of union Financial Times Subscription Required
Otmar Issing (FT) Aug 8, 2011
Connecting the initial idea of a political union with developments currently under way is both logically flawed and politically dangerous.

A precipitate, wrong and dangerous decision Financial Times Subscription Required
Bill Miller (FT) Aug 8, 2011
After the downgrade of US debt, a call for an end to the regulatory reliance on ratings.

Eurobonds or Bust
Simon Tilford (Project Syndicate) Aug 8, 2011
The eurozone’s institutional weaknesses have been laid bare. The attempt to run a common monetary policy without a common treasury has failed. Investors do not know what they are buying when they purchase an Italian bond – is it backstopped by Germany or not? We now know that the best credit must stand behind the rest, or else bear runs are inevitable. Debt mutualization alone will not save the euro, but, without it, the eurozone is unlikely to survive intact.

Stagnant and Paralyzed
Michael Spence (Project Syndicate) Aug 8, 2011
The recent dramatic declines in equity markets worldwide are a response to the interaction of two factors: economic fundamentals and policy responses – or, rather, the lack of responses. Too many countries seem to be focused more on political outcomes than on economic performance.

America’s First Debt Crisis
Mark Roe (Project Syndicate) Aug 8, 2011
Both Europe and America should learn a lesson from US history: lost in the haze of patriotic veneration of America’s founding fathers is the fact that they created a new country during – and largely because of – a debt crisis. Might today’s crises one day be seen as a similar moment of political creativity?

Eurozone leaders still don’t get it
Charles Wyplosz (VoxEU) Aug 8, 2011
The Eurozone crisis is accelerating dangerously and could tip the world into a new recession that cannot be fought. Interest rates are already zero and governments cannot borrow much anymore. The spectre of the 1930s, including competitive devaluations and Eurozone break up, is getting dangerously relevant. This column argues that the only way forward is for the ECB to guarantee the entire stock of Eurozone debt and for Eurozone members to adopt effective, national fiscal institutions.

The global saving glut will hold bond yields down
Heleen Mees (VoxEU) Aug 8, 2011
As fears mount of another phase in the global crisis, this column points out that despite the growing uncertainty, US Treasury and German Bund yields have actually declined in recent weeks. The reason, it argues, is the global saving glut theory.

Italy: Call in the G20?
Uri Dadush & Bennett Stancil (VoxEU) Aug 8, 2011
Italy is the latest European country to be the cause of market angst. This column argues that if there is one good thing to come from the recent developments it is that rising Italian interest rates will mean the only options for Eurozone are the long-term solutions to the crisis: increasing competitiveness in the periphery countries and forming a tighter fiscal union.

Don't Panic About the Stock Market Wall Street Journal Subscription Required
Burton Malkiel (WSJ) Aug 8, 2011
Investors who resist the urge to get out during rough times like this will be glad they did.

How to Get That AAA Rating Back Wall Street Journal Subscription Required
Robert Barro (WSJ) Aug 8, 2011
Reagan inherited economic problems and fixed them. Obama's strategy is to blame Bush and Standard & Poor's.

The World's Riskiest Debt
Kenneth Rapoza (Forbes) Aug 8, 2011
A look at some of the riskiest to safest government bonds in the world.

Europe on the edge
Robert J. Samuelson (WP) Aug 8, 2011
The muddle-through formula reaches its limits.

Why Is the Stock Market Plunging?
Robert P. Murphy (Mises Daily) Aug 8, 2011
Investors the world over are still reeling from last Thursday's massive plunge in the US equity markets, in which the major indices all gave up more than 4 percent. It was the worst day for the US stock market since December 2008.

The resilience of emerging markets during the global crisis
Tatiana Didier, Constantino Hevia & Sergio Schmukler (VoxEU) Aug 9, 2011
The global crisis of 2008-09 hit emerging markets nearly as hard as it hit rich countries, which is welcome news compared to previous crises in which emerging markets often suffered much more than developed economies. This column explores emerging economies' growth dynamics since the crisis.

The uncertainty shock will cause a recession: Evidence from 16 previous episode
Nicholas Bloom (VoxEU) Aug 9, 2011
The potentially explosive combination of Eurozone debt contagion, vulnerable banking systems, and European and American political paralysis has pushed stock-market volatility to levels nearly as bad as the days following the 11 September 2001 terrorist attacks. Nobody knows what happens next. This column reviews research on 16 previous shocks and concludes that today’s uncertainty shock will create a short, sharp contraction in late 2011 of about 1% with a rebound coming in spring 2012.

China's Debt Addiction Wall Street Journal Subscription Required
WSJ Aug 9, 2011
Who is Beijing kidding with its chest-thumping economic lectures?

The Global Economy Is Still Growing Wall Street Journal Subscription Required
Eric Chaney and Jean Sorasio (WSJ) Aug 9, 2011
Markets are overreacting to temporary bad news.

Europe's Less Than Perfect Union Wall Street Journal Subscription Required
Walter Russell Mead (WSJ) Aug 9, 2011
The EU's weak response to its financial crises highlights the failings of multinational institutions.

The Euro and the Scalpel
Edward Hugh (FP) Aug 9, 2011
Let's be clear: The European economies are in a life-or-death struggle. And the only smart solution now is to split the common currency in two.

After the S&P Downgrade: It's Anybody's World
Stephan Richter (Globalist) Aug 9, 2011
Does the U.S. credit downgrade mark the end of the country's economic dominance?

Global Economic Downturn: A Crisis of Political Economy
George Friedman (Stratfor) Aug 9, 2011
Classical political economists like Adam Smith or David Ricardo never used the term “economy” by itself. They always used the term “political economy.” For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they are also intimately linked. The use of the term “economy” by itself did not begin until the late 19th century. Smith understood that while an efficient market would emerge from individual choices, those choices were framed by the political system in which they were made, just as the political system was shaped by economic realities. For classical economists, the political and economic systems were intertwined, each dependent on the other for its existence.

Global crisis, global solution
Gordon Brown (WP) Aug 9, 2011
Nations can’t separately fix a world economy.

Global Economy: Is Anybody in Control?
David Dapice (YaleGlobal) Aug 9, 2011
National leaders worldwide resist tackling job creation, growing imbalances and other economic crises

No Turning Back: The ECB Brings Its Balance Sheet to Bear on Italy and Spain
Andrew Balls (PIMCO) Aug 10, 2011
By buying Italian and Spanish government bonds, the European Central Bank has brought a much-needed and credible external balance sheet to bear. Clearly the European Central Bank cannot solve all of the eurozone’s problems. But by preventing a downward spiral of contagion it can hope to restore stability. The engagement of the ECB’s balance sheet is a significant positive development. But there remains huge uncertainty, together with large technical and political execution risk. Given the extent of the challenges, it makes sense for investors to remain cautious on the threats facing the eurozone and the global systemic implications.

Debt: The Forgiveness Fix
Bloomberg Businessweek Aug 10, 2011
For overburdened countries and consumers alike, erasing unpayable debt is a necessary step toward renewed growth.

U.S. Dollar Is The Next Financial Shoe To Drop
Jonathan Sherman (Forbes) Aug 10, 2011
If the currency loses its global reserve status, as some suggest it should, expect catastrophic foreign flight and marked devaluation.

The Manufacturing Imperative
Dani Rodrik (Project Syndicate) Aug 10, 2011
We may live in a post-industrial age, in which information technologies, biotech, and high-value services have become drivers of economic growth. But countries ignore the health of their manufacturing industries at their peril.

Unrest and budget cuts over the long run
Jacopo Ponticelli & Hans-Joachim Voth (VoxEU) Aug 10, 2011
Governments cutting budget deficits have to consider not just the political reaction of the opposition and the media. A backlash on the streets, in the form of unrest and politically-motivated violence, is a real possibility. This column shows that since 1919, the level of instability has typically risen at the same time as budget cuts are implemented.

Beware the ECB’s brave new world Financial Times Subscription Required
Martin Sandbu (FT) Aug 10, 2011
Jean-Claude Trichet has yet to prove if he is Europe’s great defender or a Molotov cocktail-throwing radical.

How to make the best of the long malaise Financial Times Subscription Required
Joseph Stiglitz (FT) Aug 10, 2011
There is an answer for countries that can borrow at low rates: use the money to make high-return investments.

Loans to a king do not always pay Financial Times Subscription Required
John Kay (FT) Aug 10, 2011
The issue is not the capacity of government to repay; the issue is the willingness of government to repay.

Panic measures will ruin the Bric recovery Financial Times Subscription Required
Jim O’Neill (FT) Aug 10, 2011
G7 policymakers must think carefully about the consequences of any fresh monetary stimulus.

Rouble poses worrying parallels for euro crisis Financial Times Subscription Required
Stephen King (FT) Aug 10, 2011
Single currency must learn lessons of old Soviet zone failure.

Bring Back the D-Mark Wall Street Journal Subscription Required
Holman Jenkins (WSJ) Aug 10, 2011
Germany and its solvent neighbors should leave the eurozone in favor of a new currency.

Financial Turmoil Evokes Comparison to 2008 Crisis New York Times Subscription Required
NYT Aug 10, 2011
Stocks are plummeting. The economy is slowing. Politicians seek solutions but can't agree. Is 2011's turmoil a repeat of the financial crisis of 2008?

Where Will Growth Come From? New York Times Subscription Required
NYT Aug 10, 2011
Developing countries can help spur economic growth, but the big burden falls on the industrialized nations.

Economic Recovery Doubts Cloud Markets
Jonathan Masters (CFR) Aug 10, 2011
International financial market upheaval continues in response to eurozone worries and the U.S. Federal Reserve's decision to keep its benchmark rate near zero until mid-2013. Analysts are divided on whether the Fed's move will curb volatility.

Greek Lessons for Italy and Spain
Elias Papaioannou and Dimitri Vayanos (Bloomberg) Aug 10, 2011
The crisis in the euro region is spreading to Italy and Spain, triggering emergency purchases of those countries’ bonds by the European Central Bank.

Can the Sun Save Greece?
Georg Zachmann (Project Syndicate) Aug 11, 2011
German Finance Minister Wolfgang Schäuble has proposed that developing solar-energy resources could be a good way for Greece to generate much-needed economic growth. But, while that sounds like a perfect solution to the country’s dire fiscal problems, the impact on Greece's current account would be disappointing.

What Can Replace the Dollar?
Barry Eichengreen (Project Syndicate) Aug 11, 2011
Already before the recent US debt-ceiling imbroglio, the dollar had begun losing its luster as a global reserve currency. But, with the euro facing serious problems of its own, what can replace the greenback?

August 2011: The euro crisis reaches the core
Daniel Gros (VoxEU) Aug 11, 2011
Investors are anticipating the unravelling of the 21 July 2011 “solution” and a breakdown of the interbank-market that would throw the economy into an “immediate recession” like the one experienced after the Lehman bankruptcy. This column argues that this will happen without quick and bold action. The EFSF can’t work as designed but if it were registered as a bank – which would give it access to unlimited ECB re-financing – governments could stop the generalised breakdown of confidence while leaving the management of public debt in the hand of the finance ministers.

Did anti-regulation lobbying fuel the subprime crisis?
Deniz Igan & Prachi Mishra (VoxEU) Aug 11, 2011
Did anti-regulation lobbying fuel the subprime crisis? This column shows that there is a strong relationship between financial industry lobbying and favourable financial regulation legislation. It argues that the financial industry fought, and defeated, measures that might have curbed some of the reckless lending practices that many think played a pivotal role in igniting the crisis.

America as Less Than No. 1 Wall Street Journal Subscription Required
Daniel Henninger (WSJ) Aug 11, 2011
This is what a shrinking superpower will feel like. Enjoying it yet?

The Folly of Economic Short-Termism Wall Street Journal Subscription Required
Allan Meltzer (WSJ) Aug 11, 2011
Easy money and more government spending won't help. We need policies that encourage long-term productivity growth.

Identifying systemically important financial institutions (SIFIs) Adobe Acrobat Required
Christian Weistroffer (DB Research) Aug 11, 2011
As part of the search for an adequate response to systemic risk, policy makers seek to identify financial institutions whose going-concern is crucial for the smooth functioning of the financial system. Designated institutions are potential candidates for tighter supervision and additional loss absorbency requirements. While new policies are still under discussion, it is clear that the indicators and methodologies used to identify systemically important institutions will be key in promoting a more stable financial system. This study highlights the difference between the aim of identifying systemically important institutions and the benchmarking of those institutions for regulatory purposes. It argues that the methodologies currently under discussion do not adequately take into account the response of market participants to the proposed SIFI regime. In order to enhance systemic stability, global activity should be excluded from the benchmark framework and resolvability be established as a central theme in SIFI designation.

Cash-rich investors choose crazy Treasury returns Financial Times Subscription Required
Gillian Tett (FT) Aug 11, 2011
Investors are searching for safe havens; terrified about growth; worrying about deflation; chasing momentum – or all four.

How to make monkeys out of rating agencies Financial Times Subscription Required
Peter Tasker (FT) Aug 11, 2011
Japan’s government bond market is the world’s second largest. It cannot be dismissed like some crazy aunt in the attic.

The best of weeks, the worst of weeks for Switzerland Financial Times Subscription Required
Haig Simonian (FT) Aug 11, 2011
The franc’s ascent sends foreign exchange traders into a spin, as the country makes the transition to transparent wealth management centre.

'Botox' economics triggers toxic eurozone side-effects Financial Times Subscription Required
Satyajit Das (FT) Aug 11, 2011
This crisis is different to Lehman, it involves entire nations and cannot be backstopped.

Global Markets: America’s Fourth Branch of Government
Edward Goldberg (Globalist) Aug 11, 2011
If America fails to find the will to reform its democracy, then a new fourth branch of government — the globalized marketplace — will do so without the consent of the governed.

Addressing the Root Cause of Europe’s Debt Woes
John Bruton (Globalist) Aug 12, 2011
The sovereign debt woes plaguing Europe are but a symptom of a larger disease: a profound loss of competitiveness.

Sovereign risk, macroeconomic instability
Giancarlo Corsetti & Gernot Müller (VoxEU) Aug 12, 2011
With sharply rising sovereign risk spreads, few governments can consider their public finances beyond doubt. This column explores the macroeconomic consequences of austerity when sovereign risk is high.

Global crises and equity market contagion: Lessons from 2007-2009
Geert Bekaert, Michael Ehrmann, Marcel Fratzscher & Arnaud Mehl (VoxEU) Aug 12, 2011
As financial markets take another turn, this column explores lessons from the global crisis of 2007-2009 and discusses the source and determinants of contagion. It argues that real and financial linkages to the US or the global economy played a relatively minor role. Instead the crisis was a “wake-up call” to investors to pay more attention to countries’ policies and fundamentals.

What can CDS spreads really tell us about sovereign default probabilities
Kevin Körner (DB Research) Aug 12, 2011
Risk premia for bonds issued by strongly indebted industrial countries have risen sharply in recent months. In this context, DB Research presents an extended online application to extract CDS-implied default probabilities for 34 developed and emerging economies.

Global: Unconventional Unconventional Policy
Manoj Pradhan & Spyros Andreopoulos (MS GEF) Aug 12, 2011
Despite higher thresholds to easing, the global central bank can deliver effective easing by taking an unconventional approach to conventional and unconventional policy.

CEEMEA: Back to 2008? Contagion Risks and Policy Responses in CEEMEA
Tevfik Aksoy, Pasquale Diana, Alina Slyusarchuk, Jarek Strzalkowski, Michael Kafe & Andrea Masia (MS GEF) Aug 12, 2011
We look assess what type of policy measure the authorities might employ to defend the economy from a recession or extreme market stress.

A Dim Light on Global Warming
Bjørn Lomborg (Project Syndicate) Aug 12, 2011
Amid a growing wave of concern about climate change, many countries – including Brazil, Australia, the US, and EU members – passed laws in the 2000’s outlawing or severely restricting access to incandescent light bulbs. But the real problem, as ever, is that the new technology is not yet as attractive as the old.

Financial Aftershocks With Precedent in History New York Times Subscription Required
James B. Stewart (NYT) Aug 12, 2011
Recent events bear an intriguing resemblance to 1937-38, and the recession within a Depression, which galvanized policy makers who had grown complacent about the recovery.

America’s downgrade: Substandard & Poor
Economist Aug 13, 2011
The messenger may be flawed, but the United States should take heed of the message.

China International Fund: The Queensway syndicate and the Africa trade
Economist Aug 13, 2011
China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals.

Official development assistance: Aid 2.0 Economist Subscription Required
Economist Aug 13, 2011
India is thinking about setting up its own aid agency. Why should others give aid to India?

French fears: Pummelled Economist Subscription Required
Economist Aug 13, 2011
Markets go into a panic about France.

Latin America’s economies: The balancing act
Economist Aug 13, 2011
The region faces slower growth, but not disaster. To up the pace, now is the time for reforms to boost productivity.

Central banking and the crisis: Emergency manoeuvres
Economist Aug 13, 2011
With developed economies in dire straits, central bankers have taken the tiller. Not all of them are happy about that

An institutional bailout plan for Greece
Elias Papaioannou & Dimitri Vayanos (VoxEU) Aug 13, 2011
Greece’s bailout plan – agreed more than a year ago – is failing to meet some of its key objectives. This column argues that the ECB, EU, and IMF should be wary of focusing on short-term goals and instead strive for an institutional framework that can drive the long-term growth of the Greek economy.

Can Jeremy Grantham Profit From Ecological Mayhem? New York Times Subscription Required
Carlo Rotella (NYT) Aug 13, 2011
Jeremy Grantham is a rare species an environmentalist in the Wall Street jungle but make no mistake: he intends to make money whether or not the world heeds his apocalyptic warnings.

Greek Debt Crisis: The Back Story New York Times Subscription Required
Nancy F. Koehn (NYT) Aug 13, 2011
In a new book, the hedge fund founder Jason Manolopoulos analyzes the roots of Greece's problems and the larger reverberations.

Global meltdown: Is Paris next?
Nita Ghei (Washington Times) Aug 13, 2011
With markets tumbling on both sides of the Atlantic, French President Nicolas Sarkozy interrupted his summer vacation to hold an emergency meeting about the crisis.

Three steps to resolving the eurozone crisis Financial Times Subscription Required
George Soros (FT) Aug 14, 2011
Something like a European finance ministry that has political as well as financial legitimacy could emerge from a profound rethinking of the euro.

Global recovery requires political courage Financial Times Subscription Required
Jim Flaherty, Pravin Gordhan, George Osborne, Tharman Shanmugaratnam and Wayne Swan (FT) Aug 14, 2011
Banking systems must be strengthened and financial regulation co-ordinated at a global level. Trade negotiations must also take place.

The Swiss enter Alice in Wonderland territory Financial Times Subscription Required
Gillian Tett (FT) Aug 14, 2011
The hope is that shock therapy will push market rates into such negative terrain, foreigners will not want to hold francs.

Current-account imbalances: Can structural policies make a difference in Germany?
Fabian Bornhorst & Anna Ivanova (VoxEU) Aug 15, 2011
The German current-account surplus peaked at 7½% of GDP in 2007, coinciding with the emergence of imbalances elsewhere. This column argues that these large imbalances in large part reflected a booming world economy rather than structural factors. It adds that any sustainable rebalancing would require an ambitious reform agenda aimed at raising Germany’s potential growth with greater reliance on domestic demand.

How to Resolve the Euro Crisis
George Soros (Project Syndicate) Aug 15, 2011
A comprehensive solution of the euro crisis must have three major components: reform and recapitalization of the banking system, a eurobond regime, and an exit mechanism.

Is Capitalism Doomed?
Nouriel Roubini (Project Syndicate) Aug 15, 2011
Karl Marx was right, it seems, in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. So what can be done to prevent that outcome?

A three-pillar solution to the Eurozone crisis
Javier Suarez (VoxEU) Aug 15, 2011
The current Eurozone crisis shows no sign of abating. This column proposes a solution built on three pillars: A Eurozone Charter, a Eurobond Programme, and a Debt Restructuring Programme for insolvent countries.

The Nixon Shock Heard 'Round the World Wall Street Journal Subscription Required
Lewis E. Lehrman (WSJ) Aug 15, 2011
By severing the dollar's convertibility to gold in 1971, the president ushered in a decade of inflation and economic stagnation.

Why we cannot inflate our way out of debt Financial Times Subscription Required
Raghuram Rajan (FT) Aug 15, 2011
If a central bank abandons its inflation target for growth, will markets believe it has the stomach for high, growth-killing interest rates to reduce inflation.

Don’t let fiscal brakes stall global recovery Financial Times Subscription Required
Christine Lagarde (FT) Aug 15, 2011
Markets dislike high public debt, but as we saw last week, they dislike low or negative growth even more.

Time to question the dollar's role as reserve Financial Times Subscription Required
Ousmène Mandeng (FT) Aug 15, 2011
The use of the greenback provides many advantages but it has made the system increasingly susceptible to its problems.

Fiat Money: The Root Cause Of Our Financial Disaster
Ralph Benko (Forbes) Aug 15, 2011
Is it possible that the ghastly unemployment, stagnant growth (and possible double-dip recession), and financial market convulsions all can traced back to one single decision? Perhaps.

Europe’s Central Bank at Sea
Mohamed A. El-Erian (Project Syndicate) Aug 16, 2011
Had the ECB known at the start of Europe’s debt crisis that the endgame would be neither simple, nor orderly, it might have resisted risking its balance sheet and reputation. Then again, it probably could not have done otherwise.

Who Will Win the Clean-Energy Revolution?
Phyllis Cuttino & Michael Liebreich Aug 16, 2011
In less than a decade, clean energy has grown from a niche industry to a significant source of trade, investment, manufacturing, and job creation. Much of that growth has been fueled by Europe, but Asia is now poised to claim the global lead, owing mainly to China's surge of investment.

Do fiscal spillovers matter for the recovery? New projections
Anna Ivanova & Sebastian Weber (VoxEU) Aug 16, 2011
As governments continue their planned spending cuts, this column argues that the short-term effects on growth could be large. But based on its projections for 20 large economies, it says that the international spillovers are likely to be limited – except perhaps for small, open economies.

European stress tests: Good or bad news?
Marco Onado (VoxEU) Aug 16, 2011
The July stress-test results for European banks have prompted a downward spiral of bank stock prices. This column argues that it is time we called the situation a solvency problem and policymakers started getting serious.

Argentine lessons for Europe: Sovereign debt and banking crises
Miguel Kiguel (VoxEU) Aug 16, 2011
A decade ago Argentina was in the midst of a severe economic crisis. This column argues that the episode offers lessons for the Eurozone today. Unless Greece takes major steps to improve its competitiveness and growth prospects, the country has little hope to get out of this crisis.

Lesson From Europe (Take 2) Wall Street Journal Subscription Required
Bret Stephens (WSJ) Aug 16, 2011
No, social democracy doesn't 'work.'

Short on Solutions Wall Street Journal Subscription Required
Aug 16, 2011
The ban on betting against bank stocks won't fix the euro.

Global: Structural Alpha, Cyclical Beta
Manoj Pradhan (MS GEF) Aug 16, 2011
There are two sources of contagion for global growth shocks to affect EM economies, but only one of them is inevitable.

Markets Go From Nightmare to Bad Dream
Vincent R. Reinhart (Bloomberg) Aug 16, 2011
If you can keep your head when all about you are losing theirs, then you probably haven’t been following global financial markets over the past few weeks.

Europe need not wait for Germany Financial Times Subscription Required
Martin Sandbu (FT) Aug 16, 2011
The solution is to leave Berlin behind. Eleven eurozone countries can create a €3,500bn bond market on their own.

Ireland’s unexpected economic comeback Financial Times Subscription Required
David Vines and Max Watson (FT) Aug 16, 2011
Ireland is swiftly restoring its competitive edge and moving rapidly towards a sizeable current account surplus.

Bond vigilantes focus on ability to print money Financial Times Subscription Required
John Plender (FT) Aug 16, 2011
The markets are convinced that unless France and Germany are prepared to stump up a great deal more for Italy and Spain default is likely.

Can Math Beat Financial Markets?
David Biello (SciAm) Aug 16, 2011
Mathematical models help assess risk, but woe betide those who think math can predict stock market gains and losses.

The Eurozone Fights for Survival – Part I
François Godement (YaleGlobal) Aug 16, 2011
To avoid nasty surprises, Europe and China’s financial partnership should include public statistics

The Economic Consequences of Syria's Social Unrest
Lahcen Achy (CEIP/LAT) Aug 17, 2011
Popular protests in Syria over the last five months have caused a notable decline in the country’s economic indicators.

The Challenging Billions
David Bloom (Project Syndicate) Aug 17, 2011
While the human race took perhaps one million years to reach one billion people (around the year 1800), we have been adding successive billions every 10-20 years since 1960. Will we be able to meet the population challenge, just as we have met previous challenges, through technological and institutional innovation?

Sino-US financial imbalances bound to grow further - Beijing may end up holding full 1/3 of all outstanding US treasuries by 2015
Markus Jaeger (DB Research) Aug 17, 2011
China’s official FX reserves hit a stunning USD 3.2 tr in July. Beijing will have no choice but to accumulate US government debt for the foreseeable future. Under the IMF baseline scenario, China could end up holding close to 1/3 of all US treasuries (held by the public). But even under less “aggressive” scenarios, Beijing’s exposure to Washington and Washington’s reliance on Beijing will continue to grow – possible Chinese measures aimed at limiting holdings of US debt notwithstanding. The financial stakes in Sino-US relations will be increasing for the foreseeable future – raising the bilateral economic and political stakes between the world’s two largest economies.

The great failure of globalisation Financial Times Subscription Required Recommended!
Jeffrey Sachs (FT) Aug 17, 2011
The simple fact is that globalisation has not only hit the unskilled hard but has also proved a bonanza for the global super-rich.

Breaking Europe’s cycle of enfeeblement Financial Times Subscription Required
Mark Leonard (FT) Aug 17, 2011
The enlargement project has ground to a halt and the EU, once wooed by Turkey, is now branded comatose, stagnant and geriatric.

The water industry must take on the world Financial Times Subscription Required
Nick Butler and Ian Pearson (FT) Aug 17, 2011
Just as energy and electricity have become international, so we need to see truly global water multinationals.

Policymakers must address uncertainty not add to it Financial Times Subscription Required
Peter R. Fisher (FT) Aug 17, 2011
Investors' quest for returns in a low-growth and unsettled world will not ensure a good outcome for the world economy.

This Time, Russia Is Prepared for a Global Downturn New York Times Subscription Required
NYT Aug 17, 2011
In the past, Russia was severely affected by global financial crises. Now its private sector has cut its debt and its banks are sound.

The eurozone stalls
Washington Times Aug 17, 2011
Europe's economic powerhouse is faltering. The vital German economy slowed to a dangerous 0.1 percent level of growth in the second quarter of the year. That suggests the entire 17-country eurozone soon could find itself in a double-dip recession with no quick or easy way out of the misery.

Message to All: End the Global Economic Blame Game
Stephan Richter (Globalist) Aug 17, 2011
Why is blame-shifting far from the ideal response for a world that finds itself in considerable trouble?

Market psychology, high unemployment, and rational bubbles
Roger E. A. Farmer (VoxEU) Aug 18, 2011
One explanation for the 2007-09 global crisis is that consumers, markets, and politicians were gripped by “irrational exuberance” that led them to believe the record-high house prices and stock prices were sustainable. This column proposes a new explanation based on rational behaviour and microeconomic theory. It argues that however high stock prices rise, there is always an equilibrium in which they can rise further.

Eurozone crisis: Are we losing the patient?
Stefano Micossi (VoxEU) Aug 18, 2011
Is the euro a dying patient? This column argues that policymakers need to put up a credible defence, lest they risk the Eurozone altogether. The ECB must be empowered to purchase distressed sovereign debt as the need arises, the EFSF must be able to issue Union-bonds to the scale required to relieve the ECB when required, and the link must be broken between single loans and national public debt.

The European Central Bank as a lender of last resort
Paul De Grauwe (VoxEU) Aug 18, 2011
With the Eurozone crisis casting doubt over the solvency of Spain and Italy, the ECB has once again intervened to provide liquidity in the government bond markets. This column asks the question: Is there such a role for the ECB as a lender of last resort?

Eurobonds without Fear
Andres Velasco (Project Syndicate) Aug 18, 2011
The debate about whether and how to introduce Eurobonds has focused on the appropriate limits on issuance. But the right question is not what to do when debt gets near its limit, however high or low; it is how to prevent debt from getting near that limit in the first place.

Enter the Dragon: China’s $3.2 Trillion Headache
Yao Yang (Project Syndicate) Aug 18, 2011
While the downgrade of US government debt by Standard & Poor’s shocked global financial markets, China has more reason to worry than most: the bulk of its $3.2 trillion in official foreign reserves – more than 60% – is denominated in dollars. What's worse, from China's perspective, is that there is no short-run method to diversify these holdings.

Star traders, rip-offs and old-style bankers Financial Times Subscription Required
John Plender (FT) Aug 18, 2011
A move of proprietary traders to the hedge fund arena is an outbreak of common sense in a still troubled financial world.

Why Africa is leaving Europe behind Financial Times Subscription Required
William Wallis (FT) Aug 18, 2011
A stage once dominated by jaded former colonial powers now hosts new powers queueing up to seize opportunities.

Sell-off highlights Asia’s misplaced optimism Financial Times Subscription Required
Henny Sender (FT) Aug 18, 2011
The region had begun to believe it was different but the recent sell-off shows such complacency is misguided, for now at least.

Austerity Is the Wrong Idea New York Times Subscription Required
NYT Aug 18, 2011
An insistence on austerity is threatening economic growth in Europe and the United States. Voters on both sides of the Atlantic need to demand more from their leaders.

A Rudderless World New York Times Subscription Required
Aug 18, 2011
Kishore Mahbubani (IHT/NYT) Aug 18, 2011
If ever there were a moment for a global leader to step up, this is it. So why is no leader emerging?

Converted to the U.S.-Colombia FTA cause
Mark Schneider (Washington Times) Aug 18, 2011
Now that Congress is returning from the August recess with plans to vote on pending free-trade agreements, partisan bickering must not be allowed to kill the U.S.-Colombia Free Trade Agreement (FTA). The Colombia of President Juan Manuel Santos is a far different country from the Colombia of his predecessor, Alvaro Uribe. Liberals should recognize that some progress has been made on human rights concerns that kept them from supporting the agreement for nearly five years.

Slower growth in China: How much of a drag on the global economy? Adobe Acrobat Required
Steffen Dyck, Jochen Möbert & Oliver Rakau (DB Research) Aug 18, 2011
China’s expected growth slowdown - from 10.3% yoy in 2010 to 8,9% this year and 8.3% in 2012 - will impact the global economy in a number of ways: Chinese demand for G3 exports will likely slow to an average of 15% in 2011 and to 7% in 2012. Adding indirect effects like slowing investment, rising unemployment and weaker consumption suggest that Japan and Germany would be hit harder than the US. Furthermore, growth in commodity prices would slow to 6-8% in 2011-12. Reduced inflationary pressures in both DM and EM economies would be a clear benefit, but global stock markets would be vulnerable to lower Chinese growth given that commodity-linked companies account for 20% of the MSCI-World index and around one third of the index is accounted for by companies which derive substantial revenues from China.

Life After Debt
James Macdonald (FP) Aug 18, 2011
In this month's market upheavals in the United States and Europe, we are witnessing the end of a seven-decade economic experiment. But does anyone have any clue what comes next?

The Eurozone Fights for Survival – Part II
Joergen Oerstroem Moeller (YaleGlobal) Aug 18, 2011
European nations that abandon the union would be pariahs in the financial markets.

How Europe and the United States Dropped the Baton
Bernard Wasow (Globalist) Aug 18, 2011
What the end of U.S. and European global dominance means for the world economy.

Europe's Long Arduous Road to Sound Eurobonds
Jacob Funk Kirkegaard (PIIE) Aug 18, 2011
European crisis management usually consists of avoiding the worst outcome. Yet in five decades the continent has established the most successful example of a politically and economically integrated region in the world. Now, as it becomes clear to European policymakers that avoiding the worst outcome for the euro (e.g., a break up of the euro area) might require previously unthinkable things like a eurobond, the implications for the long-term direction of the EU and the euro area are tremendous.

US gropes, muscular China wrestles
Benjamin A Shobert (AT) Aug 19, 2011
As the United States model of reliance on free-market forces coupled to political liberalization sinks further into the mire, two camps in China are slugging it out to wrestle with capitalism, post 2008. Caped crusaders in the Rightist corner follow the Stars and Stripes, while the pants of those in the New Left corner are emblazoned with "democracy with Chinese characteristics".

Europe’s Financial Wasteland
Howard Davies (Project Syndicate) Aug 19, 2011
“April is the cruelest month,” wrote T.S. Eliot at the beginning of his great poem, “The Waste Land.” But, if Eliot had been a professional investor who had observed European financial markets over the last few years, his choice most likely would have been August.

Innovations in the real economy thrive on modern financial markets
Thomas Mayer (VoxEU) Aug 19, 2011
Against the backdrop of noise about the damage financial markets can cause, this column focuses on the positives. It presents an analysis of innovation at 1,200 firms worldwide and finds that financial markets usually award a premium to innovative firms, though this premium differs across countries. Economies with more active financial markets have higher innovation – which may be a driver of faster productivity growth.

Global: Dangerously Close to Recession
Joachim Fels & Manoj Pradhan (MS GEF) Aug 19, 2011
Our revised forecasts show the US and the euro area hovering dangerously close to a recession over the next 6-12 months.

China’s currency: Redback and forth
Economist Aug 20, 2011
The yuan is flowing beyond China’s borders—and back again.

Europe and the euro: The bonds that tie—or untie
Economist Aug 20, 2011
European leaders need to think and act more boldly to stem the euro crisis.

India's Corruption Problem
Sumit Ganguly (FA) Aug 20, 2011
Recent anti-corruption protests have managed to stoke anger among significant segments of India's electorate. The current government will not be able to fend it off without making some tangible concessions, such as extending the scope of the anti-corruption bill currently under discussion in India's parliament.

The two faces of Wal-Mart in Mexico
Leonardo Iacovone, Beata Javorcik, Wolfgang Keller & James R Tybout (VoxEU) Aug 20, 2011
The entry of Wal-Mart into Mexico 20 years ago has reshaped the country’s industrial structure. This column argues that the effect has been polarising. While Wal-Mart’s retailing power has helped more productive companies expand their market shares and boost productivity, the retailer’s pressure to lower prices and innovate has pushed down mark-ups and marginalised less capable producers.

Trichet’s legacy: keeping the show on the road Financial Times Subscription Required
Ralph Atkins (FT) Aug 21, 2011
No doubt the ECB president would like his legacy to be as ‘the man who saved the euro’, not ‘the central banker who went too far’.

India’s revolt against the undeserving rich Financial Times Subscription Required
Rana Dasgupta (FT) Aug 21, 2011
The protests are not necessarily generous or gentle. India’s middle classes want back what has been taken from them.

Europe struggles with path to fiscal union Financial Times Subscription Required
Peter Spiegel (FT) Aug 21, 2011
Eurozone leaders have spoken for moving towards economic harmony, but actions have told a different story.

Five Steps to Solving Europe's Debt Crisis New York Times Subscription Required
Aug 18, 2011
Peter Thal Larsen (NYT) Aug 21, 2011
Politicians and voters who balk at lending to other countries would have to be persuaded to underwrite the euro zone's financial system.

Minimum Requirements for Sound Eurobonds
Jacob Funk Kirkegaard (PIIE) Aug 22, 2011
Sometimes old promises come in handy. European Union Commissioner Olli Rehn must be pleased that back in June he promised to prepare a "feasibility study" before the end of the year on the topic du jour in Europe, namely eurobonds. As the European Commission will soon forcefully wade into Europe's imminent and far-reaching debate about eurobonds, Commissioner Rehn can deny charges that the study was foisted on Europe by "elitist Brussels-based bureaucratic policy opportunism." Instead he can just refer to his old commitments to elected EU parliamentarians.

Eurozone leaders still don’t get it
Charles Wyplosz (VoxEU) Aug 22, 2011
The Eurozone crisis is accelerating dangerously, bringing us to the brink of what would be history’s biggest ever financial rout. The spectre of the 1930s, including competitive devaluations and Eurozone break up, is getting dangerously relevant. This revised column argues that last week’s policy changes are not sufficient. Getting ahead of the crisis will require a guarantee for the entire stock of Eurozone debt – either by the ECB, or via some sort of Eurobond scheme.

The uncertainty shock will cause a recession: Evidence from 16 previous episodes
Nicholas Bloom (VoxEU) Aug 22, 2011
The potentially explosive combination of Eurozone debt contagion, vulnerable banking systems, and European and American political paralysis has pushed stock-market volatility to levels nearly as bad as the days following the 11 September 2001 terrorist attacks. Nobody knows what happens next. This column reviews research on 16 previous shocks and concludes that today’s uncertainty shock will create a short, sharp contraction in late 2011 of about 1% with a rebound coming in spring 2012.

Food prices: still high, and volatile
Claire Schaffnit-Chatterjee (DB Research) Aug 22, 2011
In spite of small short-lived decreases in late June and early July, global food prices remain at high levels and volatile. Food prices in July 2011 were significantly higher than a year ago and close to the 2008 peak levels. The World Bank Food Index in July was 33% higher than a year ago. Corn and wheat prices declined in June/early July before rising again. The price of rice fell from February to May, but has since increased.

A bigger, bolder fund can stop the next crash Financial Times Subscription Required
Hendrikus Johannes Witteveen (FT) Aug 22, 2011
A new ‘debt facility’ would allow the fund to provide temporary financing even for a big country such as Italy.

China's challenge: drive growth without inflation Financial Times Subscription Required
Jing Ulrich (FT) Aug 22, 2011
Amid concerns about the global economic outlook, what might Beijing do in the event of a double-dip recession in the US or Europe?

The European Conundrum New York Times Subscription Required
Aug 18, 2011
Christine Ockrent (IHT/NYT) Aug 22, 2011
Federalism may be a foul word to some, but we need more of it. If Europe dies, what will we have left?

Somalia's Starvation
Ken Menkhaus (FA) Aug 22, 2011
The ongoing famine in Somalia has placed millions of lives at risk. To feed its victims and prepare for what comes next, the United States and its allies must expand food aid and ramp up the pressure on al Shabab.

The Destructive Power of the Financial Markets
Der Spiegel Aug 22, 2011
Speculators are betting against the euro, banks are taking incalculable risks and the markets are in turmoil. Three years after the Lehman Brothers bankruptcy, the financial industry has become a threat to the global economy again. Governments missed the chance to regulate the industry, and another crash is just a matter of time.

The Outsourcing Bogeyman
Jagdish Bhagwati (Project Syndicate) Aug 23, 2011
If free trade is to regain the support of statesmen who now hesitate over liberalizing trade with developing countries, the myths that turn outsourcing of services into an epithet must be countered. What few understand is that everyone wins from such trade flows.

China’s New Currency Policy
Martin Feldstein (Project Syndicate) Aug 23, 2011
The Chinese government may be about to let the renminbi-dollar exchange rate rise more rapidly in the coming months than it did during the past year. There are two fundamental reasons why the authorities might choose such a policy: reducing its portfolio risk and containing domestic inflation.

India's Economy Is Souring, Too Wall Street Journal Subscription Required
Chetan Ahya (WSJ) Aug 23, 2011
Stimulus spending doesn't work on the subcontinent either.

The Cult of Incompetent Bankers
Dean Baker (Counterpunch) Aug 23, 2011
When will the walls of the central banks fall?

Why western ways are still winning Financial Times Subscription Required
Martin Sandbu (FT) Aug 23, 2011
Prosperity is worthless if it cannot be enjoyed in safety and freedom. Here too, liberal democracies lead the world.

Don’t expect China et al to save the world Financial Times Subscription Required
Dani Rodrik (FT) Aug 23, 2011
Sustained development of the type that a handful of countries in Asia have managed to generate requires more than conventional macroeconomic and openness policies.

Sex, lies and pitfalls of overblown statistics Financial Times Subscription Required
John Kay (FT) Aug 23, 2011
When the data point to an unexpected finding, consider the possibility that the problem is a feature of the data not of the world.

Fanciful and dangerous risks of a eurobond panacea Financial Times Subscription Required
Richard Milne (FT) Aug 23, 2011
Some people's fancy in the markets that eurobonds could be born at a weekend at the peak of a crisis seems just that: fanciful, as well as hazardous.

Drivers of global capital flows: Pushes or pulls?
Marcel Fratzscher (VoxEU) Aug 23, 2011
Capital flows are booming—rising to unprecedented magnitudes since the global crisis. What should policymakers do to avoid the vagaries of such fickle flows? This column argues that while there are global factors, much of the flows to emerging markets stem from nation-specific “pull” factors. This suggests that policy responses should focus on improving institutions, deepening financial markets, and enhancing macroeconomic and prudential policies.

Inside The Sinosphere: China's New "Diaspora" Economy
Joel Kotkin (Forbes) Aug 23, 2011
Taiwan, H.K. and Singapore firms nurtured China's manufacturing prowess. Now Beijing hopes that diaspora talent will lead the country into the first ranks of the global digital economy.

Bankers without Borders
Jan Schildbach (Project Syndicate) Aug 24, 2011
At the height of the financial crisis, it seemed as if Western banks would pull up their foreign stakes and go home, leaving financial markets much more fragmented along national lines. But, as a new report by Deutsche Bank Research shows, banks’ cross-border business – direct or via branches or subsidiaries – has now broadly stabilized.

Eurobonds are the wrong solution
Daniel Gros (VoxEU) Aug 24, 2011
Eurobonds are being touted as the silver bullet to resolve the Eurozone crisis. This column argues that the Eurobonds proposal fails on legal, political, and economic grounds. It says that, whatever the variant, Eurobonds only make sense in a political union—and given the vast differences in national political systems and their quality of governance, any political union created on paper will not work in practice.

Much Ado About Debt: Dollar vs. Euro
Axel Merk (Merk Funds) Aug 24, 2011
A key reason for recent market turmoil may be the long overdue untangling of important debt-driven interdependencies between the U.S. and Europe. In our analysis, not only has the Federal Reserve’s (Fed’s) ultra-low monetary policy taken away any incentive to engage in meaningful reform in the U.S., but the easy money also spilled far beyond U.S. shores, providing European banks with hundreds of billions of reasons not to shore up their capital bases. With volatility riding high, investors appear to be chasing emotions rather than facts; let’s take a step back, and in an effort to understand where the Fed, the U.S. dollar and the euro might be heading next, let’s focus on facts rather than emotion.

Britain should bite the bullet and back a eurobond Financial Times Subscription Required
Chris Giles (FT) Aug 24, 2011
If issuing single currency debt is in Germany’s interests to prevent a breakdown of the eurozone, the same applies to Britain.

End the charade in talks on global trade Financial Times Subscription Required
Jean-Pierre Lehmann (FT) Aug 24, 2011
Pascal Lamy must be commended for his efforts, but there is a need for fresh blood.

Japan's forex intervention dilemma Financial Times Subscription Required
Yunosuke Ikeda (FT) Aug 24, 2011
As currency strategists stay at their desks in case of further action from the Ministry of Finance, the deeper consequences of such moves are less obvious.

Does America Need Manufacturing? New York Times Subscription Required
Jon Gertner (NYT) Aug 24, 2011
Amid the working-class ruins of Michigan, the Obama administration is pursuing what amounts to a stealth industrial policy.

Countering China's Economic Dominance
Arvind Subramanian (PIIE/Business Standard) Aug 24, 2011
Bismarck famously said of the United States that it had managed to "surround itself on two sides with weak neighbors and on the other two sides with fish." India, unfortunately, does not enjoy this luxury of splendid isolation: instead of fish it has Pakistan on one side and China on the other, a China that is on the verge of becoming economically dominant, sharing that status with the United States for now and enjoying it exclusively in the near future.

One Number Says it All
Stephen S. Roach (Project Syndicate) Aug 25, 2011
The US economy – and the global economy – cannot get back on its feet without the American consumer. But never before in the post-World War II era has the American consumer been so weak for so long.

The Trouble with Eurobonds
Hans-Werner Sinn (Project Syndicate) Aug 25, 2011
Europe needs to face reality and initiate the difficult adjustment processes within the real economy that are necessary to rebalance the eurozone. Eurobonds would numb the distressed countries’ current pain, but, by failing to treat the underlying disease, they – and the eurozone as a whole – would end up far sicker than before.

Oil shocks around the world: Are they really that bad?
Tobias Rasmussen & Agustin Roitman (VoxEU) Aug 25, 2011
Recent developments in oil markets and the global economy have, once again, triggered concerns about the impact of oil price shocks around the world. This column wonders whether the fuss is really necessary. It presents evidence of relatively small negative effects of oil price increases.

Misinterpreting China's Economy
Yukon Huang (Brookings/WSJ) Aug 25, 2011
Statistics on China's economy are almost certainly far off the mark, explains Yukon Huang. Predictions of any imminent economic collapse because of the supposed imbalance between consumption and investment are on shaky ground. There are other reasons for China's growth model being vulnerable, but this isn't one of them.

A parable of gold bulls and bubble dynamics Financial Times Subscription Required
Peter Tasker (FT) Aug 25, 2011
The yellow metal generates nothing and cannot be valued in its own right, only as a measure of revulsion towards other assets.

US funds show true state of eurozone banks Financial Times Subscription Required
Gillian Tett (FT) Aug 25, 2011
Four years ago, the giant US money market funds seemed some of the dullest actors in the global financial scene but they have proved deadly.

Bernanke should clarify policy and sink QE3 Financial Times Subscription Required
Michael Woodford (FT) Aug 25, 2011
Uncertainty about the economic outlook – and the Fed’s intentions – is now the most important obstacle to a more robust recovery.

A summer tale of three cities Financial Times Subscription Required
Gary Silverman (FT) Aug 25, 2011
Survivors of the financial crisis tend to say 'no, no, no’ to suggestions that they should undergo any form of rehab.

Europe’s Small Steps and Giant Leaps
Jean Pisani-Ferry (Project Syndicate) Aug 26, 2011
Issuing Eurobonds essentially amounts to a “Three Musketeers” (all for one and one for all) approach by letting eurozone countries borrow money in solidarity. But, to work, this strategy requires far deeper political integration than European governments are willing to admit.

IMF betrays West with mullahs' malarky
Ilan Berman (Washington Times) Aug 26, 2011
With soaring inflation, chronic unemployment and rampant poverty, Iran is nobody's picture of economic health. So when the International Monetary Fund (IMF) issued its latest working paper on Iran last month, the rosy assessment contained therein raised more than a few eyebrows.

The Asian Power Squeeze
Gareth Evans (Project Syndicate) Aug 26, 2011
No one believes that the US-China relationship will end in tears any time soon, but the outlook a decade or two from now has already focused attention on the tensions that fester throughout the region. What, if anything, can the region’s other countries do to avoid the pain that they would certainly endure if US-China competition turned violent?

Monetary policy before the crisis
Stefan Gerlach & Laura Moretti (VoxEU) Aug 26, 2011
Many observers argue that excessively expansionary monetary policy led to the recent global financial crisis. On the day of Ben Bernanke’s speech in Jackson Hole, this column agrees with the Fed chair that monetary policy was not the main cause. It argues that non-monetary forces drove down real interest rates and lowering nominal rates was the correct response. But central bankers and other regulators vastly underestimated the risks accompanying low short-term interest rates.

More bank capital is not enough
Enrico Perotti, Lev Ratnovski & Razvan Vlahu (VoxEU) Aug 26, 2011
As leading economists in Jackson Hole and Lindau call for more and better regulation to avoid a repeat global crisis, this column argues that higher bank capital, while essential, will be no panacea. In particular, it shows that tail risk often goes unaddressed. Regulators should therefore adopt direct tools for dealing with tail risk, including limits on asset and liability-side risk exposures.

This time might be different
Benjamin A Shobert (AT) Aug 27, 2011
It is tempting for the United States to view China's current economic ascendancy as similar to the threat posed by Japan's "Rising Sun" in the 1980s. While American entrepreneurs keen to empower a "Made in America" resurgence plumb the depths of consumer anxiety about what "Made in China" means, the differences are stark, and cannot be framed in the same terms of a very different age.

Incentive pay and bailouts
Tim Besley & Maitreesh Ghatak (VoxEU) Aug 27, 2011
As we approach three years since the fall of Lehman Brothers, the incentives that led the financial sector to take on too much risk still exist. This column argues that they will remain so long as governments continue to provide an implicit guarantee that banks will be bailed out. To tackle this, the authors dare to propose a tax on bonuses.

How to avoid a double dip
Economist Aug 27, 2011
Rich countries need to squeeze their economies less hard and get serious about growth.

Asia’s economies: Claws or jaws Economist Subscription Required
Economist Aug 27, 2011
Asia’s economies can weather a Western slowdown---but not prevent it.

European banks: Chest pains Economist Subscription Required
Economist Aug 27, 2011
Europe’s sovereign-debt crisis is constricting the flow of money to its banks.

Mexico’s economy: Making the desert bloom Economist Subscription Required
Economist Aug 27, 2011
The Mexican economy has recovered somewhat from a scorching recession imported from America, but is still hobbled by domestic monopolies and cartels.

Strategic default and “borrower runs” Economist Subscription Required
Stefan Trautmann & Razvan Vlahu (VoxEU) Aug 28, 2011
One of the most iconic images from the subprime mortgage crisis in 2007 was the queue of people outside the British bank Northern Rock demanding their deposits back. This column uses experimental evidence to discuss another type of bank run – a borrower run – when mortgage holders strategically default on their loans.

Even a joint bond might not save the euro Financial Times Subscription Required
Wolfgang Münchau (FT) Aug 28, 2011
Uncertainty over a fragile consensus suggests investors are perfectly rational to bet against the single currency.

Euro’s Appeal Masks Gathering Storm In Europe
Simon Johnson (Bloomberg) Aug 28, 2011
Is the economic and financial situation in Western Europe largely under control, as many prominent Europeans contend? Or is it poised to move into a new and more difficult phase?

Import protection and the Great Recession
Chad P Bown (VoxEU) Aug 29, 2011
While the Great Recession has not led to a massive global resort to protectionism, governments have nevertheless been active with their trade policy during the crisis. This column explores how governments adjusted the scale and composition of their temporary trade barriers – antidumping, safeguard, and countervailing-duty policies –during the crisis, as well as how policy use fits recent historical context and creates the need for post-crisis policy reform.

Variable Capital Rules in a Risky World
Oscar Jorda (FRBSF) Aug 29, 2011
The recent financial crisis showed that a financial institution’s equity may be sufficient to absorb losses during normal times, but insufficient during periods of systemic distress. In recognition of this risk, the Basel III agreement last year introduced a new element of macroprudential regulation called countercyclical buffers, variable capital requirements that shift based on credit growth. These buffers raise the classic regulatory dilemma of safety versus economic growth, but may provide protection against financial calamity at an acceptable cost.

2011, the year of global indignation Financial Times Subscription Required
Gideon Rachman (FT) Aug 29, 2011
Many revolts have pitted an internationally-connected elite against ordinary citizens who feel excluded from the benefits of economic growth.

A sceptic’s solution – a breakaway currency Financial Times Subscription Required
Hans-Olaf Henkel (FT) Aug 29, 2011
If it was possible to form one currency out of 17, then it should also be possible to form two out of one.

Austerity Is Not Enough
Andrew Balls (PIMCO/Times) Aug 29, 2011
In the run-up to the Jackson Hole meetings over the weekend, it was no surprise that all eyes were on central banks.

Who Will Help the Poor?
Dominique Moisi (Project Syndicate) Aug 29, 2011
With the deepening of the economic crisis and the prospect of another recession looming large on the horizon, growing social inequality has become an increasingly urgent issue. Who will protect the weakest at a time when the state, the family, and individual philanthropy are all proving unequal to the task?

The Economics of Happiness
Jeffrey D. Sachs (Project Syndicate) Aug 29, 2011
The mad pursuit of corporate profits is threatening us all. To be sure, we should support economic growth and development, but only in a broader context: one that promotes environmental sustainability and the values of compassion and honesty that are required for social trust.

Jackson Hole: Deeper than '08 ...
Chan Akya (AT) Aug 30, 2011
The world's central bankers gathering in Wyoming's Jackson Hole had little to cheer them during their annual retreat, with three years of effort poured into generating an economic recovery looking increasingly a wasted effort. With Greece's latest posturing on its debt, 2008 could soon look a relatively minor crisis.

A Long March with China
Wenran Jiang (Project Syndicate) Aug 30, 2011
US Vice President Joe Biden’s recent four-day visit to China ended on a high note. But, behind all the smiles and toasts at such events, serious issues and perception gaps continue to divide the world’s two great powers.

Europe’s Shaky Foundations
Joschka Fischer (Project Syndicate) Aug 30, 2011
Slowly, word is getting round – even in Germany – that the financial crisis could destroy the European unification project in its entirety. Indeed, the crisis is beginning to erode the Franco-German and transatlantic foundations – of a post-war European order that has ensured an unprecedented period of peace and prosperity.

If banks should act as utilities, why not treat them as such?
Charles A.E. Goodhart (VoxEU) Aug 30, 2011
The calls for better bank regulation are many. This column argues that regulators have the concepts right, but the mechanisms are in need of repair.

Christine Lagarde's Tough Message New York Times Subscription Required
NYT Aug 30, 2011
The I.M.F. leader tells the truth about the damage done by austerity policies and pleads for bolder economic steps to prevent a looming double-dip recession.

Struggling with a great contraction Financial Times Subscription Required
Martin Wolf (FT) Aug 30, 2011
Are we at risk of a “double dip” recession? No, because the first one did not end and might indeed become deeper and longer.

Do not count on EMs coming to the rescue in a double dip Financial Times Subscription Required
John Plender (FT) Aug 30, 2011
High potential growth rates and reduced vulnerability to crises do not mean that emerging markets will be invulnerable to a recession.

What Caused the Financial Crisis? Don’t Ask An Economist
Mark Thoma (Fiscal Times) Aug 30, 2011
What caused the financial crisis that is still reverberating through the global economy? Last week’s 4th Nobel Laureate Meeting in Lindau, Germany – a meeting that brings Nobel laureates in economics together with several hundred young economists from all over the world – illustrates how little agreement there is on the answer to this important question.

Beyond the Gold and Bond Bubbles Wall Street Journal Subscription Required
David Malpass (WSJ) Aug 31, 2011
Shouldn't the Fed try to improve incentives to invest in growing businesses?

A TARP for Europe? Wall Street Journal Subscription Required
WSJ Aug 31, 2011
Lagarde points at the naked banks no one wants to see.

Procyclical bank risk-taking and the lender of last resort
Mark Mink (VoxEU) Aug 31, 2011
While central bank liquidity support is used on a large scale to combat the instability of the banking sector, this column argues that the prospect of receiving such support might well have been one of the causes of the instability. In particular, it shows that the provision of liquidity support stimulates banks to engage in various forms of risk-taking, and to do so in a procyclical way.

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