Where Do We Go From Here?
Finance and Development Sep/Nov 2009
Recovery from the deepest recession in 60 years has started. But sustaining it will require delicate rebalancing acts, both within and across countries. IMF chief economist Olivier Blanchard writes in our lead article that the turnaround will not be simple. The crisis has left deep scars that will affect both supply and demand for many years to come. This issue of F&D also looks at what's next in the global crisis and beyond. We look at ways of unwinding crisis support, the shape of growth worldwide after the crisis, ways of rebuilding the financial architecture, and the future of reserve currencies. Jeffrey Frankel examines what's in and what's out in global money, while a team from the IMF's Research Department looks at what early warning systems can be expected to deliver in spotting future problems. In our regular People in Economics profile, we speak to Nobel prize winner Daniel Kahneman, whose work led to the creation of the field of behavioral economics, and our Picture This feature gives a timeline of how the Bank of England's policy rate has fallen to its lowest level in 300 years. Back to Basics gives a primer on monetary policy, and Data Spotlight looks at how the crisis has affected the eastern European banking system.
The Great Contraction of 2008-2009
Kenneth Rogoff (Project Syndicate) Nov 2009
Many economic forecasters and market bulls believe that “the deeper the recession, the quicker the recovery,” which is true – up to a point: immediately after a normal recession, economies do, indeed, often grow much faster than usual over the ensuing twelve months. Unfortunately, the Great Recession of 2008-2009 is far from being a normal global recession.
Death by Renminbi
Thomas I. Palley (Project Syndicate) Nov 2009
In a normal world, the dollar’s weakening would be welcome, as it would help the US come to grips with its unsustainable trade deficit. But, in a world where China links its currency to the dollar at an under-valued parity, the dollar’s depreciation risks major global economic damage that would further complicate recovery from the current worldwide recession.
John Makin (AEI) Nov 2009
The only thing scarier than the slide of the dollar, which has dropped by 15 percent since March, would be an attempt by the Federal Reserve to stop it. Such an attempt would show that we have learned nothing from the Bank of Japan's disastrous premature exit from a zero-interest policy in August 2000. Closer to home, it would resemble the Fed's premature move to mop up "excess" reserves by doubling reserve requirements in three steps between August 1936 and May 1937, which was followed by the third-worst recession of the twentieth century, from May 1937 to June 1938.
The Democrats' Stalled Trade Agenda
Greg Rushford (FEER) Nov 2009
How Barack Obama's protectionist policies and lack of action has brought the United States nothing but grief.
The Myth of Chinese Savings
Jonathan Anderson (FEER) Nov 2009
Traditional theories on why the Chinese save are wrong. The real answer lies in corporate earnings.
The Anti-Hunger Imperative
Jose Manuel Barroso (Project Syndicate) Nov 2009
There are plenty of summits to choose from this year, but the World Summit on Food Security deserves not to be lost in the crowd. This meeting in Rome from November 16-18 provides badly needed political momentum to three linked issues that rank among the most challenging of the current era: food security, biodiversity, and climate change.
The IMF Needs Fresh Thinking on Capital Controls
Dani Rodrik (Project Syndicate) Nov 2009
The IMF has slapped Brazil's wrist for daring to impose a 2% tax on short-term capital inflows. But such capital controls make a lot of sense, because “hot” inflows make it difficult for financially open economies like Brazil to maintain a competitive currency, depriving them of what is in effect the most potent form of industrial policy imaginable.
The Ghost in the Recovery Machine
Robert J. Shiller (Project Syndicate) Nov 2009
The IMF, along with many national leaders, seem ready to give full credit to what the Fund calls "strong public policies" for engineering what might be the end of the global economic recession. But, in terms of the certainty of the outcome, formulating economic policy is more like psychotherapy than engineering.
A Tale of Two American Economies
Nouriel Roubini (Project Syndicate) Nov 2009
While the US recently reported 3.5% GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. The story of the US is one of two economies – a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.
The Irresistible Rise of the Renminbi
Barry Eichengreen (Project Syndicate) Nov 2009
China is making a big push to encourage greater international use of its currency, the renminbi, and is implicitly targeting 2020 as the date by which it should become one of the world's leading currencies. That is an ambitious goal, but US history suggests that it is not impossible to achieve.
Trading Our Way Out of Crisis
Pascal Lamy (Project Syndicate) Nov 2009
Global trade has contracted in 2009 at a rate not seen since the Great Depression, and those paying the heaviest price are those who can least afford it. So, when trade ministers from the 153 World Trade Organization members gather in Geneva later this month, the issue of how the WTO and the global trading system can help the poorest countries will be high on the agenda.
Can the Euro Zone Survive Economic Recovery
Martin Feldstein (Project Syndicate) Nov 2009
The economic recovery that the euro zone now anticipates in 2010 could bring with it new tensions. Indeed, in the extreme, some countries with lingering high unemployment could find themselves considering whether to leave the single currency altogether.
Obama’s Chinese Balance Sheet
Wei Zhang (Project Syndicate) Nov 2009
On balance, Obama’s first trip to China achieved relatively little. Moreover, what he did achieve looks superficial, while what he gave up – concessions on China's political prisoners or its exchange-rate policy - seems substantial.
The Elusive Search for Global Financial Rules
Lorenzo Bini Smaghi (Project Syndicate) Nov 2009
If the financial crisis is global, it is said, then the solution must be global: an international financial system that works better. But if the goal is better crisis prevention by preventing the accumulation of large global imbalances, proposals that would make IMF financing easier and weaken its surveillance powers will do more harm than good.
We must not be too late with starting the Big Exit
Wolfgang Münchau (FT) Nov 1, 2009
If we stick to the zero interest rate policy for too long, we risk a degree of economic instability much more extreme and costly than the recent financial crisis.
Mother of all carry trades faces an inevitable bust
Nouriel Roubini (FT) Nov 1, 2009
The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.
WP Nov 1, 2009
No one has a sure fix for the 'too big to fail' dilemma.
The trade collapse: The role of product quality
Antoine Berthou & Charlotte Emlinger (VoxEU) Nov 2, 2009
The volume of world trade has plummeted with the global crisis. This column says that high-quality imports are more responsive to income changes than low-quality imports. This explains why world trade value fell faster during the crisis than world trade volume, which fell faster than GDP.
Should governments extend bank guarantees?
Aviram Levy & Fabio Panetta (VoxEU) Nov 3, 2009
In December 2009, government guarantees on the issuance of bank bonds will close to new issuance in many EU countries. This column argues that the guarantees have been effective and should be extended into 2010, despite improved market conditions and bank profitability. In doing so, governments should correct the schemes for some distortionary effects and develop a careful exit strategy.
Private behaviour will shape our path to fiscal stability
Martin Wolf (FT) Nov 3, 2009
It is idiotic to discuss the reduction of the huge fiscal deficits, without considering the nature of the offsetting adjustments in the private and external sectors. Some adjustments would be desirable, but others would be extremely perilous.
How Capitalism Will Save Us
Steve Forbes and Elizabeth Ames (Forbes) Nov 3, 2009
Why free people and free markets are the best answer in today's economy.
Calomiris on historical crisis lessons
Richard Baldwin (VoxEU) Nov 4, 2009
Policymakers and macroeconomists often remind us that banking crises are nothing new. This column, based on recent papers by Columbia professor Charles Calomiris, looks at the long-term record of banking crises and draws lessons for today.
A Merit-Based Selection Process for the World Bank and IMF? Don’t Count on It!
Jacob Funk Kirkegaard (PIIE) Nov 4, 2009
Meeting in London last April, the G-20 leaders declared “that the heads and senior leadership of the international financial institutions [i.e., the World Bank and the International Monetary Fund] should be appointed through an open, transparent, and merit-based selection process.” When you look at the selection processes for other international “top policy positions,” however, the record is not inspiring. Indeed it is evident that personal merits alone rarely suffice for any candidate in such races.
EU, Central America Trade Talks Tripped Up by Regional Politics
Bridges Weekly Trade News Digest, Volume 13, Number 38 Nov 4, 2009
Free trade talks between Central America and the European Union could resume after a presidential election is held in Honduras on 23 November, a delegation of European lawmakers said last week during a visit to Costa Rica. Brussels expects to pick up the process as soon as possible, the delegates said, taking into account the upcoming vote in Honduras and lingering uncertainty over whether Panama will be allowed to join the negotiations.
Carbon has no place in global trade rules
Angel Gurría (FT) Nov 4, 2009
The best solution is to level the playing field by broadening participation in a climate agreement to include as many countries and sectors as possible.
Doug Wakefield with Ben Hill (AT) Nov 5, 2009
The vast amounts given to banks since the global financial crisis broke have not altered the deflationary forces of contracting credit in the US economy. If business continues to slow amid record government deficits, doubts legitimately grow over the safety of US debt - and raise the possibility of even greater expansion of the International Monetary Fund's political and financial clout.
Money on Autopilot
WSJ Nov 5, 2009
The Fed keeps its eye on employment, not on the dollar.
'Too Big To Fail' Revisited
Nouriel Roubini (Forbes) Nov 5, 2009
Regulatory reforms of systemically important institutions.
Time for a debate on immigration
Martin Wolf (FT) Nov 5, 2009
Diversity brings social benefits, but also costs, arising from declining trust and erosion of a sense of shared values.
How to fill the gaps left by dollar decline
Mohamed El-Erian and Ramin Toloui (FT) Nov 5, 2009
We should expect to see more discussion in the next few years on new types of reserve assets.
A debut for contingent capital
Economist Nov 5, 2009
Lloyds is first out of the gate with a new kind of capital.
The living dead
Economist Nov 5, 2009
Europe has raced ahead of America in dealing with its dud banks. But there is more work to be done.
Economist Nov 5, 2009
The dilemmas facing policymakers.
India's gold purchase
Economist Nov 5, 2009
India is eager for the IMF's bullion.
Martin Hutchinson (Globalist) Nov 6, 2009
How are Wall Street banks taking advantage of the financial crisis?
Lessons for the foreign exchange market from the global financial crisis
Michael Melvin & Mark P. Taylor (VoxEU) Nov 6, 2009
The timing of the subprime crisis that became the global crisis is well known. Its impact on the foreign exchange markets has been much less discussed. This column fills that void. Its findings suggest that foreign exchange portfolio managers could have protected their portfolio by an appropriate risk control strategy using market stress indicators.
The Man Who Predicted the Depression
Mark Spitznagel (WSJ) Nov 6, 2009
Ludwig von Mises explained how government-induced credit expansions led to imbalances in the economy.
Decoupling and the future of emerging economies’ growth
Eduardo Levy-Yeyati (VoxEU) Nov 7, 2009
Most evidence says that emerging economies remain coupled to global growth. Does that threaten their economic resilience? This column says that emerging economies’ growth is more linked to Chinese growth than that of G7 economies, suggesting that their performance is rooted in well-founded, long-term economic trends.
How we can restore trust in financial institutions
Gordon Brown (FT) Nov 8, 2009
The gravity of the recent crisis makes this discussion urgent. Failure to resolve issues will put at risk the confidence of millions of people in globalisation, setting back economic and social progress. We must all rise to the challenge.
Tear down this wall: On the persistence of borders in trade
Volker Nitsch & Nikolaus Wolf (VoxEU) Nov 9, 2009
The fall of the Berlin Wall 20 years ago created a number of "natural experiments" that economists have exploited to advance our understanding of fundamental issues. This column reviews the use of German data to examine the surprisingly large impact that international borders have in dampening geographically buying and selling patterns. Results show that the biggest barriers to trade stem from economic fundamentals rather than technological and political barriers. Infrastructure and tariffs can come done quickly; it takes at least a generation to tear down the wall in our minds.
Offshoring and composition of home employment
Sascha O. Becker, Karolina Ekholm & Marc Muendler (VoxEU) Nov 9, 2009
How do offshoring firms reshape their domestic workforce? This column, using evidence from German multinationals, shows a positive correlation between offshoring and the firm’s proportion of highly educated workers. Offshoring firms have relatively more domestic jobs involving non-routine and interactive tasks. But offshoring is far from the only explanation for the shift towards more educated employees carrying out more advanced tasks.
Warren Buffett Bets on Growth in Emerging Markets (and Against the Dollar)
Simon Johnson (PIIE) Nov 9, 2009
The G-20 finance ministers and Central Bank governors met over the weekend in St. Andrews, talking about the data they will need to look at in order to monitor each other's economic performance and sustain growth (seriously).
Not all bubbles present a risk to the economy
Frederic Mishkin (FT) Nov 9, 2009
If bubbles are possible now, are they of the dangerous, credit boom variety? In the US and Europe, the answer is no. Tightening monetary policy would not yet make sense.
Opinion: Beijings Path Forward
John Watkins, Jr. (NYT) Nov 10, 2009
China has made great strides in the rule of law. This momentum must be encouraged.
Powerful interests are trying to control the market
John Kay (FT) Nov 10, 2009
'Rent-seeking' is found whenever economic power is concentrated – in the state, in large private business, in groups of co-operating and colluding firms. America has a new generation of rent-seekers: investment bankers and corporate executives.
Has distance died? An update
Céline Carrère & Jaime de Melo (VoxEU) Nov 10, 2009
The distance puzzle is the surprising finding that the volume of trade has become increasingly sensitive to distance. This column shows that low-income countries, which increasingly trade with geographically closer partners, drive the finding. This regionalisation of trade for low-income countries may reflect progress – or problems.
"Too Complex to Fail" the Real Issue, Says IMF
IMF Survey Nov 10, 2009
Governments should consider the potential of financial institutions to severely damage global financial and economic stability in assessing when firms are "too complex to fail," the IMF said, launching a paper to help determine which firms and markets are systemically important.
Global: The Peloton Holds Firm
Manoj Pradhan (MS GEF) Nov 10, 2009
Policy is set to be tightened in a synchronised manner across the globe, with most central banks happy to ride in the central bank ‘peloton’. Central banks, like cyclists, benefit from lesser headwinds by moving together and feeding off the liquidity glut that über-expansionary monetary policies have helped to create.
Industrial Goods Talks Examine Non-Tariff Barriers
Bridges Weekly Trade News Digest, Volume 13, Number 39 Nov 11, 2009
For much of the WTO's industrial goods negotiations, non-tariff barriers have taken a low profile. But with little movement in the past year on what is now the main difference in the talks -- whether large developing markets like China, Brazil, and India choose to participate in voluntary initiatives to cut or even eliminate tariffs across entire industrial sectors -- officials have been turning their attention to NTBs.
Cross my palm with euros?
Economist Nov 11, 2009
The dollar's days as the world's reserve currency are far from over.
A developing thirst
Economist Nov 11, 2009
How demand for oil will change by 2030.
Lessons from the Global Economic and Financial Crisis
Edwin Truman (PIIE) Nov 11, 2009
The G-20 and the international financial community have their work cut out for them over the next year or so. The objective, Edwin Truman argues, should not be to achieve ideal solutions but to promote solutions that are as mutually compatible and robust as possible from a global perspective. Some of the important lessons from the recent global financial crisis focus on the macroeconomic policy failures in the United States and similarly situated countries. Many countries, including the United States, the United Kingdom, Japan, and other Asian countries, had monetary policies that were too easy for too long. The global community currently faces two major issues in financial regulatory reform, according to Truman. The first is construction of a robust framework of macroprudential policies, which should include equal parts of: (1) improved macroeconomic policies of supervision and regulation that impact macroeconomic performance; and (2) improved macroeconomic policies that impact the financial system. The second is that there is not a "silver bullet" solution to the too-big-to-fail problem; a combination of approaches involving size, regulations, and supervision is needed.
Dollar weakens as China hints at stronger renminbi
FT Nov 11, 2009
China’s central bank acknowledged the case for a stronger renminbi, days ahead of the arrival in Beijing of US president Barack Obama for talks expected to highlight mounting international concern over Chinese currency policy
Liquidity, default, and market regulation
Charles A.E. Goodhart & Dimitri Tsomocos (VoxEU) Nov 12, 2009
Liquidity and default are inseparable. Liquidity problems fuel defaults and vice versa. This column discusses the shortcomings of current regulatory proposals to address liquidity and default. It says that regulators must address “systemic markets”, not just systemic institutions, and need informative measures of financial stability.
Obama Meets Asian Bankers Who May Call His Loan
William Pesek (Bloomberg) Nov 12, 2009
Barack Obama sure has lots to discuss on his maiden voyage to Asia as U.S. president. Yet all this is just conversation compared with the real issue on Asia’s mind: a wobbly dollar that’s putting the region’s money at risk.
The Road Ahead for Asia's Economies
Timothy Geithner, Sri Mulyani Indrawati & Tharman Shanmugaratnam (WSJ) Nov 12, 2009
The U.S. and its trading partners together can plot a course for robust growth.
Simple truths about the economy
Samuel Brittan (FT) Nov 12, 2009
The hole in the world economy can only be filled by deficit spending by the stronger western governments. If this is inhibited by fiscal tightening, recovery will be strangled.
Ethics alone will not prevent financial crises
Philip Booth (FT) Nov 12, 2009
A call for more ethics is all well and good but its effect will be limited unless self-interest in financial markets runs with the grain of the interests of society as a whole. A free market generally ensures that.
Gordon Brown and the Tobin tax
Economist Nov 12, 2009
The prime minister's flirtation with an idea whose time never seems to come.
Brazil's frequent crises
Economist Nov 12, 2009
Frequent crises have made for strong banks and nimble financiers.
Mario Draghi, international regulator
Economist Nov 12, 2009
Mario Draghi has helped turn a talking shop into a pillar of the world economy.
Arguments over accounting
Economist Nov 12, 2009
Accountants grapple with the fallout over "marking to market".
Economist Nov 12, 2009
Economies need derivatives, but reform is justified.
A closer look at derivatives
Economist Nov 12, 2009
Derivatives are extraordinarily useful—as well as complex, dangerous if misused and implicitly subsidised. No wonder regulators are taking a close look.
The roots of the financial crisis
Economist Nov 12, 2009
A very good history of economic thought.
Bypassing the aid trap in Pakistan
Glenn Hubbard (WP) Nov 13, 2009
With creative adaptation, the aid program that worked in Europe can work in Pakistan.
Heidi N. Moore (New York Magazine) Nov 13, 2009
Hedge funders, the Ayn Randian rock stars of the financial boom, fall to Earth. Hard.
Gordon Brown's Global Tax Trap
WSJ Nov 13, 2009
Tim Geithner stands up for tax competition.
Reducing trade distortions could ease food price volatility
Kym Anderson (VoxEU) Nov 13, 2009
Global food price volatility is costly. This column argues that most food price spikes are driven by major policy shifts, such as tariffs and subsidies, which result in harmful tit-for tat behaviour. It makes the case for completing the Doha round to further restrain WTO members’ unilateral actions.
Must natural resources be a curse?
Sambit Bhattacharyya & Roland Hodler (VoxEU) Nov 13, 2009
Resource-rich countries are often cursed by corruption and governance problems. This column shows that the natural resource curse burdens non-democracies, but countries with better democratic institutions are not corrupted by such endowments. For governments accountable to their citizens, resources can be a blessing.
The illusion of improving global imbalances
Richard Baldwin & Daria Taglioni (VoxEU) Nov 14, 2009
Global imbalances are shrinking at a fabulous rate. This column argues that these improvements are mostly illusory – the transitory side-effect of the greatest trade collapse the world has ever seen. A global recovery will almost surely return the US, Germany, China and others to their old paths.
Reforming international financial architecture in light of the crisis
Pradumna B. Rana (VoxEU) Nov 14, 2009
Will the faster-than-expected recovery from the global crisis cause governments to avoid much-needed reforms? This column says it shouldn’t, as important developing countries can now drive reforms via the G20. It suggests how Asia could leverage its growing economic weight into more effective G20 participation.
Did financial globalisation make the US crisis worse?
Enrique G. Mendoza & Vincenzo Quadrini (VoxEU) Nov 14, 2009
Can we blame financial globalisation for the severity of the current crisis? This column says that financial integration spread the negative banking shock that originated in the US across countries, thereby making the US better off at others’ expense.
World Out of Balance
Paul Krugman (NYT) Nov 15, 2009
The problem of international trade imbalances is about to get substantially worse unless China changes its weak-currency policy.
China has now become the biggest risk to the world economy
Ambrose Evans-Pritchard (Telegraph) Nov 15, 2009
Far from taking over as the engine of growth from an exhausted West, China is making matters worse. Its "beggar-thy-neighbour" policies continue to play havoc with global trade and risk tipping the world into a second leg of the Great Recession.
The Great Wallop
Niall Ferguson & Moritz Schularick (NYT) Nov 15, 2009
China and the United States, monsters of the global economy, must now take separate paths.
The International Monetary System: Reforms to Enhance Stability and Governance
Dominique Strauss-Kahn (IMF) Nov 16, 2009
I will touch on two main topics. First, the principal challenges for the world as it begins to emerge from the global crisis. And second, how to strengthen the international monetary system, including by reforming global governance.
Who’s Afraid of a Falling Dollar?
Joseph E. Gagnon (PIIE) Nov 16, 2009
Pundits and policymakers around the world are wringing their hands over the possibility of further declines in the foreign exchange value of the dollar. Predicting exchange rates is notoriously difficult; there is almost as much chance of the dollar rising next year as of it declining.
For U.S., China, uneasiness about economic co-dependency
WP Nov 16, 2009
Both sides benefit from relationship but feel limited by mutual needs.
Turbulence Ahead for the City of London
Nicolas Véron (PIIE) Nov 16, 2009
The city of London has been Europe’s dominant financial center since the 18th century, and its prominence has been especially marked in the decade before the current financial crisis.
Euro-area sovereign risk during the crisis
Silvia Sgherri & Edda Zoli (VoxEU) Nov 17, 2009
Can euro-area governments cushion the impact of the crisis without damaging market perceptions of their fiscal sustainability? This column suggests that euro-area sovereign spreads have typically reflected a common factor that mimics global risk repricing, not country-specific solvency concerns. But in the last year, market sentiments seem to have shifted to concerns about fragile national financial sectors and future debt dynamics.
Sudden financial arrest
Ricardo Caballero (VoxEU) Nov 17, 2009
How should governments respond to sudden failure of the financial system? This column says that it is neither credible nor desirable to refuse to assist the private sector in financial crises. It makes the case for massive provision of credible public insurance and guarantees to financial transactions and balance sheets – a financial defibrillator to respond to sudden financial arrest.
Banking Fix Made Easy With Six Simple Steps
Roger Lowenstein (Bloomberg) Nov 17, 2009
Financial reform seems to be flailing. Legislation has been proposed, but it is complicated and diffuse. Most of the proposed fixes are incremental changes that don’t seem likely to prevent a future bubble.
A Dollar Warning From Asia
WSJ Nov 17, 2009
Obama gets an earful about America's super-easy money.
Grim truths Obama should have told Hu
Martin Wolf (FT) Nov 17, 2009
Obama should have made clear the need for China to revalue its currency and rebalance the global economy when he met Hu Jintao. He could reasonably threaten punitive action, such is the need for change
Forget emissions, focus on research
Nancy Birdsall and Arvind Subramanian (FT) Nov 17, 2009
Cutting energy use would push billions in the developing world from just above subsistence back to the dark ages.
Uncertainty and the tale of two depressions
Carlo Favero (VoxEU) Nov 18, 2009
Today’s global crisis has been compared to the Great Depression in terms of world output, trade, and stock market value. To extend the comparison, this column proposes a new, historically comparable measure of economic uncertainty. The evolution of uncertainty in this crisis has been much less dramatic than in the 1930s.
Dollar Woes Are Good News for Europe's Markets
Matthew Lynn (Bloomberg) Nov 18, 2009
Just about everyone is down on the U.S. dollar. It has fewer friends than an airline passenger who admits to having swine flu during a flight.
A yuan-sided argument
Economist Nov 18, 2009
Why China resists foreign demands to revalue its currency.
What Makes a Nation Rich? One Economist's Big Answer
Daron Acemoglu (Esquire) Nov 18, 2009
Say you're a world leader and you want your country's economy to prosper. According to this Clark Medal winner from MIT, there's a simple solution: start with free elections.
WTO Ministerial Can Send 'Strong Signals' to the World: Lamy
Bridges Weekly Trade News Digest, Volume 13, Number 4 Nov 18, 2009
The WTO's upcoming ministerial meeting can "send a number of strong signals" to the world about the issues that matter most to the organisation, WTO Director-General Pascal Lamy told a meeting of the WTO's General Council on Tuesday.
APEC Leaders Call for Doha Deal, Deeper Regional Integration
Bridges Weekly Trade News Digest, Volume 13, Number 4 Nov 18, 2009
Leaders of the 21 countries of the Asia-Pacific Economic Cooperation (APEC) forum tackled the WTO's Doha Round of trade talks and the future of a potential Pacific-wide trade pact at a three-day summit in Singapore last week.
How to reinvent China's growth
John Gapper (FT) Nov 18, 2009
China faces a complex and perilous transition phase as it tries to transform from a middle-income, high-growth, very big developing economy into an advanced economy with a diversified industrial base.
Don't Let Banks Hide Bad Assets
Roderick M. Hills, Harvey L. Pitt & David S. Ruder (WSJ) Nov 19, 2009
In times of distress, there's always pressure to change accounting standards.
Dollar doing the right thing
Julian Delasantellis (AT) Nov 19, 2009
The US dollar's decline has conservative media bewailing the currency's and the country's fate. Yet its 18% recent fall is against the euro, with little change against currencies of leading trade partners China and Japan. And given that the US is in economic distress, and has $30 billion a month trade deficits and zero interest rates, the dollar very much should be falling.
Tackling systemic risk is no job for the status quo
William Donaldson and Arthur Levitt (FT) Nov 19, 2009
Supervision must be free of regulatory and administrative conflicts in order to ensure the safety and soundness of the financial system.
China can build on the base of its sound banks
Liu Mingkang (FT) Nov 19, 2009
Only with proper firewalls between them can banks and capital markets function as two engines of economic growth. If one fails, the other can still carry on.
Europe's war on hedge funds
Economist Nov 19, 2009
The European Union lashes out at hedge funds and private equity
Green with envy
Economist Nov 19, 2009
The tension between free trade and capping emissions.
The Big Squander
Paul Krugman (NYT) Nov 19, 2009
By not extracting concessions from bankers during the rescue of A.I.G., policy makers undermined their own credibility -- and put the broader economy at risk.
Forecasting macroeconomic developments
Alex Cukierman (VoxEU) Nov 20, 2009
Ideology, institutions, political, and accepted economic wisdom shape economic policy choices. This column explores how political ideologies and academic conclusions shaped US policymakers’ responses to the global financial crisis. It says that forecasting macroeconomic developments necessarily involves forecasting the role of such beliefs.
AIG and Systemic Risk
WSJ Nov 20, 2009
Geithner says credit-default swaps weren't the problem, after all.
Globalization and National Politics
Harold James (Globalist) Nov 20, 2009
How has globalization influenced the development of national political parties?
Global: Priced for Perfection...for Now!
Manoj Pradhan (MS GEF) Nov 20, 2009
MS FAYRE puts the current fair value for 10-year Treasury bond yields at 3.3% – bang in line with actual yields. This suggests to us that bond markets are pricing in the sweet spot of exceptionally low yields and benign inflation from Fed Chairman Bernanke’s speech on Monday.
Do elections in developing countries improve economic policy?
Lisa Chauvet & Paul Collier (VoxEU) Nov 21, 2009
There is some evidence that democracies enjoy better economic growth. How do elections, a core component of democracy, impact economic policy? This says that free and fair elections in developing countries improve economic policy by disciplining governments. But infrequent or uncompetitive elections may actually make things worse.
How preferential are preferential trade agreements?
Céline Carrère, Jaime de Melo & Bolormaa Tumurchudur Klok (VoxEU) Nov 21, 2009
Almost all economies are party to preferential trade schemes. But how much are they “giving away” or “receiving” in preferential access? This column presents a compact representation of effective market access and applies it to the proposed ASEAN-EU trade agreement.
Is There Such a Thing as Agro-Imperialism?
Andrew Rice (NYT) Nov 21, 2009
Fearing food shortages, investors from wealthy countries are snapping up land in poor countries to grow food there. Is this development or exploitation?
Could sovereign debt be the new subprime?
Gillian Tett (FT) Nov 22, 2009
As policymakers rush to implement reforms, they are apt to create distortions that pave the way for the next disaster. The banking sector's balance sheets are increasingly stuffed with government bonds.
The Phantom Menace
Paul Krugman (NYT) Nov 22, 2009
The scare stories from Wall Street seem to be intimidating Washington from doing more to rescue the economy.
Global Economy Remains In Holding Pattern, IMF Chief Says
IMF Survey Nov 23, 2009
The global economy remains very much in a holding pattern-stable, and getting better, but still highly vulnerable-IMF Managing Director Dominique Strauss Kahn tells a London conference. He adds that financial conditions have improved, but are far from normal.
One Bubble Down, One to Go
Jeff Faux (The American Prospect) Nov 23, 2009
Under U.S. debt burden, the dollar's bound to deflate.
The currency quarrel
WP Nov 24, 2009
By now it is a cliche that the United States has no more important bilateral relationship than that with China. Yet in the wake of President Obama's sometimes awkward visit to Beijing, it is becoming clear that, in one crucial respect, Sino-American relations are dysfunctional: Though umbilically connected by trade and capital flows, the two countries are pursuing incompatible economic policies. Without a course correction, both will suffer, and so will the global economy.
Give us fiscal austerity, but not quite yet
Martin Wolf (FT) Nov 24, 2009
Slashing deficits now would be wrong. What is needed, instead, are credible fiscal institutions and a road map for tightening that will be implemented, automatically, as and when (but only as and when) the private sector's spending recovers.
Heed the danger of asset bubbles
Robert Zoellick (FT) Nov 24, 2009
The revival of John Maynard Keynes should not lead us to ignore Milton Friedman: where will all that money go.
Coordinate Capital Controls
Arvind Subramanian (PIIE) Nov 25, 2009
Around the peak of the global financial crisis, in late November 2008, I wrote a column that concluded: "Sometime in the not-too-distant future, when the storm clouds recede, when the rupee is at, say, Rs 50 to the dollar, Indian exports will be hypercompetitive, and Indian growth prospects will be restored to precrisis levels of 8 to 9 percent. At that stage, capital, attracted by the higher returns, will once again come pouring into India. That is almost certain (November 26, 2008)."
Developing Countries Close to Deal to Boost South-South Trade
Bridges Weekly Trade News Digest, Volume 13, Number 41 Nov 25, 2009
A group of developing countries has tentatively agreed on a deal to cut tariffs and other barriers to each others' exports in an attempt to boost South-South trade at a time when multilateral liberalisation efforts are languishing.
Banana Agreement Nearly Ripe: Delegates
Bridges Weekly Trade News Digest, Volume 13, Number 41 Nov 25, 2009
The long-running dispute over trade in bananas is close to being settled, say delegates familiar with intensive talks held recently on the controversial issue. However, negotiators warn that a final banana accord may only be inked when a deal is also struck on other key products in the WTO's Doha Round - such as sugar, rum or tobacco.
Only competition can safeguard free markets
Maurice Saatchi (FT) Nov 25, 2009
In finance and elsewhere, cartels have proved too clever for the regulators. They have a ready scapegoat – the government.
Time is up for short-term thinking in global capitalism
Al Gore and David Blood (FT) Nov 26, 2009
We need a more long-term and responsible form of capitalism. To start developing "sustainable capitalism", we need to reconsider the basic building blocks of commerce and markets: accounting, disclosure, incentives, regulation and responsibility.
The Group of 20 must be stopped
Anders Åslund (FT) Nov 26, 2009
To make the G20 a global economic body with supernational powers goes against principles of international law.
Taxing the Speculators
Paul Krugman (NYT) Nov 26, 2009
While a financial transactions tax would not completely prevent any future crisis, it could generate substantial revenue while providing a useful check on reckless short-term speculation.
Banking crises and exports: Lessons from the past for the recent trade collapse
Leonardo Iacovone & Veronika Zavacka (VoxEU) Nov 27, 2009
Was the global credit crunch a cause of the great trade collapse? This chapter addresses this question by drawing on evidence from 23 historical banking crisis. It shows that export growth was particularly slow in sectors that were particularly reliant on external finance (i.e. electric machinery). The findings suggest how credit problems may have played a role in today’s global crisis. The historical findings show that negative demand shocks have amplified negative effects on exports when teamed with a banking crisis, with this interaction being especially important in durable goods industries. The same combination of factors (financial constraints coupled with a demand slump) – but this time it is operating on a vastly larger scale – may have been central to the great trade collapse.
Crisis-era protectionism one year after the Washington G20 meeting
Simon J Evenett (VoxEU) Nov 27, 2009
Drawing upon the latest data on protectionism from the Global Trade Alert database, this chapter reports the extent to which governments have altered the discrimination against foreign commercial interests during the sharp global downturn and nascent recovery of the past 12 months. Departures from the historical norm are identified, new analyses that facilitate interpretation of contemporary protectionism are summarised, and the implications for the sharp contraction of international trade seen in the first half of 2009 discussed.
The trade response to global downturns
Caroline Freund (VoxEU) Nov 27, 2009
Examination of previous global trade collapses provides insight into why trade has dropped so dramatically this time – and what is likely to happen in the coming years to trade and global imbalances. The findings suggest that the real trade drop in 2009 is likely to exceed 15%, but rebound very rapidly. Global imbalances have also moderated in crises, but this tends to be temporary unless the downturn alters investment attitudes and/or government policies. Today, governments should use the transition to install policies that will ensure that imbalances do not revert to pre-crisis trends – policies to encourage saving in the US and prevent an overvalued dollar, and policies to stimulate spending in China and other parts of Asia and prevent undervalued currencies.
The dollar and the budget deficit
Fred Bergsten (VoxEU) Nov 27, 2009
Current US fiscal policy is likely to produce current account deficits rising to $1 trillion by 2015 and $3 trillion by 2025; net foreign debt would reach $15 trillion by 2020, taking the US’s foreign-debt-to-GDP ratio far beyond the threshold that normally triggers currency crises and forces painful economic retrenchment. To avoid catastrophic risks stemming from soaring foreign debt, the US needs a plan for long-run fiscal sustainability.
Global trade in the aftermath of the global crisis
Jeffry A. Frieden (VoxEU) Nov 27, 2009
Re-balancing global trade will be difficult, generating substantial protectionist pressures. To manage these pressures, governments must maintain domestic political support for an open world economy. This in turn requires flexible responses to national political pressures. Rigid, unrealistic insistence on exemplary behaviour will be less fruitful than efforts at modest, feasible cooperation on trade policies. Above all, governments singly and jointly need to address the underlying macroeconomic causes of the imbalances to prevent serious trade confrontations.
Prospects for the global trading system
Anne Krueger (VoxEU) Nov 27, 2009
Collapsing trade worsened the crisis, but trade’s revival could do much to shore up prospects for a sustained upturn. Unlike many of the stimulus measures, reviving the Doha Round and strengthening the open multilateral system can be achieved with little, if any, fiscal cost. It is also essential to ‘rebalance’ the global economy. Successful emerging markets and other countries with large current account surpluses will have to shift gradually toward more reliance on domestic demand and less on export growth.
Government policies and the collapse in trade during the Great Depression
Kevin H. O’Rourke (VoxEU) Nov 27, 2009
Today’s great trade collapse has brought world trade to a point that is still substantially below the corresponding period during the Great Depression. The collapse, however, seems to be turning around along with the economic recovery. This chapter draws two critical Great-Depression lessons for today. First, policy makers must ensure that the recovery continues; many of the worse political and economic-policy transformations only came after the Great Depression was into its second and third years. Second, recent research shows that severe exchange rate misalignments teamed with rising unemployment lead to much of 1930s protectionism. The issue of the renminbi peg to the dollar is one that needs to be confronted sooner rather than later, for everyone's sake.
Follow the bouncing ball – trade and the great recession redux
Joseph Francois & Julia Woerz (VoxEU) Nov 27, 2009
According to some measures, the trade collapse that started in late 2008 has shifted into a rapid recovery phase. The simplest explanation that fits the facts is that trade has followed the sector composition of the recession. The recession has been hardest on heavy manufacturing – machinery, vehicles, and related raw materials. This has translated into a deep manufacturing recession and an even deeper drop in trade. Analysis of US and Chinese data show that these sectors are far more important in the composition of trade than they are in the composition of GDP.
Dubai's Debt Reckoning
WSJ Nov 28, 2009
How one bursting bubble could feed the next one.
Dangers of an Overheated China
Tyler COwen (NYT) Nov 28, 2009
How growing overcapacity in the Chinese economy is a risk to its economic growth and its ability to continue to fund deficits in the United States.
We must get ready for a weak-dollar world
Jeffrey Garten (FT) Nov 29, 2009
Should governments manage the transition to a new era, or let the market do it, with the risk of massive financial disturbances. Soon they may not have a choice.
Crisis Puts Focus on Dubai's Complex Relationship With Abu Dhabi
NYT Nov 29, 2009
Dubai is famous as the brash, secular upstart of the emirates, and Abu Dhabi is known as the religious and conservative big brother.
Opinion: The Dubai Crisis
Patrick Seale (IHT/NYT) Nov 29, 2009
What price will Abu Dhabi demand to bail out its imprudent neighbor?
A financial sandstorm
Economist Nov 30, 2009
The global consequences of Dubai's debt problems.
Much Ado About Dubai
Zachary Karabell (WSJ) Nov 30, 2009
The panic over its debt problem tells us more about investors than it does about the emirate.
Hoarding international reserves: Lessons from the crisis
Joshua Aizenman (VoxEU) Nov 30, 2009
The spectacular increase in hoarding of international reserves by emerging markets since the East Asian crisis has been one of the defining features of global imbalances. This column explores lessons from the crisis regarding alternatives to massive hoarding. It says that the crisis validates the need for external debt management policy and that the presence of fire-sale externalities associated with deleveraging, optimal external borrowing-tax cum international reserves hoarding-subsidy reduces the cost and the scale of hoarding international reserves.
American Peso Leaves Yen Nowhere to Go But Up
William Pesek (Bloomberg) Nov 30, 200
It’s hard to keep a straight face as economists in Tokyo gush over a bit of growth.
Looted wealth fuels Congo's conflict
William Wallis (FT) Nov 30, 2009
Despite hosting the most expensive UN mission ever undertaken in Africa, Congo is no closer today to stability, and the continent as a whole will remain hobbled until the wounded giant at its heart begins to heal. Congo has the resources to engineer its own recovery. But with global complicity, these are harnessed instead to finance its demise.
Insight: Deflating the bubble
Charles Goodhart (FT) Nov 30, 2009
It is time to declare victory and withdraw from quantitative easing.