News & Commentary:

December 2008 Archives


Power to the People Foreign Policy Subscription Required
Eric Werker (FP) Nov/Dec 2008
Why it’s the poor—not the experts—who can best solve the food crisis.

The Politics of Hunger
Paul Collier (Foreign Affairs) Nov/Dec 2008
Politicians have it in their power to solve the food crisis, but they must be willing to end the biases against big commercial farms and genetically modified crops and do away with farm subsidies.

Arrested Development
J. Brian Atwood, M. Peter McPherson, and Andrew Natsios (Foreign Affairs) Nov/Dec 2008
USAID has become ineffective because it is underfunded, understaffed, and loosing influence. The next president should revive it by either making it autonomous or elevating it to a cabinet-level department.

Freight Pain
Marc Levinson (Foreign Affairs) Nov/Dec 2008
The golden age of globalization is over due to slower, costlier, and less certain transportation. In retrospect, Americans may lament too little globalization, not too much.

Helping the U.S. Economy Right Itself
James Grant (Foreign Affairs) Nov/Dec 2008
The next president must bring back a sound dollar, rein in Wall Street, and resist the urge to manipulate prices.

IFIs and the financial crisis
Bretton Woods Update No. 63 Nov/Dec 2008
International economic architecture: cleaning up the mess; face increasing demands on their resources; The World Bank, the IFC and the antecedents of the financial crisis; and more.

The Forgotten Virtues of Free Trade
Frank Trentmann (Project Syndicate) Dec 2008
“Laissez-faire,” French President Nicolas Sarkozy recently declared, “is finished.” Perhaps, but should we really be satisfied if he is right? If laissez-faire has run its course, what will possibly replace it as the foundation of an open, global society?

Europe and the Global Food Crisis
Michel Barnier (Project Syndicate) Dec 2008
The world has been shaken by unprecedented spikes in food prices, by hunger riots, and by social tensions that demonstrate that food supplies have returned as a source of insecurity – to which global warming and declining natural resources are adding unprecedented urgency. By 2050, it is estimated that there will be nine billion people on earth, so the need for food may double – primarily among urban populations in the world’s poorest countries.

Will the Euro Survive the Current Crisis?
Martin Feldstein (Project Syndicate) Dec 2008
The European Economic and Monetary Union (EMU) and the euro are about to celebrate their tenth anniversary. The euro was introduced without serious problems and has since functioned well, with the European Central Bank delivering the low inflation that is its sole mandate.

The Non-Crisis of the Euro
Barry Eichengreen (Project Syndicate) Dec 2008
The global financial crisis has breathed new life into hoary arguments about the euro’s imminent demise. Such arguments often invoke Milton Friedman, who warned in 1998 that Europe’s commitment to the euro would be tested by the first serious economic downturn. That downturn is now upon us, but the results have been precisely the opposite of what Friedman predicted.

The End Recommended!
Michael Lewis (Portfolio) Dec 2008
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

“Be Nice to the Countries That Lend You Money”
James Fallows (Atlantic) Dec 2008
In his first interview since the world financial crisis, Gao Xiqing, the man who oversees $200 billion of China’s $2 trillion in dollar holdings, explains why he’s betting against the dollar, praises American pragmatism, and wonders about enormous Wall Street paychecks. And he has a friendly piece of advice.

Redesigning Capitalism
Michel Rocard (Project Syndicate) Dec 2008
When the heads of state of the world’s 20 largest economies come together on short notice, as they just did in Washington, D.C., it is clear how serious the current global crisis is. They did not decide much, except to call for improved monitoring and regulation of financial flows. More importantly, they committed themselves to launching a lasting process to reform the world’s financial system.

The Road to Depression
J. Bradford DeLong (Project Syndicate) Dec 2008
For 15 months, the United States Federal Reserve, assisted by the financial regulators of the US Treasury, have been trying to make the macroeconomic consequences of the American mortgage-backed securities financial crisis as small as possible – trying, above all, to avoid a deep depression.

How to Sell Anti-Protectionism
Leif Pagrotsky (Project Syndicate) Dec 2008
The looming global recession has brought government intervention to save failing companies to the forefront of economic policy. In a speech just prior to the recent G-20 summit, British Prime Minister Gordon Brown warned President-elect Barack Obama against bailing out America’s struggling Big Three automakers, arguing that global competition has made their decline irreversible. A bailout, then, would simply delay the inevitable at a huge cost to taxpayers.

Slamming the Euro Door
Erik Berglof (Project Syndicate) Dec 2008
Last week, central bankers from around the world assembled in Frankfurt to bask in the glory of the euro’s first ten years. But for those coming from euro candidate countries, the event was a cold shower. Just as the global financial crisis has made euro membership seem more urgent and necessary than ever, euro incumbents have started floating proposals that would raise the bar for entry.

China and the Global Financial Crisis
David Hale (Project Syndicate) Dec 2008
Is China an island of stability in the midst of the gathering global financial storm, or will it, too, soon be sucked into the vortex?

Blackouts and Cascading Failures of the Global Markets
Jeffrey D. Sachs (Scientific American) Dec 2008
Feedbacks in the economic network can turn local crises into global ones.

Let Developing Nations Rule
Dani Rodrik (Project Syndicate) Dec 2008
There is a silver lining for developing nations in the present crisis, for they will emerge with a much bigger say in the institutions that govern economic globalization. Once the dust settles, China, India, Brazil, South Korea, and a handful of other “emerging” nations will be able to exercise greater influence over the way that multilateral economic institutions are run, and will be in a better position to push for reforms that reflect their interests.

Has Global Stag-Deflation Arrived?
Nouriel Roubini (Project Syndicate) Dec 2008
The latest macroeconomic news from the United States, other advanced economies, and emerging markets confirms that the global economy will face a severe recession in 2009. In the US, recession started in December 2007, and will last at least until December 2009 – the longest and deepest US recession since World War II, with the cumulative fall in GDP possibly exceeding 5%.

Disenfranchise the Ratings Agencies Adobe Acrobat Required
David Smick and Adam S. Posen (TIE/PIIE) Fall 2008
While the House Oversight Committee's hearing on the credit rating agencies has uncovered numerous examples of fraud and error, the outrage distracts from the real issue: Reliance on the rating agencies is harmful to the stability of the financial system. Not only are the agencies' ratings of securities opaque, they are often outright wrong or useless. But investors are not allowed to ignore these ratings because they are entrenched in the regulatory framework. Disenfranchising the rating agencies from this role would lead to the creation of smaller, more agile private firms whose success would depend solely on the accuracy of their predictions—surely a win for investors and efficient markets alike.

Against false truisms: Exchange rate flexibility does not speed up current account adjustment
Menzie D. Chinn & Shang-Jin Wei (VoxEU) Dec 1, 2008
This column examines whether the pace at which a country’s current account balance adjusts to its average value depends upon the exchange rate regime. The benefits of exchange rate flexibility for current account adjustment are found to be greatly exaggerated. By some measures, a fixed exchange rate facilitates faster adjustment.

Anatomy of a Meltdown
John Cassidy (New Yorker) Dec 1, 2008
Ben Bernanke and the financial crisis.

Currency collapse in Ukraine
Economist Dec 1, 2008
The battle in Ukraine to stop the currency plummeting.

IMF Presses Donors to Maintain Aid Flows Amid Crisis
IMF Survey Dec 1, 2008
At a world development conference in Doha, the IMF is urging the international community not to let the current focus on the global financial crisis result in a decline in aid to the world's most vulnerable nations or obscure attention to other urgent issues affecting low-income countries.

Buffeted by financial crisis, countries seek euro's shelter
IHT Dec 1, 2008
The deepest financial crisis since the Great Depression has prompted countries that had snubbed the euro to take a fresh look at the virtues of the common European currency.

Skill composition of migration and the generosity of the welfare state
Alon Cohen & Assaf Razin (VoxEU) Dec 2, 2008
Do generous welfare states attract less-skilled immigrants? This column says yes, arguing that previous studies, which yielded mixed answers, failed to distinguish between open immigration regimes and those restricting immigration on the basis of skills. Welfare state generosity is found to have a negative effect on the skill composition of immigrants under the free migration regime.

Global imbalances threaten the survival of liberal trade
Martin Wolf (FT) Dec 2, 2008
Surplus countries must expand domestic demand relative to potential output. Only in this way can the deficit countries realistically hope to avoid spending themselves into bankruptcy.

How to avoid the horrors of 'stag-deflation'
Nouriel Roubini (FT) Dec 2, 2008
Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.

We Need a Global Carbon Tax
Ralph Nader & Toby Heaps (WSJ) Dec 3, 2008
The cap-and-trade approach won't stop global warming.

IMF Warns Gains Against Poverty Are in Jeopardy
IMF Survey Dec 3, 2008
The IMF warns that the gains made in poverty reduction in low-income countries around the world are in jeopardy because of the dramatic slowdown in the global economy triggered by the world financial crisis.

Finance, redistribution, globalisation
Giuseppe Bertola & Anna Lo Prete (VoxEU) Dec 3, 2008
Globalisation seemingly erodes governments’ ability to redistribute wealth. This column presents new evidence of the tradeoff between integration and redistribution, showing that financial development has filled in where government has receded. The current crisis may pose political challenges to both financial development and economic integration.

Lamy Leaning Towards Calling Mid-December Mini-Ministerial
Bridges Weekly Trade News Digest, Vol. 12 Number 41 Dec 3, 2008
Just under five months ago, a high-profile push for a WTO accord broke down when the US, India, and China proved unable to resolve differences on farm trade.

Ag Negotiators Face Time Pressure in Search for Doha Deal
Bridges Weekly Trade News Digest, Vol. 12 Number 41 Dec 3, 2008
Time will be a major constraint if WTO Members are to try to strike framework accords on farm and manufacturing trade by the end of the year, according to Geneva-based agriculture negotiators.

Amidst Low Expectations, UN Climate Talks Underway in Poznan
Bridges Weekly Trade News Digest, Vol. 12 Number 41 Dec 3, 2008
The latest session of United Nations climate change negotiations got underway on 1 December in the Western Polish city of Poznan. But even before the meeting began, many delegates were already looking ahead towards late 2009, when governments are scheduled to meet in Copenhagen to try to hammer out a successor agreement to the Kyoto Protocol.

Bush Suspends Preferential Treatment To Bolivia, Citing Insufficient Action Against Drugs
Bridges Weekly Trade News Digest, Vol. 12 Number 41 Dec 3, 2008
US President George W. Bush last week moved to suspend preferential trade access for Bolivian exports, a step the Latin American country has decried as "political vengeance."

Only new thinking will save the global economy
Mohamed El-Erian (FT) Dec 3, 2008
It is time to suspend unquestioned faith in a quick return to the past and adjust to the reality of change.

Protecting Open Markets
Robert Z. Lawrence (PIIE) Dec 4, 2008
The world economy is in the greatest jeopardy since the 1930s. The crisis has spread through global financial markets like a virulent pandemic, leaving no country unaffected. Plummeting freight rates and massive inventory buildups on the docks attest that the crisis is also spreading through global markets for goods and services. But the worst is yet to come because the real economy will inevitably fall more deeply into recession.

Foreign Aid Goes Military!
William Easterly (NYRB) Dec 4, 2008
These may sound like arcane statistical debates when you are trying to decide whether to save a poor country. But if you are going to recommend military intervention based on social science research—in short, if you are going to read Collier's book and draw conclusions from it—then you have to face up to the technical fallacies that may lurk behind research findings.

The Crisis & What to Do About It
George Soros (NYRB) Dec 4, 2008
The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself.

How to Start a Hedge Fund
Donald MacKenzie (LRB) Dec 4, 2008
You could walk around Mayfair all day and not notice them. Hedge funds don’t – can’t – advertise. The most you’ll see is a discreet nameplate or two. An address in Mayfair counts in the world of hedge funds. It shows you’re serious, and have the money and confidence to pay the world’s most expensive commercial rents. A nondescript office no larger than a small flat can cost £150,000 a year. Something bigger and in the style that hedge funds like (glass walls, contemporary furniture) can set you back a lot more. It’s fort unate therefore that hedge funds don’t need a lot of space. Two rooms may be enough: one for meetings, for example with potential investors; one for trading and doing the associated bookkeeping. Some funds consist of only four or five people. Even a fairly large fund can operate with twenty or fewer.

The crisis and protectionism: Steps world leaders take Recommended!
Richard Baldwin & Simon J Evenett (VoxEU) Dec 4, 2008 has just published another Ebook in our “What leaders should do in the Crisis” series; this one focuses on trade. Unless world leaders strengthen trade cooperation, new tariffs and competitive devaluations could trigger a protectionist spiral of WTO-consistent trade barriers. To rule this out, world leaders should: 1) Reduce protectionist pressures by fighting the recession with macroeconomic polices; 2) Translate APEC and G20 leaders’ words into deeds by agreeing a framework for concluding the Doha Round; and 3) Establish a real-time WTO/IMF surveillance mechanism to track new protection.

When the golden eggs run out
Economist Dec 4, 2008
A decade of poor returns and the onset of recession are likely to make investors cautious. That would be understandable, but mistaken.

The Financial Economists Roundtable’s statement on reforming the role of SROs in the securitisation process Recommended!
Charles A.E. Goodhart (VoxEU) Dec 5, 2008
Credit rating agencies were at the heart of the rise of securitisation, and incorrect rating of securitised assets is thought be many to be at the heart of the “Subprime Crisis”. Plainly, these ‘agencies’ are in for serious reform. This column presents that a statement of an eminent group of financial economists such reform, including commentary on the SEC’s proposed reforms.

Would a Detroit Bailout Violate International Trade Rules?
Marcus Noland (PIIE) Dec 5, 2008
The possible American bailout of its Big Three automakers is already being described outside the United States as "protectionist" and a violation of commitments made to the G-20 not to contribute to a trade war in the midst of a global economic slump. Whether or not the typical Congressperson would see it that way, an overlooked consideration in the American debate is how the contemplated actions might come into conflict with existing US obligations in the World Trade Organization (WTO). The United States could trip over two WTO rules.

Contagion - emerging markets under stress
Helmut Reisen (VoxEU) Dec 6, 2008
The global credit crisis is testing the resilience and sustainability of emerging markets’ policies, this column warns. Even strong performers are not shielded against pure financial contagion, although they may well recover quickly once confidence is restored. In the future, development finance is likely to rely less on private debt.

No need to panic – we can beat deflation
Wolfgang Münchau (FT) Dec 7, 2008
There is a lot banks can do. For starters, they can drive through the zero boundary and impose negative interest rates.

Bystanders to this financial crime were many
Nassim Nicholas Taleb and Pablo Triana (FT) Dec 7, 2008
Bystanders cause others to be bystanders. So when you see a quantitative "expert", shout for help, call for his disgrace, make him accountable. Do not let him hide behind the diffusion of responsibility

Spirit of Bretton Woods, Are You There? Recommended!
Olivier Jeanne (PIIE) Dec 8, 2008
The challenges raised by the current global crisis are not unlike the interwar problems that led to the establishment of the Bretton Woods financial architecture. In the short to medium run, the worldwide slump might lead to conflicts over the appropriate levels of inflation and exchange rates, as well as to protectionist pressures. In the long run, one may need to think of new regulations to reduce the risk of global booms and busts in credit and asset prices. However, in the modern financial environment the appropriate solutions are unlikely to be the same as 50 years ago. For example, floating exchange rates are probably here to stay. We need to revive the spirit rather than the letter of Bretton Woods. To deal with the first challenge I propose a round of multilateral consultations under the auspices of the International Monetary Fund (IMF) on the role of monetary policy in a credit crisis. As for the second challenge, I propose (more speculatively) an international agreement for taxing “systemically risky” financial products.

World's oldest profession, too, feels crisis
IHT Dec 8, 2008
While prostitution may be one of the most recession-proof businesses, brothel owners in Europe and the United States say belt-tightening is undermining a once-lucrative industry.

China plays beggar thy neighbor
Peter Navarro (AT) Dec 9, 2008
China could play a very constructive role in the rebuilding of the global economy while moving from an export-driven economy to one fueled by domestic consumption. It is all too clear, however, that Beijing has chosen to move in the opposite direction.

Global demand for oil to plummet
FT Dec 9, 2008
Global oil demand will collapse next year and commodities will not return to the highs they reached this summer in the foreseeable future, two authoritative reports said on Tuesday as they forecast a long and painful worldwide recession.

Dire Forecast for Global Economy and Trade
NYT Dec 9, 2008
The world economy is on the brink of a rare global recession, the World Bank said, with world trade projected to fall for the first time since 1982.

Needed: Rapid and large liquidity funding for emerging markets
Guillermo Calvo & Rudy Loo-Kung (VoxEU) Dec 10, 2008
Emerging markets are weaker than the G7, and if they undertake expansionary monetary and fiscal policies like the G7, inflation and capital flight are likely surge. This column argues international financial institutions must take an unprecedented role in bailing out emerging markets as there is the serious risk that they resort to protectionism and nationalisation.

Planned WTO Mini-Ministerial Postponed As Prospects for Doha Deal Diminish
Bridges Weekly Trade News Digest, Vol. 12 Number 42 Dec 10, 2008
In another blow to the WTO's struggling Doha Round of trade talks, a mini-ministerial meeting that Director-General Pascal Lamy had tentatively planned for 13-15 December was postponed this week as major trading powers signalled they were unsure whether a deal could be struck.

New NAMA Text Released Amidst Doha Gloom
Bridges Weekly Trade News Digest, Vol. 12 Number 42 Dec 10, 2008
Despite dimming prospects that ministers from around the world will meet in mid-December to try to strike a framework deal in the Doha Round of trade talks, the chair of the WTO industrial goods negotiations has issued an updated draft agreement setting out possible terms that would govern how governments cut tariffs on manufactured merchandise.

Revised Ag Text Reflects Progress, But Final Deal Still Elusive
Bridges Weekly Trade News Digest, Vol. 12 Number 42 Dec 10, 2008
The chair of the WTO agriculture negotiations has released a revised version of his draft text, intended to serve as the basis for a deal on tariff and subsidy cuts in the Doha Round of trade negotiations. The 6 December text and accompanying working documents reflect progress in a number of areas since the last such draft in July.

Obama to Pick Becerra for Top Trade Post, Officials Say
Bridges Weekly Trade News Digest, Vol. 12 Number 42 Dec 10, 2008
Congressman Xavier Becerra, who has called US trade policy "broken completely" and said that he regrets having voted for the North American Free Trade Agreement, will be US President-elect Barack Obama's choice for the country's trade chief, media sources reported last week.

Commodity Prices Slump, Less Appetite for Oil Amid Downturn
IMF Survey Dec 10, 2008
Commodity prices have plummeted on expectations of a sharp global downturn, as demand for commodities has weakened in tandem with world economic activity.

Prudent Asia is unlikely to bail out the west
David Pilling (FT) Dec 11, 2008
Hardly surprisingly, the continent views as foolish the excesses that led Europe and the US into so much trouble.

The World Credit Crisis: A Simple Introduction Part I Recommended!
Max Corden (RGE Monitor) Dec 11, 2008
What caused the Crisis? It is a story in four stages.

After the crisis is before the crisis: The political economy of debt relief
Andreas Freytag & Gernot Pehnelt (VoxEU) Dec 11, 2008
In a future phase of the crisis, the issue of sovereign debt relief is likely to arise. Such debt relief has historically been marked by political failure and short-term thinking, and not delivered promising results. Drawing on recent research, this column argues for tying debt relief to good governance goals is one way to improve the outcome.

A bonus culture that ruined the City is also ruining Africa
Paul Collier (Guardian) Dec 11, 2008
In an echo of the financial crisis, corrupt incentives in African politics offer an intellectual veneer for grotesque greed

Global: Risks to the Global Outlook: The Good, the Bad and the Ugly
Richard Berner & Joachim Fels (MSDW) Dec 11, 2008
In this note, we provide a framework to assess and quantify the risks to the outlook systematically in advance, thus providing investors and our colleagues with a sense of forward-looking plausible risk scenarios around a baseline.

Suddenly vulnerable
Economist Dec 11, 2008
Asia’s two big beasts are shivering. India’s economy is weaker, but China’s leaders have more to fear

Commitment to development index
Economist Dec 11, 2008
America ranks 17th out of 22 rich countries in its commitment to fostering prosperity in the developing world, according to the Center for Global Development, a think-tank in Washington, DC. The Netherlands, Sweden, Norway and Denmark take the top four spots thanks to the generosity of their foreign aid relative to the size of their economies. But aid is not all that matters. Countries such as Australia, New Zealand and Canada score well by dint of good trade and security policies. Environmental, technology and migration policies count too. America’s relatively low trade barriers, the generosity of its citizens’ private aid flows, and policies promoting pro-poor technologies save it from last place.

Emerging economies loosen policy
Economist Dec 11, 2008
Can emerging economies now afford counter-cyclical policies?

Fundamentals at odds? The US current account deficit and the dollar
Gian Maria Milesi-Ferretti (VoxEU) Dec 12, 2008
This column argues that the current combination of a weak dollar and a large current account deficit is explained by long lags in the relation between US external accounts and the real effective exchange rate, high oil prices, and the "return differential” between US holdings of assets overseas and foreign holdings of US assets. A reduction of the US current account deficit could occur with no further dollar weakening.

Restoring the G20's credibility on trade: Plan B and the WTO trade talks
Richard Baldwin & Simon J Evenett (VoxEU) Dec 13, 2008
Announcement that the WTO talks will not be put back on track this year – despite the G20’s November 15th commitment to do so – is the first concrete demonstration of the G20’s ineffectiveness. This column argues that the G20 should undertake a “Plan B” on world trade to restore G20 creditability and shore-up support for the WTO.

Ancestors and incomes: More on the roots of world inequality
Louis Putterman & David N. Weil Dec 14, 2008
Inequality within countries is explained by the past history of populations more than by ethno-linguistic differences and linguistic distance. This column suggests what matters is the history of the people who live in a country today, more than the history of the country itself.

The World Credit Crisis: A Simple Introduction Part II – Some Issues and Complications Recommended!
Max Corden (RGE Monitor) Dec 14, 2008
It is amazing that a crisis that began in the US housing market, and apparently resulted from the making of unwise “sub-prime” loans to US mortgagees spread like wild fire around the world. There have actually been three channels through which this has happened.

China's economy hits the wall
Gideon Rachman (FT) Dec 15, 2008
It is now clear that, far from being immune to the global financial crisis, China is very vulnerable. Its economy may not be hit as hard as that of the US. But as a poorer country – with a less resilient political system – it could suffer worse.

The crisis gives the US new financial power Recommended!
Ricardo Hausmann (FT) Dec 15, 2008
It remains the world's only super-borrower and able to issue thousands of billions of dollars in debt at record low rates.

The low oil price calls for a fresh set of rules
Nick Butler (FT) Dec 15, 2008
Producers and consumers require realistic forecasts and an orderly market. The need is to develop a common understanding.

Can Africa Trade Its Way to Peace?
Herman J. Cohen (NYT) Dec 15, 2008
If undertaken with enough will and persistence, an American-led mediation to create a common market in East Africa could end the war and transform the region.

More Action Needed to Combat Spreading World Crisis, IMF Says
IMF Survey Dec 15, 2008
Governments need to take additional coordinated action to revive world financial markets and get credit flowing again, IMF Managing Director Strauss-Kahn says, warning in a speech in Madrid that the global economic outlook continues to deteriorate.

The Management of China's International Reserves and Its Sovereign Wealth Funds
Edwin M. Truman (PIIE) Dec 16, 2008
Over the past decade, China has emerged as the largest holder of international reserves, a major international investor, and a substantial net creditor to the international financial system. In 2007, China created the China Investment Corporation (CIC) as a sovereign wealth fund (SWF) using a small portion of its international reserve assets. Many questions have been raised about the operation and management of the CIC and the nature of China's other international investments, including, importantly, China's international reserves. In what does China invest? Are the people of China receiving a good return on their investments? Is China using its investments to pursue political objectives? Should China be more accountable and transparent about its international investments?

Five Opportunities to Help Beat World Recession
Matthew Lynn (Bloomberg) Dec 16, 2008
There is no longer any dispute that the world is going into a recession. The only question is how long and how deep: 1970s-style or 1930s? But just because business is bad doesn’t mean it stops completely. Just as plants renew themselves in a frosty winter, so the economy often does the same during a prolonged contraction.

Currencies: 2009 Dollar Outlook
Stephen Jen & Spyros Andreopoulos (MS GEF) Dec 16, 2008
We continue to manage our currency call centred on the ‘Dollar Smile’ and believe that the USD should head higher in 1H09, before giving back some of its gains in 2H, assuming the global economy bottoms next summer.

Time to loosen the criteria for joining the euro
Marcin Piatkowski (FT) Dec 16, 2008
Delaying euro adoption until greater convergence has been achieved is tantamount to saying it cannot help in a crisis.

Political regimes and international trade
Toke S. Aidt & Martin Gassebner (VoxEU) Dec 16, 2008
Are autocracies less integrated in the world economy than democracies? This column provides an overview of recent research on this question and argues that autocratic states trade less with the rest of the world than democracies. This may be one reason why many autocracies have failed to develop economically.

Japan to live with yen burden
Kosuke Takahashi (AT) Dec 17, 2008
Japan's currency has gained by almost a quarter against the US dollar this year and a third against the euro, making life even harder for the country's exporters, such as Sony and Toyota. Yet Tokyo is unlikely to halt the rise, out of concern over its relations with the United States, its key ally.

ASEAN tightens up to ride China's rise
Brian McCartan (AT) Dec 17, 2008
The 10-member Association of Southeast Asian Nations (ASEAN) launched a new joint charter on Monday that establishes mutual rules and commitments, moving the 41-year-old grouping one step closer to becoming a unified economic bloc.

The economic crisis, Doha completion, and protectionist pressure
Joseph Francois (VoxEU) Dec 17, 2008
The worry about protectionism should not be centred on completing the Doha Round. This column suggests 80% of world trade is locked-in under legally binding tariffs and the real worry is that of excessive use of antidumping, countervailing duty, and safeguard protection, misguided public subsidies, rising protection in the poorest countries, and temptation in the US Congress to violate existing treaty commitments.

What can be learned from the banking crisis
Hans-Werner Sinn (VoxEU) Dec 17, 2008
This column says the core of the crisis lies in the legal provisions of limited liability. Europe and the world need stricter rules for financial traffic which are vital for the functioning of the financial capital markets.

With No Doha Conclusion in Sight, WTO Considers How to Proceed
Bridges Weekly Trade News Digest, Vol 12 Number 43 Dec 17, 2008
WTO Director-General Pascal Lamy announced on Friday that there will be no conclusion to the Doha Round of trade talks before the end of the year, making this the second major setback for the round in fewer than six months.

ASEAN Signs Charter, Trade Deals in Move Toward Deeper Integration
Bridges Weekly Trade News Digest, Vol 12 Number 43 Dec 17, 2008
The Association of South East Asian Nations, or ASEAN, made significant progress this week towards achieving an integrated regional community, similar to that of the EU, with the entry into force of the ASEAN Charter and the inking of three trade pacts on trade in goods, investment and services.

Climate Talks in Poznan Meet Low Expectations
Bridges Weekly Trade News Digest, Vol 12 Number 43 Dec 17, 2008
Ministers and officials from 189 countries wrapped up climate change discussions in the early morning hours of 13 December having made unexpected progress on the terms of the UN Adaptation Fund and marginal movement towards an agreement on technology transfer. Nevertheless, many observers criticised the meeting for yielding exactly what was expected going in: very little.

How to fight the global financial contagion
Dennis Snower (FT) Dec 17, 2008
A transparent financial system will see the reduction of asset values, but the costs of an untransparent system are far higher.

Rethinking Credit Ratings
David Apgar (Globalist) Dec 17, 2008
As the world examines the origins of the global financial crisis, many have looked to credit rating agencies. Seeing the industry plagued with misguided incentives and an erosion of sound rating practices, David Apgar argues that a new system of agencies may be in order.

End of the Hedge Fund?
Sebastian Mallaby (WP) Dec 18, 2008
For sheer toe-curling embarrassment, it may be a while before Wall Street does better than the Bernard Madoff scandal. Here was a rogue who practically telegraphed his unreliability by hiring a tiny, no-name audit firm, by reporting monthly investment results that never fluctuated and by claiming a trading strategy that could not possibly have been implemented given the billions of dollars he managed. And yet, despite these warnings, the rich, the famous and the supposedly sophisticated entrusted their money to Madoff, who defrauded them with the most laughably crude of methods -- an old-fashioned Ponzi scam.

What to Do Recommended!
Paul Krugman (NYRB) Dec 18, 2008
What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.

South Korea trade fight gets ugly
IHT Dec 18, 2008
Sledgehammers, crowbars and fire extinguishers took the place of debate as opposition lawmakers tried to block the advance of a contentious free trade deal.

Five ways to start the world economic recovery
George Magnus (FT) Dec 18, 2008
Expectations about Barack Obama and his macro-economic team may have become excessive. But why not?

Sterling nears parity with euro
FT Dec 18, 2008
The pound dropped to within 5p of parity with the euro on Thursday as it fell to a fresh record low against the single currency for the ninth successive day.

Fare well, free trade
Economist Dec 18, 2008
With the global economy facing its worst recession in decades, protectionism is a growing risk

A Dollar Referendum
WSJ Dec 19, 2008
Currency markets reflect a lack of faith in Bernanke.

Global: 2009 Global Economic Outlook
Richard Berner and Joachim Fels (MS GEF) Dec 19, 2008
The financial crisis will continue to play out in 2009, with serious repercussions for the global growth and inflation prognosis. Downside risks prevail for both, so that deflation is a bigger risk than inflation.

Obama has to lead the way on trade
Clive Crook (FT) Dec 21, 2008
Averting a protectionist turn in US policy should be Barack Obama's top priority in trade. "Do no harm" and "set a good example" should be his watchwords. But statements during his campaign cast doubt on his commitment to the case for liberal trade.

The China Growth Fantasy
Yasheng Huang (WSJ) Dec 21, 2008
Beijing should focus on household incomes, not GDP.

The lender of last resort of the 21st century
Xavier Freixas & Bruno M. Parigi (VoxEU) Dec 22, 2008
This column argues that the financial crisis of 2007 and 2008 redefines the functions of the lender of last resort, placing it at the intersection of monetary policy, supervision and regulation of the banking industry, and the organisation of the interbank market.

Trade Barriers Toughen With Global Slump
WP Dec 22, 2008
Despite Free-Market Pledge, Many Nations Adopt Restrictive Policies.

Uncertainty and the credit crisis: The worst may be over
Michelle Alexopoulos & Jon Cohen (VoxEU) Dec 23, 2008
This column claims that uncertainty shocks affect on economic activity with remarkable swiftness, strength, and durability. Capturing expectations of average citizens in Main Street through the use of keywords in main newspapers, it indicates a modest decline of uncertainty since October 2008, suggesting that the worst may be behind us.

Keynes offers us the best way to think about the financial crisis
Martin Wolf (FT) Dec 23, 2008
Sixty-two years after Keynes' death, in another era of financial crisis, it is easier for us to understand what remains relevant in his teaching.

Friedman Would Be Roiled as Chicago Disciples Rue Repudiation Recommended!
John Lippert (Bloomberg) Dec 23, 2008
John Cochrane was steaming as word of U.S. Treasury Secretary Henry Paulson’s plan to buy $700 billion in troubled mortgage assets rippled across the University of Chicago in September.

From Financial Folly to Trade Troubles?
Arvind Subramanian (PIIE) Dec 24, 2008
If 2008 was the year of finance, 2009 could well be the year of trade. If 2008 was dominated by commodity prices (which soared in the first half) and equity prices (which collapsed in the second), events in 2009 will be influenced by the fortunes of currency prices, especially the dollar.

The Euro at ten: Why such small trade effects?
Jeffrey Frankel (VoxEU) Dec 24, 2008
Trade among euro members has increased 10-15% since the introduction of the euro, a far smaller effect than estimated prior to the currency's introduction. What explains the discrepancy between the European experience and previous history? This column explores the difficulty of explaining the difference.

The first ten years of the euro
Marco Buti & Vitor Gaspar (VoxEU) Dec 24, 2008
This column looks back at the first ten years of the euro, from the uncertainty surrounding its adoption to the one caused by the current crisis. In between, the euro proved a resounding success. It is worth remembering the magnitude of the original challenge in order to use the crisis as an opportunity to strengthen European governance.

Crisis Puts Putinomics to the Test
Anders Aslund (PIIE) Dec 24, 2008
Suddenly, Russia stands out as one of the countries likely to be worst hit by the international financial crisis, although it entered the crisis with huge budget and current account surpluses since 2000 and the third-largest currency reserves in the world. It would be unfair to blame only international markets, as Prime Minister Vladimir Putin does, considering how flawed his own economic policy is.

Europeans see euro trumping dollar
FT Dec 28, 2008
The euro could overtake the dollar in global importance in the next five years, a large majority of continental Europeans believe, according to a poll days before Europe's monetary union reaches its 10th birthday.

World Economy in 2009: Three priorities for recovery
Wolfgang Münchau (FT) Dec 28, 2008
Policymakers will have to smarten up, work together and start thinking outside the box ito combat the 2009 global recession.

Sterling dumped in favour of euro
FT Dec 29, 2008
The pound plummeted to its weakest level yet against the euro, reaching a low of almost £0.98, as investors responded to signs of gloom in the UK economy.

The euro at ten: Demonstrably durable
Economist Dec 30, 2008
A success, but now comes the hard part, especially for governments that have shirked reform.

Recession, recovery, trade war and artificial life – welcome to 2009 Recommended!
FT Dec 30, 2008
What does the year ahead have in store? Financial Times writers predict the events and issues in politics, business, economics and world affairs that will shape 2009.

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