News & Commentary:

December 2011 Archives


Family Feud
Bill Gross (PIMCO) Dec 1, 2011
Investors will likely be heartened by recent European policy proposals, but Euroland will remain a dysfunctional family no matter what the outcome. Investors should recognize that Euroland's problems are global and secular in nature; it will be years before Euroland and developed nations in total can constructively escape from their straitjacket of debt. Global growth will likely remain stunted, interest rates artificially low and investors continually disenchanted with returns that fail to match expectations. Investors should consider risk assets in emerging economies, such as Brazil and Asia, and bonds in the strongest developed economies, where the steep yield curve may offer opportunities for capital gains and potentially higher total returns.

Playing 'What If?' with Oil Prices and a Potential Strike on Iranian Nuclear Facilities
Greg E. Sharenow (PIMCO) Dec 1, 2011
The impact of a major disruption in the supply of oil from Iran would depend on the IEA's possible intervention, the duration of any interruption and the degree to which any attack might catch the markets by surprise. The market has less "cushion" than it did earlier this year due to significant production outages and relatively strong non-OECD demand, leading to sharp draws on inventories. Excess capacity is virtually exhausted and we doubt other OPEC nations would be able to compensate for a reduction in Iranian oil production. In light of these possible oil price spikes, investors should evaluate how their portfolios might be affected by a sudden or sharp burst of inflation.

In Athens
James Meek (LRB) Dec 1, 2011
In Athens, James Meek meets Graeme Hesketh, a British radiologist who moved to Greece three decades ago but is thinking of leaving now that his wages have been cut by 30 per cent: ‘The Greeks are getting what they deserve,’ he says. The Athens shopscape is quiet and empty. Kostas Manos, a jeweller, has been forced to become a pawnbroker to cope with an 80 per cent drop in demand; properties that used to be sold for €4000 per square metre, a young developer tells Meek, now go for less than €3000; journalists at Eleftheria, the Greek Guardian, haven’t been paid for three months. The mayor of Athens is encouraging people to boycott a new tax that has been tacked on to their electricity bills – if they don’t pay it, the government says, they will be cut off. Among those protesting against the government’s austerity measures, and the pressure applied to the country by the IMF, Meek talks to a member of the Coalition of Left Students of Law School who explains: ‘Greece is an experiment. If the IMF and EU succeed in having all these miseries in Greece where there is a big public sector … it will make it easier for them to succeed in Italy or Spain.’

World Bank manoeuvres to influence climate finance debates
Bretton Woods Update No. 78 Dec 1, 2011
Plus: Nepal climate loans: an injustice; IMF plays "second fiddle" as governments fall in the eurozone; Beyond repair? Bank lobbies for carbon markets; Despite evidence, World Bank still promoting water privatisation; and more.

Small Change Recommended!
Charles Kenny (Democracy) Dec 1, 2011
The big theories of economic development turned out to be wrong. Finding out what works on the ground offers a path to curbing global poverty.

How did Europe's debt crisis get so bad?
John H. Makin (AEI) Dec 1, 2011
The quickly worsening European debt crisis--preordained by a false belief that sovereign governments do not default--constitutes the biggest threat to the U.S. economy and its financial system. Europe is caught in a vicious cycle where an intensifying financial crisis slows growth and raises borrowing costs, exacerbating the crisis. Europe has three ugly options: (1) borrow more money from outside; (2) have the European Central Bank (ECB) buy more government bonds; (3) allow the European Monetary Union to collapse. In the end, the ECB will probably be forced to triple its balance sheet.

Africa’s New Engine
Calestous Juma (F&D) Dec 1, 2011
Africa looks to its middle-class consumers to drive prosperity.

Role Reversal
Eswar S. Prasad (F&D) Dec 1, 2011
Emerging economies are less dependent on debt, less vulnerable to volatile investment sentiment, and are rethinking the role of capital flows.

Fixing the Flaws in EMU
Florence Jaumotte (F&D) Dec 1, 2011
The euro area's long-term survival calls for a fundamental transformation of policymaking.

A Cushion for the Poor
Evan Tanner and Jorge Restrepo (F&D) Dec 1, 2011
Commodity-exporting governments can reduce debt and still protect their least well off citizens.

Less Volatile than Meets the Eye
Rabah Arezki, Daniel Lederman, and Hongyan Zhao (F&D) Dec 1, 2011
Contrary to popular wisdom, commodity prices can be more stable than prices of manufactured products.

The Quality of Growth
Antoinette Sayeh (F&D) Dec 1, 2011
Poor households are benefiting from sub-Saharan Africa's high growth and wider global reach.

More Unequal than Others
Pranab Bardhan (Project Syndicate) Dec 1, 2011
In India and the US, many forms of social inequality have declined in recent years, but economic inequality has been on the rise. If both countries wish to thrive as democracies, they must find a way to make the rich feel that it is in their best interests to improve conditions for the poor.

Blame It on Berlin Wall Street Journal Subscription Required
WSJ Dec 1, 2011
The euro bailout caucus wants the Germans to write a blank check.

Mall Rats Can't Bring About the Wealth of Nations
Caroline Baum (Bloomberg) Dec 1, 2011
The spectacle of hordes of shoppers schlepping through the mall at midnight with children in tow, stuffing their carts after stuffing their bellies, was a sight to behold. And apparently one to cheer.

Do giant oil field discoveries fuel internal armed conflicts?
Yu-Hsiang Lei & Guy Michaels (VoxEU) Dec 1, 2011
Do natural resource windfalls, such as those arising from the discovery of giant oil fields, increase the risk of internal armed conflict? This column argues that giant oil field discoveries, which are largely down to chance, significantly increase the incidence of conflict. This is especially so in countries with recent histories of political violence, where locals may have little to gain from such discoveries

Eurozone crisis: Slipping into double-dip?
Rafael Doménech (VoxEU) Dec 1, 2011
Those following developments in Europe fear another Lehman Brothers disaster, where one failure triggers several others and a global recession follows. This column suggests that recent history may already be repeating itself – but with even more severe consequences unless drastic action is taken.

This time they may save the euro Financial Times Subscription Required
Philip Stephens (FT) Dec 1, 2011
An agreement to share sovereignty over budgets, borrowing and debt must be at the heart of any credible deal.

We need not fret over omnipotent markets Financial Times Subscription Required
Roger Altman (FT) Dec 1, 2011
History suggests the longer-term effects of the markets flexing their power can often be positive.

The Goldilocks guide to saving the eurozone Financial Times Subscription Required
Bruce Anderson (FT) Dec 1, 2011
Kipling predicted the outcome when he wrote, ‘the burnt fool’s bandaged finger goes wobbling back to the fire’.

The Fed and the Euro New York Times Subscription Required
NYT Dec 1, 2011
America's extraordinary intervention was timely, and it should impress upon the Europeans that it is high time they stopped sitting on their hands.

Who Owns This Mess? New York Times Subscription Required
Hernando de Soto (NYT) Dec 1, 2011
Behind the global financial crisis is a breakdown of the knowledge system that used to underpin private credit. Politicians, not financial wizards, will have to fix it.

Killing the Euro New York Times Subscription Required
Paul Krugman (NYT) Dec 1, 2011
Even optimists now see Europe as headed for recession, while pessimists warn of another global financial crisis on the way. How did things go so wrong?

The Euro Crisis and Germany’s Leadership Role
Thanos Skouras (Globalist) Dec 1, 2011
Germany’s main foreign policy aim has been the strengthening of European integration. But the euro crisis seems to raise doubts about the country's ability to achieve this goal.

Europe’s day of reckoning
Michael Gerson (WP) Dec 1, 2011
The world economy depends on Germany.

Beware the falling euro
Bill Gross (WP) Dec 1, 2011
Its end would endanger the U.S. recovery.

Can Asia Step Up to 21st Century Leadership?
Amitav Acharya (YaleGlobal) Dec 1, 2011
Global power is shifting, particularly in economic matters. Asia’s emerging powers seek enhanced leadership roles in world affairs, yet those roles may not be warranted until the nations take on more responsibility for regional and global governance and security, argues Amitav Acharya of American University. “Asia’s role in global governance cannot be delinked from the question: Who leads Asia?” he writes. The lead candidates – China, Japan and India – each come up short, he maintains. Since the Second World War, the three have made progress in developing economic resources required for such leadership. But each nation lacks regional legitimacy, largely because of rivalries and lingering mistrust....

How to Save the Euro
Adam Lerrick (WSJ) Dec 2, 2011
The central bank should commit to buy the bonds of troubled member states that submit to genuine fiscal discipline.

Explaining Central Banks' Gold Purchases
David Howden (Mises Daily) Dec 2, 2011
The last two years marked a significant shift in central banks' attitudes toward gold. Since 1988, central banks have been net sellers of the precious metal. Lacking convertibility of their paper currencies into the commodity, this occurrence makes perfect sense. Why hold a physical asset with costly storage fees when there is no risk that it will ever be needed? Better to hold an interest-bearing (and easily stored) asset like a government security to earn a profit in the interim. So goes the typical explanation for why central banks load their balance sheets with financial assets instead of physical ones.

Global: Europe and the UAE: Common Ground
Manoj Pradhan (MS GEF) Dec 2, 2011
A comparison of the euro area to the UAE is not as far-fetched as it sounds.

Public-debt crises and bad equilibria
Maurizio Bovi (VoxEU) Dec 2, 2011
The countries most affected by the Eurozone debt crisis seem also to be characterised by bad institutions and large shadow economies. This column describes the bad equilibrium in which bad governments offer few and low-quality public services and make people less willing to pay for services. Firms stay underground, public receipts stay low, and governments remain inefficient. In sum, the presence of inept bureaucracy may be strongly associated with the shadow economy.

Eurobills, not Eurobonds
Christian Hellwig & Thomas Philippon (VoxEU) Dec 2, 2011
Fiscal union is now officially on the European agenda, but the issue of Eurobonds remains controversial. This column argues that the Eurozone instead needs Eurobills – debt instruments of maturities under a year. It claims that issuing Eurobills – up to 10% of Eurozone GDP – would help with crisis management as well as financial regulation and monetary policy, while minimising the risks of moral hazard.

Where is Wal-Mart when we need it?
Thomas Philippon (VoxEU) Dec 2, 2011
Has the financial industry become less efficient? This lead commentary in the Vox debate on the financial sector argues that, despite all of its fast computers and credit derivatives, the current financial system is no better at transferring funds from savers to borrowers than the financial system of 1910.

Is Modern Capitalism Sustainable?
Kenneth Rogoff (Project Syndicate) Dec 2, 2011
Will modern capitalism be a victim of its own success in producing massive wealth? As pollution, financial instability, health-care problems, and inequality continue to grow, and as political systems remain paralyzed, capitalism’s future might not seem so secure in a few decades as it seems now.

Will China Stumble? Don't Bet on It New York Times Subscription Required
Steven Rattner (NYT) Dec 2, 2011
I remain staunchly optimistic that China will continue to be the world's greatest machine for economic expansion.

China's Hard Landing Wall Street Journal Subscription Required
WSJ Dec 3, 2011
The state-led growth model is leading the country into trouble.

France and the euro crisis: The ratings game Economist Subscription Required
Economist Dec 3, 2011
The perils for Nicolas Sarkozy in trying to preserve a credit rating.

Now on Broadway! Waiting for Euro Financial Times Subscription Required
Edward Luce (FT) Dec 4, 2011
If Europe fails to stave off a collapse, Obama’s re-election prospects would be downgraded to junk.

France and Germany look set to fudge it yet again Financial Times Subscription Required
Wolfgang Münchau (FT) Dec 4, 2011
What is needed is not to reconcile propositions for austerity and sovereignty, but to reject them.

Debt crisis lessons from Latin America Financial Times Subscription Required
John Paul Rathbone (FT) Dec 4, 2011
Europe is not Latin America – it is more indebted and less able to stomach tough adjustment programmes.

Keep the IMF Out of Europe
Mario I. Blejer & Eduardo Levy Yeyati (Project Syndicate) Dec 4, 2011
Europe, it seems, is determined to resolve its problems using other people’s money. But there are at least three reasons why the IMF should resist this pressure, and abstain from increasing its (already extremely high) exposure to Europe.

Why the WTO should care about exchange rates
Lucas Ferraz, Emerson Marçal & Vera Thorstensen (VoxEU) Dec 4, 2011
Persistent exchange-rate misalignments have created trade frictions worldwide. This column argues that the WTO should adopt trade rules that allow nations to neutralise the effects of exchange-rate misalignments. Otherwise, the WTO might become a diplomatic-juridical fiction.

Last Hope for the Chinese Economy: Consumption
Gordon G. Chang (Forbes) Dec 4, 2011
For more than a half decade, Chinese leaders have been talking about the need to raise domestic demand. Can they take action now when the economy is sliding?

Eurozone Leaders Need to Agree on a Plan for Deeper Fiscal Union
Andrew Balls (PIMCO/Telegraph) Dec 4, 2011
One of the many worrying aspects of the European debt crisis, even after more than two years of worsening financial and economic conditions, is that there still appears to be no shared understanding and analysis of the problems facing the monetary union.

Five Myths About Emerging Markets Wall Street Journal Subscription Required
Michael Pollock (WSJ) Dec 5, 2011
So, you think you understand the pros and cons of investing in fast-growing economies? Think again.

What Can Save the Euro?
Joseph E. Stiglitz (Project Syndicate) Dec 5, 2011
It is increasingly evident that Europe’s political leaders, for all their commitment to the euro’s survival, do not have a good grasp of what is required to make the single currency work. Public-sector cutbacks today do not solve the problem of yesterday’s profligacy; they simply push economies into deeper recessions.

The Poetry of the Euro
Harold James (Project Syndicate) Dec 5, 2011
The euro was not just the outcome of an idiosyncratic quest to reduce the wear on pockets stuffed with odd national coins, or to facilitate intra-European trade. The bold European experiment reflected a new attitude about what money should do, as well as how it should be managed.

Do Eurozone leaders finally ‘get it’? Almost
Charles Wyplosz (Project Syndicate) Dec 5, 2011
This week’s announcements by German Chancellor Angela Merkel and ECB President Mario Draghi that the Eurozone is taking steps towards a closer fiscal union seem to be calming markets and restoring confidence in the decision-making of Eurozone leaders. This column argues, however, that the devil is still in the detail.

China’s exchange rate and poor-country growth
Helmut Reisen (VoxEU) Dec 5, 2011
China’s currency has appreciated substantially in recent years. While many in the west still argue that this is not sufficient and focus on the effects on their domestic industry, this column asks what the effects have been for the world’s poor countries.

India’s growth in the 2000s: Four facts
Arvind Subramanian (VoxEU) Dec 5, 2011
The Indian growth miracle, including the experience of the 2000s, continues to confound. This column examines the numbers across states and establishes four facts: growth was faster in the 2000s than the 1990s in most states, divergence in the growth performance across states continues, faster growing and more globalised states took a bigger hit during the crisis, and the demographic dividend seems to be disappearing.

Thinking the Unthinkable: How to Break Up the Euro Area
Anders Ĺslund (PIIE) Dec 5, 2011
The unthinkable is becoming possible. Until recently, the breakup of the euro area seemed nothing but an illusion, but suddenly this possibility is a clear and evident danger. If the euro area is to be broken up, it should be done as amicably, cleanly, symmetrically —and as fast as possible.

RMB: No longer a one-way bet?
Syetarn Hansakul (DB Research) Dec 5, 2011
China's renminbi (RMB) has seen some downward pressure in recent months. The People's Bank of China turned net seller of foreign assets for the first time in four years in October and FX reserves declined in September. These developments were mostly the reflection of higher global risk aversion. The outlook for China and the RMB will likely continue to be marred by uncertainty over the global economy and the eurozone crisis, leading to slower GDP growth and lower earnings for Chinese companies. Nevertheless, a sharp depreciation of the RMB or a one-off devaluation is unlikely, with the key mitigants being the relative outperformance of the Chinese economy vis-ŕ-vis G-3 and China’s USD 3.2 tr in foreign reserves.

Prepare for a Different Financial Landscape
Mohamed A. El-Erian (PIMCO/Reuters) Dec 5, 2011
With the European crisis continuing to dominate the news, many people now realize that today’s global economy faces an unusually uncertain outlook. Indeed, Europe’s turmoil is but one of the multiple global re-alignments in play today. What may be less well recognized is the extent to which specific sectors are already changing in a consequential and permanent manner.

Asset Price Booms and Current Account Deficits
Paul Bergin (FRBSF) Dec 5, 2011
Before the global financial crisis of 2007-2009, the United States and several other countries posted large current account deficits. Many of these countries also experienced asset price booms. Evidence suggests the two developments were linked. Rising asset values in the United States permitted households to borrow more easily to boost consumption, while the net sale of debt securities abroad financed current account deficits. The fall in some asset prices since the crisis can make it easier to reduce current account imbalances.

Evaluating Optimum Currency Areas: The U.S. versus Europe
Ben Emons (PIMCO) Dec 5, 2011
While economic integration has progressed materially since the inception of the EMU, the U.S. scores much higher in terms of labor productivity, labor mobility and wage flexibility. Research shows that wage rigidity -- defined as wage freezes or cuts as a fraction of total workers -- is much lower in the U.S. than the eurozone. Eliminating these rigidities is crucial for the eurozone’s growth as an optimum currency area. Albeit painful, the intensity of the debt crisis in Europe may force a quicker progress of reform implementation, which could be a competitive advantage for the EMU in the future. Although the U.S. appears to be more of an “optimum currency area” than the EMU, this advantage does not necessarily translate into higher and more sustainable economic growth for the future.

Default a World Away Has Greek Lesson
Mario I. Blejer and Eduardo Levy-Yeyati (Bloomberg) Dec 5, 2011
The inevitable is finally happening. Although new uncertainties tend to replace old ones -- the focus has shifted to Italy’s troubles in the past few weeks -- Greece is going through a default.

Mandelbrot Beats Economics in Fathoming Markets
Mark Buchanan (Bloomberg) Dec 5, 2011
The possible collapse of the European monetary union, at least in its current form, brings home the truth that there’s little in economics that is certain. We’re again “thinking the unthinkable,” as we were a few years ago when we suddenly realized that financial engineering hadn’t banished financial crises, and that 70 years of relative stability since the Great Depression didn’t guarantee a thing.

Life Finds a Way
Neel Kashkari (PIMCO) Dec 5, 2011
Even the most sophisticated risk management models can't protect against scenarios we've never even contemplated. In this New Normal economic environment of slow economic growth, high volatility and enormous macro risks -- some identifiable, but many unidentifiable -- we don't believe ignoring major downside risks is prudent for equity investors. We believe investors are best served by employing a combination of three strategies to actively manage downside risk in equity portfolios to hedge against the risks they can see, and equally importantly, the risks they can't see. Risk management is often a tradeoff, decreasing some risks while increasing or concentrating others. Being humble enough to admit what we don't or can't know is important.

Democracy versus bureaucracy
Richard Rahn (WT) Dec 5, 2011
The financial crisis in Europe has resulted in the appointment of new prime ministers in both Greece and Italy, in reality, by the Germans and French, rather than through the ballot box in Greece and Italy. This raises the question, "Is it possible to have both a bureaucratic welfare state and a democracy that protects individual liberties?"

An ‘iron hand’ is no substitute for democracy Financial Times Subscription Required
Madeleine Albright and Andrew Kohut (FT) Dec 5, 2011
We can but hope Arab populations will learn – not repeat – the Russian experience of democracy.

Don’t drape the City in a Union flag: it’s an asset to all Europe Financial Times Subscription Required
Jo Johnson (FT) Dec 5, 2011
Competition between EU financial centres is fading. The struggle now will be between New York, London and Asia.

Talismanic IMF ponders future role Financial Times Subscription Required
Alan Beattie (FT) Dec 5, 2011
IMF is watching financial market sentiment and wondering how much of a supporting role it will be called upon to play if things get bad enough.

How Inequality Damaged Economies Recommended!
Andrew G. Berg and Jonathan D. Ostry (FA) Dec 6, 2011
A global conversation has emerged about the growing gap between the rich and poor. New academic research shows that this is more than just a moral or social issue. The more unequal a society, the more prone it is to instability.

The Impoverished “Asian Century”
Chandran Nair (Project Syndicate) Dec 6, 2011
Western anxieties about an "Asian century" stem largely from the precedent of twentieth-century geopolitical structures, in which the West dominated less-developed nations. But this geopolitical dynamic is outdated, and Asia would suffer as much as the West from attempting to emulate the Western consumption-led economic-growth model.

Winning the European Confidence Game
Raghuram Rajan (Project Syndicate) Dec 6, 2011
If any solution to the European crisis proposed over the next few days is to restore confidence to the sovereign-bond markets, it will have to be both economically viable and politically palatable to rescuers and rescued alike. This means paying attention not just to the plan’s technical details, but also to appearances.

Eurozone Crisis, Act Two: Has the Bundesbank reached its limit?
Aaron Tornell & Frank Westermann (VoxEU) Dec 6, 2011
If you thought the Eurozone crisis was coming to an end this week, this column argues that we may barely be reaching the end of Act One.

Euroland: ECB About to Go the Distance Now?
Elga Bartsch (MS GEF) Dec 6, 2011
The EU Summit should bring some progress in solving the euro area sovereign debt crisis, but it is unlikely to be a panacea.

The Long Shadow of German Hyperinflation
Jeffrey Fear (Bloomberg) Dec 6, 2011
In February, Axel Weber surprised much of Europe when he resigned as Bundesbank president. Weber said that he felt isolated for his “clear positions” in opposition to the European Central Bank’s policy of purchasing distressed euro-area sovereign debt on secondary markets.

Merkozy failed to save the eurozone Financial Times Subscription Required
Martin Wolf (FT) Dec 6, 2011
In the absence of external adjustment, the fiscal cuts imposed on fragile members will just cause prolonged and deep recessions.

Horses for courses: picking market models Financial Times Subscription Required
John Kay (FT) Dec 6, 2011
These methods provided a misleading account of the events that gave rise to the 2007-08 financial crisis.

The Bond Buyer's Dilemma Wall Street Journal Subscription Required Recommended!
Burton G. Malkiel (WSJ) Dec 7, 2011
The yields on long-term U.S. Treasury bonds will likely fall below inflation for years. Fortunately, some reasonable alternative strategies exist for investors.

Basel's Sovereign-Debt Bubble Wall Street Journal Subscription Required
WSJ Dec 6, 2011
How banking regulations help create systemic risk.

Perils of Celebrity Central Banking
Axel Merk (Merk Commentary) Dec 6, 2011
Swiss National Bank (SNB) President Philipp Hildebrand finds himself in the hot seat. SNB rules prohibit his family from trading based on non-public monetary and foreign exchange intentions of the SNB (c.f. §4). His wife netted a 60,000 Swiss franc profit buying, then selling U.S. dollars, all within a month; her husband’s intervention in the currency market was mostly responsible for the gain. Arguably, she traded to make a profit, publicly explaining, “what motivated me to buy dollars was the fact that it was at a record low and was almost ridiculously cheap”. In instructing her account manager, however, she emailed that her motivation was to manage the share of US dollars in their asset mix as part of a long-term investment allocation.

Democracy on the retreat
Harold Meyerson (WP) Dec 6, 2011
Europeans on the hook while banks are protected.

Europe, Heal Thyself
Daniel Gros (Project Syndicate) Dec 7, 2011
Despite sufficient economic resources, EU leaders have failed to come up with a solution to the eurozone debt crisis and are now seeking external aid. But Europe’s policymakers cannot offshore a problem that Europeans can and must address by themselves.

Wage effects of trade reform with labour-market frictions and endogenous worker mobility
Pravin Krishna, Jennifer P. Poole & Mine Zeynap Senses (VoxEU) Dec 7, 2011
What are the effects of globalisation on wages and jobs in international and domestic firms? This column finds that data on employers and employees in Brazil tell a more nuanced story than the typical findings from firm-level data.

In defence of the European Banking Authority
Marco Onado & Andrea Resti (VoxEU) Dec 7, 2011
The newborn European Banking Authority has been fiercely criticised in the few months of its life. This column argues that most of the criticisms have been driven by lobbying interests more than by noble worries on the future of the European economy. It adds that the current market turmoil requires a pan-European guarantee scheme for banks, a ‘big bazooka’ for sovereign debt which does not boil down to a pop gun, and stronger bank supervision at the EBA level.

India’s Rupee is Now Asia’s Worst Performing Currency
Charles Wallace (II) Dec 7, 2011
India’s rupee has dropped nearly 13 percent against the dollar since the beginning of the year, thanks to a combination of domestic and international factors. Right now, it’s Asia’s worst-performing currency.

The Risk of Sovereign Debt
David Howden (Mises Daily) Dec 7, 2011
With a 50 percent haircut recently given on the Greek sovereign-debt question, investors are increasingly asking what the real risk of sovereign debt is. It would appear that investors underpriced the risk inherent in sovereign debt, especially that of Europe's periphery. One might even go so far as to say that investors made foolish choices in the past and are now getting their just deserts.

Global: Tail Wags the Bond
Gerard Minack (MS GEF) Dec 7, 2011
Bonds in the near-periphery – notably Italy – seem likely to outperform European equities under most plausible scenarios.

After the Flood: Surviving in a Sea of Debt
David Fisher and Olivia Albrecht (PIMCO) Dec 7, 2011
Since 2009, developed country governments have run fiscal deficits unprecedented outside of wartime, and their debt levels have reached epic heights. Investors accustomed to considering only the interest rate risk associated with their developed government bond holdings have been shocked to find that credit risk has become dominant in many cases. For investors in government bonds, inflation and currency debasement have the potential to be just as costly as outright default. Investors should consider focusing on GDP, or national income, as a measure of a country’s ability to service its debt.

Waiting for ‘All In’
Mark Kiesel (PIMCO) Dec 7, 2011
A more aggressive global monetary policy response is needed to help restore confidence and support both financial markets and the global economy. A slower global economic growth outlook combined with the challenges facing Europe likely warrants an investment strategy that focuses on high-quality investments. Without a more forceful and coordinated policy response, Europe now faces an increasing risk of a hard landing. In this uncertain environment, volatility will likely remain high, liquidity poor, risk premiums wide and the global economy fragile as financial and credit conditions tighten. Easier monetary policy as well as the potential for more balance sheet support from a larger consortium of global central banks is now needed over our cyclical horizon. If these actions are coordinated and timely, investors and risk takers would be more likely to move off the sidelines.

WTO Members Drop Food Security Proposals for Ministerial
Bridges Weekly Trade News Digest Volume 15, Number 42 Dec 7, 2011
After months of intense negotiations, WTO members have formally agreed on draft decisions and elements of political guidance to forward to trade ministers when they arrive in Geneva next week. However, two widely-discussed food security proposals failed to make the cut, despite a general agreement among members on the need for a food security agenda.

Disputes Roundup: Airbus/Boeing and US-China Solar Panel Conflicts Both Reach Next Level
Bridges Weekly Trade News Digest Volume 15, Number 42 Dec 7, 2011
Last week brought about significant developments in two high-profile trade cases over advanced manufacturing involving the US. After the EU announced on 1 December that it had complied with an earlier WTO ruling that deemed its subsidies for civil aircraft manufacturer Airbus illegal, the US announced on 2 December that it would be continuing its investigations on subsidised and dumped solar panel imports from China.

In "Marathon" WIPO Copyright Ctte Session, Print Disabled Instrument Finishes Last
Bridges Weekly Trade News Digest Volume 15, Number 42 Dec 7, 2011
On Friday 2 December, the World Intellectual Property Organization (WIPO) wrapped up a two week long "marathon" session of its copyright committee that tackled issues ranging from treaties for audiovisual performances and broadcasting organisations to a limitations and exceptions instrument for libraries and archives. However, an instrument that would ensure access to works for the print disabled was left on the sidelines, despite having gained momentum at the committee's previous session.

Donors Launch New Global Aid Partnership at Korea Meet
Bridges Weekly Trade News Digest Volume 15, Number 42 Dec 7, 2011
Delegates from 160 countries have agreed upon a new global partnership aimed at ensuring that foreign aid reaches those most in need, after meeting last week in South Korea. While the agreement was praised for having gained endorsements from emerging donor countries, particularly China, questions have also been raised about whether the partnership's non-binding nature will undermine its own effectiveness.

East and West at a crossroads
Francesco Sisci (AT) Dec 7, 2011
As Europe shifts towards political unification and the United States hints at recovery, China has cut its interest rates. But the fate of those sweeping changes rests on how each power deals with rising Middle East tensions. The US needs to balance reining in Iran with backing of the Arab Spring and Israel, while Beijing should gaze beyond domestic stability. For Brussels, the challenge rests on intervention.

America vs China in Africa
Francis Njubi Nesbitt (AT) Dec 7, 2011
The United States seems incapable of responding to the challenge as China overtakes Africa's traditional trading partners. With counter-terrorism the White House's top foreign policy in Africa, China can only steal more of a march in the second scramble for African resources that is now in full swing. The United States and Europe seem stuck in neo-colonial perspectives that paint Africa as an impoverished backwater, while the Chinese seize the day in all spheres.

How We Were All Misled
John Lanchester (NYRB) Dec 8, 2011
Michael Lewis’s Boomerang is about what he has come to see as the larger phenomenon behind the credit crunch: the increase in total worldwide debt from $84 trillion in 2002 to $195 trillion now.

An Asset-Pricing Model for the Contagion Age
Nicholas G. Polson and James G. Scott (Bloomberg) Dec 8, 2011
The financial crisis and the meltdown in Europe have exposed the deficiencies of traditional asset-pricing models, particularly their inability to account for the effect of contagion from one market to another. The good news is that the length and the persistence of the turmoil have given researchers a trove of data to develop new predictive tools.

Head for the euro exit
Henry C K Liu (AT) Dec 8, 2011
The eurozone countries appear to recall too well Benjamin Franklin's famous warning "We must all hang together, or surely we will all hang separately." There is no compelling reason to preserve the eurozone as constituted, while hanging together may drag the whole area into the abyss of bottomless sovereign debt.

Europe on a Chinese Shoestring
Yao Yang (Project Syndicate) Dec 8, 2011
For months, EU leaders and IMF officials have been hoping that China would lend a hand to save the euro. But China will give nothing unless the EU makes certain concessions, including conferral of market-economy status.

Is the European Dream Over?
Ian Buruma (Project Syndicate) Dec 8, 2011
On the surface, Europe’s current crisis, which some people predict will tear apart the EU, is financial. But the deeper crisis is political: there is no “European people” to express the solidarity needed to see the EU through hard times.

Taxing the 1%: Why the top tax rate could be over 80%
Thomas Piketty, Emmanuel Saez & Stefanie Stantcheva (VoxEU) Dec 8, 2011
The top 1% of US earners now command a far higher share of the country's income than they did 40 years ago. This column looks at 18 OECD countries and disputes the claim that low taxes on the rich raise productivity and economic growth. It says the optimal top tax rate could be over 80% and no one but the mega rich would lose out.

What is the value added of banks?
Christina Wang (VoxEU) Dec 8, 2011
The financial system is like an organ in the body of the economy. But is it the heart or the appendix? This column, part of the Vox Debate on whether we need a financial sector, argues that we should measure the value banks create through their management of risk, not simply their bearing of risk. Under this measure, banks may well be less valuable to the economy.

Eurobonds are likely to increase the risk of joint defaults in the Eurozone
Wolf Wagner (VoxEU) Dec 8, 2011
As government advisors and central bankers race through the different options to save the euro, this column argues that one such proposal, Eurobonds, will actually increase the risk that several Eurozone countries fail together. It shows using basic arithmetic that these bonds, sometimes labelled ‘stability bonds’, may actually be more likely to harm Eurozone stability.

An Asset-Pricing Model for Contagion Age
Nicholas G. Polson and James G. Scott (Bloomberg) Dec 7, 2011
The financial crisis and the meltdown in Europe have exposed the deficiencies of traditional asset- pricing models, particularly their inability to account for the effect of contagion from one market to another. The good news is that the length and the persistence of the turmoil have given researchers a trove of data to develop new predictive tools.

Let rating agencies have their say Financial Times Subscription Required
John Gapper (FT) Dec 8, 2011
Aside from being tactless, I cannot see what S&P did wrong.

The terrible consequences of a eurozone collapse Financial Times Subscription Required
Willem Buiter (FT) Dec 8, 2011
A disorderly sovereign default and exit by Italy would bring down much of the European banking sector.

How the role of equities may shrink
McKinsey Quarterly Dec 8, 2011
A powerful new class of investors in emerging markets prefers other kinds of assets.

Why the Euro Will Remain...a Different Kind of Currency
Jacob Funk Kirkegaard (PIIE) Dec 8, 2011
The excessively gloomy headlines about the imminent demise of the euro currency have at least temporarily receded as European Union (EU) politicians and central bankers play out their sequenced games of political quid pro quo. Progress is being made.

Summit to Save Euro, Part 5, Debuts in Europe
Caroline Baum (Bloomberg) Dec 8, 2011
On Feb. 15, 1999, Alan Greenspan, Robert Rubin and Larry Summers were featured on the cover of Time magazine as “The Committee to Save the World.”

Exiting the EU’s “Age of Incompleteness”
Sergio Marchionne (Globalist) Dec 8, 2011
What lessons the revival of Fiat holds for Europe as the continent attempts to rejuvenate its economy and get control of its debt.

Mind the gap: the perils of forecasting output Financial Times Subscription Required
Martin Wolf (FT) Dec 8, 2011
It remains difficult to understand why the government cannot take advantage of low rates to expand investment.

IMF must play its part in any euro solution Financial Times Subscription Required
Lawrence Summers (FT) Dec 8, 2011
If banks are not recapped on a substantial scale soon, there will be a large contraction of credit in the global economy.

Leave China out of a trade pact at your peril Financial Times Subscription Required
Aaditya Mattoo and Arvind Subramanian (FT) Dec 8, 2011
Without China, the Trans-Pacific Partnership would be like Hamlet without the Prince of Denmark.

Waves from slowing China to break our shores Financial Times Subscription Required
Henny Sender (FT) Dec 8, 2011
Beijing's stalling economy means less export orders for the rest of the world and also fewer buy orders for its debt.

A Summit to the Death
Kevin O'Rourke (Project Syndicate) Dec 9, 2011
As many feared and most expected, the just-concluded European summit left much to be desired. Once again, Europe’s national leaders showed themselves to be in denial about what underlies the eurozone’s sovereign-debt crisis, and thus hopelessly unable to resolve it.

Escaping the Oil Curse
Jeffrey Frankel (Project Syndicate) Dec 9, 2011
Economists and other development specialists know why oil riches so often turn out to be a curse for countries. But they also know that political leaders have free will, and that countries can choose to use their resource bonanzas for the long-term economic advancement of their peoples.

Disaster Can Wait
Barry Eichengreen (Project Syndicate) Dec 9, 2011
The coming year will not be one of crisis, but nor will it bring an end to our current economic troubles. Rather, for Europe, the US, and China, 2012 will be a year of muddling through.

Reaction to the Eurozone crisis talks: Getting there, but slowly
Charles Wyplosz (VoxEU) Dec 9, 2011
The night of Thursday 8 December saw a meeting to save the euro. Judging by reactions Friday morning, there is some way yet to go, but this column argues that Europe is getting there, slowly. A significant step has been made in the right direction; the principle is right but the details are missing.

Dealmaking among emerging markets
The Deal Dec 9, 2011
The old M&A paradigm of north buying south, or vice versa, is being altered. The new model: south and south

How the U.S. Can Help Europe---Just Say No Wall Street Journal Subscription Required
Jim DeMint (WSJ) Dec 9, 2011
The greatest threat to our economy is not the debt crisis across the pond, but the one right here on American soil.

Emerging Markets Bonds and Currencies in an Uncertain World
Ignacio Sosa (PIMCO) Dec 9, 2011
Even if the global risk environment deteriorates significantly, emerging markets may continue to offer compelling risk-adjusted return characteristics. Emerging markets external sovereign debt, along with receiving interest rates in higher-quality EM countries, could be the best relative performers in a deteriorating risk scenario. EM currencies would likely sell off sharply in risk-off periods but would also tend to rebound robustly when risk appetite returns. We believe several Asian currencies are likely to be the best relative performers. Emerging markets assets remain a risk asset class and will not be immune to waves of global jitters.

Globalisation and higher education: Different degrees of success
David Hummels, Rasmus Jřrgensen, Jakob R. Munch & Chong Xiang (VoxEU) Dec 10, 2011
With stagnating wages and lingering unemployment, income inequality is back in the headlines. Is globalisation to blame for this inequality? Is more education a solution? This column argues that focusing on university education misses important effects. It presents evidence that wage effects vary markedly among those with degrees depending on their specific skill sets, and that globalisation can often benefit workers without degrees

Until Europe Meets Again Wall Street Journal Subscription Required
WSJ Dec 10, 2011
Another agreement to agree on not very much.

Why Investors Should Look Beyond Europe Strategies New York Times Subscription Required
Jeff Sommer (NYT) Dec 10, 2011
In one banker's view, developments in the world's fast-growth markets will prove much more important to investors than the issues of the euro zone.

On the Middle Class, Lessons From Latin America New York Times Subscription Required
Jorge G. Castaeda (NYT) Dec 10, 2011
The United States that epitome of the middle-class society, of the egalitarian dream that pulled millions of immigrants away from Latin America has begun to go Latin American.

The Wild West of Finance New York Times Subscription Required
Adam Davidson (NYT) Dec 10, 2011
In capitalism, failure is as important as success. But market rules don't apply to the biggest banks.

Anarchist Anthropology New York Times Subscription Required
Thomas Meaney (NYT) Dec 10, 2011
The activist-scholar who helped start Occupy Wall Street rewrites the history of debt and reimagines its future.

Europe's Latest Try New York Times Subscription Required
NYT Dec 10, 2011
We are not optimistic about Friday's new fiscal pact. More discipline and coordination make sense, but first economies have to start growing.

The British “Non”
Harold James (Project Syndicate) Dec 11, 2011
At the just-concluded EU summit, British Prime Minister David Cameron vented decades of accumulated resentment stemming from his country’s relationship with Europe. It wasn't the first time a UK leader has adopted a stance of heroic resistance to Europe – only to be remembered as irrelevant and discredited.

What future for central banking? Insights from the past
Stefano Ugolini (VoxEU) Dec 11, 2011
While many central bankers feel they are now in unchartered territory, this column argues that history may provide guidance. Going back to a time before central banks, it argues that there are long-term cycles in the evolution of monetary policy – governments have alternatively internalised and externalised money creation. The key to success is not who runs monetary policy, but how credible they are.

Snags, diversions – and the crisis goes on Financial Times Subscription Required
Wolfgang Münchau (FT) Dec 11, 2011
Leaders should have admitted on Friday that the summit had simply failed, or perhaps have given it a few more days.

US should seek reciprocity with China Financial Times Subscription Required
Michael Wessel (FT) Dec 11, 2011
Washington needs a new way of negotiating with Beijing that abandons the cycle of promises made and broken.

Depression and Democracy New York Times Subscription Required
Paul Krugman (NYT) Dec 11, 2011
In Europe, much more than a shared currency hangs in the balance.

No, the Bundesbank has not reached its limit
Karl Whelan (VoxEU) Dec 12, 2011
A recent Vox column argues that the Bundesbank is selling off assets to lend to peripheral central banks, that this process is about to end, and the result will be a catastrophe. This column argues that such claims are based on a misrepresentation of the Bundesbank’s accounts and a misunderstanding of ECB monetary policy. The Eurozone may be in crisis but for entirely different reasons.

Can services be the next growth escalator?
Ejaz Ghani, Arti Grover & Homi Kharas (VoxEU) Dec 12, 2011
Policymakers in both developed and developing countries now see services as the source of jobs and growth. This column argues that modern services sophistication now surpasses that of the manufacturing sector and explores the reasons why.

‘This sceptred isle’ cannot save itself on its own Financial Times Subscription Required
Dominique Moďsi (FT) Dec 12, 2011
France does not need Great Britain to balance Germany. Great Britain needs Europe if it is to carry weight in the world.

Why the eurozone deal will fail Financial Times Subscription Required
Stephen King (FT) Dec 12, 2011
Until and unless Germany's current account surplus comes down, the risk of repeated crises will remain very high.

The Gold Standard and the Great Depression: Echoes
Philip Scranton (Bloomberg) Dec 12, 2011
In September 1931, Britain abandoned the gold standard, at least for the next six months. This followed Germany’s decision in mid-July of that year to establish strict exchange controls, a response to serious foreign-account liquidations and demands for gold shipments in early summer.

Forseeing the euro’s fall
Charles Lane (WP) Dec 12, 2011
The man who predicted the EU’s predicament.

The Gold Standard and the Great Depression
Philip Scranton (Bloomberg) Dec 12, 2011
In September 1931, Britain abandoned the gold standard, at least for the next six months. This followed Germany’s decision in mid-July of that year to establish strict exchange controls, a response to serious foreign-account liquidations and demands for gold shipments in early summer.

The fifth horseman of the apocalypse
Spengler (AT) Dec 13, 2011
Past nations fell to the four horsemen of the apocalypse: war, plague, famine and death. Today's more civilized world has a fifth: loss of faith. The world's apathy is seen in plummeting fertility rates threatening population collapse, most devastatingly in the Muslim world. This makes radical Islam more dangerous, since nations are like people - on the brink of death they lose rational self-interest. - Spengler (Dec 12, '11)

The Euro Zone's German Crisis Wall Street Journal Subscription Required
Alan Blinder (WSJ) Dec 13, 2011
Blame Teutonic efficiency for what ails Europe. The other countries just can't compete.

Asset Allocation and Risk Management in a Bimodal World
Vineer Bhansali (PIMCO) Dec 13, 2011
We believe that a number of forces have converged to increase the likelihood of multiple equilibria in the market, resulting in distribution curves that could have fatter tails and less symmetry than traditional models. Fat tails and negative skewness in the distribution curve can arise from the mere possibility of multiple equilibria – even if both equilibria individually appear normal. Once markets arrive at a resting place among different equilibria, they tend to become trapped due to a variety of restraining forces. For all these reasons, we believe that the core building blocks of asset allocation and option pricing in the current macroeconomic environment should allow for the possibility of multimodality. This significantly changes the conceptual approach towards portfolio construction and risk management.

The ECB Fear Factor
Philippe Legrain (Project Syndicate) Dec 13, 2011
Exceptional times demand exceptional measures, and the ECB will inevitably feel obliged to act if the eurozone is pushed to the brink. But the longer it delays, the greater the hit to people's jobs and savings, the deeper the damage to investors' confidence in the eurozone financial system, and the bigger the risk of a catastrophic mishap.

A disastrous failure at the summit Financial Times Subscription Required
Martin Wolf (FT) Dec 13, 2011
The eurozone’s leaders have not devised a credible remedy for the ills that continue to afflict the currency union.

Taverna talk of fiscal union will remain just that Financial Times Subscription Required
John Kay (FT) Dec 13, 2011
Markets cannot easily be bullied or lobbied, and their threat is effective. Fiscal rules have none of these advantages.

Debate over role of ECB hits wrong note Financial Times Subscription Required
Erik Nielsen (FT) Dec 13, 2011
The central bank's main job remains ensuring price stability and to do that it needs a well functioning transmission mechanism.

Rule of law breaks out in China Financial Times Subscription Required
Patti Waldmeir (FT) Dec 13, 2011
A recent spate of high-profile cases shows the country is coming of age.

The Origins of the Greek Financial Crisis
Antonis Kamaras (FA) Dec 13, 2011
Before the first World War, Greek cities successfully managed their own affairs. Then modernization brought centralization, which paved the way for the current crisis. Now the country needs to get back to its roots

What the EU Should Learn From Ireland's Austerity Fiasco
Stephen Kinsella (FA) Dec 13, 2011
Ireland's economic turnaround in the 1980s is generally credited to fiscal measures similar to the ones other European countries are now implementing. But those policies were painful and won't even work this time.

Four Ways to End the Euro's Crisis of Confidence
Peter Kurer (Bloomberg) Dec 13, 2011
They have yet to find a perfect solution, but companies and investors now have time to regroup.

Stop Europe's Crisis by Saying No to Bank Borrowing
Laurence Kotlikoff (Bloomberg) Dec 14, 2011
Intermediation is unsafe at any speed, shut it down immediately and replace it with limited-purpose banking.

London vs. the Eurozone
Howard Davies (Project Syndicate) Dec 14, 2011
David Cameron's veto of the plan to save the euro was a big gamble, and suggests that the UK is shuffling towards the EU exit.

The political endgame for the euro crisis
Charles A.E. Goodhart & Dirk Schoenmaker (VoxEU) Dec 14, 2011
The euro crisis continues to deepen, as European leaders continue with their ‘too little too late’ policy reforms. This column argues that fixing the Eurozone problems requires a strong direction of fiscal and banking policy, but that this in turn requires deeper political integration including an elected president of the European Commission and a two-chamber parliament representing EU citizens and EU member states.

How did multinational banks weather the previous perfect storm?
Ralph De Haas & Iman van Lelyveld (VoxEU) Dec 14, 2011
In the current financial turmoil, does it pay to have domestically owned banks or foreign-owned ones? This column looks at the lending behaviour of multinational banks the last time financial markets were in crisis in late 2008. It concludes that while multinational banks may contribute to financial stability during local bouts of financial turmoil, they also increase the risk of ‘importing’ instability from abroad.

Europe needs a firewall to stabilise markets Financial Times Subscription Required
John Paulson (FT) Dec 14, 2011
The ECB is the only institution that has sufficient resources to guarantee European sovereigns.

WTO: Mixed Expectations as Delegations Arrive for Eighth Ministerial Conference
Bridges Weekly Trade News Digest, Volume 15, Number 43 Dec 14, 2011
Trade ministers from around the world are gathering in Geneva this week for their eighth biennial ministerial conference (MC8), during which they will review the WTO's activities and welcome Russia, Samoa, and Montenegro as new members. While the three-day event is widely expected to be devoid of any significant negotiating outcome, a plethora of bilateral and small-group meetings are being planned in the margins of the conference that could set the tone for the high-level gathering.

Russia to Take Final Accession Steps at WTO Ministerial
Bridges Weekly Trade News Digest, Volume 15, Number 43 Dec 14, 2011
After an 18-year accession process, Russia is now set to join the WTO on Friday 16 December at the global trade body's ministerial conference. The approval of Moscow's bid is largely anticipated to be one of the highlights of the three-day gathering, which is otherwise expected to see little in negotiating outcomes.

Sparring Continues at WIPO Ctte on Patents, Public Health
Bridges Weekly Trade News Digest, Volume 15, Number 43 Dec 14, 2011
The relationship between patents and public health once again took centre stage at last week's meeting of the World Intellectual Property Organization's (WIPO) patent body, with developed and developing countries butting heads with one another over the issue. Meanwhile, less contentious discussions also continued on a range of subjects, including patent quality, technology transfer, and exceptions and limitations to patents.

Europe’s economic purgatory
Robert J. Samuelson (WP) Dec 14, 2011
There’s no magical solution to this mess.

Do we have a tripolar monetary system?
Marcel Fratzscher & Arnaud Mehl (VoxEU) Dec 15, 2011
Is the international monetary system tripolar – with the US dollar, the euro, and the Chinese renminbi at each corner? This column presents empirical evidence to suggest that the renminbi is already well on its way to being the dominant currency in Asia.

A credit-crunch stuffing
Martin Hutchinson (AT) Dec 15, 2011
Current attempts to solve a potential liquidity crisis by stuffing overfed banks with more cheap money are appropriate only if trying to make pate de foie gras. Those in charge of the world's monetary system are wrong - and in 2012 we are likely to pay the price.

The Euro Zone's Double Failure Wall Street Journal Subscription Required
Martin Feldstein (WSJ) Dec 15, 2011
Europe needs country-by-country fiscal reforms, not a renewed push for political integration.

The Euro in a Shrinking Zone
Robert Skidelsky (Project Syndicate) Dec 15, 2011
The euro will survive, but the zone will shrink, sending shock waves around the world. But sometimes shock waves are needed to break the ice and start the water flowing again.

Fragile and Unbalanced in 2012
Nouriel Roubini (Project Syndicate) Dec 15, 2011
The outlook for the global economy in 2012 is clear, but it isn’t pretty: recession in Europe, anemic growth at best in the US, and a sharp slowdown in China and in most emerging-market economies. Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition.

Short Cuts: The Art of Financial Disaster
John Lanchester (LRB) Dec 15, 2011
Financial and economic downturns always cause a rash of scandals and exposure.

The Worst and the Best of Austerity
Jean Pisani-Ferry (Project Syndicate) Dec 15, 2011
Austerity is the only option for eurozone countries that no longer have access to capital markets. But, for others, nibbling at the edges of a deficit in the current crisis is at best a sideshow, and at worst a recipe for recession at a time when all signs point to an economic downturn.

Finland Wants Euro Pact Ready for Snowy Day
Pasi Kuoppamaki (Bloomberg) Dec 15, 2011
We would like to see a euro area that promotes free trade and stability, both in the economy and the wider geopolitical environment.

Global: Outlook 2012: Policy Make or Break
Joachim Fels (MS GEF) Dec 15, 2011
Following a big downward revision in August, we cut our 2012 global GDP forecast further from 3.8% to 3.5%.

Death by strangling: the demise of state spending Financial Times Subscription Required
Jeffrey Sachs (FT) Dec 15, 2011
Republicans claim small government and low taxes have spared the US from the European disease. That is utterly false.

Conflict and confusion: China's currency policy Financial Times Subscription Required
Sebastian Mallaby (FT) Dec 15, 2011
Promoting a rival to the dollar may sound patriotic to Beijing, but it contradicts most aspects of its economic model.

Crisis fears fuel debate on capital controls Financial Times Subscription Required
Gillian Tett (FT) Dec 15, 2011
Bank of England paper warns of even worse to come for the financial system, with tighter cross-border policy co-ordination the only solution.

A Euro Breakup: The Problem of Euro Assets
John Williamson (PIIE) Dec 15, 2011
Anders Ĺslund recently wrote a great deal of sense in RealTime (December 5) about a development that no longer looks impossible even if it is widely agreed that it would be unfortunate. I certainly agree that if a euro area breakup happens, it is better that it be done quickly, by all members simultaneously; that the national currencies should revert to their old names; that the old central banks that still exist should take responsibility for running monetary policy by a low-inflation rule in each of the successor monetary areas; and that all euro assets that were issued by a national authority should be redenominated into the new national currencies. Unfortunately this still leaves at least one critical issue to be resolved. And there is one issue for which Ĺslund's recommendation may prove infeasible.

Fiscal rules: Hazardous to your health?
Marco Annunziata (VoxEU) Dec 16, 2011
As Eurozone leaders move towards fiscal integration, critics say the focus on fiscal rules will condemn countries to austerity and deep recession. This column argues that the latest proposals are not nearly so fearsome.

Devaluing a controversial currency
Julie Owono (Aljazeera) Dec 16, 2011
Fourteen African countries use a currency that hurts their economies and benefits their former colonial master, France.

Europe's gutless collapse
Reuven Brenner (AT) Dec 17, 2011
The euro crisis solution lies in political leadership, not the markets. With that notably absent, Europe's banks can ease their agony by selling their loan books to pension funds, insurance companies and sovereign funds - though again guts are lacking. The alternative is bankruptcy

China shows its skills with world trade rules
Peter Lee (AT) Dec 17, 2011
US Trade Representative Ron Kirk's report to the US Congress warns that China "has not yet fully embraced" key World Trade Organization principles. Yet the evidence suggests China has a more realistic grasp of the rules of the game than we give it credit for - even as its subsidies benefit the West.

Deleveraging in the Eurozone
Stephen Kinsella & Vincent O'Sullivan (VoxEU) Dec 17, 2011
The capital shortfall at EU banks is 8% higher than originally thought, according to the latest assessment from the European Banking Authority. This column examines the evolution of loan-to-deposit ratios in big European banks. It says banks have been buying back their debt securities, hoarding profits, limiting bonuses, and deleveraging. However, write-downs of sovereign debt have largely offset these efforts.

A century of public debt and what have we learned?
S. M. Ali Abbas, Nazim Belhocine, Asmaa El-Ganainy & Mark Horton (VoxEU) Dec 18, 2011
As policymakers continue to grapple with high debts and the troubles that come with them, this column looks at the lessons from data on public debt in 178 countries stretching back as far as 1880. It argues that when faced with an unsustainable debt burden, slow but steady adjustment is the way to go.

Oh, for an Alexander Hamilton to save Europe! Financial Times Subscription Required
Ronald McKinnon (FT) Dec 18, 2011
A look back to the late 18th century could provide insights into what can be done to resolve a sovereign debt crisis.

India must not let slip its moment for reform Financial Times Subscription Required
Eswar Prasad (FT) Dec 18, 2011
The challenge is to ensure the country’s poor and lower middle class share more in the benefits of economic growth.

China's Real Estate Bubble May Have Just Popped
Patrick Chovanec (FA) Dec 18, 2011
China's real estate market has overheated in the past. But Beijing has repeatedly said it would "cool" things down; it never did. Now, as the market corrects itself, a large part of the country's economy is convulsing, while sending shockwaves through the global economy.

The Exchange-Rate Delusion
Michael Spence (Project Syndicate) Dec 19, 2011
The emerging economies would like nothing more than the restoration of sustainable patterns of growth in the advanced economies, and are prepared to be cooperative players in that process. But focusing on these countries’ exchange rates is not the right way to go about it.

Can Italy survive the financial storm?
Daniel Gros (VoxEU) Dec 19, 2011
If Italy is too big to fail and too big to save, how can it save itself? This column suggests a survival strategy. The Italian households should finance their own government by buying its debt, and the ECB should prevent a collapse of the Italian banking system.

Beliefs and the stock market
Gábor Kézdi & Robert J. Willis (VoxEU) Dec 19, 2011
How to ordinary people form their beliefs about the economy? These beliefs then shape the decisions they make and can, if widely held, prove to be self-fulfilling. This column looks at surveys of ordinary people in the US and finds that the beliefs people hold and the reasons behind them vary almost as much as the outcomes they try to predict.

China's Humbling Lessons for Russia and the West
Pankaj Mishra (Bloomberg) Dec 19, 2011
More than a century ago, China’s foremost modern intellectual, Liang Qichao, declared that his country, struggling for modern nationhood, didn’t need a socialist revolution. Liang was convinced that socialist ideas, emerging in industrialized nations with working-class populations, were poorly suited to a peasant country like China.

IMF Bazooka Is Between Meaningless and Dangerous
Simon Johnson (Bloomberg) Dec 19, 2011
Financial rescue plans for Europe are becoming ever more fanciful. Increasingly, policy analysts in Europe and the U.S. turn to the International Monetary Fund to provide what is termed “the bazooka” -- meaning a lot of money underpinning a scaled-up bailout for Italy, other troubled countries and, of course, Europe’s failing banks.

Europe Must Change Course on Banks
Nicolas Véron (PIIE) Dec 19, 2011
The euro area crisis keeps evolving along multiple dimensions. On the sovereign debt front, no deal is yet in sight on Greece's debt restructuring, and Italy and Spain face major refinancing needs in early 2012. On the institutional reform front, the summit on December 9 fell short of delivering a true fiscal union, and tensions between the euro area and the United Kingdom have been brought to the boiling point. On the growth front, a possible deep and prolonged recession looms.

Weaker euro will help solve Europe deficit woes Financial Times Subscription Required
Martin Feldstein (FT) Dec 19, 2011
A decline would give the troubled periphery countries time to improve productivity growth to match Germany’s.

The ugly side of ultra-cheap money Financial Times Subscription Required
Bill Gross (FT) Dec 19, 2011
Zero policy rates might in fact delever instead of relever the economy.

Beware the Global 'Equity Gap' Wall Street Journal Subscription Required
Charles Roxburgh and Susan Lund (WSJ) Dec 20, 2011
McKinsey projects a growing imbalance between the amount of stocks that investors will want to hold and what companies will need to fund growth.

Emerging Markets’ Decade of Disruption
Javier Santiso (Project Syndicate) Dec 20, 2011
Emerging-market countries will not only claim the lion’s share of global growth in the coming decade; they will also increasingly be the source of disruptive and frugal innovation. By 2020, the geography of innovation, in addition to that of the wealth of nations, will have undergone a massive rebalancing process.

The Power of Living in Truth
Jeffrey D. Sachs (Project Syndicate) Dec 20, 2011
The world’s greatest shortage is not of oil, clean water, or food, but of moral leadership. So let us pause to express gratitude to Václav Havel, who died this month, for enabling a generation to gain the chance to live in truth.

Austerity and the Modern Banker
Simon Johnson (Project Syndicate) Dec 20, 2011
Big banks represent the ultimate in concentrated economic power in today’s economies: their executives want to get all the upside while facing none of the true downside. But capitalism without the prospect of failure is not any kind of market economy.

Global savings glut or global banking glut?
Hyun Song Shin (VoxEU) Dec 20, 2011
It has become commonplace to assert that current-account imbalances were a key factor in stoking subprime lending in the US. This column says the ‘global banking glut’, i.e. the rise in cross-border lending, may have been more culpable for the crisis than the ‘global savings glut’. As the European banking crisis deepens, the deleveraging of the European global banks will have far-reaching implications not only for the Eurozone, but also for credit supply conditions in the US and capital flows to the emerging economies.

Invention Is the Mother of Economic Growth
Nathan Myhrvold (Bloomberg) Dec 20, 2011
Yes, Virginia, there is a magical engine for economic growth. It is invention -- the process by which the human mind creates new ideas with practical consequences.

Why Finance Shouldn't Be Only Game in Town
Edward Glaeser (Bloomberg) Dec 20, 2011
New York has never been a one-industry town, but in 2007, 42.8 percent of wages in Manhattan were earned in the finance and insurance sector, and 31.6 percent of wages ($66 billion) were paid by the sector that the U.S. Census calls “securities, commodity contracts, investments.” The city is better off with finance than without it, no matter what you may have heard in Zuccotti Park. Yet New York would be stronger still if it had a broader industrial portfolio. As long as there is enough new building to moderate the growth in real estate prices, new industries will spring up. New York City’s human talent and global reach may still ensure that its future is as varied as its past.

Sinking into the ‘great stagnation’ Financial Times Subscription Required
Martin Wolf (FT) Dec 20, 2011
The bad news is that the era of cheap resources is not just vanishing for the US. What was once treated as free is costly.

The New International Economic Disorder
Mohamed A. El-Erian (Project Syndicate) Dec 20, 2011
A new economic order is taking shape in front of our eyes, as the old Western powers and the emerging world’s major new players converge. But the forces driving this convergence are not those that generations of economists envisaged when they pointed out the inadequacy of the old order.

The myths of Russia Financial Times Subscription Required
Rodric Braithwaite (FT) Dec 21, 2011
Much of what is going on today is deeply unattractive. But contrary to what you might gather from the western press, Russia is not the Soviet Union. It is comparatively open and prosperous.

How to avoid the ‘zombification’ of Europe Financial Times Subscription Required
George Magnus (FT) Dec 21, 2011
Until EU leaders understand the problems they face, economies, nations and banks are in jeopardy.

Reforming Repo Rules
Mark Roe (Project Syndicate) Dec 21, 2011
This October, the derivatives firm MF Global filed for bankruptcy after losing more than $1 billion of its customer's funds in a number of complex "repos," or repurchase agreements. Until repos are reformed, the stability of the global financial system will remain at risk.

Reform of the global financial system: More is needed
Oliver Bush & Katie Farrant (VoxEU) Dec 21, 2011
According to the architects, the latest financial regulations are designed to reduce the risks from large global capital flows – a key driver of the global crisis. But this column argues that such reforms do not go far enough and that the increasing risk of a second global financial crisis stemming from the Eurozone debacle re-emphasises the need for more changes.

International capital flows in 2050
William Speller & Gregory Thwaites (VoxEU) Dec 21, 2011
Will international capital flows play a lead role in the next global crisis? This column summarises a new Bank of England study that provides simulations of gross and net capital flows between now and 2050. It shows that however great the challenges policymakers may now face, there are many more to come.

The contribution of Chinese FDI to Africa’s growth
Aaron Weisbrod & John Whalley (VoxEU) Dec 21, 2011
In the three years before the global crisis, the average GDP growth in sub-Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.

Ever-receding euro union
Martin Hutchinson (AT) Dec 21, 2011
The euro project itself was not a disaster; handling of the present crisis has been, culminating in the proposed new treaty, which will further disenfranchise European voters. Let us wish for the treaty's failure, and hope that brings greater freedom and prosperity to both Britain and its European Union friends.

The Financial Crisis on Trial Wall Street Journal Subscription Required
Peter J. Wallison (WSJ) Dec 21, 2011
The SEC fingers Fannie Mae and Freddie Mac, not Wall Street greed.

Demystifying the Chinese Economy
Justin Yifu Lin (Project Syndicate) Dec 22, 2011
Some may think that the performance of a country as unique as China, with more than 1.3 billion people, cannot be replicated. But every developing country can sustain rapid growth for several decades and reduce poverty dramatically if it exploits the benefits of backwardness, imports technology, and upgrades its industries.

Oil and democracy: New insights
Francesco Caselli & Andrea Tesei (VoxEU) Dec 22, 2011
Oil and other natural resources can be both a blessing and a curse. Incomes may rise, but the politics can soon turn nasty. This column looks at a large panel of countries and finds that this isn’t always the case. Discovering natural resources has no effect on the political system – if the country is already a democracy.

Religion and economic outcomes in the long, long run
Jared Rubin (VoxEU) Dec 22, 2011
The economic rise of Europe and its offshoots relative to the rest of the world is of intrinsic interest to those concerned with the mechanisms underlying economic success and stagnation. This column argues that differences in the legitimising relationship between political and religious authorities in Europe and the Middle East have contributed to the economic divergence between the two regions in the last half-millennium.

How Bad Ideas Worsen Europe's Debt Meltdown
John H. Cochrane (Bloomberg) Dec 22, 2011
Europe is as full of bad ideas as it is of bad debts. onventional wisdom says that sovereign defaults mean the end of the euro: If Greece defaults it has to leave the single currency; German taxpayers have to bail out southern governments to save the union. This is nonsense.

A Club Med solution for eurozone’s woes Financial Times Subscription Required
James Mackintosh (FT) Dec 22, 2011
Richer people in colder spots are unwilling to buy enough products from poorer, hotter countries to help economies.

Thinking About the Euro in 2012
Jacob Funk Kirkegaard (PIIE) Dec 22, 2011
As the most anxious year in the history of the euro draws to a close, and with dire predictions about the euro's fate in 2012, it is an irresistible option for this author to take stock in a more realistic way. Despite all this year's drama, the value of the euro is almost exactly where it was at the beginning of 2011. Indeed it seems 2011 and its attendant turmoil might just as well not have happened. It was certainly no annus horribilis for the value of Europe's currency. As Figure 1 shows, the real effective euro exchange rate today is above what it was in May–June 2010, when the crisis was only about Greece, and even slightly above what it was when the crisis spread to Ireland and Portugal in late 2010. After the prolonged decline in the real trade weighted value of euro following the revelation of the fraudulent Greek fiscal data in October 2009, it is almost as if investors actually stopped worrying, as it became clear by May–June 2010 that in the euro area (like everywhere else) the bailout that some doubted did happen.

Timely Aid for Europe's Banks New York Times Subscription Required
NYT Dec 22, 2011
New loans from the European Central Bank will help, but more is needed to address the underlying issue of the financial crisis.

India's Boom Creates Openings for Untouchables
Lydia Polgreen Dec 22, 2011
India's era of economic growth has created something unthinkable a generation ago: business opportunities for members of India's untouchable caste, the Dalits.

Present at the Asian Creation
Jaswant Singh (Project Syndicate) Dec 23, 2011
Asia’s economic dynamism is beginning to find a parallel in the region’s diplomacy, particularly where security is concerned. This is a response not only to China’s rise, but also to the gaping hole in Asia’s security architecturethat will be left when America and the West remove their troops from Afghanistan, without first having established peace there.

Greening the European Investment Bank
Manana Kochladze (Project Syndicate) Dec 23, 2011
The European Investment Bank can help countries worldwide to make vital progress on reducing greenhouse-gas emissions at a time when political solutions based on international agreement remain elusive. Unfortunately, the EIB’s lending priorities and energy-investment portfolio are making the problem worse.

Blanchard on 2011’s four hard truths
Olivier Blanchard (VoxEU) Dec 23, 2011
2011 was supposed to be the year that saw the back of the Global Crisis. Alas, the crisis is still with us as the North Atlantic banking part of the crisis morphed into the Eurozone crisis, and slow growth in advanced countries once again threatens emerging economies. In this column, IMF chief economist Oliver Blanchard draws the lessons from 2011’s economic and policy developments.

Microfinance: Is it time to write off group loans?
Orazio Attanasio, Britta Augsburg, Ralph De Haas, Emla Fitzsimons & Heike Harmgart (VoxEU) Dec 23, 2011
Microfinance institutions across the world are moving from group lending to individual lending. Yet, there is not much rigorous evidence on the borrower impact of both types of microcredit to either support or challenge such a strategic shift. This column presents such evidence from a randomised field experiment in Mongolia.

Trade and global climate policy
John Whalley (VoxEU) Dec 23, 2011
In terms of new emissions reductions, little materialised at the climate-change negotiations in Durban in November. This column argues that trade policy could widen the range of jointly beneficial potential outcomes and in this sense be a potential facilitator of an agreed global climate regime. Moreover, trade provides a mechanism for achieving an internalisation outcome for the global externality that climate change represents.

The ECB's Backdoor Bailout Wall Street Journal Subscription Required
WSJ Dec 23, 2011
Wednesday's mammoth lending spree won't fix what ails the euro zone.

Services offshoring increases wage inequality
Ingo Geishecker, Holger Görg & Christiane Krieger-Boden (VoxEU) Dec 24, 2011
The effects of offshoring on wages remain a hotly debated issue. This column explores the case of UK firms between 1992 and 2004, recognising that offshoring in one particular industry may also affect labour demand in other industries. It suggests that services and materials offshoring increase the wages of high-skilled workers and decreases the wages of low- and medium-skilled workers, thus contributing to a rising wage inequality.

Why we shouldn’t always trust expert ratings
Matthew J. Kotchen & Matthew Potoski (VoxEU) Dec 24, 2011
Many spheres of economic activity rely on expert ratings to guide individuals’ choices. An obvious concern arises when evaluators have incentives to distort ratings for private gain. This column uses data from the USA Today Coaches Poll of the top 25 teams in US college football to study whether agents are able to overcome conflicts of interest and provide unbiased rankings. It finds strong evidence that coaches distort rankings for reputation benefits and financial rewards.

A World of Gray
Gareth Evans (Project Syndicate) Dec 26, 2011
Countries should pursue what the great international-relations scholar Hedley Bull called “purposes beyond ourselves.” But the real world is a place of gray shades, and more often than not the cause of human decency and security will be better served by recognizing and working around that constraint rather than challenging it head on.

What Merkel Is Thinking Wall Street Journal Subscription Required
Holman Jenkins (WSJ) Dec 26, 2011
Is democracy compatible with the euro? Get ready to find out.

Dealing With China's Troubles New York Times Subscription Required
NYT Dec 26, 2011
Beijing and the West must realize that a trade war with the world's largest exporting nation would be a disaster for everyone.

Europe: Bye, bye, AAA
WT Dec 26, 2011
Credit-rating agencies are taking a hard look at European Union countries and don't like what they see. Many of those nations won't enjoy a happy new year after their credit is downgraded. This will throw all of Europe into a financial tailspin.

Why India is Riskier than China
Stephen S. Roach (Project Syndicate) Dec 27, 2011
Today, fears are growing that China and India are about to be the next victims of the ongoing global economic carnage. Yet fears of hard landings for both economies are overblown, especially regarding China.

Restoring European Growth
Jim Leitner, Nuno Monteiro & Ian Shapiro (Project Syndicate) Dec 27, 2011
Since the eurozone debt crisis crisis erupted in Greece almost two years ago, EU leaders have failed to propose a solution that balances austerity and economic growth, without which confidence in the euro cannot be restored. Perhaps European policymakers should look to Argentina for the answer.

Good Times Down Latin America’s Way
Jorge G. Castańeda (Project Syndicate) Dec 27, 2011
For Latin America, 2011 was, in Frank Sinatra’s terms, a very good year – and 2012 doesn’t look like being so bad either. But, while the region should count its blessings, it should also remember that nothing lasts forever.

In love as in equities, we are fooled by randomness Financial Times Subscription Required
John Kay (FT) Dec 27, 2011
Men thought about sex 19 times a day. So should we correct ‘every seven seconds’ to ‘on average, once every waking hour’?

The French Don’t Get It
Martin Feldstein (Project Syndicate) Dec 28, 2011
The French government doesn’t seem to understand the real implications of the euro, which it shares with 16 other EU countries. French officials have now reacted to the prospect of a credit rating downgrade by lashing out at Britain, which is not in France's position precisely because it retains its own currency.

The Federal Reserve's Covert Bailout of Europe Wall Street Journal Subscription Required
Gerald O'Driscoll (WSJ) Dec 28, 2011
When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.

China’s greatest threat is internal Financial Times Subscription Required
Richard Haass (FT) Dec 28, 2011
China is in the early days of a transition, one in which economic growth will increasingly have to stem from increased demand at home.

A market-based plan to regulate banks Financial Times Subscription Required
Scott Richard (FT) Dec 28, 2011
US finance houses should be charged for depositor insurance according to their risk levels, sparing taxpayers the cost.

Will China Outsmart the U.S.? New York Times Subscription Required
Adam Davidson (NYT) Dec 28, 2011
America's global competitiveness is based on introducing the newest, best ideas. So what happens when China catches up?

China's Year of the Question Mark Wall Street Journal Subscription Required
Joseph Sternberg (WSJ) Dec 29, 2011
A year ago many investors assumed it would carry the world on its shoulders. Now the talk is whether its landing will be hard or soft.

Two Models for Europe
Hans-Werner Sinn (Project Syndicate) Dec 29, 2011
The eurozone's sovereign-debt crisis is eating its way from the periphery to the core, and the exodus of capital is accelerating. If the eurozone does not want to embrace capital controls, it has only two alternatives: stop the local printing of money, or provide investment guarantees in countries that markets view as insecure.

Flash crash threatens to return with a vengeance Financial Times Subscription Required
Gillian Tett (FT) Dec 29, 2011
The unexplained event that caused havoc on the US equity markets in May 2010 might have faded from view but remains a threat.

Latin America’s Monetary-Policy Test
Andrés Velasco (Project Syndicate) Dec 30, 2011
On matters of sex, the citizens of mostly Roman Catholic Latin America often proclaim one thing and practice something very different. On matters of monetary policy, Latin central banks often do essentially the same thing.

Europe’s Squandered Minority
Zeljko Jovanovic (Project Syndicate) Dec 30, 2011
In the midst of Europe's financial crisis, one group – the Roma – have been ignored. The status quo is damaging the lives of millions of Roma, but it is also hurting Europe, both morally and economically.

Europe’s Market-Led Integration
Joschka Fischer (Project Syndicate) Dec 30, 2011
Just as former Italian Prime Minister Silvio Berlusconi was brought down not by political opponents, but by jittery investors, it is the markets, not European leaders, that have opened the door to a European fiscal and political union. That is no cause for celebration.

America’s Financial Leviathan
J. Bradford DeLong (Project Syndicate) Dec 30, 2011
Today, finance and insurance in the US account for 8.4% of GDP, up from 2.8% in 1950 and 6% in 1990. So why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends?

America’s Threat to Trans-Pacific Trade
Jagdish Bhagwati (Project Syndicate) Dec 30, 2011
The new Trans-Pacific Partnership between the US and nine Asian countries is being sold as evidence of American leadership on trade. But what it really means is that the US intends to do in Asia what it did in South America – essentially, divide the region into rival blocs.

East Africa: Left Behind
Bernard Wasow (Globalist) Dec 30, 2011
Why have fertility rates in East Africa bucked the global trend — and what does this mean for the region's future?

China's Shaky Economic Foundation New York Times Subscription Required
Joshua Muldavin (NYT) Dec 30, 2011
China's rise to economic superpower status is built upon an unresolved land struggle with hundreds of millions of lives in the balance.

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