Monthly Archives: December 2008

By Roger Farmer

The US recession that began in December 2007 resulted in 403,000 lost jobs in September, 320,000 in October and 533,000 jobs in November. Projections for 2009 are ominous. Read more

We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race. Read more

By Alistair Milne 

Central banks are worried about falling rather than rising prices. By early next year, it is possible that central banks’ target policy interest rates will all be reduced to their minimum possible level of zero. Does this mean that central banks will then have lost control over monetary policy and be unable to prevent a cumulative debt deflation? Read more

By Ngaire Woods

The World Bank has announced a $2bn fast-track facility to speed its help to the world’s poorest countries hit by the financial crisis. The move highlights why it is time seriously to reform the World Bank’s governance. Read more

By Niall Ferguson

In the Old Testament Book of Leviticus, God commands the children of Israel to observe a jubilee every 50 years. Nowadays we tend to associate the word with celebrations of royal anniversaries such as Queen Elizabeth’s golden jubilee in 2002. But the biblical conception of a jubilee was more precise: that of a general cancellation of debts. Read more

By George Magnus

After the Minsky Moment – where euphoria tips into crisis, named after Hyman Minsky – the capitulation of economic activity has been rapid and severe. The outlook is as dark as the doomsayers assert. The only thing that stands between today’s dire economic prospects and a lost decade similar to Japan’s in the 1990s is the competence and authority of macroeconomic policy. We have a long way to go, but for five reasons, even doomsayers can start to feel the force, so to speak. Read more

By Lucian Bebchuk and Itay Goldstein

An important aspect of the econ­omic crisis has been the drying up of credit that US banks normally extend to Main Street companies. Borrowing by businesses remains costly and difficult, with spreads between yields on corporate bonds and treasuries at extremely high levels. Read more

By Ricardo Caballero

Economic agents of all sorts, from creditors to consumers, are frozen waiting for some sense of normality to be restored amid the financial crisis.  However, normality is much closer —just a few bold policy steps away— than is the conventional wisdom. Read more

By John Richards

As the recession deepens, policy rates around the world are rapidly approaching zero and they cannot go any lower. Does that mean that central bankers have run out of ammunition? Not necessarily. Read more

Central banks may soon resort to their most powerful weapons against deflation: the printing press and the “helicopter drop” of money. It is a time for which Ben Bernanke, chairman of the Federal Reserve, has long prepared. Will this weaponry work? Unquestionably, yes: used ruthlessly, it will eliminate deflation. But returning to normality thereafter will prove far more elusive. Read more

By Ricardo Hausmann

The economic crisis in the US signals the end of American global hegemony. Or does it? Pundits from different camps, some with fear and others with glee, contemplate a future where the US will have a much diminished weight in global affairs. But if the US plays its hand well, things will turn out to be just the opposite. Read more

Nobody would want to start from here, least of all the bankers. A dearth of capital, worsening loan books and a lack of funding are a horrible combination. It is little wonder they are now as desperate not to lend as they were so recently to lend. Unfortunately, if banks stopped lending, they would create a depression from which everybody, including banks, would suffer. The economy cannot go “cold turkey”. A flow of net lending must be sustained.The starting point for any analysis must be with some harsh realities.

The first is that banks enjoy a state-supported licence to create money. No strictly private business can make a credible promise to do that. Banking is a utility in which taxpayers bear much risk. Regulators have to represent the interests of these risk-bearers of last resort. Read more

By Robert Z. Lawrence

If they build them, will they sell? Having humiliated the chief executives of the big three US auto companies to confess their sins and forced them to offer detailed proposals for their rescue, Congress is reportedly ready to support their plans. Read more

I think of it as an “oops” moment: the US goes into a recession; Europeans believe this deserved punishment has little to do with them; the European economy slows unexpectedly; the US throws everything at restoring growth; finally, the US recovers, pulling Europe behind it. Read more

By Eric Lonergan

The most direct and efficient solution to the economic and financial problems is for central banks to transfer cash directly to the household sector.

 Read more

By Jonathan B. Berk

In any financial crisis, it is possible with 20/20 hindsight to identify the specific proximal causes. Armed with this knowledge, legislators are invariably tempted to outlaw specific activities. Read more

The world has run out of willing and creditworthy private borrowers. The spectacular collapse of the western financial system is a symptom of this big fact. In the short run, governments will replace private sectors as borrowers. But that cannot last for ever. In the long run, the global economy will have to rebalance. If the surplus countries do not expand domestic demand relative to potential output, the open world economy may even break down. As in the 1930s, this is now a real danger. Read more

By Mark Carney

Our response to the financial crisis will be as important as the event itself. We can never eliminate financial crises, but we can reduce their likelihood and severity. Read more