Monthly Archives: November 2009

By Moritz Schularick and Alan M. Taylor

Are credit bubbles dangerous? Long-run historical data reveal that important changes have taken place in the financial system over the past decades, setting in train an unprecedented expansion in the role of credit in the macroeconomy. It is mishap of history that just at the time when credit mattered more than ever before, the reigning doctrine had sentenced it to playing no constructive role in central bank policies. Over the past 140 years, episodes of financial instability were often the result of “credit booms gone wrong”. Read more

From the FT:
We must get ready for a weak-dollar world – Jeffrey Garten

The cost of China’s excess capacity – Editorial comment

From elsewhere:
Coordinated capital controls: A further elaboration – Arvind Subramanian
Why Are Good Macro Policies Political Losers? – Brad DeLong

From the FT:
Time is up for short-term thinking in global capitalism – Al Gore and David Blood
Dubai gambles with its financial reputation – Jim Krane
Boomtime politicians will not rein in the bankers – Avinash Persaud

From elsewhere:
Taxing the speculators – Paul Krugman, NY Times
Dubai World: A great precedent – Felix Salmon
Repairing China’s financial system – Michael Pettis

From the FT:
Only competition can safeguard free markets
– Maurice Saatchi
A healthy appetite for the right price – John Gapper

From elsewhere:
Can the Euro Zone survive economic recovery? - Martin Feldstein
This Time is Different – Fiscal Policy in Low-income Countires – IMFDirect
Is the UK still in recession? – VoxEU

From the FT:
Heed the danger of asset bubbles - Robert Zoellick
Alpha males must trade on more than machismo – John Coates

From elsewhere:
Ahead of Black Friday – Economist’s View
Government outsourcing: Public contracting with private monopoly – VoxEU
Beware the result of outrage - NY Times
Morgan Stanley speaks: Against relying on capital Requirements – Peterson Institute for International Economics

Ingram Pinn illustration

Financial crises have devastating impacts on the public finances. The impact is also most severe where the pre-crisis excesses were greatest. Among members of the Group of Seven leading high-income countries, this means the bubble-infected US and UK. The question both countries confront is how soon and how far to tighten. Tightening will have to be substantial. But premature action could be a devastating error. Read more

From the FT:
Goldman Sachs: the case for the defence – William Cohan
Europe needs action, not quiet consensus – Peter Mandelson

From elsewhere:
Elections in developing countries: do they improve economic policy? – VoxEU
Creating new jobs rather than sharing old ones Peterson Institute

From the FT :
Will sovereign debt be the new subprime? – Gillian Tett

From elsewhere:
The thing about the Fed most worth knowing – Economic Principals
The Phantom Menace – NY Times, Paul Krugman
How preferential are preferential trade agreements? – VoxEU

From the FT:
Tackling systemic risk is no job for the status quo – William Donaldson and Arthur Levitt

From elsewhere:
China, the Renminbi, and global imbalances: A quantative View – Econbrowser
The Big Squander – Paul Krugman, NY Times
Forecasting macroeconomic developments – VoxEU

Windfall taxes are a ghastly idea. They are a sop to prejudice, a burden on risk-taking and a form of arbitrary confiscation. No sensible person should support them. So why do I now find the idea of a windfall tax on banks so appealing? Well, this time, it really does look different. Read more

From the FT:
Obama seeks change Beijing can believe in
– David Pilling
How to reinvent China’s growth – John Gapper
Modesty would become Europe’s new duo – Jacques Delors

From elsewhere:
The effectiveness of fiscal and monetary stimulus in depressions
– VoxEU
A Yuan-sided argument – Economist
Balancing fiscal support with fiscal solvency – IMFDirect

From the FT:
America must start treating China as a friend – Bill Owens
How the market proved no panacea for BT – John kay

From elsewhere:
Uncertainty and the tale of two depressions – VoxEU
Lecturing each other on trade – Michael Pettis

Ingram Pinn illustration

Barack Obama, president of the US, met Hu Jintao, president of the People’s Republic of China, for a private meeting on Tuesday. The agenda was long, covering the world economy, climate change and non-proliferation of nuclear weapons. The last two are the most important, over the long run. But the first is the most urgent. If we do not achieve a healthy global economic recovery, hope of a co-operative relationship is likely to prove vain. Yet such a recovery is far from ensured. Worse, some of what is now happening – particularly China’s decision to depreciate the renminbi along with the dollar – makes healthy recovery less likely. Read more

From the FT:
China’s on-off American romance – Simon Schama
Muddling through with money and morals – Michael Skapinker

From elsewhere:
China and the American job machine – Economist’s View
America’s Preeminence by Default
– Free Exchange
What should be the goal of a fiscal exit strategy – IMFdirect
Euro-area sovereign risk during the crisis – VoxEU

From the FT:
A Franco-German marriage of convenience – Wolfgang Munchau
The American dream needs repair – Clive Crook
How Europe can be heard in Washington – Jeremy Shapiro and Nick Witney

From elsewhere:
World out of balance – Paul Krugman, New York Times
China lambastes Dollar Carry trade – Naked Capitalism
Unemployed Americans should hunker down for more job losses - Nouriel Roubini
Treasury wants to hold on to TARP money – Naked Capitalism Read more

From the FT:
Simple truths about the economy – Samuel Brittan
Ethics alone will not prevent financial crises – Philip Booth

From Elsewhere:
Politico does Economic Analysis – Econbrowser
Paul Krugman: Free lo Lose – Economist’s View
Tim Geithner, double talker – Free exchange
Asia and the IMF: Toward a deeper engagement - IMFDirect
Krugman on the Need for Jobs Policies – Naked Capitalism Read more

By Paul De Grauwe

The recent decline of the dollar against major currencies such as the euro and the Japanese yen has been spectacular. Even more spectacular, but often forgotten, is the long run decline of the dollar against the major currencies in the world. Since 1960 the dollar lost two thirds of its value against the Japanese yen, the Swiss franc and the German mark (since 1999 the euro).

The long-term decline of the dollar appears to be quite surprising especially considering that at least since the early 1990s the US has been seen to produce superior economic results, ie a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation. Yet despite the appearance of superior economic performance the dollar has gone on losing value against currencies of countries deemed to have an inferior economic system. Where does this paradox come from? Read more

From the FT:
America risks being left behind in Asia – Evan Feigenbaum
Beijing seeks a head start in the race to go green – Gordon Conway

From Elsewhere:
The Road ahead for Asia’s Economies – Economist’s View
What rebalancing of Chinese and American consumption – Michael Pettis
Global Monetary Policy Outlook – Nouriel Roubini
The Liquidity Trap Does Not Make Monetary Policy Ineffective – Peterson Institue Real Time Economic Issues
Liquidity default and market regulation – VoxEU

From the FT:

Powerful interests are trying to control the market – John Kay
Obama has lost his way on jobs – Jeffrey Sachs Read more

Pinn illustration

“A crisis is a strange way to celebrate an anniversary.” This is the wry judgment of Erik Berglöf, chief economist of the European Bank for Reconstruction and Development.* Yet a crisis is what we see in countries that began the march from communism two decades ago. So, has capitalism failed, as communism did? In a word, “no”. Some transition countries are in crisis; transition is not. The same judgment applies elsewhere: capitalist countries are in crisis; capitalism itself is not. But reform is necessary. The great virtue of liberal democracies and market economies is their ability to reform and adapt. They have shown these qualities before. They must do so once again. Read more