Economics

Roger Altman of Evercore partners is a friend of mine, a distinguished public servant and a respected financial expert. But his column “Blame bond markets, not politicians, for austerity” is, in my view, gravely mistaken. Read more

I recently looked at what happened to private financial balances inside the eurozone. Today’s post looks at what happened to the current account deficits. It fills out the broad story of the eurozone’s across-the-board shift into becoming a very large capital exporter. It is complementary to an excellent post by Gavyn Davies, who addresses the sources of the ongoing adjustment.

As it happens Michael Pettis, professor at Peking University, and author of the excellent book, The Great Rebalancing (Princeton and Oxford: Princeton University Press, 2013) has a complementary post.

In this, he argues that Spain had no choice over what happened to it during the 2000-07 period, given the deliberate policies of Germany, which were aimed at generating a large current account surplus (“improving competitiveness” being the normal way of talking about this form of structural mercantilism). If one’s principal trading partner is seeking to generate a huge current account surplus and so exporting capital, he argues, then a country is effectively forced into running the counterpart deficits, whatever the consequences.

I agree with this analysis of what happened. Indeed, I have argued along these lines for several years, in trying to explain the roots of the eurozone crisis, which is a balance-of-payments cum financial crisis, of which fiscal deficits are a symptom, not, except in the case of Greece, a cause. Read more

I entered into a heated US debate last week on whether the recovery has been surprisingly slow and, if so, whether the policies of Barack Obama’s administration bear responsibility for that outcome. In particular, I was responding to a post by John Taylor of Stanford University, a distinguished macroeconomist and adviser to Mitt Romney, who had argued that the recovery was exceptionally weak.

Prof Taylor has responded to my reply. In this response, he makes four points.

First, he argues that if we exclude the recoveries in 1973, 1981 and 1990 from the analysis, the gap between the average US recovery and the current recovery becomes even bigger. Read more

Martin is on book leave until October

I have argued in previous posts that the policy of letting the government deficits offset the natural post-crisis austerity of the private sector makes excellent sense, provided the country in question has a solvent government. I have argued, too, in the most recent post, that the objections to this policy are not decisive. What matters is making the best of bad alternatives.

Yet let us also look at alternative ways of accelerating deleveraging. Broadly there are two: capital transactions and default. The latter, in turn, comes in two varieties: plain vanilla default and inflationary default. Read more