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In a recent article in the FT, Otmar Issing suggested that there are no good reasons for a country like Germany — which enjoys near-full employment and has a balanced budget, a debt “far above target” and an extremely loose monetary policy — to embark on an expansionary budget policy. He asks: “Where is the economic textbook that argues that such a country should run a deficit to stimulate the economy?” Read more >>
The former US Treasury secretary Lawrence Summers and his Harvard colleague Lant Pritchett recently delivered a reality check on the Chinese economy’s prospects by publishing a study indicating that China’s growth will average only 4 per cent a year for the next two decades. At the same time, the Conference Board issued its study with similar conclusions.
The Summers-Pritchett study is a statistical exercise drawing on cross-country experiences, which is then applied to China (and India). The Conference Board projection is China-specific but makes some debatable assumptions about the lack of reform. It also discounts quality and productivity increases while coming up with its slow growth scenario. In contrast, staid institutions such as the World Bank and International Monetary Fund foresee annual growth rates closer to 7 per cent for 2020 going down to 6 per cent by 2025, and one must not overlook the pessimists who see an imminent financial crisis with growth collapsing. Read more >>
The recent disappearance of Kim Jong Un, North Korea’s young leader, from public view for more than 40 days has stirred enormous speculation and concern. His mysterious absence was further amplified by the country’s most senior military leader’s unexpected appearance in South Korea along with a high-level team to discuss the terms for renewed North-South diplomacy. These unusual comings and goings were the subject of feverish conjecture and rumour-mongering, with supposed experts suggesting that the “Young Genius” was either deposed in a coup and replaced by his sister, recovering from ankle surgery after an unfortunate fall in teetering high heels or recuperating in hiding after a disfiguring injury. Much of the more outlandish speculation seemed to be resolved by his reappearance in public on Tuesday last week, when he showed up in North Korean state media with a noticeable limp and black cane – perfect accessories to the already Bondish quality of his villainous reputation. Official television in Pyongyang offered helpfully that he had been experiencing “discomfort”. Read more >>
It is so predictable yet also so unfortunate. The financial market volatility of recent days is enticing a growing number of market participants to urge and expect the US Federal Reserve to implement “QE4” – that is a new programme of securities purchases to calm markets and bolster sagging stock, corporate bond and commodity prices. Yet the hurdle for such a policy step is high; and it should be.
There has been a disruption to the markets’ love affair with two enticing notions that have led to excessive risk taking and general complacency: a low-level growth equilibrium that minimises the probability of both recession and, on the other side, an inflationary boom; and central banks that are both able and willing not to repress market volatility, thus bolstering asset prices. As a result, traders are now scrambling to re-position themselves. In the process, they are discovering – yet again – that market liquidity is not as deep as they had hoped for, causing wild price gyrations even in the deepest and most traditional of all asset classes (for eg, just witness the speed and size of Wednesday’s price movements in US equities and Treasuries). Read more >>
It is hard to find someone who is not pessimistic about America. Two-thirds of our citizens see the country on the wrong track, particularly because they hate Congress and do not much like the president. Internationally, there is much hand-wringing over American decline.
Such gloom mistakes Washington for the country as a whole – an error that has often been made during the periods of federal dysfunction that are a recurrent theme of US history. We are again hearing that because Washington is stuck, the country is too. Read more >>
The mood in Washington during the weekend IMF meetings was bad enough but the mood in markets now appears a lot worse. Last week the big issue was the eurozone. This week the big issue appears to be the US. Rapidly declining US Treasury yields and plunging equity markets are broadly consistent with a US economy that, one way or another, might be running out of steam.
Still, it is difficult to see why a clutch of moderately weak US economic data – of which retail sales is the most obvious culprit – would be enough on its own to trigger a major attack of the jitters. Read more >>
Now that Ebola has reached the US and Spain, the time has come to reveal the dirty little secret that helps explain how things got this bad. The World Health Organisation (WHO), the only global agency with the legitimacy and mandate to curb global pandemics, has consistently and over several decades been weakened and undermined by policy failures and budget cuts. Read more >>
It is now widely recognized that the eurozone suffers from a lack of aggregate demand. The textbook solution would be to resort to fiscal stimulus but space for such a move is limited by the rules of the Stability and Growth Pact (SGP) agreed upon at the start of the monetary union. The key question is whether the rules are still valid in the current environment. Read more >>
As recently as 2013, Turkey ranked as the world’s top jailer of journalists, ahead of even Iran and China. On a mission last week with the Committee to Protect Journalists, I was pleased to learn that the list of those imprisoned has shrunk from more than sixty to an apparent seven. On the same day that the Turkish Parliament voted to authorise military action in Syria, the president, prime minister and justice minister all made time to hear our group’s concerns about these cases and a range of other press freedom issues, from internet censorship to media ownership.
That was the good news from a long day in Ankara. The bad news is that despite a diminished risk of criminal prosecution, media freedom in Turkey has deteriorated in other respects. Journalists we met with in Istanbul described a pervasive atmosphere of fear and self-censorship; a polarised, highly partisan media environment characterised by growing government control and fewer independent voices. The overall picture was of a new style of media censorship that is less brutal, less visible – and much more effective. Read more >>
As European leaders meet in Milan today to discuss growth and employment, they should try to understand and address their divergences rather than burying them in joint declarations full of lip-service to their common determination.
Three years ago, the euro risked exploding under pressure from the markets. After considerable initial tensions, national governments – in particular those of France, Germany and Italy – worked closely together and reached landmark decisions in the European Council of June 2012.
The European Central Bank found those decisions convincing enough to justify a more accommodating stance.
Read more >>