Institut Der Wirtschaft Misses The Point On Italian Bond Yields [View article]
I disagree with my quote. I sometimes implicitly base my ideas on GDP growth on this macroeconomic equation: Y=C+I+G+NX. You can grow output by increasing consumption (C), investment (I), government spending (G) and net exports (NX). In Italy, increases in C, I and G won't happen, because of austerity. Hence, only NX is left when looking fo growth. That is what I meant when I wrote what you quoted.
From the global perspective, trade is a zero sum game since the exports of one country must be the imports of another. Global GDP is not a zero sum gain because of gains from trade (both inside and outside of countries!). In theory these, however, only arise if countries barter - I give you wine, you give me cloth, we are both happier and more drunk than before.
Adam Smith never thought about the welfare implications of trading toxic assets and toxic toys, as Paul Krugman said. Current accounts do not have to be balanced all the time, but when trade is imbalanced for too long without any adjustment mechanism kicking in, your exports might have gotten you financial assets which are defaulted upon. That has not much to do with theories of free trade and comparative advantage. Instead, it will put countries at each others throats over who defaulted on what and why. A look at the 1930s should make this very clear.
Revisiting The European Crisis: Why The Lessons Of '92-'93 Don't Apply [View article]
Yes, I agree. However, the Greeks are still in a downward spiral, and with negative econmic growth not even a government debt of one euro would be sustainable. (Technically, it would, but gimme a break here.)
China-U.S. Trade: Protectionism At Work [View article]
I agree. According to the data, China has retired half of its central bank (sterilization) bonds since mid-2010, has a 10% inflation rate and lets the yuan appreciate a bit. About the hard landing I am not so sure. What they try is a balance (sheet) act, and economic policy consists of fiscal and monetary policies which seem to be coordinated well. However, there are lots of non-economic problems that China has to manage, too.
China-U.S. Trade: Protectionism At Work [View article]
I don't see it that way. A stronger yuan would probably increase US net exports to China and generate US employment, while China can start to spend foreign reserves on US imports in order to increase domestic consumption. The rising real wages that are necessary should increase income and create more domestic demand so that employment in China should not falter.
That should be a win-win situation. Of course, win-win situations can degenerate into beggar-thy-neighbor policies just as well, but it will take a while until the three+ trillion dollar pile is gone.
Monetary Policy And The Future Of China [View article]
If your income is greater than your expenses, you accumulate savings in the bank. What do you think the bank does with those savings that makes them give you a positive rate of interest?
Also, it seems to me that corporations do go into debt to get rich. The bond market is quite significant in size, although I admit not every firm "gets rich".
I did not say that getting into debt is good and getting "rich" is bad for the economy.
Monetary Policy And The Future Of China [View article]
There is something called business cycles and although it is not a law it has happened in every country. As long as financing is forthcoming because investment is productive - or seems to be - the boom will continue, for sure.
The 1.5% is not added to this indicator. Graph 3a on page 12 of the EUs 2010 Convergence Report looks like mine, so no shame on my side. Except maybe for failing to realize that countries in deflationary territory are omitted from the EUs calculation. However, that is a mistake, but nothing to be ashamed about.
1) Inflation of the three "best performing" EU members. 2) You can imagine a corridor of 1.5% around the inflation lines.
What I wanted to express is my concern that price stability should include a country with deflation. Although technically nothing had been done wrong, it seems a bit strange to me to rule Estonia in 2010 as fulfilling “the achievement of a high degree of price stability', as required by the first indent of Article 121 (1) of the Treaty. Sorry if my writing did not reflect my thoughts.
About that other matter: Estonia's inflation was not and nowhere near the ECB's target rate of 2-3 per cent. If Estonia wants in for political reasons, that's fine with me. If Scandinavian banks had deep enough pockets to let the country breath, that's also fine. The country, after all, has less population than Hamburg. So it wouldn't be a burder for the euro zone anyway. Why do we need those rules if they are always broken? These rules are not credible.
* The first indent of Article 121 (1) of the Treaty requires: “the achievement of a high degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the three best-performing Member States in terms of price stability”; * Article 1 of the Protocol on the convergence criteria referred to in Article 121 of the Treaty: “The criterion on price stability referred to in the first indent of Article 121 (1) of this Treaty shall mean that a Member State has a price performance that is sustainable and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1½ percentage points that of, at most, the three best-performing Member States in terms of price stability. Inflation shall be measured by means of the consumer price index on a comparable basis, taking into account differences in national definitions.”
Application of Treaty provisions
* With regard to “an average rate of inflation, observed over a period of one year before the examination”, the inflation rate is calculated using the increase in the latest available 12-month average of the Harmonised Index of Consumer Prices (HICP) over the previous 12-month average. * The notion of “at most, the three best-performing Member States in terms of price stability”, which is used for the definition of the reference value, is applied by using the unweighted arithmetic average of the rate of inflation in the three countries with the lowest inflation rates, given that these rates are compatible with price stability.
Bank of England Governor Mervyn King: Radical or Good Economist? [View article]
Abondoning FDIC insurance has a problem of dynamic instability. It's like saying: "whatever happens to the economy, the central bank will never put the interest rate down to help you out of this". The agency problem was inside the financial sector, where managers did not play with their own money. The problem has to be solved there. John Doe didn't create the problem and shouldn't be put in a place where he has to think about opaque financial products. We are a specialized work force.
Regarding that 100% proposal please read my reply to the comment below.
Bank of England Governor Mervyn King: Radical or Good Economist? [View article]
Look, central banking is all about expectations. If your financial sector seems to dominate your regulators, how will you react, being the regulator? The self-regulation lite of recent years helped cause the crisis, but if you want to sit at the table and hold some cards you need to produce them first.
100% money is not the solution (I have argued against it elsewhere). However, it is very useful to highlight the dangers of the monetary system. So, if banks want that 100% to go down and systemic risk to go up, they should back up their proposal with arguments and facts and ideas how to deal with risk - which are all there, of course. In this way, however, the burden of proof would fall on the banks, and not the regulators. That would make the job of Mr King and Mr Haldane much, much easier.
Where Are the Excess Reserves for Making Loans? [View article]
Yes, but the result is a scramble for liquidity. In consequence, it does not make much of a difference. Investment is falling off a cliff because money is hoarded. Richard Koo is also stressing this. Austrians and Keynesians don't disagree much on the overinvestment theme, it is their respective policy conclusions which are in different corners.
Better Regulation Is Not What Saved Canada [View article]
Just want to clearify one thing: "Better Regulation Is Not What Saved Canada" - that title was chosen by the editors of "seeking alpha", not me. My point is that in the US regulation failed because the cheap money from China put banks under pressure to come up with new investment opportunities. That did not happen in Canada. So, why was the US regulation dismantled?
Also, some people here comment as if capital inflows into the US caused the trade deficit vis-a-vis China. In a new version of our paper we can show that it was actually the other way around: net exports caused capital flows! Looking at time lags, exports come first and are followed by capital flows later. I know that most people in the financial world assume that capital flows are driving the world economy, but give it a thought: Is China trying to A) pile up dollar-denominated debt or B) create jobs for its population? If you think A) is the answer you must believe Chinese authorities are completely stupid. They get a horrible yield and the dollar is likely to weaken, too.
Institut Der Wirtschaft Misses The Point On Italian Bond Yields [View article]
From the global perspective, trade is a zero sum game since the exports of one country must be the imports of another. Global GDP is not a zero sum gain because of gains from trade (both inside and outside of countries!). In theory these, however, only arise if countries barter - I give you wine, you give me cloth, we are both happier and more drunk than before.
Adam Smith never thought about the welfare implications of trading toxic assets and toxic toys, as Paul Krugman said. Current accounts do not have to be balanced all the time, but when trade is imbalanced for too long without any adjustment mechanism kicking in, your exports might have gotten you financial assets which are defaulted upon. That has not much to do with theories of free trade and comparative advantage. Instead, it will put countries at each others throats over who defaulted on what and why. A look at the 1930s should make this very clear.
Revisiting The European Crisis: Why The Lessons Of '92-'93 Don't Apply [View article]
China-U.S. Trade: Protectionism At Work [View article]
China-U.S. Trade: Protectionism At Work [View article]
That should be a win-win situation. Of course, win-win situations can degenerate into beggar-thy-neighbor policies just as well, but it will take a while until the three+ trillion dollar pile is gone.
Monetary Policy And The Future Of China [View article]
Also, it seems to me that corporations do go into debt to get rich. The bond market is quite significant in size, although I admit not every firm "gets rich".
I did not say that getting into debt is good and getting "rich" is bad for the economy.
Monetary Policy And The Future Of China [View article]
How Estonia Joined the Eurozone [View article]
(Convergence Report 2010: tinyurl.com/65lfzey)
How Estonia Joined the Eurozone [View article]
www.creditwritedowns.c...
How Estonia Joined the Eurozone [View article]
2) You can imagine a corridor of 1.5% around the inflation lines.
What I wanted to express is my concern that price stability should include a country with deflation. Although technically nothing had been done wrong, it seems a bit strange to me to rule Estonia in 2010 as fulfilling “the achievement of a high degree of price stability', as required by the first indent of Article 121 (1) of the Treaty. Sorry if my writing did not reflect my thoughts.
About that other matter: Estonia's inflation was not and nowhere near the ECB's target rate of 2-3 per cent. If Estonia wants in for political reasons, that's fine with me. If Scandinavian banks had deep enough pockets to let the country breath, that's also fine. The country, after all, has less population than Hamburg. So it wouldn't be a burder for the euro zone anyway. Why do we need those rules if they are always broken? These rules are not credible.
Here is the source of the convergence criteria:
www.ecb.int/ecb/orga/e...
Price developments
Treaty provisions
* The first indent of Article 121 (1) of the Treaty requires:
“the achievement of a high degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the three best-performing Member States in terms of price stability”;
* Article 1 of the Protocol on the convergence criteria referred to in Article 121 of the Treaty:
“The criterion on price stability referred to in the first indent of Article 121 (1) of this Treaty shall mean that a Member State has a price performance that is sustainable and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1½ percentage points that of, at most, the three best-performing Member States in terms of price stability. Inflation shall be measured by means of the consumer price index on a comparable basis, taking into account differences in national definitions.”
Application of Treaty provisions
* With regard to “an average rate of inflation, observed over a period of one year before the examination”, the inflation rate is calculated using the increase in the latest available 12-month average of the Harmonised Index of Consumer Prices (HICP) over the previous 12-month average.
* The notion of “at most, the three best-performing Member States in terms of price stability”, which is used for the definition of the reference value, is applied by using the unweighted arithmetic average of the rate of inflation in the three countries with the lowest inflation rates, given that these rates are compatible with price stability.
Bank of England Governor Mervyn King: Radical or Good Economist? [View article]
Regarding that 100% proposal please read my reply to the comment below.
Bank of England Governor Mervyn King: Radical or Good Economist? [View article]
100% money is not the solution (I have argued against it elsewhere). However, it is very useful to highlight the dangers of the monetary system. So, if banks want that 100% to go down and systemic risk to go up, they should back up their proposal with arguments and facts and ideas how to deal with risk - which are all there, of course. In this way, however, the burden of proof would fall on the banks, and not the regulators. That would make the job of Mr King and Mr Haldane much, much easier.
Where Are the Excess Reserves for Making Loans? [View article]
Better Regulation Is Not What Saved Canada [View article]
Also, some people here comment as if capital inflows into the US caused the trade deficit vis-a-vis China. In a new version of our paper we can show that it was actually the other way around: net exports caused capital flows! Looking at time lags, exports come first and are followed by capital flows later. I know that most people in the financial world assume that capital flows are driving the world economy, but give it a thought: Is China trying to A) pile up dollar-denominated debt or B) create jobs for its population? If you think A) is the answer you must believe Chinese authorities are completely stupid. They get a horrible yield and the dollar is likely to weaken, too.