Outlook Money on Crisis Economics

Mittwoch, 16. Juni 2010, 20:22:00 | Nouriel Roubini

From Outlook Money:

By Rajesh Kumar

In September 2006, Nouriel Roubini, a professor of economics at New York University, speaking at the International Monetary Fund (IMF), warned that the US economy would suffer a once-in-a-lifetime housing bust and a deep recession. The warning was received by the audience with a fair amount of skepticism, as the US economy, though looking a little weak, was still growing, with low inflation and unemployment. But, as events unfolded afterwards, the prediction by Dr. Doom, as Roubini is famously—or infamously— known, started coming true.

Fiscal Fantasies

June 18, 2010, 4:09 am, Paul Krugman

It’s really amazing to see how quickly the notion that contractionary fiscal policy is actually expansionary is spreading. As I noted yesterday, the Panglossian view has now become official doctrine at the ECB.

So what does this view rest on? Partly on vague ideas about credibility and confidence; but largely on the supposed lessons of experience, of countries that saw economic expansion after major austerity programs.

Yet if you look at these cases, every one turns out to involve key elements that make it useless as a precedent for our current situation.

Talking to a Dining Room Table

June 20, 2010, 11:45 am, Paul Krigman’s Blog.

Gah. I’m still in Germany, and the event was lovely. The policy conversations, not so much.

We talk about the euro crisis. They say, “Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules.” I say,

No fiscal rule would have constrained the Spanish housing bubble and its consequences.

And they say, “Thank you for your contribution. Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules.”

Oh, and on monetary policy — I find myself recalling how Rudi Dornbusch came down to breakfast one day and greeted a German central banker — I don’t remember who — with a cheery “And stable prices to you, sir!”

UPDATE: Oy. Somehow I lost the labels, destroying the whole point of the post. The blue line is Germany; the red line is Spain.

Why China’s Currency Announcement is Hokum

Montag, 21. Juni 2010, Robert Reich’s blog.

The stock market is euphoric over China’s apparent decision to allow its currency to rise against the dollar.

Watch your wallets.

China isn’t really changing anything. It’s only doing the minimum to prevent Congress from listing China as a currency manipulator, leading to a squeeze on Chinese imports.

Over time – and I’m talking about months if not years – China will raise its currency to where it was before the global meltdown in 2008. Big deal.

My Father and Alan Greenspan

Sonntag, 20. Juni 2010, , Robert Reich’s Blog:

When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”

I didn’t know what a national debt was, but I remember being scared out of my wits.

Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.

Dad, now 96 and still in good health, recognizes how wrong he was then. He admits FDR’s deficit spending not only won World War II but it also got America out of the Great Depression.

But now another gaggle of deficit hawks is warning us against more federal spending.  “The current federal debt explosion is being driven by an inability to stem new spending initiatives,” warns Alan Greenspan in Friday’s Wall Street Journal, calling for budget cuts and saying “the fears of budget contraction inducing a renewed decline of economic activity are misplaced.”

My dad learned from his mistakes. Alan Greenspan obviously didn’t.

Banken: EU zweifelt an Zukunft der Hypobank

22.06.2010 | 18:50 |  (Die Presse)

Na, die EU Komission hat offensichtlich begabtere Beamte als das Finanzministerium, die FMA oder die Nationalbank. Und als der neubestellte HAAG Vorstand. Wie wir schon im Dezember 2009 vorausgesagt haben (hfk).

Die EU-Kommission hat ernste Bedenken, dass die Hypo Alpe Adria nachhaltig Gewinne schreiben wird. Die frühere BayernLB-Tochter wurde im Dezember 2009 mit der Verstaatlichung vor der Pleite gerettet.

Wien/Brüssel (höll). Die EU-Kommission ist skeptisch, dass die Hypo Alpe Adria trotz der vom Staat eingeleiteten Sanierung überlebensfähig ist. Daher haben die Brüsseler Behörden am Dienstag die Staatshilfe für das Kärntner Institut nur vorläufig genehmigt. Die EU befürchtet, dass es der Kärntner Bank mittlerweile so schlecht geht, dass sie nicht mehr in der Lage ist, ihre Probleme in den Griff zu bekommen. Erst vor zwei Wochen wurde bekannt, dass das Volumen der Problemkredite auf acht Mrd. Euro gestiegen ist. Damit sind schon 20 Prozent aller Darlehen ausfallsgefährdet.

Nach Ansicht der EU-Kommission sollte die österreichische Regierung auch die Möglichkeit einer geordneten Abwicklung des Instituts in Betracht ziehen. Die Wettbewerbshüter werden in den nächsten Monaten den Fall genau unter die Lupe nehmen. Erst dann wird feststehen, wie es mit der Hypo weitergehen wird.

Dominante Finanzindustrie

EU sorgt sich um Demokratie

Exklusiv Die Macht der Bankenlobby sei so groß, dass die Volksherrschaft in Europa in Gefahr gerät, warnen EU-Abgeordnete, die für die Regulierung des Finanzsektors sorgen sollen. von Reinhard Hönighaus  Brüssel , FTD, 21/6

Mit einem außergewöhnlichen Hilferuf setzt sich das Europaparlament gegen die Übermacht der Finanzlobby zur Wehr. „Das Ungleichgewicht zwischen der Macht dieser Lobby und mangelnden Gegenexpertisen erscheint uns als Gefahr für die Demokratie“, schreiben die für die Regulierung des Finanzsektors verantwortlichen Abgeordneten in einem fraktionsübergreifenden Aufruf, den sie am Montag EU-weit verbreiten wollen.

  EZB-Chef Trichet sorgt sich um die Demokratie

What’s the point of macro?

By: Dylan Grice

Most people would see the macro strategist’s role as timing macro events … switching between defensives and cyclicals, adjusting duration, risk-on/risk-off trades, and so on … the only problem is that most of us are rubbish at seeing macro events coming, let alone timing them, as our evolutionary programming blinds us to events which are forecastable (and many are not even that). Perhaps we should embrace our limitations by accepting that ‘outlier events’ are actually quite regular, and use macro research to aid in the search for appropriate insurance strategies.

* A few weeks ago I mapped out a strategy that was based on the idea that since global banks’ solvency was so dependent on government bond holdings, central banks would have no option but to quantitatively ease in the face of future government funding crises. I argued that such funding crises could provide opportunities to buy cheap risk assets before liquidity/QE-induced rallies and that some value was beginning to emerge, but also that that value still wasn’t extreme enough to go all in.¹

Economists Examine Potential for Longer Recession

PBS Newshour Video Interview with Nouriel Roubini, Nassim Taleb.

Ukraine: The Star of the East

Walter Molano

Jun 17, 2010 5:28PM

Two years ago, as the world was bracing for the onset of the Lehman Crisis, there were great concerns about Ukraine and Kazakhstan. Corporates from both countries had gorged themselves on a binge of debt issuance. With the capital markets shutting down and amortizations looming on the horizon, it was clear that both countries were going to be in trouble. However, we thought Kazakhstan would fare better. It had a reputation for sound regulation, with its financial regulatory body modelled on the FSA. There was more political stability, with an autocratic, but business-oriented leader. Kazakhstan’s economy was based on foreign investment and the development of huge energy resources. Last of all, its proximity to China put it in a geographically enviable position. At the same time, Ukraine had a reputation for high levels of corruption and poor corporate governance. In 2009, it ranked 146 out of 180 in Transparency International’s annual Corruption Perceptions Index (CPI). Ukraine’s political environment was chaotic, especially in the run-up to the 2010 presidential elections. Its areas of comparative advantage, specifically agriculture, coal and steel production, did not seem to be too appealing. Last of all, its proximity to Russia was seen as more of a liability than an asset, particularly as its former master tried to micromanage the leadership in Kiev. Yet, something odd happened along the way. Kazakhstan’s shiny veneer came crushing down brewing during the restructuring of its financial sector, revealing a tangle of mismanagement, fraud and nepotism. Astana’s attitude towards investors was pure contempt. Meanwhile, Ukraine coalesced into a coherent crisis management plan that allowed it to put its economic house in order, while finding ways of dealing with corporate debt servicing needs in an amiable and orderly fashion. Today, investors are flocking back into Ukraine, while Kazakhstan has been relegated to pariah status—and it will probably take a generation before it regains the confidence of foreign investors.