The Global Recovery’s Downside Risks

Nouriel Roubini

Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

JUN 5, 2017 Project Syndicate

NEW YORK – For the past two years, the global economy has been growing, but it has swung between periods of rapid expansion and deceleration. During this period, two episodes, in particular, caused US and global equity prices to fall by about 10%. Is a pattern emerging, or is a fitful global recovery set to stabilize?

The first episode came in August/September 2015, when many observers feared that China’s economy could be headed for a hard landing. The second episode, in January/February 2016, also stemmed from concerns about China. But investors were also increasingly worried about stalling US growth, collapsing oil and commodity prices, rapid interest-rate hikes by the US Federal Reserve, and unconventional negative-rate monetary policies in Europe and Japan.

Each deceleration episode lasted for about two months, at which point the correction in equity prices began to reverse. Investors’ fears were not borne out, and central banks began to ease their monetary policies; or, in the case of the Fed, put rate hikes on hold.

Keen, Hudson Unpick Historical Path to Global Recovery

By Michael Hudson, Wednesday, November 30, 2016 

REAL VISION INTERVIEW TRANSCRIPT:

Featuring: Michael Hudson, Steve Keen
Published date: 22nd of November 2016

Synopsis: With two renegade economists in one room in London for 90 minutes you can expect some pretty controversial opinions about the current economic establishment. This film has all the makings of a Real Vision classic, as Steve Keen interviews professor and author, Michael Hudson, sharing their radical views and an extraordinary depth of knowledge.

Discussing the complacency and complicity of traditional economic models, as taught in universities and adopted by central banks, Michael and Steve take us on a journey from a solar system to a galaxy of thought, taking in the history of economics to solutions for the ongoing global depression.

Highlights:

Michael Hudson: Killing the Host will be published in German at the end of the month of November. Basically, it’s a more popular version of The Bubble and Beyond. It shows that when the financial sector takes over, it’s very much like a parasite in nature. People think of parasites simply as taking the life blood of the host and draining the energy. But in order to do that, the parasite has to have an enzyme to take over the host’s brain. They take over the brain and convince the host that the free luncher is actually part of the host’s own body, and even its baby to be protected. That’s what the financial sector has done.

Escaping the New Normal of Weak Growth

Michael Spence

Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, Academic Board Chairman of the Asia Global Institute in Hong Kong, and Chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World.
 

SEP 30, 2016, Project Syndicate

MILAN – There is no question that the recovery from the global recession triggered by the 2008 financial crisis has been unusually lengthy and anemic. Some still expect an upswing in growth. But, eight years after the crisis erupted, what the global economy is experiencing is starting to look less like a slow recovery than like a new low-growth equilibrium. Why is this happening, and is there anything we can do about it?

Eurozone Recovery Belies Euroskeptic Myths

Date: 05-05-2016
Source: The Wall Street Journal

Recent data suggest recovery in the common-currency area is possible

Euroskeptics have long complained that the British economy is “shackled to a corpse”—that being part of a European Union with the dysfunctional eurozone is a major drag on the U.K.’s fortunes.

For the last six years, this charge was hard to refute: The eurozone has been mired in seemingly permanent crisis, its multiyear recession a drag on the global economy.

Yet last week, with just over 50 days to go before Britons vote on whether to quit the EU, Eurostat published preliminary estimates of first quarter gross domestic product that showed the eurozone economy grew by 0.6%, an annualized rate of 2.2%. That is faster than the U.S. at 0.1% or the U.K. at 0.4%. The corpse may not be dead after all.

This follows a string of recent data that suggest the eurozone has shrugged off what now appears to have been largely a liquidity-driven panic at the start of the year to continue its modest recovery, buoyed by low oil prices, falling borrowing costs, a weak currency and a modest fiscal stimulus.

Europe’s Economy, After 8-Year Detour, Is Fitfully Back on Track

Date: 30-04-2016
Source: The New York Times

By one measure, the economic crisis that has long ravaged Europe is finally over.

On Friday, the European Union released data showing that the overall economy of the 19 countries that use the euro advanced 0.6 percent over the first three months of the year, compared with the previous quarter.

That gain, equivalent to an annual rate of 2.2 percent, brought the eurozone’s gross domestic product for the period — the total value of goods and services produced — to slightly above the previous peak reached in the early months of 2008, before the crisis emerged and Europe’s core economy descended into a pair of crippling recessions.

“The long-awaited recovery may finally be consolidating,” said Iain Begg, a research fellow at the European Institute of the London School of Economics.

The Post-Crisis Economy’s Long Debt Hangover

Carmen Reinhart

Carmen Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government.

APR 21, 2016, Project Syndicate

CAMBRIDGE – The meeting of G-20 finance ministers and central bank governors in Washington, DC last week concluded on a sour note. Small wonder: Global growth prospects have dimmed amid a variety of risks now emanating from both advanced and developing countries.

The meeting’s participants addressed – yet again – the need for greater policy coordination, more fiscal stimulus, and a variety of structural reforms. And that discussion has become more urgent, given the widespread view that monetary policy may not have much ammunition left, and that competitive devaluations would do more harm than good.

But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.

Bank recapitalisation and economic recovery after financial crises

Timotej Homar, Sweder van Wijnbergen 13 February 2016, voxeu

Timotej Homar

PhD Student, University of Amsterdam

Sweder van Wijnbergen

Professor, University of Amsterdam; CEPR Research Fellow

It has been claimed that recessions as a result of a financial crisis tend to last longer than normal recessions. This column asks whether early intervention to help distressed banks during financial crises is effective in mitigating the consequences of financial distress. The evidence suggests that decisive and early recapitalisation of banks can shorten recessions by several years and help speed up recovery.

As early as 2009, Reinhart and Rogoff (2009) pointed out that „recessions surrounding financial crises are usually long compared to normal recessions“. Their research highlights surprisingly large declines in output, slow recoveries, and large and persistent negative effects on unemployment, public debt, and fiscal deficits in the aftermath of banking crises. The subsequent experiences in the US and particularly in western Europe lend further support to their findings. This naturally leads to the question of whether intervention to help distressed banks early on during financial crises is effective in mitigating the macroeconomic consequences of financial distress, and if so whether it matters what form the intervention takes. The answers to these questions will also shed light on the economic costs of forbearance i.e. the costs of inaction by regulators during a crisis. We analyse these questions by empirically investigating durations of recessions after 68 systemic banking crises from the period 1980 to 2013.

• Our key finding is that decisive and early recapitalisation of banks in distress can shorten recessions by several years.

A Perilous Year for European Unity

Date: 03-01-2016
Source: The Wall Street Journal

Terror threat and migrant crisis are just two of many challenges confronting the bloc in 2016

Troubles crowded in on Europe in 2015. In 2016, they could shake the foundations of European economic and political integration.

The conflict in Syria has blown back devastatingly into Europe, spurring terror attacks and a refugee crisis over which policy makers appear to have little influence.

Border controls, viewed as a thing of the past across much of the continent, have been raised at many national frontiers, and leading politicians have acknowledged that the Schengen passport-free travel zone, one of the great successes of European integration, is under threat.

To the east, the Ukraine conflict remains unresolved and Russia’s foreign-policy posture more aggressive than at any time since the end of the Cold War.

Can the Islamic State Unify Europe?

Hans-Werner Sinn

Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, is President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently,o f The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs.

NOV 26, 2015, Project Syndicate

MUNICH – During the financial crisis, the eurozone’s northern members rescued their southern counterparts by offering huge bailouts and backing the European Central Bank’s promise to save the euro at all costs. When Germany recently requested a quota system to cope with the massive influx of refugees, however, its partners showed no such solidarity. And now that France, reeling from the Paris attacks, has declared war on the Islamic State, other European countries are shrugging their shoulders, mumbling condolences, and silently hoping that the conflict will spare them.

The euro-zone economy: Under threat

Date: 22-10-2015
Source: The Economist

A tepid recovery may get cooler

It could get messy after Malta

FOR much of the past five or so years, the euro area has been suffering from a toxic combination of economic, financial and political ailments, making it the main source of fragility in the global economy. That honour has now passed to emerging markets. Yet their difficulties are likely to impede what has in any case been an insipid recovery, making it harder for the euro zone to clamber out of deflation.

The European Central Bank (ECB) was not expected to announce extra monetary stimulus when its governing council met in Malta on October 22nd (after The Economist had gone to press). But many economists think it will act within a few months, maybe as early as December. The ECB’s most likely response would be to extend its programme of quantitative easing (QE)—creating money to buy mainly public assets—beyond September 2016, when it is currently scheduled to end.