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Posts Tagged ‘Reinhart’

How High Should Government Debt Go? Economists Can’t Agree

Posted by hkarner - 18. Februar 2020

Date: 17‑02‑2020

Source: The Wall Street Journal

Economists warned a decade ago that pushing public debt above about 90% of GDP could hurt the economy. Now some aren’t so sure.

U.K. Prime Minister Boris Johnson, visiting a construction site for the High Speed 2 project in Birmingham Feb. 11, has promised to spend billions on infrastructure.

FRANKFURT—Governments around the world are loading up on debt, taking advantage of record‑low borrowing costs to extend a long economic expansion and invest for future challenges.

Economists warned a decade ago that pushing public debt above about 90% of gross domestic product could hurt growth and increase the risk of crises.

Now they aren’t so sure.

In a world of ultralow interest rates, some say higher public debt levels are feasible, even desirable. If sovereign‑bond yields remain below economic growth rates, governments should be able to issue debt without having to pay for it later, argue economists including Olivier Blanchard, former chief economist of the International Monetary Fund. Den Rest des Beitrags lesen »

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The Biggest Emerging Market Debt Problem Is in America

Posted by hkarner - 23. Dezember 2018

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

A decade after the subprime bubble burst, a new one seems to be taking its place in the market for corporate collateralized loan obligations. A world economy geared toward increasing the supply of financial assets has hooked market participants and policymakers alike into a global game of Whac-A-Mole.

CAMBRIDGE – A recurrent topic in the financial press for much of 2018 has been the rising risks in the emerging market (EM) asset class. Emerging economies are, of course, a very diverse group. But the yields on their sovereign bonds have climbed markedly, as capital inflows to these markets have dwindled amid a general perception of deteriorating conditions.

Historically, there has been a tight positive relationship between high-yield US corporate debt instruments and high-yield EM sovereigns. In effect, high-yield US corporate debt is the emerging market that exists within the US economy (let’s call it USEM debt). In the course of this year, however, their paths have diverged (see Figure 1). Notably, US corporate yields have failed to rise in tandem with their EM counterparts. Den Rest des Beitrags lesen »

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Die Verbesserung der wirtschaftlichen Vergangenheit

Posted by hkarner - 8. August 2018

Vincent Reinhart

Vincent Reinhart is Chief Economist and Investment Strategist at BNY Mellon Asset Management North America Corporation.

CAMBRIDGE – Trockene Berichte einer Statistikbehörde rauben einem nur selten den Atem, aber die jüngste Veröffentlichung über die volkswirtschaftliche Gesamtrechnung der Vereinigten Staaten vom US-Büro für Ökonomische Analyse (BEA) ist eine Ausnahme, die die Regel bestätigt. Immerhin handelt es sich hier um den umfassenden Bottom-Up-Fünfjahresbericht der BEA über Einkommen, Produktion und Preise, der bis in die Model-T-Tage der wirtschaftlichen Aktivitäten zurückreicht.

Kämpft man sich durch die Details des Berichts, fallen einem die leicht verbesserten Aussichten für das mittelfristige Wachstum auf. Darüber hinaus deuten die Daten über die persönlichen Ersparnisse auf eine geringere Anfälligkeit und stärkere Widerstandskraft des Sektors der Privathaushalte hin. Andererseits ändert der Bericht nichts an den beiden gähnenden staatlichen Löchern – dem Zwillingsdefizit in der Haushalts- und Leistungsbilanz.

Wir Ökonomen müssen nach diesem Bericht unsere Einschätzung der US-Wirtschaft ändern. Erst einmal gibt es zwei gute Nachrichten: Nicht nur stieg das reale BIP im zweiten Quartal 2018 aufs Jahr hochgerechnet um 4,1%, sondern auch die Produktionsdaten für das erste Quartal wurden etwas nach oben angepasst, und dem ging ein deutlich höheres Einkommenswachstum voraus. Der Nettoeffekt dieser Entwicklungen ändert zwar nichts am Gesamtbild – noch immer haben die USA sechs Jahre gebraucht, um sich von der Großen Rezession zu befreien – aber der Wachstumstrend (gemittelt aus Produktion und Einkommen, was eine zuverlässigere Messzahl ergibt als einzeln betrachtet) war schneller als bisher angenommen. Dies ist bedeutsam, weil kleine Steigerungen der Wachstumsrate aufgrund der Aufzinsung langfristig große Vorteile bringen.

Und zweitens, was noch wichtiger ist: Das zusätzliche Haushaltseinkommen wurde nicht durch neue Ausgaben aufgezehrt. Nominal betrachtet hat sich das Sparniveau der Haushalte verglichen mit den vier Vorquartalen fast verdoppelt. Relativ zum verfügbaren Einkommen liegt die persönliche Sparquote nun nicht mehr bei den 3,2% vom Mai, sondern bei 6,8%. Darüber hinaus verlief sie in den letzten fünf Jahren nicht, wie bisher vermutet wurde, steil abwärts, sondern auf einem Niveau von über 6% seitwärts. Die Anpassungen nach oben reichen sogar noch weiter zurück. Seit Mitte der 1990er liegen die prozentualen Unterschiede zwischen den ursprünglichen und den aktualisierten Daten für nominale Privatersparnisse im zweistelligen Bereich. Den Rest des Beitrags lesen »

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Der lange, heiße italienische Sommer

Posted by hkarner - 4. Juni 2018

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

STOCKHOLM – Das politische Chaos und die sozialen Unruhen, die die aktuelle Krise in Italien antreiben, sollten niemanden überraschen. Im Gegenteil: Unklar war lediglich der genaue Zeitpunkt, an dem sich die Lage zuspitzen würde. Dies ist jetzt geschehen.

Das italienische Pro-Kopf-BIP liegt etwa 8% unterhalb des Niveaus von 2007, dem Jahr vor der weltweiten Finanzkrise, die die Große Rezession auslöste. Und die Vorhersagen des Internationalen Währungsfonds für 2023 lassen erwarten, dass sich Italien selbst dann noch nicht von den kumulierten Leistungseinbußen des letzten Jahrzehnts erholt haben wird.

Von den elf hoch entwickelten Volkswirtschaften, die von der schweren Finanzkrise der Jahre 2007-2009 betroffen waren, ist nur Griechenland in eine tiefere und langwierigere Depression gestürzt. Dabei waren Griechenland und Italien zu Beginn der Krise die beiden Länder mit der höchsten Schuldenlast (109% bzw. 102% des BIP) – und entsprechend schlecht dafür gerüstet, auf große Wirtschaftsschocks reagieren zu können. Seit dem Ausbruch der Krise vor zehn Jahren führten wirtschaftliche Stagnation und teure Bankprobleme dazu, dass die Schulden trotz der außergewöhnlich niedrigen Zinsen der letzten Zeit sogar noch stiegen. Den Rest des Beitrags lesen »

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Italy’s Long, Hot Summer

Posted by hkarner - 1. Juni 2018

Severe political uncertainty, chronic slow growth, and a sovereign-debt level currently hovering around 160% of GDP already is enough for Italy to trigger a debt crisis. And there is no plausible resolution that would not generate additional risks and complications.

STOCKHOLM – The political upheaval and social unrest fueling the current crisis in Italy should surprise no one. On the contrary, the only uncertainty was when exactly matters would come to a head. Now they have.

Italy’s per capita GDP in 2018 is about 8% below its level in 2007, the year before the global financial crisis triggered the Great Recession. And the International Monetary Fund’s projections for 2023 suggest that Italy will still not have fully recovered from the cumulative output losses of the past decade.

Among the 11 advanced economies that were hit by severe financial crises in 2007-2009, only Greece has suffered a deeper and more protracted economic depression. Greece and Italy were the two economies carrying the highest debt burdens at the outset of the crisis (109% and 102% of GDP, respectively), leaving them poorly positioned to cope with major adverse shocks. Since the crisis erupted a decade ago, economic stagnation and costly banking weaknesses have propelled debt burdens higher still, despite a decade of exceptionally low interest rates.

Greece has already faced more than one “credit event” and, while Italy has also had a couple of close calls, the spring of 2018 is turning out to be its most tumultuous episode yet. The summer will probably be worse, bringing Italy closer to a sovereign debt crisis.

On the surface, general government debt appears to have stabilized since 2013, at around 130% of GDP. However, as I have stressed here and elsewhere, this “stability” is misleading. General government debt is not the whole story for Italy, even setting aside the private debt loads and the recent renewed upturn in nonperforming bank loans (a daunting legacy of the financial crisis).

When evaluating Italy’s sovereign risk, the central bank’s debts (Target2 balances) must be added to those of the general government. As the most recent available data (through March) show, these balances increase the ratio of public-sector debt to GDP by 26%. With many investors pulling out of Italian assets, capital flight in the more recent data is bound to show up as an even bigger Target2 hole. This debt, unlike pre-1999, pre-euro Italian debt, cannot be inflated away. In this regard, it is much like emerging markets’ dollar-denominated debts: it is either repaid or restructured.

Severe political uncertainty against a backdrop of chronic slow growth and a sovereign-debt level currently hovering around 160% of GDP already is enough to trigger a debt crisis. Adding to these fundamentals, populist rhetoric about introducing a quasi-currency or small-denomination IOUs (presumably to finance ambitious spending plans and larger budget deficits), and about not honoring the Bank of Italy’s debt, adds fuel to the financial fire.

Italy’s instability is already having international repercussions, and the current bout of global uncertainty is far from over. Close to home, as Italian bond yields climb and oscillate with the rumor mill, yields for Spanish, Portuguese, and Greek bonds have been driven higher. Moreover, the Italian story is unfolding as Greece closes in on an agreement in June about its exit late this summer from dependence on Europe’s bailout framework. One can only hope that political contagion from Italy does not further complicate these negotiations.

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Farther afield, the weakness in the euro has translated into dollar strength, which means a sustained beating for emerging markets, particularly those with US dollar debt. The flight to quality that accompanies outbreaks of financial turbulence is reinforcing a shift away from some of the riskier asset classes of which emerging markets are a part. International equity markets have not been exempt from contagion.

How do such episodes typically end? The most desirable outcome – rapid resolution that places the source of contagion on a sustainable growth path – appears improbable in Italy’s case. Meaningful debt renegotiations are seldom swift: creditors want repayment, and debtors want a write-down. As Christoph Trebesch and I have documented, negotiations seldom get it right on the first – or even the third – try. Initial restructuring agreements tend to fall short of the magnitude needed to achieve debt sustainability.

Still, it is difficult to see how restructuring of Italy’s debt can be avoided altogether. The alternative – exclusive reliance on a bailout – is tempting, as it may temporarily calm markets. But a bailout would only kick the can down the road. The fact that Greece’s debt problems still have not been resolved should serve as a warning.

In the mildest of scenarios, only Italy’s official debt – held by other governments or international organizations – would be restructured, somewhat limiting the disruptions to financial markets. Yet restructuring official debt may not prove sufficient. Unlike Greece (post-2010), where official creditors held the lion’s share of the debt stock, domestic residents hold most of Italy’s public debt. This places a premium on a strategy that minimizes capital flight (which probably cannot be avoided altogether). At this stage, policymakers should aim for a resolution of Italy’s woes that does not generate additional risks and complications. But there is little reason to expect them to hit the target.

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Spare in der Zeit, dann hast du in der Not?

Posted by hkarner - 3. April 2018

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

CAMBRIDGE – Vor fast einem Jahrzehnt führte ich gemeinsam mit Graciela Kaminsky von der George Washington University und Carlos Végh, der heute der Chefökonom der Weltbank für Lateinamerika und die Karibik ist, eine Studie durch. Dabei untersuchten wir über den größten Teil der Nachkriegszeit hinweg die Haushaltspolitik von über hundert Ländern. Wir kamen zu dem Ergebnis, dass die Politik der wirtschaftlich hoch entwickelten Länder in dieser Zeit entweder unabhängig vom Geschäftszyklus (azyklisch) oder gegenläufig zu diesem agierte (antizyklisch). Dabei trugen die Regierungsausgaben – neben integrierten Stabilisatoren wie der Arbeitslosenversicherung – dazu bei, den wirtschaftlichen Zyklus zu stabilisieren.

Der Vorteil einer antizyklischen Politik liegt darin, dass in guten Zeiten die Staatsschulden relativ zum BIP sinken. Dies schafft haushaltspolitischen Spielraum für spätere Rezessionen, ohne die langfristige Nachhaltigkeit der Verschuldung zu gefährden.

Im Gegensatz dazu war die Haushaltspolitik in den meisten Entwicklungs- und Schwellenländern prozyklisch: Erreichte die Wirtschaft die Vollbeschäftigungsgrenze, stiegen auch die Staatsausgaben. Mit einer solchen Politik sind Länder, wenn wieder schlechte Zeiten kommen, kaum in der Lage, die Wirtschaft zu stimulieren. Statt dessen bereiten sie so den Weg für die gefürchteten Sparmaßnahmen, die dazu neigen, die schlechten Zeiten noch zu verschlimmern. Den Rest des Beitrags lesen »

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The Fed Should Be Careful What It Wishes For

Posted by hkarner - 1. März 2018

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

Vincent Reinhart is Chief Economist and Investment Strategist at BNY Mellon Asset Management North America Corporation.

Major central banks’ fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next – the battle against too-high inflation.

CAMBRIDGE – Empirical relationships in economics are sufficiently fragile that there is even a “law” about their failure. As British economist Charles Goodhart explained in the 1980s, “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Central banks in advanced economies have recently been providing a few more case studies confirming Goodhart’s Law, as they struggle to fulfill their promises to raise inflation to the stable plateau of their numerical targets. Den Rest des Beitrags lesen »

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Financial regulators too often think “this time is different”

Posted by hkarner - 27. Januar 2018

Date: 25-01-2018
Source: The Economist

Which helps explain why financial crises are so grimly predictable

FOR a phenomenon with such predictably bad outcomes, a financial boom is strangely seductive. Not a decade after the most serious financial crisis since the Depression, the world watches soaring markets with a mixture of serenity and glee. Natural impulses make finance a neck-snappingly volatile affair. Governments, though, deserve heaps of blame for policies that amplify both boom and bust. As regulators begin picking apart reforms only just enacted, it is worth asking why that is so.

Finance is hopelessly prone to wild cycles. When an economy is purring, profits go up, as do asset values. Rising asset prices flatter borrowers’ creditworthiness. When credit is easier to obtain, spending goes up and the boom intensifies. Eventually perceptions of risk shift, and tales of a “new normal” gain credence: new technologies mean profits can grow for ever, or financial innovation makes credit risk a thing of the past. But when the mood turns, the feedback loop reverses direction. As asset prices fall, banks grow stingier with their loans. Firms feel the pinch from falling sales, get behind on their debts and sack workers, who get behind on theirs. The desperate sell what they can, so asset prices tumble, worsening the crash. Mania turns to panic. Den Rest des Beitrags lesen »

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Monetary-Policy Normalization in Europe in 2018

Posted by hkarner - 27. Dezember 2017

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

As the European Central Bank pursues monetary-policy normalization in 2018, it should proceed with caution. It will need to balance mounting pressure from Germany for faster normalization with a realistic assessment of the durability and breadth of the unfolding recovery.

BUENOS AIRES – When the European Central Bank’s Governing Council met on December 14, there was little to surprise financial markets, because no policy changes could be gleaned from public remarks. The previous meeting, in late October, had already set the stage for the normalization of monetary policy, with the announcement that the ECB would halve its monthly asset purchases, from €60 billion ($71 billion) to €30 billion, beginning in January 2018.

The motivation behind normalization does not appear to be the eurozone’s inflation performance, which continues to undershoot the target of roughly 2% by an uncomfortable margin. Inflation expectations, while inching up recently, also appear anchored well below target, despite recent soaring confidence readings. And the ECB’s own forecast suggests that it does not anticipate that price growth will breach 2% anytime soon. Den Rest des Beitrags lesen »

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The Curious Case of the Missing Defaults

Posted by hkarner - 2. November 2017

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

Usually, a sudden stop in capital inflows sparks a currency crash, sometimes a banking crisis, and quite often a sovereign default. Why, then, has the worldwide incidence of sovereign defaults in emerging markets risen only modestly?

CAMBRIDGE – Booms and busts in international capital flows and commodity prices, as well as the vagaries of international interest rates, have long been associated with economic crises, especially – but not exclusively – in emerging markets. The “type” of crisis varies by time and place. Sometimes the “sudden stop” in capital inflows sparks a currency crash, sometimes a banking crisis, and quite often a sovereign default. Twin and triple crises are not uncommon.

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