Part 3: Reforming China – Changing the Software

Part 3: Reforming China – Changing the Software

Beyond purely economic and financial objectives, the reform process in China must meet welfare, demographic, environmental and governance challenges.  The People’s Welfare… Increasing consumption requires increases in household income, reduced savings or a combination. This requires increasing wage levels and employment levels.  Increasing consumption will require reform of the welfare system, especially health, education and […]

Part 2: Financial Reform in China – Don’t Bank It!

Part 2: Financial Reform in China – Don’t Bank It!

photo: David Dennis The Chinese brand of state corporatist model based on credit driven investment is designed to deliver growth. The strategy requires the government to exert significant power over the economy, with the ability to intervene in economic activity and allocate resources. In practice, this is done through the SOEs and especially control of the […]

Part 1: Reforming China – Rebooting the Economic Engine

Part 1: Reforming China – Rebooting the Economic Engine

photo: tammy c. Over the last 35 years, China has emerged as a major global economy, with average annual growth rates of 9.7% which have been pivotal in helping raise between 400 and 600 million Chinese out of poverty. Commentators have run out of hyperbole to describe the development. Justin Lin Yifu, a former chief economist […]

Part 4: QE Forever?

Part 4: QE Forever?

photo: 401(K) 2012 Compounding the problems of ineffectiveness and toxic side effects, current policies cannot be reversed easily, if at all. Withdrawing fiscal stimulus would lead to sharp slowdowns in economic activity. Reduction in government services and higher taxes accelerates contraction in disposable incomes, especially in an environment of stagnant incomes and uncertain employment. In turn, […]

Part 3: The Ineffectiveness of Economic Policy

Part 3: The Ineffectiveness of Economic Policy

photo: Nicolas Raymond While the central bank and government policies have stabilised conditions, they have not restored growth or created sufficient inflation to address the world’s debt problems. As Helmuth von Moltke, a 19th century head of the Prussian army, observed: “No battle plan ever survives first contact with the enemy”. Given that the bulk of […]

Part 2: Monetary Madness

Part 2: Monetary Madness

photo: againstcronycapitalism  Central banks have reduced official interest rates to historically lows, either near zero (known as ZIRP or Zero Interest Rate Policy). Long term bond rates are also at historically low levels. In some parts of the world, interest rates are now negative; that is, you get paid to borrow and punished if you save. […]

Part 1: Fiscal Failure

Part 1: Fiscal Failure

photo: Nicolas Raymond The stubborn refusal of the global economy to respond to policy initiatives is reminiscent of an obstreperous teenager. There is now renewed focus on using government spending on infrastructure to stimulate the global economy. It is not clear whether such a policy will work. Efficacy of stimulatory fiscal policy depends on a number […]

US Interest Rates: Risky Gradualism

US Interest Rates: Risky Gradualism

photo: donielle In December 2015, after over 2 years of procrastination, the US Federal Reserve delivered a 0.25% increase in official interest rates, the first in nearly a decade. The rise is symbolic, intended to signal the end of the crisis and a start of normalisation. But already events have cast doubts on the wisdom of the […]

Europe’s Fake Recovery

Europe’s Fake Recovery

photo: Chris Goldberg Investors were disappointed when they undid the wrapping on the European Central Bank’s (“ECB’s) early holiday present.  The package was not insignificant: a cut in deposit rates by 0.10% from negative 0.20% to 0.30%; an extension of the €60 billion per month bond purchase program by six months (additional €360 billion in liquidity); […]

Interest Rate Policy Uncertainties

Interest Rate Policy Uncertainties

photo: againstcronycapitalism  Since Lehman Brothers left the mortal coil, there have been more than 600 rate cuts. Over the same period, central banks have injected over US$12 trillion under QE (Quantitative Easing) programs into money markets. Over US$26 trillion of government bonds are now trading at yields of below 1% with over US$6 trillion currently […]

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