Category Archive: Global Macro
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Backdoor Bailout
In the tragicomic chronicle of the current financial crisis, the US Congress will go down as the biggest dupes. Can’t blame them. After all, their expertise clearly lies not in economic policy, but in identifying vital social objectives such as tax breaks for wooden arrows or motorsport race tracks. So here is the joke: In [...]
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We need a new set of solutions for the economic crisis
Summary: In the past few posts I have discussed a possible solution to this crisis. Unfortunately, it will not work. The reasons why are both depressing and technical, so let’s defer them until the next post and instead concentrate on what must be done. A reminder: we can only speculate about these things, as they [...]
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Speculative Thoughts on the Macroeconomic Aspects of the Crisis
The short-run: what is at stake? Presumably, the reason why we have seen so much intervention in the banking sector is to avoid some catastrophy of macroeconomic significance. To me, the puzzling question is: what sort of catastrophy? We do not learn much about catastrophies in our economics classes and I wonder what the basis [...]
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End The Ban On Short-Selling
In an efficient market, the prices of financial assets should reflect all available information–good and bad–that may affect the magnitude and the risk of future cash flows from these assets. For this, we need to allow for the unimpeded flow of such information and unfettered actions of all participants in the markets. This central tenet [...]
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Treasury Program to Buy Troubled Assets (oops to Invest in Troubled Companies)
The Treasury, in what the Wall Street Journal called an “unusual announcement,” today proclaimed that it was able to use the $700 billion allocated last week to invest “directly in troubled companies” to “strengthen the balance sheet of individual institutions.” The Journal continued, “Such a move, however, is likely only to occur if a firm [...]
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The Credit Crunch May Cause Another Great Depression
Back in June 2008 I wrote a piece for VOXEU predicting a mild recession in 2009. Over the last few weeks the situation has become far worse, and I believe even these pessimistic predictions were too optimistic. I now believe Europe and the US will sink into a severe recession next year, with GDP contracting [...]
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A sitrep on the financial crisis: why has the treatment been so slow, so small?
Summary The US government has at most a few weeks to restart the nation’s financial machinery. The delay might result from the time required to assembly a sufficiently large policy package. Or the US government’s leaders may have become overwhelmed by the rapid evolution of events. If the latter (#3), a depression may result (not a Great [...]
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A Failure To Learn From The Past
After perhaps the most tumultuous week in the financial markets in living memory, the question on everyone’s mind is whether this turn of events was inevitable. In order to answer this question fairly, one has to avoid making the common mistake of using 20-20 hindsight based on the facts that have come to light in [...]
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Fed Watch: Only the Timing is in Doubt
Only the Timing is in Doubt, by Tim Duy: Yesterday I opined on the Fed’s hesitation to cut rates when such a call should be a slam dunk. Why not step forward with the intermeeting cut? Could possibly the Fed have given up hope on rate cuts, and instead intend to focus on other policy [...]
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Emergency Global Rate Cuts: 50 bps
Coordinated rate cuts around the world, 50 basis from the Federal Reserve, European Central Bank and four other central banks. The banks lowered interest rates in an unprecedented, emergency coordinated bid to “ease the economic effects of the financial crisis.” The Fed cut its benchmark rate by a half point to 1.5%, as the ECB [...]
