Financial Stability became a topic in the late 1990s, at a time of peak laxity in international financial supervision. The same minds which promoted the Financial Stability Forum (now the Financial Stability Board) also crafted the deeply flawed and destructive Basel II. I have never understood why Financial Stability should be an objective of public … Read more
My preceding blogpost, the Hour of the Technocrats, was inspired by the recent accession of Mario Monti and Lucas Papademos, both professional economists, to the prime ministerships of Italy and Greece, respectively. Today we turn to the U.S., where the political process seldom views academic credentials benevolently. In the United States, Senator Richard Shelby scorned … Read more
This is quite a feat, given that I am in Marmaris, not in Ankara, where the meeting is being held, and I am persona-non-Grata in these meetings in the first place… However, thanks to my spies, I always learn what is discussed at these meetings. I should start by saying that there isn’t much new … Read more
Mario Monti’s government today approved an ambitious plan that may be the last bullet to save Italy from default and preserve the EZ as we know it. The challenge is to combine an ambitious fiscal consolidation plan, roughly 2% of GDP, with the need to foster growth, while sharing the burden of the adjustment as … Read more
Italy’s government has come forward with an aggressive 30 billion euro austerity package to prevent the country’s bankruptcy and pave the way for the fiscal integration that German Chancellor Angela Merkel is pushing as the key to solving the European debt crisis. In the video below, Elsa Fornero, the Italian welfare minister, broke down and … Read more
Summary: The Second Republic (under the Constitution) died this week, as the most important of our core protections were stripped away in full daylight. What remains has little value without them. Few people care; no protests were made. The Constitution died from neglect. We snooze, we lose. This post is the sad follow-up to Another bill … Read more
For years I have been arguing that the Achilles heel of the Chinese growth model is the unsustainable rise in debt that comes as a necessary consequence of capital misallocation fueled by bank lending. Capital misallocation, I argued, was the nearly inevitable consequence of high investment growth over many years in a system in which … Read more
The program of fiscal consolidation + structural reforms that the Monti government is envisaging, in line with EU and IMF recommendations could be derailed by deflation (and recession). The Aggregate Supply – Demand framework (AS-AD) in the figure helps make the simple point. Budget cuts (particularly tax hikes and expenditure cuts) depress demand, shifting the … Read more
What kind of society, exactly, do modern Republicans want? I’ve been listening to Republican candidates in an effort to discern an overall philosophy, a broadly-shared vision, an ideal picture of America. They say they want a smaller government but that can’t be it. Most seek a larger national defense and more muscular homeland security. Almost … Read more
Last night, the PBOC (China’s central bank) lowered the reserve requirement ratio (RRR) for Chinese banks by 50 basis points, down to 21% for large banks, freeing up an estimated RMB 400 billion ($63 billion) in new lending. Here are my initial thoughts on why they did it, and what it means: The move is … Read more