The drama began in Greece. Where is it going to end? Let me begin with some observations on the basic mechanics of sovereign debt default. If you borrow $1 at a 5% interest rate, next year you’re going to owe $1.05. If you don’t pay any of it back and just roll over the debt, … Read more
NYTimes columnist Paul Krugman came across Modern Money Theory several years ago and periodically opines that we have something or other wrong. (See my response to one of his columns here: http://www.huffingtonpost.com/l-randall-wray/paul-krugman-modern-money-theory_b_926757.html) And other times he adopts MMT without acknowledging the source. Yesterday, for example. For some time he’s been wondering why Japan–with a government … Read more
Summary: The endgame for Europe (in its current form) probably has started. Like birth, nobody knows what comes next. Will the process be easy or difficult? Fast or slow? Produce an angel or monster? Here we make some guesses. Pay attention, as Europe’s travails mirror those to come for the world. Contents The present: rising … Read more
From Project Syndicate: The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone’s problems are much deeper. They are structural, and they severely affect at least four other … Read more
From the Financial Times: With interest rates on its sovereign debt surging well above seven per cent, there is a rising risk that Italy may soon lose market access. Given that it is too-big-to-fail but also too-big-to-save, this could lead to a forced restructuring of its public debt of €1,900bn. That would partially address its … Read more
For more than a decade, I’ve been arguing that the EMU was designed to fail. It was based on the pious hope that markets would not notice that member states had abandoned their currencies when they adopted the euro, thereby surrendering fiscal and monetary policy to the center. The problem was that while the center … Read more
So here we are: the Italian yield curve is flat at above 7%; the government institution is in question; and the ECB is using its SMP purchase program as a carrot to drive austerity implementation in and Berlusconi out. Some would argue that the ‘market is irrational’ – Italy faces a liquidity not solvency crisis. That’s the … Read more
The announcement of the most recent EZ rescue package (acceptance of a bigger haircut for Greek private creditors, the recapitalization of EZ banks and the use of guarantees and financial leverage in the hope of preventing Italy and Spain losing market access) led to markets rallying for a day as the tail risk of a … Read more
We all thought we knew who is poor in America. Children, especially in one-parent households. Racial minorities. Families who aren’t able to participate in the great American dream of home ownership. Really? The Census Bureau’s new Supplementary Poverty Measure (SPM) erodes all of these stereotypes. They still contain some truth, but less than it seemed. … Read more
