Rogoff: Beware of Wounded Lions
by ilene - November 2nd, 2010 10:02 pm
Rogoff: Beware of Wounded Lions
Courtesy of Mark Thoma, Economist’s View
Kenneth Rogoff says the rest of the world should not ignore the recent threats of protectionist measures coming from the US:
Beware of Wounded Lions, by Kenneth Rogoff, Commentary, Project Syndicate: G-20 leaders who scoff at the United States’ proposal for numerical trade-balance limits should know that they are playing with fire. …
According to a recent … report…, fully 25% of the rise in unemployment since 2007, totaling 30 million people worldwide, has occurred in the US. If this situation persists, as I have long warned it might, it will lay the foundations for huge global trade frictions. The voter anger expressed in the US mid-term elections could prove to be only the tip of the iceberg…, the ground for populist economics is becoming more fertile by the day. …
True, today’s trade imbalances are partly a manifestation of broader long-term economic trends, such as Germany’s aging population, China’s weak social safety net, and legitimate concerns in the Middle East over eventual loss of oil revenues. And, to be sure, it would very difficult for countries to cap their trade surpluses in practice: there are simply too many macroeconomic and measurement uncertainties.
Moreover, it is hard to see how anyone – even the IMF, as the US proposal envisions – could enforce caps on trade surpluses. The Fund has little leverage over the big countries that are at the heart of the problem.
Still,… world leaders … must recognize the pain that the US is suffering in the name of free trade. Somehow, they must find ways to help the US expand its exports. Fortunately, emerging markets have a great deal of scope for action.
India, Brazil, and China, for example, continue to exploit World Trade Organization rules that allow long phase-in periods for fully opening up their domestic markets to developed-country imports… A determined effort by emerging-market countries that have external surpluses to expand imports from the US (and Europe) would do far more to address the global trade imbalances … than changes to their exchange rates or fiscal policies. …
American hegemony over the global economy is perhaps in its final decades. China, India, Brazil, and other emerging markets are in ascendancy. Will the transition will go smoothly and lead to a global economy that is both fairer and more prosperous?
However much we
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The G20’s China Bet
by ilene - July 3rd, 2010 3:35 pm
The G20’s China Bet
Courtesy of Simon Johnson at Baseline Scenario
The G20 communiqué, released after the Toronto summit on Sunday, made it quite clear that most industrialized countries now have budget deficit reduction fever (see this version, with line-by-line comments by me, Marc Chandler and Arvind Subramanian). The US resisted the pressure to cut government spending and/or raise taxes in a precipitate manner, but the sense of the meeting was clear – cut now to some extent and cut more tomorrow.
This makes some sense if you think that the global economy is in robust health and likely to grow at a rapid clip – say close to 5 percent per annum – for the foreseeable future. With high global growth, it will matter less that governments are cutting back and unemployment will come down regardless. Taking this into account, the IMF is actually predicting (as cited prominently by the G20) that budget “consolidation” actually raise growth over a five-year horizon.
There is no question that some weaker European countries, such as Greece, Portugal, and Ireland, had budget deficits that were out of control. Particularly if they are to pay back all their foreign borrowing – a controversial idea that remains the conventional wisdom – these countries need some austerity. But what about those larger countries, which remain creditworthy, such as Germany, France, the UK, and the US? If these economies all decide to reduce their budget deficits, what will drive global growth?The answer in Toronto was obvious: China. China is only about 6 percent of the world economy, measured using prevailing exchange rates, but it has a disproportionate influence on other emerging markets due to its seemingly insatiable demand for commodities. It also has a relatively healthy fiscal balance – and its fiscal stimulus, working mostly through infrastructure investment, did a great job in terms of buffering the real economy in the face of declining world trade in 2008-09.
Now, however, the Chinese government is trying to slow the economy down – there is fear of “overheating”, which could mean inflation or rising real wages (depending on who you talk to). Chinese economic statistics are notoriously unreliable, so reading the tea leaves is harder than for some other economies, but most of the leading indicators suggest that some sort of slowdown is now underway.
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Paul Krugman’s Magic Keynesian Mirror
by ilene - June 8th, 2010 5:34 am
Paul Krugman’s Magic Keynesian Mirror
Courtesy of Mish
Paul Krugman is quite upset with the deficit hawks at the G-20, so much so that he says Lost Decade, Here We Come
The deficit hawks have taken over the G20.
It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
Utter folly posing as wisdom. Incredible.
G-20 an Amazing Success
In sharp contrast, I called the G-20 an Amazing Success
With all the heated debate and every country doing what they want, inquiring minds just may be asking "How the heck can you call this a success?"
That’s a good question so let’s highlight the positives.
Defining G-20 Success
- Merkel and Trichet politely told Geithner to go to hell. Given that Geithner needs to be fired, this is a positive event.
- Europe is more concerned about sovereign debt issues than stimulating growth. Only fools like Geither and the IMF would argue against that.
- No one paid any attention to Geithner or the Keynesian clowns at the IMF, most notably, IMF Managing Director Dominique Strauss-Kahn.
- There was no agreement on a universal bank levy. A universal tax is the wrong approach to risk management and it punishes banks with good lending practices.
- Geithner made a complete fool out of himself.
- A dozen cheers for German Chancellor Angela Merkel who said “We can only spend what we receive in income.” Finally someone gets it.
What more could you possibly ask for?
Predictable Reaction
Without mentioning Krugman specifically, I am not surprised by his reaction. Indeed, I predicted it on Saturday in G20 Heated Debates; Europe Politely Tells Geithner Where To Go.
Kiss the Illusion Goodbye
With global stimulus efforts playing second fiddle to default concerns, a double-dip recession is just around the corner. Please see Hungary Tries To Calm Markets; Europe Headed Back in Recession, US Will Not Decouple for further
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Prepare NOW: They “Get It”
by ilene - June 7th, 2010 12:31 am
Prepare NOW: They "Get It"
Courtesy of Karl Denninger at The Market Ticker
Anyone who doesn’t believe that "they" (the powers that be) "get it" at this point needs to remove their head from their ass:
G-20 central bankers and finance ministers agreed in a joint statement today that “within their capacity, countries will expand domestic sources of growth.” At the same time, European Central Bank President Jean-Claude Trichet told reporters that Europe’s best contribution to the global rebound is to achieve fiscal sustainability.
Those two are polar opposites. You just heard Trichet admit that what everyone wants they cannot have.
Look folks, if you currently spend 11% of GDP by borrowing money and blowing into the economy to prop it up and you achieve "fiscal sustainability" (defined as not doing that any more) GDP will inevitably contract by the amount of stimulative borrowing you withdraw.
Geithner said at a press briefing today that “credible commitments to fiscal sustainability over the medium term” are needed to generate a durable recovery. Spain’s Finance Minister Elena Salgado said at a separate European press briefing that deficit reduction should come “no later than 2011.”
Game’s up folks – that’s six months out.
Let’s be straight with everyone here. These are the current deficit additions for the first five months of 2010 (click for a larger copy):
That’s nearly $700 billion in five months. Annualized it’s $1.68 trillion. Last year’s total was $1.647 trillion.
Ignore the CBO and other government claims. That which is borrowed is that which is owed, and the increase in that which is owed over a year’s time is the true deficit in the budget, irrespective of all claims otherwise.
This comes out to roughly 12% of GDP. If we contract that deficit spending in 2011 to the European standard of no more than 3% of GDP then either GDP contracts by the difference (8-9%) or the government extracts that from you in the form of taxes.
Either way you don’t have it – it is either not produced and thus not paid or it is produced and stolen. Irrespective of how it is achieved you are going to see roughly 10% of your…
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G-20 an Amazing Success; Another Look at the Impossible
by ilene - June 6th, 2010 9:16 pm
G-20 an Amazing Success; Another Look at the Impossible
Courtesy of Mish
In relative terms, as economic summits go, the recent G-20 meeting was a spectacular success.
Unfortunately, one might not get that impression from the Bloomberg headline G-20 Coordination Fails as Governments Clash on Recovery Recipe.
Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.
At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand.
Global policy makers are starting to clash over their individual prescriptions for recovery as Europe demands lower budget deficits while the U.S. warns against pushing exports instead of domestic demand.
At a meeting of Group of 20 finance chiefs in Busan, South Korea, June 4-5, Treasury Secretary Timothy F. Geithner said the world cannot again bank on the cash-strapped U.S. consumer to drive growth and urged other nations to stimulate their own demand.
The conundrum is that governments are all trying to harness a rebound in trade, which the Netherlands Bureau for Economic Analysis last week estimated grew 3.5 percent in March, more than double February’s pace.
Companies from French beverage maker Pernod Ricard SA to Japan’s Toshiba Corp. and Nissan Motor Co. are counting on foreign demand to stoke earnings.
In the U.S., President Barack Obama aims to double exports over five years, while China is refusing to bow to international pressure to allow an appreciation in the yuan, which it has held at 6.83 per dollar for almost two years to help its exporters.
Japan’s new prime minister, Naoto Kan, enters office with a reputation for favoring a weak yen after saying as finance minister that he wanted the currency to fall “a bit more.” French Prime Minister Francois Fillon said June 4 the euro’s drop below $1.20 is “good news” after a gain that was “penalizing our exports.” Britain’s Osborne said last week in Beijing he is “keen” to make the U.K. more trade-driven.
‘Who Will’ Buy?
“If everyone’s expecting to export their way out of trouble, who will be buying?” said Alvin Liew, a Singapore- based economist for Standard Chartered Plc. “Countries may
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
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