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Bad debt cannot simply be ‘socialized’

Bad debt cannot simply be ‘socialized’

Burgeoning debt was not an unlucky accident. It is fundamental to the way the growth model works, and we have arrived at the stage, probably described most imaginatively by Hyman Minsky in his work on balance sheets, in which the system requires an acceleration in credit growth simply to maintain existing levels of economic activity. China’s debt problems, in other words, cannot be resolved administratively, by fixing the shadow banking system, by imposing discipline on borrowers, or indeed by eliminating financial repression (much of which, by the way, has already been squeezed out of the system by lower nominal GDP growth). Without a massive transfer of wealth from the state sector to the household sector it will be impossible, I would argue, for GDP growth rates of anything above 3-4% – and perhaps even less – to occur without a further unsustainable increase in debt, whether that increase occurs inside or outside the formal banking system and whether or not discipline has been imposed on borrowers.

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Why the European sovereign debt crisis is not over

Why the European sovereign debt crisis is not over

Earlier today, I had an interesting back and forth on Twitter with Edward Hugh, Claus Vistesen and Matthew Lynn about Europe and the ECB. I think we all believe there is more pain to come for Europe and likely there will be writedowns. But I think a lot of the problem has to do with the flawed institutional architecture and […]

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Links: 2014-07-15

Links: 2014-07-15

Miami, the great world city, is drowning while the powers that be look away | World news | The Observer UK wages can’t rise unless we solve the productivity puzzle | Business | theguardian.com The Good, the Bad and the Ugly | Capital City | IFRe A Day in the Life of a Chinese Worker in Iraq – Jean-Claude Juncker […]

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How economics deals with an overindebted private sector

How economics deals with an overindebted private sector

Happy post-World Cup to you all. I missed my Friday catch-all post because I was out sick. So I am going to play catch-up today with a few thoughts on various topics. The BIS Let’s start with the BIS. In general, I defend the BIS view because the BIS is rightly focused on the dangers of over-indebtedness. Gavyn Davies has […]

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Links: 2014-07-14

Links: 2014-07-14

Thirty links today instead of twenty The Password Is Finally Dying. Here’s Mine – WSJ Bank for International Settlements fears fresh Lehman crisis from worldwide debt surge – Telegraph Euro-Zone Industrial Production Slumped in May – WSJ A farewell to trust: Obama’s Germany syndrome – FT.com Bruised and grumbling, foreign banks bend to US rules | Capital City | IFRe […]

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The Fed is already creating the next bubble

The Fed is already creating the next bubble

Last week, I wrote a fairly comprehensive piece laying out some of the macro issues around the Fed and other central banks’ ultra-easy monetary policy. The gist of that piece was that, due to the political economy, monetary policy is now seen by policy makers as a good way to ‘steer’ the cyclical economy through peaks and troughs. Fiscal policy, […]

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Links: 2014-07-09

Links: 2014-07-09

Today’s links will have a double allocation since I was unable to post yesterday. Block 1 Halifax: UK house prices show little sign of slowing down – Telegraph Chinese Buyers Scooped Up $22 Billion Worth of U.S. Homes In the Last Year – China Real Time Report – WSJ Juncker says age of austerity not over – budget discipline needed […]

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Exaggerating the dollar’s demise as reserve currency

Exaggerating the dollar’s demise as reserve currency

By Marc Chandler The headline of the Financial Times today reads “Paris rails against the dollar’s dominance.”; It could have been written nearly any time in the past half century. After all it was a former French President Giscard d’Estaing, who as finance minister in the 1960s, complained about the “exorbitant privilege” that the US drew from the role of […]

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A Limited Central Bank

A Limited Central Bank

We posted this in November, but are re–posting now because it is relevant. Hat tip goes to Barry Ritholtz who published it over at the Big Picture recently. Also see two previous posts on this site from November related to this one, based on earlier commentary by Philadelphia Fed President Charles Plosser: The Limits of Monetary Policy, Part 1 and […]

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Merkel goes to China to halt German economic slowdown

Merkel goes to China to halt German economic slowdown

By Sober Look The yield spread between US treasuries and German government bonds hit a new high last week (see chart). Was this divergence in rates simply a response to the ECB action last month (see post) in combination with stronger jobs data in the US or is there more to it? Part of the answer has been softer than […]

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Links: 2014-07-07

Links: 2014-07-07

CIA employee’s quest to release information ‘destroyed my entire career’ – The Washington Post Why is Washington still protecting the secret political power of corporations? | Alexis Goldstein | Comment is free | theguardian.com Bundesbank Chief Supports ECB’s Bold Measures – Real Time Economics – WSJ Transcript of Yellen and Lagarde Comments at IMF Event – Real Time Economics – […]

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The euro crisis: Muddling through, or on the way to a more perfect euro union?

The euro crisis: Muddling through, or on the way to a more perfect euro union?

After a promising first decade, the Eurozone faced a severe crisis. This column looks at the Eurozone’s short history through the lens of an evolutionary approach to forming new institutions. German dominance has allowed the euro to achieve a number of design objectives, and this may continue if Germany does not shirk its responsibilities. Germany’s resilience and dominant size within the EU may explain its ‘muddling through’ approach to the Eurozone crisis. Greater mobility of labour and lower mobility of under-regulated capital may be the costly ‘second best’ adjustment until the arrival of more mature Eurozone institutions.

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