Private and public debt in the Eurozone increased since the 2000s, and especially so in certain countries. This column presents evidence that high levels of private and public debt, together with deleveraging of all sectors, are especially harmful for economic growth. Private sector debt is more detrimental to growth than public sector debt. Therefore, policies aimed at reducing the private debt could yield important benefits.Read more ›
Post Tagged with: "deleveraging"
I spoke at a Euromoney conference on inflation-linked products last year. My thesis at the time that deflation is the real problem and that inflation isn’t going to be a concern – which has largely proved right – was out of step with most people at the conference. I still believe this is the case. And as I prepare to attend this year’s conference on the same topics, I have begun to think again about the deflation and inflation issues. This post on how the US becomes the next Japan is an outgrowth of that thinking.Read more ›
Economic growth is good. But what we want to see is job and wage growth to complement the asset-price growth. Without this catch up on the job and income front, the economy is on an unsustainable course.Read more ›
This is just a quick follow-up to the last post on debt deflationary dynamics in Europe and the contrast to policy in Japan. I think Yanis Varoufakis has it right that Europe is on the same path as Japan but just not as far along the path. And I would say the same is largely true of the United States.Read more ›
Some recent data out of Canada points to a slowdown in growth of consumer indebtedness. According to RBC, the non-mortgage consumer debt has grown at the slowest rate in 20 years. This is clearly a positive development, but when taking mortgage debt into account, Canadians still represent some of the most indebted households in the developed world.Read more ›
In the short term, though, a continuation of the currently lax monetary policy is likely to lead to higher assets prices. The investor mindset is very much in risk-on mode at the moment, as documented by the surprisingly calm reaction to the crisis in Cyprus. Mind you, none of this incorporates the risk of an outright war between the two Koreas or an escalation of hostilities between Israel and Iran, just to mention two wild cards. Barring a Black Swan event, though, we are on relatively firm ground for now, but the seeds of the next crisis have already been sown.Read more ›
Yesterday I said that, given the housing rebound, it seemed ever more likely that the US economy would be able to power through the budget cuts from the sequester and the fiscal cliff. This is the asset-based economy at work. There is nothing sustainable about it over the long-term.Read more ›
Today I thought I would try a little experiment by beginning to write a daily commentary. I have been thinking about doing this for a while and decided I needed to give it a go here because I don’t have an in-depth article I am working on. So now seems a good opportunity to make some general comments on the markets and the economy. I have a few topics in mind but let’s start with this one: housing. And then we will move on to the economy and ‘reaching for yield’.Read more ›
The US trade figures for Q4 2012 came out this morning and they surprised analysts by showing a trade deficit that shrank 21% to $38.5 billion in December. According to Bloomberg News this was a lower deficit than any of 73 economists estimated prior to the release.Read more ›
Raghuram Rajan has an interesting post now up on Project Syndicate. The overall tone of it has an Austrian feel as it stresses the failure of stimulus to allow developed economies to attain higher GDP growth a full five years after a financial crisis because of supply side problems. I would like to add a few comments to what Rajan says.Read more ›
Let’s talk about deficits for a second. The term deficit has some pretty serious negative connotations. So when we use that word, usually the implication is that the deficit is bad. Here’s the thing though; as I have written here a number of times, any economic agent’s net deficit is offset by another economic agent’s net surplus. So in the context of trade, current account or budget deficits, these all net to zero. This is accounting 101.
Last year I was complaining about people not getting this. But we have shown this to you for the US (more than once), for Italy, for Ireland and France, for the Eurozone (more than once). So by now, I imagine you understand the concept.
Here’s Japan’s version of the same chart.Read more ›
This is a brief follow-on to the last post on whether we should be optimistic, in particular now that the US housing market is improving. If you think about it, the problem now is that all debtors – public and private – are taking the deflationary route to reducing debt in attempting to increase net savings. This is the hallmark of […]Read more ›