Much of macroeconomic policymaking is trial and error. This column discusses calamitous error on the part of Iceland’s policymakers, in the hope that others can at least try something else.
Author: Guest Author
Are these haircuts on Greek debt really such a good idea? Or are they really just a stopgap that will make things all the worse in the long-run?
Sure, Mr. Market seems to think they’re fantastic. But then, Mr. Market has always been about as easy to please as a rather stupid dog: give him a car to chase and he’ll be happy – until his nose inevitably meets the bumper, of course. After all, these are the same markets that rally every time the Fed or the Bank of England announces more monetary voodoo ala QE.
The BoJ announced today that it will expand its asset purchase programme by JPY5trn (USD66bn), with all the purchases being directed at JGB’s. Add that to the GBP75bn (USD120bn) by the BoE, CHF50bn (USD57bn) by the SNB and the EUR341bn (USD477bn) expansion of the ECB balance sheet since the end of June, and it collectively adds up to USD720bn. Clearly this explains the market rally from the low.
According to the IMF, Iceland has graduated from its Fund-supported programme with unqualified success. This column begs to differ.
Below is the leaked Greek bailout document that everyone has been talking about. Yesterday, the Financial Times first revealed this analysis’ existence. Here is Rob Parenteau’s understanding of what the Troika analysis demonstrates about the European Sovereign Debt Crisis. We have embedded the document at the bottom of this post.
Spain continues to be vulnerable to market stress and event risk. The already moderate growth prospects for Spain have been scaled back further. Lower economic growth in turn will make the achievement of the ambitious fiscal targets even more challenging for Spain.
Paul Davidson argues that a theory is the way humans describe real world observations on the basis of a model that starts with a few axioms. An axiom is an assumption accepted as a universal truth that does not need to be proved. From this axiomatic foundation, the theorist uses the laws of logic to deduce conclusions that explains what we observe in the world of experience. All theories are generally accepted in some tentative fashion. Theories are not ever conclusively established and can be replaced when events are observed that are deviations from the current existing theory. Thus, the financial crisis of 2007-2009 should have been sufficient empirical evidence to indicate that the axiomatic basis of the mainstream theory needs to be replaced.
Moody’s Investors Service has today downgraded Italy’s government bond ratings to A2 with a negative outlook from Aa2, while affirming its short-term ratings at Prime-1. The rating action concludes the review for downgrade initiated by Moody’s on 17 June, 2011.
The public has been seeing their (per-capita) “slice of the pie” contract now for six months, and no amount of well spun “sluggish growth” can alter their view of a shrinking reality.
Warren Mosler argues that it is the realization that the ECB is the issuer of the currency, and is therefore not revenue constrained, that leads to the conclusion that not allowing Greece to default best serves public purpose.
It remains my position that Congress should not allow the Fed to lend unsecured to foreign central banks without specific Congressional approval. But the Fed does currently have that authority and they are again using it to keep $ LIBOR from rising. And that lending must be in unlimited quantities to insure $ LIBOR is capped at the Fed’s target rate.
A statement by the Bank of England on market liquidity to be provided in co-ordination with other major international central banks.