Category: Weekly

Will the AIIB ever matter?

By Michael Pettis When Isaac, an editor at Foreign Policy, sent me an email two weeks ago asking if I could write a piece on the new Asian Infrastructure Investment Bank (AIIB), I quickly wrote back promising 1,200 words within a few days. I thought it would be pretty easy to come up with the points I wanted to make, […]

Read more ›
The ‘Perfect Storm’

The ‘Perfect Storm’

Going forward, equity markets are likely to have a much bigger impact on the economy than has been the case in the past. This is a simple conclusion derived from the fact that total equity market value today is 1.2x GDP. 35 years ago, when we entered the great bull market, total equity market value was only 0.4x GDP (the numbers are U.S.). No wonder the financial collapse in 2008 had such a dramatic effect on the economy.

Read more ›

Spain may not be Greece, but it is Not the Opposite Either

The important point is that returning to growth after the crisis may not be sufficient to facilitate political stability. The damage to the middle class is serious and Rajoy does not appear to appreciate that. The economic cost of austerity is still being calculated. There will be a political price in some countries and Spain is one of them. It is not Greece, but it is not the poster child of success that the ordo-liberals in Berlin and Brussels would have it either.

Read more ›
Is Finland’s Economy Suffering From Secular Stagnation?

Is Finland’s Economy Suffering From Secular Stagnation?

Finnish society, like many other European ones, is in the throes of a major transition. More debate needs to be held on what to do to facilitate the transition, and in the meantime deficit spending to make investments in future productivity improvements seems not to be a bad idea. Running deficits in order not to change, in contrast, would be.

Read more ›
AIIB Prelude to SDR Decision

AIIB Prelude to SDR Decision

In what can only be seen an unexpected Chinese success, several US allies have agreed to participate in China and India’s Asian Infrastructure Investment Bank. The frustration with the US on this issue is palpable. There is another issue at stake that head of China’s central bank Zhou Xiaochuan made clear at a forum yesterday. On a panel with the IMF’s Lagarde, Zhou pushed for the yuan to be included as a reserve asset and in the SDR basket.

Read more ›
Repeat after me: sectoral balances must sum to zero

Repeat after me: sectoral balances must sum to zero

By Frances Coppola I do like sectoral net lending charts. This one is from the OBR’s latest Economic Forecast: The thing to remember about sectoral balances is they must sum to zero. It is not possible to have a negative external balance, as the UK does, with concurrent surpluses in the public, household and corporate sectors. If the UK is […]

Read more ›
Greek default

Greek default

This post was originally written for Credit Writedowns Pro on 11 Mar. Two things I have written recently stand out as I contemplate what will happen in Greece. The first is that the institutions formerly known as the Troika had accepted Greece’s reform list sooner than I expected and that was positive. The second is that Greece could default before […]

Read more ›
Front-running the Fed on interest rate hikes

Front-running the Fed on interest rate hikes

Written this morning for Credit Writedowns Pro The biggest takeaway from the latest Federal Reserve Open Market Committee meeting was the reduction in the ‘normal’ rate of unemployment from the 5.2-5.5% range to a 5.0-5.2% range. While the Fed did remove its ‘patient’ language regarding rate hikes, the lower unemployment levels give the Fed more room to stay accommodative. Some […]

Read more ›
Wolfgang Schaeuble the Salesman

Wolfgang Schaeuble the Salesman

When the Greek bailout extension deal got done, I mentioned that in the press conference that followed, German Finance Minister Wolfgang Schäuble made it clear he was looking to ‘sell’ the deal to the German parliament. And while he has been successful in doing so, recent evidence suggests that indeed he did have to work to make the deal viable. For me, this highlights the political constraints we are working under and reinforces my view that writedowns are not politically viable in Germany.

Read more ›
Five Investing Themes That Need Further Examination

Five Investing Themes That Need Further Examination

Tiger 5 – Grexit is inevitable

Read more ›
Why Understanding Money Matters in Greece

Why Understanding Money Matters in Greece

As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself.

Read more ›

How to look at the Greece bailout deal

Yesterday, Greece received an agreement in principal to extend its existing bailout program for another four months from the institutions administering that program. I believe this deal is a good basis for further work down the line. But Greece has a lot of work ahead of it, if it is to move to a new program. Moreover, Syriza will have to sell this deal as a bridge to the sustainable economic outcome it sold to its electorate in the January elections. At the same time, the Germans and the Finns at a minimum will have to sell this deal to their parliaments for it to work. Some thoughts below

Read more ›