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The Latvian financial crisis

The Latvian financial crisis

In the 2008-9 crisis, Latvia suffered more than any other country despite its extensive bank reforms after the 1995 crisis. Yet only one of its banks failed (Parex): the rest were bailed out by their foreign owners. So the question is, if Latvia’s banks were actually in better shape than those in other countries, why did Latvia suffer the worst recession in the world? To be continued……

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Are The IMF and the EU at Loggerheads Over Greece?

Are The IMF and the EU at Loggerheads Over Greece?

It is now clear that Greece’s economy has been going backwards over the last 6 months, and that it has once more fallen back into recession. Greek GDP fell by 0.4% in the last three month of 2014, and by a further 0.2% in the Jan – March 2015 period. As a result at the end of March Greek GDP was only 0.3% above the year-earlier level. This is a lot lower than expected in IMF forecasts, and – perhaps more importantly – well out of line with what is needed to maintain the 2022 debt sustainability targets on which continuing Fund support for Greek programmes depends.

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What multiple should we give China’s GDP growth?

What multiple should we give China’s GDP growth?

By Michael Pettis Last week Derek Scissors, a think tank analysts at the American Enterprise Institute, published an articlein which he referred to an October, 2014, study by Credit Suisse that attempts to measure total household wealth by region and by country. Scissors argues that in the interminable debate about whether or not China will overtake the US as the […]

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How to dress for a rainy day (of low nominal investing returns)

How to dress for a rainy day (of low nominal investing returns)

A typical portfolio will almost certainly not deliver the required returns over the next decade. If ‘typical’ means a 60/40 approach, as already mentioned, then 2-4% annualised returns are what can realistically be expected. If ‘typical’ means an entry into alternative investment strategies but only mainstream alternatives such as equity long/short and nothing else, you will almost certainly also end up short of your own expectations.

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The coming defaults of Greece

The coming defaults of Greece

It seems that there will be no agreement between Greece and its Eurozone partners. Short of cash, the Greek government will have no choice but to suspend payment of its maturing debts. This column looks at what happens next. In brief, it will be very much up to the ECB to decide.

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Moral Hazard Taken Too Far

By Marc Chandler There is an element that links the terrible human tragedy in the Mediterranean and the ongoing Greek crisis.  It is Europe’s over-emphasis on moral hazard. Moral hazard is the idea that people will act irresponsibly if they do not have to bear the consequences.   No doubt, the concept offers valuable insight, up to a point.  The problem […]

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Rediscovering old economic models

By Frances Coppola Krugman says we do not need new economic models, we just need to make better use of the ones we already have. Indeed, even very old models that we long since consigned to dusty archives can help remind us of things we have forgotten about. Financial crises, for example….. In his response to my speech at Manchester […]

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Greece: Irresistible Force Meets Immovable Object

By Marc Chandler Greece is expected to submit a more complete list of reforms in order to free up funds so the country can service its obligations.  Four times the Greek government has provided lists and four times the European group of finance minister rejected it. The IMF, which violated its own rules over the objections of its senior staff […]

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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, […]

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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.

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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.

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Is Greece’s Debt Odious?

There is a legal concept called “odious debts.” It can be traced back more than a century. The US helped create a precedent for it by denying Cuba’s responsibility for the debt incurred under Spanish colonial rule. The concept took on added significance in the post-colonial era more broadly. The issue here is the continuity of legal obligations from one regime to another especially as it pertains to the debt acquired.

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