By Marc Chandler Through the venomous comments and erosion of trust, the broad framework of what couple prove to be a workable compromise over Greece’s financial crisis may be emerging. This is not to suggest that the eurozone finance ministers meeting will reach any important decision. Indeed, the Greek Prime Minister has already reduced his finance minister’s role in the […]
Tag: government debt
By Michael Pettis It might seem almost churlish to wonder what would happen if Spain were to leave the euro. The official European position is that the battle of the euro has been pretty much won, and anyone who argues otherwise will be accused of being a euro hater, an Anglo-Saxon or, even worse, a writer for theFinancial Times. But […]
By Marc Chandler There is a common perception that Russia move on Crimea shows its strength. A closer examination suggests it is more complicated that it may seem. Like the bully at the school yard, the aggressiveness conceals weaknesses. Simply put, Russia felt threatened and for good reason. The democratic coup in the Ukraine threatened a potentially strategic loss for […]
Japan’s deflation problem is overdetermined – there are multiple causes at work, any one of which could account for the observed phenomenon. Those who have been following the debate can simply choose their favourite – balance sheet recession, liquidity trap, fertility trap – each one, taken alone, could be sufficient as a cause. But I would here like to use the term “overdetermination” in another, less technical, sense, since it seems to me Japan’s problem set is overdetermined in that we always seem to be facing at least one more problem than we have remedies at hand.
We appear to be on the cusp of a more serious crisis in Argentina, as things are moving from bad to worse. Spot ARS has dropped as much as 20% earlier today, while the implied “blue chip” FX rate has fallen nearly 10% over the past two days. The central bank does not appear to be intervening by selling dollars, […]
My view remains that Europe is in an incipient but unstable recovery vulnerable to exogenous shocks. However, I do not believe this recovery means that crisis is over. Rather, this is a lull before continued stagnation forces Europe to make hard policy choices about who actually remains in the euro over the long-term.
This column argues that the legacy of public debt resulting from the crisis in the Eurozone is a serious threat. Both the size of the problem and the options to address it make life much more difficult for policymakers than was the case in the late 1930s after the collapse of the gold standard. For some countries, a ‘subservient’ central bank might be preferable to the ECB.
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.
Newman: “in my own book the explanation starts the cycle with government spending, thus adding to the money supply, and then issuing treasuries for roughly equivalent amount. The bond vigilantes really have it backwards.
“Not all government debt is created equal. We have bad deficits and good deficits. Good deficits are used to fund investments that will have a positive rate of return, properly determined. Those contribute to GDP.”
The US dollar is narrowly mixed against major and emerging market currencies. Comments by House Speaker Boehner that he will form a majority bloc to avoid a default by the Federal government is being understood two ways.
It isn’t yet clear how long the US government shutdown will last or what impact the shutdown will have. Nor is it clear that the US will escape a debt default down the road. Therefore, at this time all that reigns is uncertainty.