Group items tagged

And then there’s the Chinese. They arrived like a well-packed picnic, everything in shipping crates ready to be unpacked. Their own materials, their own equipment, their own workers, their own fences. If you were designing a foreign investment not to benefit the host community, this is what it would look like.

But even if Zambia was run by a coalition of charitable technocrats and Mormon philanthropists, that wouldn’t solve the most fundamental problem of all: There simply isn’t that much money to go around.

And that’s just the bureaucracy. Then there are the cops that pull you over to ask for 50 kwacha ($10); the schools with slots reserved for paying parents; the hospitals that swear the earliest appointment, the only available medicine, is six months away until you reach into your pocket.

I regarded the European Union as the embodiment of an open society – a voluntary association of equal states who surrendered part of their sovereignty for the common good.

The process of integration was spearheaded by a small group of far sighted statesmen who recognised that perfection was unattainable and practiced what Karl Popper called piecemeal social engineering. They set themselves limited objectives and firm timelines and then mobilised the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step.

Unfortunately, the Maastricht treaty was fundamentally flawed. The architects of the euro recognised that it was an incomplete construct: a currency union without a political union. The architects had reason to believe, however, that when the need arose, the political will to take the next step forward could be mobilized. After all, that was how the process of integration had worked until then.

When the Soviet empire started to disintegrate, Germany's leaders realized that reunification was possible only in the context of a more united Europe and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.

The financial crisis also revealed a near fatal defect in the construction of the euro: by creating an independent central bank, member countries became indebted in a currency they did not control. This exposed them to the risk of default.

Developed countries have no reason to default; they can always print money. Their currency may depreciate in value, but the risk of default is practically nonexistent. By contrast, less developed countries that have to borrow in a foreign currency run the risk of default. To make matters worse, financial markets can actually drive such countries into default through bear raids. The risk of default relegated some member countries to the status of a third world country that became over-indebted in a foreign currency. 

The emphasis placed on sovereign credit revealed the hitherto ignored feature of the euro, namely that by creating an independent central bank the euro member countries signed away part of their sovereign status.

In retrospect, that was the root cause of the euro crisis.

What happened in Cyprus undermined the business model of European banks, which relies heavily on deposits. Until now the authorities went out of their way to protect depositors

Banks will have to pay risk premiums that will fall more heavily on weaker banks and the banks of weaker countries. The insidious link between the cost of sovereign debt and bank debt will be reinforced.

In this context the German word "Schuld" plays a key role. As you know it means both debt and responsibility or guilt.

If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous.

Only the divergences in competitiveness would remain unresolved.

Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced.

It is up to Germany to decide whether it is willing to authorise eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds. In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting the others introduce them.

Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries.

Second, the European Union also needs a banking union and eventually a political union.

If Germany left, the euro would depreciate. The debtor countries would regain their competitiveness. Their debt would diminish in real terms and, if they issued eurobonds, the threat of default would disappear. 

It has to be through a combination of structural reforms, hoping they will work, and nominal wage adjustments, although one cannot be incredibly optimistic about the scope there. We know that that’s going to take a while.

The banks have to be recapped, and they have to be recapped not using sovereign money. I think that is really very, very high on the agenda. I don’t think they can make it without help to the banks.

If the banks were healthier, I think they would lend at lower rates

And the sovereigns have to be able to borrow at reasonable rates. As long as they behave and they do all the things they’re asked to do, they have to be able to borrow at lower rates than they currently do. Some way has to be found to do it.

We’ve done simulations. Other people have done simulations as well. 10% real depreciation would lead to a 1.4% increase in growth for a year — which at this stage, given the numbers, would be nice. The footnote, and it’s a very big footnote, is that … how much you benefit depends on how big your exports are related to your GDP and where you export — whether you export in the euro zone or outside. Unfortunately the countries that benefit the most are the countries that really don’t need it — Germany, the Netherlands. The countries that benefit the least are Greece, Portugal, Italy, Spain

There’s no question, the periphery countries have to improve their competitiveness. That’s not something even monetary policy at the level of the euro or fiscal policy can do. This they have to do through productivity improvements or nominal wage adjustments.

It is no secret that they have tended to respond to crises rather than be much more proactive.

And now there’s a sense in which they’re thinking about the full architecture.

At this stage I think there is a genuine commitment to thinking about the whole beast. That’s why these words — fiscal union, banking union — have come in.

Where I think there is still a problem is that all these things will take a lot of time. And some of these things may not happen because they’re unpopular. And meanwhile, there is a fire in the house. So they have to be willing to do more in the short term.

On a scale of 1 to 5, 29 percent of them scored at Level 1 or below, meaning they could do basic arithmetic but not computations requiring two or more steps.

Similarly, 96 percent of American students’ work fell into the category of “practice,” while Japanese students spent only 41 percent of their time practicing.

Water-assisted fracturing has been in use since the late 1940s, but it became “fracking” only recently, when it was married with horizontal drilling and the advanced sensing techniques that let it be used deep underground. Energy costs are surprisingly small; a Swiss-American research team calculated in 2011 that the average EROEI for fracked gas in a representative Pennsylvania county was about 87—about six times better than for Persian Gulf oil and 16 times better than for tar sands. (Fracking uses a lot of water, though, and activists charge that the chemicals contaminate underground water supplies.)

and pollution that kills more than 10,000 Americans a year (that estimate is from a 2010 National Research Council study).

In mid-March, Japan’s Chikyu test ended a week early, after sand got in the well mechanism. But by then the researchers had already retrieved about 4 million cubic feet of natural gas from methane hydrate, at double the expected rate.

How much of Venezuela’s oil wealth Hugo Chávez hijacked for his own political purposes is unknown, because his government stopped publishing the relevant income and expenditure figures. Similarly, Ross points out, Saddam Hussein allocated more than half the government’s funds to the Iraq National Oil Company; nobody has any idea what happened to the stash, though, because INOC never released a budget. (Saddam personally directed the nationalization of Iraqi oil in 1972, then leveraged his control of petroleum revenues to seize power from his rivals.)

More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,

The present administration, like the last, would like to recapitalise the banks at least partly by attracting private capital. That can hardly be accomplished as long as the value of large chunks of the banks’ assets remains anybody’s guess.

When the entire private sector is bent on shortening its balance sheet and paying down debt, the public sector’s balance sheet must move in the opposite, offsetting direction. When the entire private sector is striving to save, the government must dis-save. The political obstacles to doing these things on a sufficient scale are formidable.

The Swedish policy following the 1992 crisis has been often referred to in recent months. Sweden acted quickly and decisively to close insolvent banks, and to quarantine their bad assets into a special fund.2 Eventually, all the assets, good and bad, ended up in the private banking sector again. The stockholders in the failed banks lost all their equity while the loss to taxpayers of the bad assets was minimal in the end. The operation was necessary to the recovery but what actually got the economy out of a very sharp and deep recession was the 25-30% devaluation of the krona which produced a long period of strong export-led growth.

Fiscal stimulus will not have much effect as long as the financial system is deleveraging.

er self-imposed constitutional balanced budget requirements and are consequently acting as powerful amplifiers of recession with respect to both income and employment.

Almost all American states now suffer und

the consumer surplus from free online services — the value derived by consumers from the experience above what they paid for it — has been growing by $34 billion a year, on average, since 2002. If it were tacked on as “economic output,” it would add about 0.26 of a percentage point to annual G.D.P. growth.

The consumer surplus from television is about five times as large as that delivered by free stuff online, according to Mr. Brynjolfsson’s calculations.

As the economist Paul Samuelson once pointed out, if a man married his maid, G.D.P. would decline.

“We know less about the sources of value in the economy than we did 25 years ago,” wrote Mr. Brynjolfsson and Adam Saunders of the University of British Columbia. If we really want to understand the impact of information technology on our future well-being, we first need to find a consistent way to measure it.

He says it doesn’t make sense that the stock market has held up as well as it has amid the Fed’s debt purchases and its policy of maintaining short-term interest rates near zero, a measure taken in a crisis that is supposed to be over.

“How do you know there has been an economic recovery and the patient is breathing normally when it’s in an oxygen tent?”

“It will be extremely difficult for the U.S. economy to escape its Great Recession hangover with this poor profits backdrop,” Mr. Edwards wrote. “Indeed it leaves the economy extremely vulnerable to adverse shocks,” like declining growth in Asia.

“We’re keeping a very close eye on China,” Ms. Patterson said. “If there are signs that it’s slowing more than we expect, that would hurt our view of emerging markets and worsen the outlook for developed markets due to contagion” because of the increasing importance of China in the global economy.

American real estate companies and European banks, for instance — but he is keeping 13 percent of his fund in cash because of a dearth of attractive investment choices.

Mr. Morris finds a wider array of opportunities. He likes shares of consumer-discretionary companies, which provide the products and services that people want but do not need. The sector includes businesses as diverse as hotels, carmakers and clothing stores.

“You can’t just unwind quantitative easing, with all of its distortions, and achieve stability without some pain along the way,” he warned. “What that pain is, when it happens, that’s where the uncertainties lie. The margin to maneuver is getting less and less with the passage of time.”

Many Internet companies, for instance, give their products away free, which means that antitrust law built on pricing is irrelevant. But a result is they grow so fast that they can quickly become monopolies.

“Inspired by him and others like him, our effort was to try to move beyond the traditional understanding of something like an aluminum cartel who just raised their prices on aluminum and everything got more expensive,” said Mr. Wu, who was a senior adviser to the Federal Trade Commission on antitrust matters.

All of this means that, although it is obviously important to pay attention to flagrant misbehaviors, it is probably even more important to discourage the small and more ubiquitous forms of dishonesty—the misbehavior that affects all of us, as both perpetrators and victims.

But Germany remains opposed on moral-hazard grounds: a joint guarantee of Eurozone members’ liabilities would strengthen individual national governments’ incentive to spend beyond their means.

The German Council of Economic Experts has proposed a European Redemption Fund (ERF). The plan would convert into de facto 25-year Eurobonds the existing sovereign debt of member countries in excess of 60% of GDP, the threshold specified by the Maastricht criteria and the SGP.

But this seems upside down.

it offers absolution precisely on the 60%-of-GDP margin where countries will have the most trouble resisting temptation.

the main explanation for the absence of US moral hazard is that the right precedent was set in 1841, when the federal government let eight states and the Territory of Florida default.

Ever since 1841, the market requires that US states running up questionable levels of debt pay an interest-rate premium to compensate for the default risk.

The version of Eurobonds that might work as the missing long-term enforcement mechanism is almost the reverse of the Germans’ ERF proposal: the “blue bonds” proposed two years ago by Jacques Delpla and Jakob von Weizsäcker. Under this plan, only debt issued by national authorities below the 60%-of-GDP threshold could receive eurozone backing and seniority. When a country issued debt above the threshold, the resulting “red bonds” would lose this status.

But one thing seems clear. German taxpayers, whose longstanding suspicion of profligate Mediterranean euro members has been vindicated, will not be happy when asked to pay still more for the cause of European integration. At a minimum, they will need some credible reason to believe that 20 years of false assurances have come to an end – that this is the last bailout.

Many critics attribute high dropout rates to this language switch. University students, they say, are struggling to learn in a language they barely understand.

Otmar Issing, the ECB’s former chief economist, recalls how, before 1981, “the Italian Treasury set yields for government debt. All the bonds that couldn’t be sold at that price had to be bought up by the Banca d’Italia.” Hence easy money, exploding debt, double-digit inflation – and no change in the country’s frozen politics. Why reform when you can always devalue?