Archive for the ‘Macroeconomics’ Category

Dear Merv,

February 11, 2009

Sterling fell on your chattering about printing money (aka “quantitative easing”) today. No matter the complexity of the situation or good intentions don’t you realise that this is a punishment to savers who keep their money on deposit That it is a poverty-creating measure for vulnerable people on fixed incomes? That you are helping the most reckless – be they wannabe BTL billionaires or purchasers of HBOS debt?

Being one of the 364 economists who rallied against Thatcher and was proven wrong please forgive me for being nervous about your monetary policy decision making. You may need reminding about a very basic lesson. Please watch the following video replacing the “Fed” with “BoE”, Bush with Brown and Helicopter Ben for, erm, you.


A not-so-loyal citizen of Great Britain.


The Flat World Is Coming Unstuck

April 30, 2008

Excellent blog post by Brad Setser here:

Borders still matter; “the world isn’t as flat as it used to be”

Plenty of cut and pasting from other blogs but it paints the overall picture. The so-called globalised barrier-free economy is still somewhat illusionary.

Decoupling the Myth

January 22, 2008

Monday 21st January 2008 saw big falls in stock prices but rather like February 2007 there is no clear consensus view as to why.

Ambac was the big story, the fear of $2.4 trillion being uninsured and/or unhedged with the monolines saw heavy falls in banking. Yet, the greatest movement was from the miners. The two biggest fallers in the FTSE-100 were the two largest miners, Rio Tinto and BHP Billiton. There was some company specific news: BHP lining up 7 (seven!) banks to tie-up a deal with Rio but other miners also fell sharply. Even Xstrata fell despite concrete talk of Brazilian’s Vale looking to make a bid.

Miners fell so much thanks to the macro sentiment. Japan saw the largest fall from an established market due to fears of an all-out US recession. Of the emerging markets India got the greatest hammering. The idea of “decoupling”, that resource stocks and far-eastern companies would do okay in a US downturn with the Chinese and Indian markets continuing healthy expansion, seems to be on life-support.

While many in the media, especially the left-leaning media (aka BBC/Guardian) have positively lapped up the decoupling hypothesis it has little basis in reality.

Paul Kedrosky makes the point that you could (and I would) argue:

“when it comes to the importance of the U.S. to global GDP, darn little has changed”

The strenghening influence of BRIC countries is, perhaps, a very long-term trend. Yet that hypothetical trend is of no use when the US is still well within its long-term norm of % of world GDP.

Moolah and Awe

January 8, 2008

The G-Econ research project is devoted to developing a geophysically based data set on economic activity for the world.

Mumbo Jumbo Economics

January 6, 2008

Someone over at the MSE savings board posted this:

and said

This rather long item was recently e-mailed to me. It makes thoughtful reading

I tried to respond but the item was taken down, presumably as it was considered spam, before I could post my riposte. So here it is:

I’m worried about your view that this article “makes thoughtful reading” since I found it mind numbing drivel! Some counterpoints:

That iPods and Xboxes are assembled in China, thanks to decent infrastructure and low labour costs, is irrelevant. All the meaningful technology is US owned and created (well, there is some Scottish stuff in the iPod).

The US fiscal deficit is lower as a % of GDP than many first world economies including the UK and Japan. Demographic changes are a problem for everyone – especially the Chinese with their (now abandoned) one child per family laws. The US will have problems with social security but it’ll be worse in Europe, simply because there are more socialist policies!

Trade deficits: if traders in other countries are going to give US companies and consumers more goods and services for less money why should America be bothered? Its amazing how this mindset is so entrenched. Click here for a good read about this mindset.

US Treasuries: if China wants to lend to the US government at a low single digit rate how is this a bad thing for America? Given the ridiculously low yields in the secondary market its obvious that US treasuries are in great demand at the moment. This demand has been spurred by problems with Asset Backed Securities and Collateralised Debt Obligations. These financial products were concocted in the first place because of the need for “safe” income streams. You could argue governments are to blame for the credit crunch because they didn’t supply enough debt to placate financial institution demand!

If the conspiracy theorists were right and China wanted to sell their US debt who are they going to sell it too? Why would China want to lose money by unleashing this supply onto the market all of a sudden?The $30 trillion pension fund industry would love China to dump their $1.4tn of stock so they could get a slightly higher yield!

Solar power and wind power arguments, well, the Japanese and Germans are pretty good at engineering and manufacturing, big whoopee.

This article is very much in-tune with the protectionist vibe engulfing America at the moment. Its the biggest worry on Wall Street – that politicians will put up trade barriers to “protect” American jobs once the presidency changes. The China scare is no different to the worries over Japan in the late ’80s.