October, 2012 Archives
by admin in Politics
Here is a link to John Mauldin’s piece on the fiscal cliff at www. mauldineconomics.com: http://www.mauldineconomics.com/frontlinethoughts/the-perils-of-the-fiscal-cliff
Given that within a few weeks a very large debate will erupt in Congress about how to deal with the “Fiscal Cliff,” with both sides displaying economic models that demonstrate the clear superiority of their chosen solutions and the utter disaster that will ensue if the opposition’s plans are enacted, I think we will find it useful to look at some of the underlying assumptions. Given the fact that almost everyone, including your humble analyst, has concluded that if the tax increases and spending cuts were to be enacted as the legislation currently dictates, a rather serious recession would follow in short order, it might help us to look at some of the assumptions behind that assessment.
by admin in Uncategorized
The global financial crisis of 2007-09 brought to light the existence of a complex web of financial intermediation that over the past few decades evolved parallel to the official regulated banking system. The highly complex ways of linking borrowers with agents in the capital markets was dubbed ‘the shadow banking system’, reflecting the opaque and often invisible nodes that connect official banking and its shadow segments. Many accounts attribute the global financial crisis to the spread of shadow banking; several years into the crisis, shadow banking still accounts for about a third of the total banking assets globally. Recent estimations suggest that the European shadow banking system is now of similar size to the US one, having grown steadily while the US contracted. In recognition of the systemic importance of the European shadow banking, the European Commission is actively searching for regulatory answers to preserve financial stability.
This two-day conference is set to bring together academics from various fields of the social sciences, market practitioners and policymakers. We aim to advance an understanding of the nature, origins and impacts of shadow banking in the European context. We invite submissions from academics, market practitioners, regulators and policymakers on the various issues related to the phenomena of shadow banking, including its historical antecendents, international dimensions, risk components and socio-political ramifications.
The following invited speakers are confirmed: Perry Mehrling (Columbia University); Benjamin Cohen (Bank for International Settlements), Gary Dymski (Leeds Business School); Thorvald Moe (Norges Bank and Levy Institute), Brooke Masters (Financial Times). It is envisaged that a selection of conference papers will be published as a special issue of a journal, with an introduction edited by Michel Barnier, European Commissioner for financial services.
Please send abstract (250 words) to Luigi Russi (email@example.com), by November 15, 2012. For any further details about the event, please contact Anastasia Nesvetailova(firstname.lastname@example.org).
The workshop is supported by the Department of International Politics, City University, City Political Economy Research Centre (CITYPERC), COST action group of the EU, and is hosted by Cass Business School. Limited financial support is available for travel and accommodation costs.
Academic Committee: Barbara Casu, Victoria Chick, Daniela Gabor, Anastasia Nesvetailova, Barbara Sennholz-Weinhardt.
by Riaan Nel in News
The International Monetary Fund released its global economic outlook report entitled: “Coping with High Debt and Sluggish Growth” on October 12th (http://www.imf.org/external/pubs/ft/weo/2012/02/index.htm). According to the report global economic growth is faltering. The report predicts that the economies of most developed countries will shrink this year or grow at rates of 2% or lower. Although the report predicts developing countries’ economies (the so-called ‘emerging markets’) will do better, the forecast for them is falling as well.
It is only the United States and Japan among the large industrialized developed economies who are forecasted to grow at above 2% (the forecast is 2.2% growth for each – nothing to write home about!) Quoting from the report: “In advanced economies, growth is now too low to make a substantial dent in unemployment, and in major emerging markets, growth, which had been strong earlier, has also decreased.”
In April, the IMF forecast that the global economy would grow at a 3.5% pace, and would rise to 4.1% in 2013. This forecast is trimmed to just 3.3% this year, and 3.6% in 2013.
Of course, one of the most reported statistics from the report was the estimate that there is a 17% chance of a global recession. I’m not sure how they calculated this probability. Although I haven’t looked at the methodology used, I am suspicious of the model’s efficacy as a predictive measure. My bias against the over “modelfication” of economic theory notwithstanding, it is obvious from most of the data I look at that there is an increased likelihood of a global recession with dire consequences for global equity markets. At this point I should take responsibility for the fact that almost a year ago I had the audacity to predict a recession in the US! I was wrong, and reminded that I tend to be negatively inclined toward the global economy’s health prospects. I’m also reminded of the impact of recency bias which is the psychological phenomenon that events closer in time to the present have a bigger impact on our expectations. In my own case, the occurrences of the financial crisis of 2008 and the European debt crisis sometimes lead me to emphasize those elements of current reality that point to the occurrence of another crisis.
Having an understanding of my own recency bias, however, does not invalidate some alarming developments in the global economy pointing to an increased probability of further global slowdown and recession.
This leads me to another IMF report released last week, the “Global Financial Stability Report” (http://www.imf.org/external/pubs/ft/gfsr/2012/02/). The report finds increased risks to the global financial system, with the euro area crisis the principal source of concern. The report urges policymakers to act now to restore confidence, reverse capital flight, and reintegrate the euro zone. According to the report both the US and Japan need to take steps toward medium-term fiscal adjustment, in other words decreasing budget deficits over the medium-term.
Both reports make me nervous about the short-term stability of the global political economy. In this deteriorating environment it won’t take much to shock the system into recession or crisis. Imagine if Israel attacked Iranian nuclear facilities at the same time the US fails to avoid the ‘fiscal cliff’ of January 2013. I think a “risk-off” period is in order for the time being when it comes to investing.
by Riaan Nel in News
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by admin in Politics
John Taylor recently testified before the House Judiciary Committee on regulations: “I’ve come to the conclusion that the difference between the two recoveries is due a difference in government policies, including regulatory policy.