Archive for November, 2010

Ireland Bailout basics

November 30, 2010

 Actually there are no basics. It is a mishmash arrangement with multiple institutions involved.

The total plan amounts to EUR 85 bn (around USD 110 bn). Here is how the funds are arranged:

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Battered and beaten outlook for US economy and policy

November 30, 2010

Brad DeLong has a pretty depressing paper on the topic.

He says he is amazed to see US economy to reach such low levels despite having several tools in its policy kit to prevent this outcome. He could not imagine that politicians and policymakers will allow unemployment to reach 10% and do nothing about it.

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Independent Evaluation Office to assess impact of Indian Government’s Flagship Programmes

November 29, 2010

Planning Commission has set up a new office  – Independent Evaluation Office to assess impact of Government’s Flagship Programmes.

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Comparing China’s real estate market with Japan’s

November 29, 2010

Bank of Japan has a very decent series of short research notes called BoJ review series. I was reading this short note on recent surge in real estate prices in China. The authors compare this rise to Japan’s price rise in 1970s and 1980s and the eventual bust.

Real estate prices have surged in China. They declined in this crisis but increased as crisis eased. The large Chinese stimulus promoted bank lending also played a major role. The prices of premium homes has risen much more compared to economic homes which are under State’s control.  This let State to pass some measures to control the rise:

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In search of a robust monetary policy framework

November 29, 2010

ECB Chief economist Jürgen Stark gives a decent speech on the topic. He reviews the key thoughts on central banking before this crisis and what has changed after the crisis. In the end so typically of all ECB members, he says ECB’s framework is suitable to deal with risks that have emerged from this crisis.

First, what was the pre-crisis consensus? There were 3 broad elements:

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What good is Wall Street?

November 26, 2010

Is the title of this new very long article by John Cassidy of New Yorker. It is a balanced article. It shows how Wall Street which started for a useful purpose of channelising savings of surplus units to deficit units has become just a trading and speculating street. Earlier bulk of revenues and profits came from first activity and now from second activity.

He interviews practitioners, policymakers and economists on their view of finance and its usefulness. He discusses many issues related to financial sector- compensation issues, lobbying, economic research etc..

To sum up, Wall Street is obviously useful but has become too big and is mostly doing useless activities now. A very nice weekend reading.

Is Ireland solvent?

November 26, 2010

In most probability the answer is yes. Here is Wolfgang Münchau and Raphael Cottin on eurointelligence drawing 4 scenarios for the Irish economy.

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A note on European Financial Stability Facility

November 26, 2010

This is a very interesting topic and have missed writing on this despite the hype. I covered it in May 2010 but not after that.

As Greece crisis shaped up and Europeans threw the bailout towel after months of denial, European Financial Stability Facility was set up. EFSF was agreed on 9 May 2010 and incorporated in Luxembourg on 7 June 2010.

 The facility is a SPV structure.  The funding structure is like this:

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Nokia’s nudge to save power

November 26, 2010

I was charging my Nokia mobile phone. I noticed this message as phone was fully charged:

Battery Full.  Save Energy and remove charger from wall socket.

Interesting nudge to save power. Most of the time we forget to take the charger off from the socket.

In many places you just have these sockets to plug the charger and there is no switch. So the default setting is just plug in and charge the phone. Hence, once the mobile is charged, people forget to take off the charger (atleast I do).

Just a few days ago this blog pointed Reliance Communications is nudging! And now Nokia. Simple nudges make a difference.

Bank of England MPC members divided as well

November 25, 2010

Though this is old news now. Like we see various Fed members divided over future course of policy, same is the case with Bank of England.

The divide began in June 2010 MPC where Andrew Sentance voted to raise rates by 25 bps and keep the purchase program at GBP 200 bn. Intrestingly, he advocates exiting from conventional policy first. Most econs say though unconventional followed conventional, the exit should be reverse from unconventional to conventional.

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Communicating Fed policies ahead..

November 25, 2010

FOMC minutes of meeting held on 3 Nov were released yesterday. Like previous meeting minutes this one also provides lots of economic and financial markets developments.

What was more interesting was Fed’s concerns over communicating its policies to public. The minutes open with:

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Hungary Central Bank loses independence

November 25, 2010

I had pointed out to the interesting case study of Argentina’s central bank losing its independence. Then Plosser pointed that there are several such cases – Korea, Mexico, Japan etc. Even Fed has been accused by Taylor of conducting mondustrial policy.

Now there is another victim-  Hungary’s Central Bank. The Government has decided to now give teh Prime Minister powers to nominate 4 members of the seven member monetary policy committee. Earlier Prime Minister could nominate 2 members. The idea is current government wants to cut rates and by putting four government nominees. By putting four friendly members government could press its agenda:

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Similarities in ECB and Fed inflation targets?

November 25, 2010

Both ECB and Fed do not call themselves as inflation targeting central banks.

ECB has set itself with a quantitative definition of price stability – maintaining inflation rates below but close to 2% over the medium term. Despite this it does not call itself an inflation targeter. Issing pointed  the reasons for the same. First there was no full economic model of Europe needed for an inflation targeter. Second and more importantly ECB believed in money’s role in inflation and inflation targeters did not.

Fed does not even have a quant target. Though some Fed members have discussed their preferred inflation targets around 1.5% – 2.0%.

Antonio Fatas has a nice post showing how Bernanke’s recent mention of preferred inflation target is similar to ECB’s:

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Ireland vs Iceland

November 25, 2010

Paul Krugman has a superb post comparing the two countries.

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Linking business cycle with confidence cycle

November 24, 2010

Sylvain Leduc of FRBSF has this paper on the topic:

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Can India have a problem in housing market as well?

November 24, 2010

Continuing with this housing loan scam post.

Y’day, Dr Reddy was quoted in many newspapers saying India ‘s microfinance crisis is similar to sub-prime crisis. He pointed we have similar kinds of incentives at play.

On similar lines, could we see a housing sector problem in India like we saw in US. After all we have quite a few similarities here as well:

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CBI unearths Housing Loan Scam now…

November 24, 2010

It is clearly a season of scams in India.  Starting from Commonwealth Games, the  issue keeps moving from one potboiler to other. A friend of mine terms all these as Organised crime which I believe is a right term.

Now there is another scam busted by CBI- housing loan scam. The full details are not clear. Some public sector banks officials have been arrested for accepting bribes for clearing certain large loans. Markets crashed in the afternoon tracking the news of arrests of these officials.

This blog has been a huge critique of the housing market developments in India and Mumbai in particular.

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Understanding India’s Balance of Payments data

November 24, 2010

RBI has released this super manual on the subject. Press release is here.

Though the report is on improving the present compilation procedure as well as presentation of  BoP statistics, it explains how the current data is prepared and meaning of each term.

It should help people understand BoP better.

Using default strategy for systemic risks

November 24, 2010

Christian Noyer, Bank of France head in this speech says:

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Bihar elections verdict — public votes for reforms??

November 24, 2010

Much anticipated results of Bihar elections are out. I am really happy to see the current government win a second-term. I have heard and read a lot about how Bihar was changing after living in dark ages for 20 years. Hence, it was more important that people vote for this government the second time and allow the agenda to continue. We all know what happens in State elections when a new government comes to power. All that happens is reversal of what previous government has done.

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