A nice interview of Leo Hollis. He is a historian, writer and urbanist based in London.
His thoughts are much like Ed Glaesar. He says cities are important as they are places where people ideate:
This continued posting of poor GDP growth nos by UK has been a hot topic of discussion. Pro-Keynes cite victory for their club and say it shows fiscal austerity worsens growth prospects.
A nice speech by Adam Posen of BoE on the topic (as always).
He says despite similar institutional systems and crisis policy responses, US recovery has been faster. Why?
Most must have seen these.
Those who haven’t, should see the 4 ppts made by Bernanke at GWU.
Even better, the videos are there on the website.
There is also an interesting reading list on Fed and the crisis..
The commission was announced in Union Budget Speech 2010-11 (26-Feb-10):
Most of our legislations governing the financial sector are very old. Large number of amendments to these Acts made at different points of time has also increased ambiguity and complexity. The Government proposes to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector.
FSLRC was established on 24-Mar-11.
Jörg Asmussen of ECB (the German representative) gave a statement at the Committee on Economic and Monetary Affairs of the European Parliament. The statemente was with respect to measures taken in Greece and how they will help lower debt and bosst competitiveness.
With the speech come this interesting sets of Qs asked by Several Political Groups Within the European Parliament. The qs are answered by Asmussen and Olli Rehn (Vice President of the Commission).
Sample the qs:
St Louis Fed’s FRED System is perhaps the best designed tool to play with econ stats (FRED stands for Federal Reserve Economic Data).
Yes one can literally play with stats here with its amazing download system and easy to graph chart. It is like Bloomberg given to you for free with much friendlier charting system and data to choose from.
Krugman (who is a bug fan of FRED) points to this interesting article on history of FRED system. It also profiles the current team members managing FRED. It is a super light team for the kind of work they do (just 506 of them). The history is:
In case people feel blogging has been weak, people now know the answer.
I have been working on this paper for a while. I have not really blogged much about this TARGET2 debate as I realised I knew nothing about it. It looked like a highly technical issue and needed some wide-scale reading and figuring ou things.
Here is the outcome in form of a paper on TARGET2 controversy. There is still a lot of chaos around the topic. Let me know your comments/suggestions.
After working recently on RBI’s monetary operations (Part I & Part II) and now on this ECB’s TARGET2 system, I realise how granted we take a few things. We just assume central banks target inflation and cut policy rates. In case of RBI there are other functions as well.
However, what makes these decision tick via various monetary operations etc. is highly unknown and we assume something must be going on.The details of this are hugely interesting and complex at the same time. Central banks should do much more to demystify their balance sheets and operations by publishing primers on the issues. It will really help clear the chaos and confusion..
I really did not know how to title the post based on this superb interview. It is of this Czech economist Tomas Sedlacek who just at the age of 35 is creating waves. He has already been advisor to ex-Czech President Vaclav Havel. He has written what looks like a must read book – Economics of Good and Evil.
The interviewer titles it as ‘Greed is the Beginning of Everything’, though one of the central message of Tomas is ‘Greed marks the end of everything.’ He connects so many things to economics – Bible, Adam and Eve, Greek mythology etc etc. The views might sound extreme but is quite enjoyable to read his thoughts.
Sample this on greed:
A nice and funny speech by RBI DG KC Chakrabarty on the topic.
He uses some very funny examples on how people misuse stats. Sample this:
In article about cats appeared in The New York Times’ on August 22, 1989. It stated, “The experts have also developed startling evidence of the cat’s renowned ability to survive, this time in the particular setting of New York City, where cats are prone at this time of year to fall from open windows in tall buildings. Researchers call the phenomenon feline high-rise syndrome.” Statistics were like this: from June 4 through November 4, 1984, 132 such victims were admitted to the Animal Medical Centre and most of the cats landed on concrete and most survived. From the data on the distance of the fall for 129 of the 132 cats, it was observed that the falls ranged from 2 to 32 stories. Only one of 22 cats that plunged from above 7 stories died, and there was only one fracture among the 13 that fell more than 9 stories. But how a cat will survive of a fall from a great height defying gravitation? Such description generally does not push one to scrutinize the statements till it was understood that majority of the cat owners do not report these incidents to any medical centre and believe that other people probably don’t report their cats’ deaths, either. Therefore, the error seemed so obvious that sample was not representative and there was data reporting problems.
Then this very usual error on inflation reporting:
Let me now give you an example from the banking world. The concept of inflation is often misunderstood by people. You would often hear this refrain from many persons that despite RBI claiming that inflation has come down in the recent past, the prices have not come down. So, what is the truth? Well, the truth is simply that inflation is indicated as a percent change, so even when this percent is declining, all it means is that the prices are rising at a slower rate, but they are still rising! The prices would come down only when the inflation becomes negative.
For stats to be made useful, we need to be info literates:
In conclusion, we must ask ourselves as to why a quotation like “ Lies, Damned Lies, and Statistics” as mentioned by me earlier is made about the subject of statistics. In my opinion, it is because the society is illiterate, i.e. it is information illiterate. Information literacy, which most people misunderstand, is the third generation of literacy. The first generation of literacy is when you know how to read and write. The second generation of literacy is when you are computer literate, but it is not enough to be just first or second generation literate. When transiting to a knowledge society, it is critical for all of us to be information literate or be third generation literate. And, one of the purposes of statistics is to bring about information literacy in the society. If that does not happen then statistics can be used to prove or disprove anything and it is the subject of statistics which would bear the burden of ridicule. So, it is up to all of us, faculty, students and practitioners alike, to redirect our efforts towards spreading information literacy in the society. Institutions associated with teaching and training of statistics have a more important role to play in that direction….
A lot has been written already on this.
In case people are still looking for more stuff on the topic, here is a nice speech by Anand Sinha of RBI. It has some nice graphs and a timeline of the crisis and impact on Indian economy and financial markets.
His 3 takeways from the crisis:
Museum of the City of New York is celebrating the 200th anniversary of the Commissioners’ Plan of 1811, the foundational document that established Manhattan’s famous street grid. There is a review of the exhibit at NYT and a super article in city-journal by James Panero.
The Grid was not really a first time but the way it was executed in Manhattan is a super lesson in history of urban planning. Panero says:
The key of the interview is this linkage of rising inequality threatening US capitalism system and more troubling the US democracy. The policies and the capitalism system have increasingly become favorable to the top 1% which has amassed more and more wealth in the last 30 years. The everyday richer public in turn is driving the political agenda threatening democracy. The thread of the society has shifted from being morally right to plain greedy:
Henry Farrell and John Quiggin in this interesting paper look at this change of economic thought in this crisis.
They say that just on the breakout of the crisis economists and policymakers agreed near universally on the need for fiscal stimulus and adopt Keynesian policies. However, as crisis eased a bit we saw a great divergence with some economies choosing to adopt fiscal austerity and anti-Keynesian policies. What led to this sudden shift given the fact that economic conditions were still very bad.
The duo say the reason is shift of economic thought. On the eve of the crisis the Keynesian economists came to centre and pushed for stimulus. The anti-Keynesians either kept quiet or some even became more supportive of stimulus (like Martin Feldstein). As crisis eased, the anti-Keynesians again rose mainly German economists and ECB who strongly argued for the need to fiscal austerity.
An amazing paper on the topic by Harald Espeli of Norges Bank. Most papers on war economics focus on the rising government deficits etc. This one shows how the more powerful enemy can lead to problems for central banks and monetary policy as well.
In nut shell, Norges Bank was a fairly independent CB till WW-II. In WW-II Germans took over Norway and its economy as well. They started circulating their own currency apart from Norwegian Krone leading to a much higher money supply and inflation. What was even more damaging was the loss of central bank independence which became a long term problem. It was only in 1990s after a huge crisis in Norway did the central bank get back its lost independence.
The Norwegian central bank seems to have been more accommodating to German wishes and demands than the central banks in other German occupied countries in Western Europe. This led to a permanent damage to the reputation of the central bank.
Jasmine Hall of Online Colleges sends this interesting list of the highest paid profs in US:
Like CEOs of sputtering companies receiving enormous salaries, the men and women steering the Titanic that is higher education in America could use a little pay scrutiny. After all, with many colleges cutting department budgets across the board, the only thing left to cut might just be (gasp!) faculty salaries. To get the ball rolling, we’ve lined up 10 of the most highly compensated professors in America who could give up a few hundred grand a year and still be able to mold young minds just fine.
The list is (brackets shows their field):
In nut shell he says if there is government debt, we will have debt crisis and defaults. Govts nicely brand their debt securities as risk free (0n which then much of finance is based) but history shows these are anything but risk-free.
In the foibles and adventures of lending and borrowing, at least one constant law holds: loans that cannot be repaid will not be repaid, whether they are to governments or to anybody else. History shows us that sovereign governments often default on their loans, particularly in times of war or economic upheaval. Europe finds itself in this situation now and would do well to examine past sovereign debt crises—particularly, the European sovereign debt crisis of the 1920s—for lessons.
Key points in this Outlook:
He looks at the European debt crisis in 1920s:
Among the history now forgotten in the midst of today’s European sovereign debt crisis is the European sovereign debt crisis of the 1920s, which distracted the finances and politics of that time before ending in huge defaults. As former British prime minister David Lloyd George wrote, “The World War, prolonged over four years on a more intense and destructive scale than human imagination had ever previously conceived possible, left all the belligerent nations at its close deeply impoverished, burdened with immense debts.”
Borrowing money to spend on destruction is even worse than borrowing money to buy things at high prices that later collapse. After the Great War, what assets were left to service the debt? This was especially true for the losers, but also true for the winners—except for the United States, which emerged from that war the principal creditor of all the others.
What was happening was that each one owed each other:
Put simply, the theory of the Treaty of Versailles was that Germany would be forced to pay reparations, a form of debt, so that France could pay its debt to Britain and the United States, and Britain could pay its debt to the United States. Of course there was a slight problem: Germany probably could not, and certainly would not, pay the reparations as decreed by the treaty, so no one could pay off their debt. This was the famous “economic consequence of the peace” as predicted by Keynes.
Guess the solution? Us lending to Germany…
By the mid-1920s, it was obvious that repayment was not happening and could not happen. The debt crisis then gave rise to a complex negotiation and agreement, with restructuring of obligations and new credit for Germany, in what was considered at the time a landmark success. The similarities to the fevered negotiations in today’s Europe are apparent.
The 1920s negotiation was carried out by the inter-national Dawes Committee and resulted in the contemporaneously celebrated Dawes Plan of 1924. This complicated and politically charged effort was chaired by Charles Dawes, who was elected later that year as vice president of the United States and awarded the Nobel Peace Prize in 1925 for the Dawes Plan.
Under the Dawes Plan, German reparation payments were reduced and restructured, and the French military occupation of part of Germany to enforce payments of reparations was to end. Foreign creditors were to have oversight of the Reichsbank, Germany’s central bank, and to have as collateral German customs duties; taxes on tobacco, beer, and sugar; and revenue from alcoholic spirits. But how can you enforce your rights to such collateral against a powerful government that decides not to pay? You cannot.
New loans to Germany from the United States would make Germany’s required payments possible. So in short: since the United States would lend Germany money, it could pay France and Britain so that France and Britain could pay the United States. Stated in this bald fashion, one might think this was not sustainable, which turned out to be exactly the case.
Hmm. This bit about using German custom duties etc as collateral is interesting.
Things were rosy in mid 1920s leading to this time is different and this is new era beliefs:
With investors’ imagination focused on “new era” prosperity, enthusiasm grew for new foreign government bonds in the 1920s, as the leading center of international finance moved to New York City from London. “The Dawes Loan in 1924 opened the eyes of American investors to the romance of buying foreign securities”—a romance investors subsequently regretted, as Winkler observed: “The American investor is now [in 1933] learning what his cousin across the ocean experienced half a century earlier: non-payment.” By 1936, more than 35 percent (by dollar volume) of 1920s sovereign bonds floated in the world’s new financial capital were in default.
As the 1920s progressed, the government debts created by the Great War did not go away. By 1929, renewed conflict over German reparations gave rise to new international negotiations and a new agreement, the Young Plan, which further reduced payments and scheduled them over the next fifty-nine years.
And then came the great depression followed by WW II and multiple debt defaults later.
We see the same story of rising debt now. The point is if there is debt there will be crisis.
Finally why do banks invest in G-debt?
We should consider, in conclusion, the important role of banks in lending to sovereigns, especially as today’s European banks face dramatic losses on their loans to governments. Who promotes loans to governments? Governments promote loans to governments. They have an obvious self-interest in promoting loans to themselves and to other governments they wish to help or influence. They may even create a reassuring name for these loans: “risk-free assets.” Banks are extremely vulnerable to pressure and direction from governments—the more regulated they are, the more vulnerable. Bureaucratic government employees will never discourage loans to their political masters.
In addition to promoting their own debt to all possible buyers at all times, governments promoted Great War loans to Allies, loans to Germany in the 1920s, loans to developing countries to “recycle petrodollars” in the 1970s, loans to Fannie Mae and Freddie Mac until they failed, and loans to fellow governments in the European Union up to today.
Herein lies a knotty conflict of interest—one that is, I suspect, impossible to untangle and relevant both to the instructive past and the future. Because governments always promote government debt, future sovereign debt crises are inevitable.
Superb as always…