Archive for November 27th, 2013

Should we compare economic situation of emerging economies with respect to 1997-98 or 2007-08?

November 27, 2013

A brilliant question posed by Prof Andres Velasco of Harvard.


Chile versus Argentina..similar economies different outcomes

November 27, 2013

Michael J. Boskin of Stanford University has this nice article in Proj Synd.


Iran: From Hyperinflation to Stability?

November 27, 2013

Prof. Steve Hanke of Cato is a hyperinflation expert and tracks such regions carefully.

In this post, he says Iran is out of hyperinflation for now..

Over a year ago, I uncovered the fact that Iran experienced a period of hyperinflation (in early October 2012), when its monthly inflation rate peaked at 62%. Since then, I have been actively monitoring and reporting on the IRR/USD black market exchange rates and calculating implied inflation rates for the country.

Since Hassan Rouhani took office, on August 3rd, Iranian expectations about the economy have turned less negative. Thus far, it appears Rouhani has been successful in ending the long period of economic volatility that has plagued Iran, since the US imposed sanctions in 2010. This has been reflected in the black-market IRR/USD exchange rate, which has held steady around 30,000 in recent weeks (see the accompanying chart).

There are three main factors at work here. The first is a concerted effort by the Rouhani administration and the central bank to curb Iran’s inflation. This stands in stark contrast to the previous regime, whose strategy was to simply deny that inflation was a problem.

The second is that that Iran’s economy has proved remarkably “elastic” – meaning that the country has ultimately adapted to the sanctions regime and has found ways to keep its economy afloat in spite of them.

The third factor in the rial’s recent stability is an improvement in Iranian economic expectations. This is where the P5+1 talks come into play. Iranians recognized that easing of the sanctions regime would be a bargaining chip in any nuclear negotiations. In consequence, their economic expectations improved as the talks progressed. Indeed, Saturday’s announcement gave these expectations a shot in the arm.

Where will it go is to be seen..

Court case between Railroad company and government after 100 years!

November 27, 2013

Amazing story this.

The US government has sued for a parcel of land used by railroad companies in 1875 or so:

In the 19th Century, when railroads were being built across the West, the federal government granted significant land and benefits to railroad companies. The Great Railroad Right-of-Way Act of 1875 empowered the government to grant railroad companies right-of-way easements to build tracks across others’ land to facilitate the expansion of the nation’s railways – that is, railroads were granted a right to use sections of another’s property for railroad purposes without owning title to the land underneath. In 1976, the government sold the Brandt family a parcel of land in Wyoming which was crossed by one of these railroad easements.

In 2001, the railroad that owned the easement formally abandoned all claims to it.  Typically, when this happens, the easement is simply extinguished and the owner of the land may then use the former easement however he or she wishes. But the federal government had different plans for the thin strip running through the Brandts’ land. In 2006, the government sued for title to the land lying under the former easement on the theory that it had retained a “reversionary interest” in the land when granting the railroad the right of way easement, even though it never actually set aside any interests when granting the easement.  The government thus claimed that after the railroad abandoned the easement (after only ever owning an easement and never full title to the land), full title to the land “reverted” back to the federal government. The Brandts argue that under the basic principles of the common law of property, the government had no such right, and that even if any legislative act allowed the government to somehow acquire their land, such an act would require payment of just compensation under the Fifth Amendment’s Takings Clause.

Although this may seem like a small, unique problem, the scope of the Old West’s railway system was huge and those old easements criss-cross the land of thousands of property owners. In 1983, Congress amended the National Trails System Act to allow the government to take abandoned railroad easements and turn them into land for public recreation and “railroad banking.” Landowners have been fighting the taking of their property under the Trails Act ever since, claiming, as here, that the government’s original grant to the railroads contained no residual right of possession for the government.

Amazing really..


FCNR (B) Swap Window: Basics and Hype (it is just old wine in new packaging)..

November 27, 2013

There is much talk and discussion around how RBI’s new FCNR (B) swap facility has been a magic wand. Magic wand it has been as suddenly risks have disappeared.  But as this post argues this facility is nothing but an old wine in new packaging. In many ways it goes back to previous such measures when currency risks were taken away from these foreign inflows.

It worked in the past too and has worked even now. At times, policymakers have not really communicated that the magic wand was working, perhaps keeping a low profile.

What follows is an analysis beginning with basics of various types of NRI deposits, trends in each deposit and recent RBI window. It is quite detailed as the idea was to also explain things to myself and keep it for future references as well. So people will have to bear with the length of the post.


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