Archive for July 14th, 2016

The dangers of external economic advice

July 14, 2016

Given the debate on economic advisory in India (and elsewhere), one obviously wonders how global should economic advice be? Here too much of discussion is biased as Global or International advice essentially means advice coming from US based think-tanks and universities.  Globalisation should also mean that the US (and rest of the west) be open to hearing  views from other countries, but that of course is a joke. The rest of the world is hardly good enough to advice the best in the world. But how is it that those based in rest of the world are not even seen worthy of advising their own economies? Is it possible that experts based in US ivy league think-tanks and universities will know about most economies in the world?

The usual discourse in media is how external economic advice helped save some of the countries from an impending economic disaster.  One thing which is missing in such discussions is how the external advice has brought ruin as well.

Peter Bauer in this tribute to Prof B.R. Shenoy points how Indian govt’s second five year plan was equally supported by the distinguished external experts. He warns against relying too much such expertise:

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Why and when did the Treasury embrace regular and predictable issuance?

July 14, 2016

In this interview, Garbade explains how govt started predictable debt issuances. What is debt issuance? Well, govt issues bonds to meet its expenses. One way to borrow is whenever govt is short of funds, it announces it will borrow via so and so bond. This is the unpredictable bit which will create problems in markets. Govt is the prime borrower and any such sudden announcement will lead to scrapping of funds. If the market is facing crunch it will lead to higher interest rate for the govt itself.

A better way is that the govt forecasts its borrowing well in advance based on estimate of its income and expenses. It then uses the borrowing figure to work out a predictable calendar of borrowing in the coming quarters/years. This way market is well prepared to work out the funds available and plan accordingly.

But how did this thinking on predictable issuance start in US? This is what Garbade tells us:

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