Author Archives: admin

The trilemma holds that economic policy must sacrifice one of the following three items: open capital flows, fixed exchange rate, monetary policy independence. For reasons that I won’t explain here, policymakers must forswear macroeconomic demand management completely (not just monetary policy) if they choose peg+open capital flows. And if they choose peg+independent macro management, then […]

Fantastic column this morning by Kevin O’Rourke — a guy who knows a thing or two about globalization. (He wrote the book.) Turns out that markets — not unreasonably — want both fiscal realism and economic growth. In other words, an austerity programme which delivers only that (austerity) is useless to investors, and won’t be rewarded by […]

Michael Mussa, former head of research at the IMF and presently a senior fellow at the Peterson Institute, argues that Greece ought not restructure (pdf) and definitely ought not leave the euro-area, whilst also sketching out how unwieldy are the debt dynamics with or without the IMF/EU program. It’s an example of the cognitive dissonance we’re seeing […]

and blocked in China, according to a Beijing correspondent.

Plan A is the current official approach to Greece. It provides eur 110 bn in official loans for an initial 3-year period to sustain deficits which cannot be financed in the market. (The funds are charged at 3-month euribor +300 bps, rising to 400 if extended beyond three years.) Greece uses this breathing space to […]

Great discussion between Martin Wolf and Stephen Roach over at Bloomberg.com. Is the US/China bilateral trade imbalance due to inadequate US savings or Chinese currency policy? I’ve got a lot of time for both sides, which is frustrating. But here’s the thing: You can beat up on the USA for inadequate savings. But this is […]

Worth checking out. Just a few quick things to add. Wyplosz notes that if Greece leaves the euro, then its new currency will depreciate sharply against the euro, in which case: The new GDP, measured in euros, will therefore decline to some €140 billion, 40% lower than initially. This works out to a public debt […]

When it comes to policy advice, be wary of Sachs. This is the man whose shock therapy did wonders for Russia. How apropos to the current debate. If I recall correctly, it was only when Russia kicked out Sachs, defaulted on its debt and devalued the currency that the economy turned around. The FT’s Gillian […]

There’s plenty that separates the 1930s from today’s business cycle. Unfortunately, “debt” isn’t one of them. I’m writing this because I think we are at a critical juncture where policymakers can either get out in front of this thing — globally — or tinker at the edges as it all comes down. In other words, […]

“Unaffordable” contracts between the state and its civil service seem like a coming step in the ‘great deleveraging’. Not just in Greece: Having pared the budget to the bone, the city of Stockton, CA has resolved that it can no longer avoid revising the labour contracts of city employees.  Here’s the agenda (pdf) for the city […]