Relevant and even prescient commentary on news, politics and the economy.

Searching for Stimulus

by Joseph Joyce

Searching for Stimulus

The global economy seems headed for a slowdown. The IMF now expects global growth this year of 3.3%, a drop of 0.2 of a percentage point from its previous forecast. Growth in the advanced economies is projected to be particularly feeble, with expected U.S. economic growth of 2.2%, growth of 1.3% predicted for the Eurozone , and Japan’s growth anticipated to be 1%. Of course, a breakdown of U.S.-China trade talks, the imposition of new U.S. tariffs on European cars or a disorderly Brexit could disrupt the forecasts. Can government policymakers improve these conditions?

Central banks have limited policy space. In the U.S., the Federal Reserve has made clear that it does not expect to raise the Federal Funds rate this year, and retains the option of lowering it if conditions deteriorate. Some–including one of President Trump’s anticipated nominees to the Board, Stephen Moore–are already calling for lower rates. But the current Federal Funds rate of 2.5% does not give the central bank much scope for lowering it.  Japan’s central bank already has negative nominal rate targets, while the European Central Bank’s policy rates include a lending rate of zero percent and a negative deposit facility return.

If monetary policy is constrained, what else can policymakers do? Adair Turner, former chair of the United Kingdom’s Financial Services Authority, believes that zero interest rates means that the time has come for “massive fiscal expansion” financed by central banks. He acknowledges that excessive monetary growth can be harmful. But, he argues, when faced with “slow growth, political discontent and large inherited debt burdens…”, policy measures that in other times would be seen as radical need to be considered.

 

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The three best arguments against an economic slowdown

by New Deal democrat

The three best arguments against an economic slowdown

I still think I’m right that there will be a worsening economic slowdown that shows up by about summertime and continues towards the end of the year.But there is one long leading indicator and two important short leading indicators that are going the other way. Rather than ignore them, I accept them and explain why I don’t think they negate my forecast. This article is up at Seeking Alpha.

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On a more somber note, Today We Are All Parisians.

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The economy in 2019: a look at the “big picture”

by New Deal democrat

The economy in 2019: a look at the “big picture”

Although I have a bunch of nerdy forecasting models, I view my primary mission as trying to explain what is going on in the economy for ordinary middle and working class American workers and consumers.I’ve been meaning to do a “30,000 foot perspective” on the economy for awhile, to draw together all the information into a Big Picture narrative. Well, I finally got around to it, and it is up at Seeking Alpha. This is something that should be of particular interest to those who have followed me all the way back from my Daily Kos days.

The most overlooked feature of the economy in the past five years has been the way low gas prices have allowed room for the economy – and real wages – to grow without being strangled by high interest rates.

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Weekly Indicators for April 8 – 12 at Seeking Alpha

by New Deal democrat

Weekly Indicators for April 8 – 12 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

Lower interest rates have to some extent been offset by weaker real money supply. In any event, they haven’t fed through into other, shorter term indicators just yet.

As always, clicking over and reading should bring you up to date on the economy, and reward me a little for my efforts.

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Partners, Not Debtors: The External Liabilities of Emerging Market Economies

by Joseph Joyce    (lifted from Capital Ebbs and Flows)

Partners, Not Debtors: The External Liabilities of Emerging Market Economies

My paper,  “Partners, Not Debtors: The External Liabilities of Emerging Market Economies,” has been published in the January 2019 issue of the Journal of Economic Behavior & Organization.

Here is the abstract:

This paper investigates the change in the composition of the liabilities of emerging market countries from primarily debt (bonds, bank loans) to equity (foreign direct investment, portfolio) in the decades preceding the global financial crisis. We examine the determinants of equity and debt liabilities on external balance sheets in a sample of 21 emerging market economies and 20 advanced economies over the period of 1981-2013. We include a new measure of domestic financial development that allows us to distinguish between financial institutions and financial markets. Our results show that countries with higher economic growth rates have larger amounts of equity liabilities. The development of domestic financial markets is also linked to an increase in equity liabilities, and in particular, portfolio equity. In addition, larger foreign exchange reserves are associated with larger amounts of portfolio equity. FDI liabilities are more common when domestic financial institutions are not well developed.

The publisher, Elsevier, provides a link to provide free access to the paper for 50 days. You can find it here:

https://authors.elsevier.com/a/1YoqV_3pQ3g~6e

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