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

Capital Flows in a World of Low Interest Rates

by Joseph Joyce

Capital Flows in a World of Low Interest Rates

Interest rates in advanced economies continue to persist at historically low levels. This trend is due not only to the response of central banks to slow growth, but also fundamental factors. If these interest rates continue close to their current levels, what are the consequences for international capital flows?

The decline in rates in the advanced economies has been widely documented and studied. Lukasz Rachel and Thomas D. Smith of the Bank of England have investigated the determinants of the fall in global real interest rates. They attribute the decline in part to increased savings due to demographic forces, higher inequality and a glut of precautionary savings in emerging markets. Investment spending, which has fallen due to the falling price of capital and lower public investment, also contributes to low interest rates. Most of these factors, they claim, will continue to prevail.

Lukasz Rachel and Larry Summers of Harvard have also looked at falling real rates in the advanced economies, which they attribute to secular stagnation. They point out that since the current rates reflect higher levels of government debt, the interest rate that we would observe if there was only a private sector would be even lower. They urge policymakers to tolerate fiscal deficits and also to engage in policies to increase private investment.

The low rates have been an incentive to potential borrowers, and consequently debt levels have risen. The IMF has updated its Global Debt Database,  which includes private and public debt for 190 countries dating back to the 1950s. The data show that the three currently most indebted countries are China, Japan and the U.S., accounting for more than half of global debt. The increase in the debt of China and other emerging markets is due to increases in private debt. Corporate borrowing in these countries has soared, and much of it is denominated in dollars. Public debt has risen in the advanced economies, and more recently in the emerging market and low-income countries as well.

 

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February housing data indicates slump not over UPDATED

by New Deal democrat

February housing data indicates slump not over UPDATED

Housing data, in the form of February permits and starts, finally caught up after the government shutdown. Two sources of house price data were also released this morning.

The bottom line is that, depending on how you measure, housing construction is likely either at or just slightly above a short term bottom. Price growth, meanwhile, continues to decelerate.

I have a more detailed analysis in the queue at Seeking Alpha. Once it is published, I will link to it here.

UPDATE: Here’s the link to the Seeking Alpha article. As always, reading this not only should help you understand what is going on this important market, but rewards me a little bit for my efforts.

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Weekly Indicators for March 18 – 22 at Seeking Alpha

by New Deal democrat

Weekly Indicators for March 18 – 22 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

As you can imagine, the big news was about the fact that almost every single yield curve there is – except the one I report on every week in that post – inverted yesterday.

Also, as I mentioned in an e-mail to a couple of folks this morning, the big thing that bothers me is that ***EVERYONE*** is watching it. And a forecasting tool that everyone pays attention to, ceases to be an accurate forecasting tool. It’s called “Second Order Chaos.” Humans are very clever and intelligent chimpanzees, and when you observe them, they observe you back, and react to the observation.

Anyway, as usual, clicking over and reading helps reward me with a little $$$ for my efforts.

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The widened Panama Canal is disrupting internal US transportation patterns

by New Deal democrat

The widened Panama Canal is disrupting internal US transportation patterns

The newly-widened Panama Canal opened to traffic in late 2016. Since then, there have been several ongoing disruptions in how goods are transported from suppliers in Asia to their ultimate markets in the US, including affects on seaports, trucking, and rail.

This post is up at Seeking Alpha.  As usual, clicking over and reading should be educational for you, and helps reward me for my work.

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