Archive for November, 2012

TODAY’S recommended economics writing:• UK banks face up to £50bn shortfall (FT)• No, switching to dollar coins would not save the government money (NPR)• November sales disappoint; what happened to Black Friday’s 13%? (Barry Ritholtz)• Recession big factor as birthrate falls (WSJ)• Tax burden is lower for most Americans than in the 1980s (NYT)• Is concierge medicine the future of healthcare? (Businessweek)• After a bashing, BOJ weighs “big bang” war on deflation (Reuters)• Helium prices balloon as supplies run out (FT)

via Economic Crisis http://www.economist.com/blogs/freeexchange/2012/11/recommended-economics-writing-8?fsrc=rss

THERE has been a lot of legitimate good news from the euro zone in recent months. Renegotiation of the rescue package with Greece may represent can-kicking, but every day you’re able to kick the can is a day you haven’t allowed the euro zone to blow up. Bond yields across much of the periphery have fallen to lows not seen since 2011, and equity prices are at comparable highs. The crisis isn’t over, but one is tempted to begin thinking that maybe the hard institutional work has been done and things should get easier from here.But complacency is the enemy, and the crisis remains dangerous. In the first act of the euro crisis, the biggest threat was a financial meltdown due to a spiraling loss of confidence in sovereign bonds and bank solvency. That threat has been greatly diminished, thanks in large part to the actions of the European Central Bank. Beginning with the implementation of the ECB’s long-term refinancing operations roughly a year ago, the biggest threat to the euro zone became another nasty feedback loop: that between macroeconomic deterioration and political change.Greece may be technically equipped to stay in the euro zone. But it has been in a serious recession for 5 full years, and it is very unlikely to see meaningful growth until 2014 at the earliest. Its unemployment rate was over 25% at last check and its youth unemployment rate is 57%. The technical …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2012/11/euro-crisis-1?fsrc=rss

UK Only Article: 
standard article

Issue: 

Survival of the biggest

Fly Title: 

Property

Rubric: 

A new generation of investors is betting on America’s housing market

Main image: 

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THOSE feeling nostalgic for the boom before 2007 will have been heartened this week by headlines about Lehman Brothers selling a portfolio of American apartments for $6.5 billion. Lehman Brothers? No, the investment bank felled by the mortgage miasma is not rising from the dead: its administrators are merely flogging its remaining assets to repay creditors. But the sale shows that American housing, once so toxic it made the global economy choke, is once again attractive to investors. Hedge funds and private-equity firms, so often the villains, may be helping a housing revival.
America’s residential sector was once the preserve of “mom-and-pop” investors or local developers. The role of hedge funds became apparent only when those who bet massively against the housing market—“The Big …

via Economic Crisis http://www.economist.com/news/finance-and-economics/21567388-new-generation-investors-betting-americas-housing-market-big-long?fsrc=rss

UK Only Article: 
standard article

Issue: 

Survival of the biggest

Fly Title: 

The financial crisis

Rubric: 

The main problem about financial crises

Misunderstanding Financial Crises: Why We Don’t See Them Coming. By Gary Gorton. Oxford University Press; 278 pages; $29.99 and £19.99. Buy from Amazon.com, Amazon.co.uk
BEN BERNANKE, the chairman of the Federal Reserve, was once asked for his recommended reading on financial crises. He named the work of Gary Gorton, a Yale University professor. “Misunderstanding Financial Crises” demonstrates why.
Mr Gorton brings to the question a combination of historical perspective, academic expertise and, unlike most academics, personal experience: he was a consultant on financial products from 1996 to 2008 for American International Group (AIG), the giant insurance company bailed out in 2008 because of its massive derivatives exposure to mortgages.
All systemic financial crises, he argues, are the result of a broad loss of confidence in bank debt. Unlike most private debt contracts, bank liabilities are meant to be riskless; …

via Economic Crisis http://www.economist.com/news/books-and-arts/21567323-main-problem-about-financial-crises-getting-grip?fsrc=rss

UK Only Article: 
standard article

Issue: 

Survival of the biggest

Fly Title: 

Central banks’ power

Rubric: 

Politicians need to set clearer goals for central banks—then leave them alone

Main image: 

20121201_LDD001_0.jpg

BEFORE the financial crisis, central bankers were backroom technocrats: unelected, unexciting men in grey suits, who adjusted interest rates to keep prices stable on the basis of widely agreed rules. There were a few stars (such as Alan Greenspan) and a few controversies (whether to prick asset bubbles). But most central bankers operated below the public’s radar and above the political fray. Politicians seldom questioned how they did their job, and virtually never challenged the wisdom of their independence.
The suits are the same these days, but not much else is. Central bankers have become the most powerful and daring players in the global economy. By providing massive liquidity to the financial system, they saved the world from economic collapse in 2008. They …

via Economic Crisis http://www.economist.com/news/leaders/21567359-politicians-need-set-clearer-goals-central-banksthen-leave-them-alone-grey-mans-burden?fsrc=rss

THE greatest short-term threat to the world economy continues to be Europe’s debt crisis. The progress of the euro-zone crisis will, in turn, depend on the length and depth of the euro-area ecession. If output is shrinking and unemployment rising, then austerity measures are likely to make economic conditions worse while raising very little new revenue. The euro zone may fall ever deeper into a hole.That’s an unnerving possibility. As of the third quarter of 2012, the euro zone economy is officially in recession. GDP in the euro area shrank 0.1% in the three months to September after contracting 0.2% in the second quarter. That marks four consecutive quarters of flat of falling growth. Output fell sharply in peripheral economies like Spain and Italy but also tumbed in core countries like Austria and the Netherlands.Conditions look like getting worse. An analysis of recent data points by Now-Casting, which publishes “real-time” economic forecasts, points toward deeper contraction in the fourth quarter of 2012. And on the current pace, the euro zone’s recession will continue through at least the first three months of 2013. You can see the information that goes into their forecast in the interactive chart …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2012/11/business-cycles?fsrc=rss

EVERY year, the Cato Institute hosts a conference on monetary policy, inviting distinguished academics, policymakers, and journalists to present their views on a wide range of questions. On Thursday, your correspondent attended the 30th annual conference. What follows are my impressions of the first portion of the event, which was about the origins of the crisis and ways to prevent future ones.The keynote speech was given by Vernon Smith, who shared a Nobel with Daniel Kahneman for his work on behavioural and experimental economics back in 2002. Mr Smith argued that America’s Great Recession (or, as some prefer, Lesser Depression) was qualitatively similar to the Great Depression but qualitatively different from all the other downturns the country experienced since the beginning of the 20th century. For Mr Smith, the distinction is that the Great Depression and the Great Recession were preceded by mortgage credit bubbles that subsequently collapsed. The decline in asset values was exacerbated by the large overhang of debt, which dragged down the economy and stifled the recovery. As long as households and businesses continue to repair their balance sheets, there is little prospect for a robust recovery—a theme that should be familiar to regular readers.Mr Smith’s talk was full of interesting historical information. For example, mortgage underwriting standards (such as …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2012/11/monetary-policy-1?fsrc=rss