Archive for May, 2013

Household debt

Posted: May 31, 2013 in economy
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The strange rebirth of liberal England

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In the years leading up to the financial crisis, household debt soared in most rich countries. There were a couple of notable exceptions: Germany and Japan, neither of which experienced a housing boom that caused debt to accumulate. The ratio of debt to disposable income rose by an average of 30 percentage points, to 130%, in OECD countries between pre-boom 2000 and pre-crisis 2007. Since then debt levels have fallen in America, Britain and Germany, but they have continued to rise in countries such as France, Italy and the Netherlands, where property prices are still declining. In 2012 household debt in the Netherlands was a whopping 285% of disposable income.

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The Economist Newspaper

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via Economic Crisis http://www.economist.com/news/economic-and-financial-indicators/21578669-household-debt?fsrc=rss

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The strange rebirth of liberal England

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Capitalism in America

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Ronald Reagan's former budget director on the ills of American capitalism

The Great Deformation: The Corruption of Capitalism in America. By David Stockman. PublicAffairs; 742 pages; $35 and £19.99. Buy from Amazon.com, Amazon.co.uk
DAVID STOCKMAN first gained notoriety as the White House budget director who documented Ronald Reagan’s fiscal irresponsibility with merciless candour. His second turn in the spotlight came two decades later in 2007 when a leveraged buy-out ended in bankruptcy and an indictment for accounting fraud. The charges were dropped, but Mr Stockman underwent a Damascene conversion over the ills of America’s economy.

Mr Stockman blames the corruption of American capitalism on many villains, including Reagan and Wall Street. But none is as culpable as the Federal Reserve and its “ceaseless”, “panicked” and “berserk” money-printing. He is not just talking about the housing bubble of the mid- 2000s. To Mr Stockman, the …

via Economic Crisis http://www.economist.com/news/books-and-arts/21578628-ronald-reagans-former-budget-director-ills-american-capitalism-about-turn?fsrc=rss

MIKE Amey and Andrew Balls of the European arm of Pimco, the fixed income fund managers, held a seminar this morning on the outcome of the group’s secular forum, and it was such a good survey of the current situation that it seemed worth passing on.Their four key points were a variant on this blog’s theme of “inflate, stagnate or default”. They worry thatArtificially assisted growth and purchased financial stability may breed shortfalls and asset bubblesInternational and regional systems may fragment, and growing income inequality may destabilise geopoliticsSupply shocks and currency debasements may lead to higher and less stable inflationAbsent a growth revolution, haircuts may increase over the secular horizonThe fundamental problem, in their view, is that the global economy has been maintained in a “stable disequilibrium” by central bank policy. there is too much debt and not enough growth to erode it; the policy response has resulted in a period of stagnation, which is fuelling social tensions. Central banks have done what they can butmost asset prices are artificially high and dependent on ongoing policy support.This has helped the economy avoid the worst excesses of the cycle but there is a secular problem of slow growth potential and monetary policy isineffective in delivering longer term real growthA related problem is that, by propping up asset prices, the net …

via Economic Crisis http://www.economist.com/blogs/buttonwood/2013/05/investing-0?fsrc=rss

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The sleepwalkers

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The Spanish economy

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Spain’s pain is likely to continue, despite some promising reforms, unless new sources of growth emerge

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MADRID

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THE gloom in Spain is almost palpable. Yet two years on from the protests begun in Madrid by young Spaniards known as los indignados, most accept their lot with resignation. The government of Mariano Rajoy is unpopular, but so is the opposition. And whereas many other stricken euro-zone countries blame the Germans for their woes, Spaniards recognise that they are paying for their own excesses, especially the burst property bubble.
The numbers are grim. The economy is in deep recession. In the first three months of the year GDP shrank for a seventh quarter in a row. The public finances remain stretched, with the budget deficit at 7% of GDP. Bond yields have fallen, but the credit …

via Economic Crisis http://www.economist.com/news/europe/21578394-spains-pain-likely-continue-despite-some-promising-reforms-unless-new-sources-growth?fsrc=rss

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The sleepwalkers

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Buttonwood

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Bond yields are very low, but Japan’s example shows they may stay low

IS THERE a bond bubble and is it going to burst soon? The Spectator, a British political weekly, ran a cover story citing the existence of a bubble back in September 2011. Yields are even lower now than they were then.

Calling the top of an asset bubble is extremely hard, as sceptics of the dotcom boom in the late 1990s will recall. History suggests that buying government bonds at yields of 2% or less is a losing proposition in real terms; those who bought American Treasury bonds on a yield of 2% in 1945, for example, did not see a gain in their purchasing power until 1989.
But there is one important exception to the rule. Japanese ten-year bond yields fell below 2% in 1998 and have stayed below that level almost ever since. Thanks to deflation, investors have still managed to earn positive real returns. Betting against the Japanese bond market has been a losing game.
In a sluggish economy, it is quite …

via Economic Crisis http://www.economist.com/news/finance-and-economics/21578452-bond-yields-are-very-low-japans-example-shows-they-may-stay-low-apocalypse?fsrc=rss

UK Only Article: 
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The sleepwalkers

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The euro crisis

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In the euro zone, desperately in need of a boost, no news is bad news

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YOU may have missed it, but the European Union held a summit this week. Taking in a nutritious working lunch, Europe’s prime ministers, presidents and chancellors devoted half of Wednesday to weighty issues of energy and taxation. Gone are the panic-stricken sessions of last year, dogged by talk of the euro’s imminent failure. Today, Europe’s leaders note, reform is under way across most of the euro zone and some southern European countries are regaining their competitiveness. The government-debt market is back in its box, where it belongs. And over the past year share prices are up by a quarter. Nobody could pretend that life is easy; Europeans understand that hard work and sacrifices lie ahead. But the worst of the crisis is now safely in the past.
It is a reassuring tale, and those worn down by the …

via Economic Crisis http://www.economist.com/news/leaders/21578386-euro-zone-desperately-need-boost-no-news-bad-news-sleepwalkers?fsrc=rss

TODAY’S recommended economics writing:• Europe’s lost Keynesians (Project Syndicate)• The banking crisis as a giant carry trade gone wrong (Vox)• Don’t fear the bubble (Felix Salmon)• Foreign borrowing in the euro area periphery (Liberty Street)

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/05/recommended-economics-writing-8?fsrc=rss