Archive for February, 2014

THERE is a delicious moment in the popcorn thriller Air Force One, a summer blockbuster in which terrorists hijack the titular plane and the president of the United States, played by a steel-gazed Harrison Ford, works to foil their plot, recapture the plane, and avert an international crisis, all more-or-less single-handedly. In the aftermath of a moment of heroism the president is face-to-face with one of his secret service agents—who (we know but the president does not) helped the terrorists get on board the plane. Mr Ford’s character trustingly enlists the agent’s help and hands him a weapon, provoking a wonderful, audible groan across the threatrical audience.It is the rare Hollywood script imbued with as much dramatic irony as the most recent batch of Federal Reserve transcripts, covering the 2008 meetings of the Federal Open Market Committee. That, you may recall, was an eventful year, and Fed watchers have been anxiously awaiting this set of transcripts (they are typically published on a five-year lag). Upon their release on Friday, the wonkosphere (including your correspondent) quickly poured over the documents, took to Twitter to post the most groan-inducing statements, then sat back to savour the groans.What did the transcripts show? As it turns out, the FOMC was late to recognise the severity of the financial crisis and slow to head off the economic damage. …

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UK Only Article: 
standard article

Issue: 

Putin’s inferno

Fly Title: 

Derivatives

Rubric: 

New reporting rules for derivatives have produced a confusing mass of data

DURING the financial crisis regulators discovered the hard way how little they knew about the risky derivatives portfolios built up by large financial institutions. Lehman Brothers, for example, was thought to have been a counterparty to about $5 trillion of credit default swaps. When they turned sour in 2008, it brought the financial system to its knees. In response leaders of the world’s main economies demanded in 2009 that derivatives deals should all be reported to “trade repositories”—vast central databases—to make it easier to identify and then reduce systemic risks.
On February 12th European rules came into force requiring the reporting of all derivatives to one of six approved repositories. Similar rules have already been in place in America for about a year. But the effort, although concerted, is not consistent: the American and European reforms differ, making awkward transactions spanning the two …

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WONKISH, as they say.Economic puzzles have been in no short supply in recent decades. New ones keep appearing without waiting for old ones to be solved. The productivity puzzle that began in the 1970s persists, thanks to the apparent fizzle in productivity growth since the internet boomlet of 1996-2004—and despite what looks to many like an ongoing acceleration in technological discovery. The British economy has developed its own acute version of the productivity puzzle; over the course of the financial crisis and recovery productivity collapsed, shielding the economy from labour-market carnage. There are puzzles of wage stagnation and falling labour-force participation. There are savings glut puzzles and secular stagnation puzzles. The common thread linking the puzzles is that they almost always mean trouble of one sort or another.Many stories have been presented to explain some of these phenomena (and others, as well, like rising inequality and the striking emergence of jobless recoveries). But not much effort has been made to tie these stories together into a broader narrative of what is happening to (primarily) rich economies and what might usefully be done about it. The nearest thing to an attempt is the secular stagnation narrative that, while not originating with him, has been popularised in recent months by Larry Summers. In this post I hope to tighten up and extend …

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FOR Mario Draghi, president of the European Central Bank (ECB), today’s Valentine’s card from Eurostat’s numbercrunchers was covered with kisses—of the kind that central bankers and economists like to get anyway. The recovery, barely perceptible in the third quarter when output rose by just 0.1%, has steamed ahead (by euro-zone standards) to 0.3% in the last three months of 2013. That’s a little faster than the consensus forecast of 0.2% and the same as in the second quarter of 2013, when growth returned after a double-dip recession that lasted longer than the first plunge caused by the financial crisis.The pick-up in pace will be welcome at the ECB because the central bank is close to having exhausted its conventional resources in stimulating the economy, having lowered its key lending rate to just 0.25% in November. That’s a worry as inflation subsides, kindling concern that the euro zone may slip into Japanese-style deflation, which would exacerbate debt burdens, both private and public. A burgeoning recovery is the best antidote and would avoid the bank’s governing council having to resort to more radical and riskier forms of stimulus, such as introducing negative interest rates (on deposits made by banks at the ECB). The picture across the 18 countries that share the euro is not wholly sunny. Output continues to shrink in Cyprus, the fifth country that had to be …

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If poverty means not having money, wouldn’t giving people cash fix the issue? Host Michel Martin speaks with Mauricio Lim Miller, founder of the Family Independence Initiative, and science writer Moises Velasquez-Manoff, about why it’s more complicated than that.

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IN DECEMBER 2012 Ben Bernanke, then chairman of the Federal Reserve, reached deep into the central banker’s bag of tricks and pulled out something novel. Using a new trick which became known as “forward guidance”, the Fed declared that it would not raise interest rates until America’s unemployment rate dropped to at least 6.5%, so long as inflation remained below 2.5%. In August 2013 the Bank of England followed suit. Mark Carney (pictured), its governor, promised to leave rates low until unemployment was down to at least 7%—again, so long as inflation and financial markets remained well behaved. In both America and Britain, unemployment fell quickly toward the thresholds. Yet neither central bank reacted by moving to boost rates, leading critics to argue that forward guidance had failed and should be scrapped. Central banks are instead tweaking their guidance: the Bank of England will update its guidelines on February 12th, and the Fed may soon do the same. What is the aim of forward guidance, and how is it supposed to work?The goal of monetary policy is to smooth out macroeconomic wobbles by co-ordinating market expectations. Central banks want companies to be bullish enough to invest and hire willing workers, but not so exuberant that inflation begins to pick up. For most of the past generation, central banks performed their co-ordinating task by fiddling with …

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Hundreds of thousands of people are put on probation every year. Now, a study by Human Rights Watch finds private probation contractors are racking up profits and effectively criminalizing poverty. Host Michel Martin discusses the issue with HRW’s Chris Albin-Lackey and Rhonda Cook of the Atlanta Journal-Constitution.

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