Archive for January, 2015

Poverty is the backdrop to so many discussions about learning. But do we have a good way to measure it in schools?

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Go ahead, Angela, make my day

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European banks

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Quantitative easing has both good and bad implications for Europe’s banks

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EUROPEAN bankers depressed by the miasma in Athens might cheer up a bit if they focused on news from Frankfurt instead. The recent unveiling by the European Central Bank (ECB) of a €1.1 trillion ($1.25 trillion) package of “quantitative easing” (QE)—the printing of money to purchase vast quantities of bonds—should be as heartwarming for them as a resurgence of the euro crisis is chilling.
Cynics might be forgiven for thinking QE is a policy designed purely to aid financiers. Banks, after all, borrow vast sums of money (from bond markets, depositors and other creditors) to acquire financial assets (corporate bonds, say, or the promise to repay a loan with interest). Even looser monetary policy helps the banks on both counts. On the one hand, it is cheaper for them to borrow money as …

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Greece and the euro’s future

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Syriza’s win could lead to Grexit, but it should lead to a better future for the euro

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IT WAS in Greece that the infernal euro crisis began just over five years ago. So it is classically fitting that Greece should now be where the denouement may be played out—thanks to the big election win on January 25th for the far-left populist Syriza party led by Alexis Tsipras (see article). By demanding a big cut in Greece’s debt and promising a public-spending spree, Mr Tsipras has thrown down the greatest challenge so far to Europe’s single currency—and thus to Angela Merkel, Germany’s chancellor, who has set the austere path for the continent.
The stakes are high. Although everybody, including Mr Tsipras, insists they want Greece to stay in the euro, there is now a clear threat of Grexit. In 2011-12 Mrs Merkel wavered, but then decided to support the Greeks to keep them in the single currency. She did not want Germany to be blamed for another European …

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Quantitative easing? Bah humbug!
TIRED of lightweights bickering over the financial crisis and its aftermath? Of economic upheaval becoming merely fodder for intellectually dishonest political campaigns? Wonder what biggest thinkers might have to say? Our efforts to consult the giants of economist has been pre-empted by an unfortunate fact: many of the most important ones are not only dead, but dead long before governments and central banks began to concoct such unconventional policy tools such as quantitative easing. That explains their absence from the argument—so far.In an effort to cross over this divide notwithstanding the obstacles, your correspondent attended a lecture at the Harvard Club of New York on January 21st by James Otteson, a professor of political economy at Wake Forest University and editor of a new book, What Adam Smith Knew, Moral Lessons on Capitalism from its Greatest Champions and Fiercest Opponents. And he asked what the great Scottish economist might have to say about the most recent crisis.Mr Otteson was kind enough to channel Mr Smith in response by citing a string of illuminating passages. It is no surprise that the man who coined the terrm “invisible hand” would be no fan of overt government intervention. His dissent could be split into three intertwined categories: the temptation of governments to meddle at long-term cost to …

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Germany and quantitative easing

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Many Germans still feel uneasy with the thought of unconventional monetary policy

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L.G.

Location: 

BERLIN

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“ARE the ECB’s bankers making our money kaputt?” Bild, Germany’s best-selling newspaper, has a way of saying what many Germans are thinking, while putting into plain German what others would render into tongue-twisting Teutonic syntax. Bild’s implied answer is, of course, “yes”. To say that Germans do not like quantitative easing (QE), which the European Central Bank (ECB) announced at long last on January 22nd, would be an understatement.
The DAX index of leading German stocks shot up on the news that the ECB would begin QE. But this does little to comfort ordinary Germans, few of whom own shares. They share the view of many top German economists that QE without harder …

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America’s new aristocracy

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Quantitative easing in the euro zone

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The policy will help, but less so than in other big economies

AFTER months of debate, having exhausted all the alternatives, the European Central Bank (ECB) announced on January 22nd that it was finally introducing a big programme of quantitative easing. It plans to spend €60 billion ($70 billion) a month for at least 19 months, adding hefty purchases of government bonds to an existing scheme to buy covered bonds and asset-backed securities (currently around €10 billion-worth a month). Special rules will apply to purchases of the bonds of countries like Greece which have received bail-outs. The bulk of any losses on sovereign debt that has been purchased will be borne by national central banks.
QE—creating money to buy financial assets including sovereign bonds—was first used by the Bank of Japan in the early part of the 2000s; the Federal Reserve and the Bank of England introduced it in the wake of the financial crisis of 2008. Long-standing …

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America’s new aristocracy

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Buttonwood

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Why investors would opt to lose money

A GUARANTEED loss. That is what investing in bonds at negative yields implies: those who buy the bonds will get back less than they paid even after interest is taken into account (and some will have to pay tax on the income as well). Yet government bonds of various maturities in as many as ten countries are selling at negative yields. Why on earth would bond investors, the “masters of the universe” once famed for intimidating governments, be willing to accept such a lousy deal?
One obvious reason is fear, or at least caution. In the depths of the financial crisis in 2008, when the safety of the banks seemed in doubt, short-term Treasury bills offered negative yields and investors were happy to take them. (Holding physical cash is impractical, given the sums involved.) Now, with some uncertainty about what might happen to banks were Greece to leave the euro, investors may decide it is worth accepting a negative yield of 0.16% on …

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