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Political leaders must learn to appreciate the virtues of budget deficits

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The borrowers

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Free exchange

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What machines can tell from your face

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GOVERNMENTS do not always make the best budget managers. Assuming it avoids an accidental debt default, America will run a bigger budget deficit this year than the last, despite a booming economy. Germany runs a surplus—but scrimps on critical investments and annoys its euro-area neighbours in the process. Japan, cowering under a mammoth public-debt pile, is weighing raising its consumption tax, though the last rise strangled a tenuous economic recovery. It is awkward, therefore, that the role of fiscal policy as a recession-fighting tool is only growing. The next downturn will be a painful and dangerous learning experience for many politicians.
When that comes, at …

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THE last time Australia suffered a recession the web browser had just been invented and Bryan Adams topped the charts. Figures released today will show that its economy has racked up the longest stretch of growth in modern history: 104 quarters. The Netherlands, the previous title-holder, dipped into recession—defined as two consecutive quarters of contraction—after 103. In these 26 years, Australia has navigated the Asian financial crisis, the collapse of the dotcom bubble and the Great Recession, largely without scars. Its once-in-a-generation mining boom ended in 2014. Yet it has managed to avoid a bust. How did it break the record for economic growth?Its success was built on the structural reforms of the 1980s and ’90s, when trade barriers crumbled and foreign-exchange controls were removed. A floating dollar cushioned the economy against external aches; inflation stabilised around a target band of 2-3%; and government finances greatly improved. By the time the global financial crisis hit, Australia had enjoyed over a decade of budget surpluses and net debt had been eliminated. It helped that China’s demand for commodities was fuelling a mining boom that created jobs and pushed up wages. Australia’s terms of trade soared as it churned out coal and iron ore to feed its neighbour’s …

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Financial stability is a growing concern of central banks. Only some should be worried

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Fear of finance

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Central banks

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Fear of finance

CENTRAL bankers have gathered at their annual shindig in Jackson Hole, Wyoming, for the past ten years with only one thing on their minds: the health of the global economy. This year’s gathering is different. The bankers’ preoccupations are changing, from recovery to financial stability.
Oddly, rising concern about the risks of financial excess is good news. It reflects the arrival of the first synchronised global economic upswing since 2010. GDP growth in the quarter ending in June was the most rapid since then, according to JPMorgan Chase, thanks to stronger-than-expected activity in China, Japan and Europe …

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Policymakers have spent half a century in search of the natural rate of unemployment. The fifth in our series on big economic ideas

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Central bankers’ holy grail

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The natural rate of unemployment

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Economics brief

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WHY does unemployment exist? If there is a central question in macroeconomics, this is it. There are few bigger wastes than the loss to idleness of hours, days and years by people who would rather be working. Unemployment can ruin lives, sink budgets and topple governments. Yet policymakers do not wage all-out war on joblessness. Most, like the Federal Reserve, America’s central bank, target what is known as unemployment’s “natural” …

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Likezo Nasilele and her husband, Chipopa Lyoni, with one of their four children in the courtyard of their home in rural Zambia. They were one of hundreds of families who received regular cash payouts as part of a government experiment.

A major study in Zambia showed the benefits of just giving poor people money with no strings attached. So why isn’t the government entirely convinced?

(Image credit: Nurith Aizenman/NPR)

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TEN years ago, BNP Paribas, a French bank, temporarily suspended dealings in three funds, citing “the complete evaporation of liquidity in certain market segments of the US securitisation market”. Many people treat this as the start of the credit crunch but one can trace it back to the need for Bear Stearns to rescue hedge funds that invested in mortgage-backed securities in June, or the signs of home loan defaults and failing mortgage lenders that emerged in late 2006. The subsequent tightening of credit and loss of confidence in the banking system eventually led to the collapse of Lehman Brothers, when the crisis reached its height in the autumn of 2008 (see picture).The inevitable question on the occasion of such anniversaries is: could it happen again? Total debt has risen, rather than fallen, over the last decade, reaching $217trn or 327% of GDP, according to the Institute for International Finance. But the debt is differently distributed from 2007; more of it is owed by governments and more of it is owned by central banks. Since these banks have no incentive to hassle countries for repayment, the air of crisis has dissipated. Banks have more capital, making them more secure. And low interest rates have made servicing debt more affordable for both consumers and …

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Do economic restrictions change Russian behaviour?

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The punishment continues

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Sanctions on Russia

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IN LATE June Daimler, a German carmaker, broke ground on a new Mercedes-Benz plant north-west of Moscow. “We are confident in the long-term potential of Russia,” Markus Schäfer, a board member, said at the ceremony. The €250m ($296m) factory marked the first investment by a Western carmaker since America and the European Union slapped sanctions on Russia as punishment for its aggression in Ukraine three years ago.
After more than two years of recession, Russia is …

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