Posts Tagged ‘economic crisis’

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Timelier loan-loss provisions may make earnings and lending choppier

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Stage fright

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Accounting and banks

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The army sidelines Robert Mugabe, Africa’s great dictator

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IN THE first quarter of 2018 thousands of banks will look a little less profitable. A new international accounting standard, IFRS 9, will oblige lenders in more than 120 countries, including the European Union’s members, to increase provisions for credit losses. In America, which has its own standard-setter, IFRS 9 will not be applied—but by 2019 banks there will also have to follow a slightly different regime.
The new rule has its roots in the financial crisis of 2007-08, in the wake of which the leaders of the G20 countries declared that …

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The big risks may be in corporate, not government, bonds

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Yielding to temptation

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Do social media threaten democracy?

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FOR the umpteenth time in the past decade, a great turning-point has been declared in the government-bond market. Bond yields have risen across the world, including in China, where the yield on the ten-year bond has come close to 4% for the first time since 2014. The ten-year Treasury-bond yield, the most important benchmark, has risen from 2.05% in early September to 2.37%, though that is still below its level of early March (see chart).
Investors have been expecting bond yields to rise for a while. A survey by JPMorgan Chase found that a record 70% of its clients with speculative accounts had “short” positions in Treasury bonds—ie, betting that prices would fall and that …

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Agreement on how to fight recessions in a low-interest-rate world remains elusive

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The low road

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Free exchange

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The right way to help declining places

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Free exchange

ONE day, perhaps quite soon, it will happen. Some gale of bad news will blow in: an oil-price spike, a market panic or a generalised formless dread. Governments will spot the danger too late. A new recession will begin. Once, the response would have been clear: central banks should swing into action, cutting interest rates to boost borrowing and investment. But during the financial crisis, and after four decades of falling interest rates and inflation, the inevitable occurred (see chart). The rates so deftly wielded by central banks hit zero, leaving policymakers grasping at untested alternatives. Ten years on, despite exhaustive debate, economists …

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A devil to sup with

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Herbert Hoover

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20th-century American history

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Hoover: An Extraordinary Life in Extraordinary Times. By Kenneth Whyte. Knopf; 752 pages; $35.
FOR his philanthropic efforts during the first world war, Herbert Hoover was described as a “man who began his career in California and will end it in heaven”. In a new biography, Kenneth Whyte lists the many hardships Hoover went through. Generally, he used them to his advantage—to increase his wealth, achieve fame and become America’s 31st president. At least, that is, until the Great Depression, which ruined him politically.

Born in Iowa in 1874, Hoover became determined early in life to earn a fortune for the security and independence it would bring. After graduating as a geologist from …

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Prices are high across a range of assets. Is it time to worry?

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The bull market in everything

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Asset prices

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It is not too late to stop the break-up of Spain

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The bull market in everything

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IN HIS classic, “The Intelligent Investor”, first published in 1949, Benjamin Graham, a Wall Street sage, distilled what he called his secret of sound investment into three words: “margin of safety”. The price paid for a stock or a bond should allow for human error, bad luck or, indeed, many things going wrong at once. In a troubled world of trade tiffs and nuclear braggadocio, such advice should be especially worth heeding. Yet rarely have so many asset classes—from stocks to bonds to property to bitcoins—exhibited such a sense …

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The next financial crisis may be triggered by central banks

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When the cycle turns

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The spotlight shifts from Germany to France

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AS WITH London buses, don’t worry if you miss a financial crisis; another will be along shortly. The latest study on long-term asset returns from Deutsche Bank shows that crises in developed markets have become much more common in recent decades. That does not bode well.
Deutsche defines a crisis as a period when a country suffers one of the following: a 15% annual decline in equities; a 10% fall in its currency or its government bonds; a default on its national debt; or a period of double-digit inflation. During the 19th century, only occasionally did more than half of countries for which there are data suffer such a shock in a single year. But since the 1980s, in …

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AS EXPECTED, the Federal Reserve announced on September 20th that it will soon begin reversing the asset purchases it made during and after the financial crisis. From October, America’s central bank will stop reinvesting all of the money it receives when its assets start to mature. As a result, its $4.5trn balance-sheet will gradually shrink. However, the Fed did not give any clues as to what the endpoint for the balance-sheet should be. This is an important question. There are strong arguments for keeping the balance-sheet large. In fact, it might be better were the Fed not shedding any assets at all. Most commentators view a large balance-sheet, which is the result of quantitative easing (QE), as an extraordinary economic stimulus. Janet Yellen, the Fed’s chair, seems to agree: at a press conference after the Fed announcement, she said the balance-sheet should shrink because the stimulus it provides to the economy is no longer needed. But the claim that the balance-sheet is stimulating the economy is far from an established fact. The theoretical case for it is weak (Ben Bernanke, Mrs Yellen’s predecessor, famously quipped that QE “works in practice, but it doesn’t work in theory”). While most studies have shown that QE brought down long-term interest rates, it may have worked by …

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