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Markets Better Prepare for Stagflation

By all metrics, prices are heating up. But the same can't be said for economic activity.

Danielle DiMartino Booth Bloomberg 24 april 2018


Economists still lack a proper understanding of business cycles

Where consensus did prevail, it proved to be misguided. 

Economists of all ideological stripes cheered on the financial deregulation of the 1980s and 1990s. The work of thinkers like Hyman Minsky and Charles Kindleberger, whose writings on financial excess were rediscovered after the financial crisis, gathered dust.

In a speech in 2005 to central bankers, Raghuram Rajan, an academic who later ran India’s central bank, warned of the risks building within the financial system. He got a chilly reception.


Core US inflation is rising and now exceeds 2 per cent.

The 10-year inflation break-even — the rate of inflation at which inflation-linked and fixed income bonds would pay the same, and hence the implicit forecast rate of inflation — is rising.

It is the highest in four years, close to 2.2 per cent; low in historical terms, but above the Fed’s target.

FT 21 April 2018


To protect the economy from future mega-bank failures, much more work needs to be done.

Under the current plan, certain creditors are designated in advance to absorb a failed bank’s losses once the equity is wiped out. 

Those creditors’ debts are thus riskier, and should be more expensive to the bank than the debt that is not designated to be turned into equity. 

Yet the Fed economists conclude that, in the market, this is not the case. Why?

Mark Roe, professor at Harvard Law School, Project Syndicate 17 April


Twin reports by the IMF sketch a chain-reaction of dangerous consequences for world finance.

The policy – if you can call it that – puts the US on an untenable debt trajectory. 

It smacks of Latin American caudillo populism, a Peronist contagion that threatens to destroy the moral foundations of the Great Republic.

Ambrose Evans-Pritchard Telegraph 18 April 2018

Rolf Gustavsson om "den informella maktstruktur som man skulle kunna kalla ”det djupa EU”

För att få en skymt av inblick i "det djupa EU" rekommenderar jag en krävande bok: "Adults in the Room" av Yanis Varoufakis, som under en kort tid var Greklands finansminister. 

Dess knappt 500 sidor borde vara obligatorisk läsning, icke minst för alla oss som gillar EU-tanken.

Den allra viktigaste lärdomen är att EU:s helt avgörande maktcentrum ligger i Berlin.

Varoufakis redogör för sina samtal och förhandlingar med Schäuble. De båda var överens på en bestämd punkt; att Grekland var statsfinansiellt bankrutt.

Varoufakis sökte förgäves räddningen i en skuldavskrivning. Schäuble ville rädda tyska och franska banker undan kreditförluster och undvika spridningseffekter till andra länder.

- Den stora risken var att Grekland skulle utlösa en kris i italienska, franska och tyska banker. 

Nu finns i praktiken en EU-garanti för de utestående grekiska statsobligationerna.


Treaty Change - A snub to Emmanuel Macron ahead of the French president’s trip to Berlin this week

Ms Merkel endorsed the idea of turning the European Stability Mechanism, the eurozone’s financial rescue fund, into a regional version of the IMF.

But she said it would have to be created through treaty change.

FT 17 April 2018

Ms Merkel does not say “no” to eurozone bonds. She says: “Not without treaty change.” 

The German constitutional court in Karlsruhe would never allow Germany’s sovereign guarantee to be given to its eurozone partners without them submitting to effective and centrally budgeted discipline.

Financial Times 31 May 2012

Read more here