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Donald Trump’s top trade adviser: Germany is using a “grossly undervalued” euro to exploit the US and its EU partners

FT 31 January 2017

If Germany were the one to leave, the euro would be the currency that fell in value, relative to Germany’s new national currency and also to the dollar. 

The weaker European countries would get to keep the euro but still get the devaluation they need, which would reduce their labor costs far less painfully than through wage cuts.

Michael Sivy, TIME 12 April 2012

EMU Start Page

The Hitchhiker’s Guide to the Galaxy and the Eurocrisis

For those uninitiated in The Hitchhiker’s Guide to the Galaxy, the only recorded thoughts of a bowl of petunias as it suddenly came into being and started to hurtle towards the ground were “Oh no, not again!”.

Most of us hoped never again to have to pay attention to spreads between the bonds of different countries that share the same currency. 

The fact that they are moving suggests that the existence of the euro might again be called into serious question.

John Authers, FT 31 January 2017


Har Sverige nu en ”pseudoflytande växelkurspolitik” ?

Vice ordförande i riksbanksfullmäktige, Michael Lundholm, frågade sig var gränsen går mellan det penningpolitiska syftet – det vill säga att uppnå inflationsmålet – och att det utanför centralbanken kan uppfattas som att det finns en implicit kurs som man styr mot. 

Han använde uttrycket ”pseudoflytande växelkurspolitik”.

I dagsläget har riksbankschef Stefan Ingves och förste vice riksbankschef Kerstin af Jochnick mandat att på direktionens vägnar sälja svenska kronor på valutamarknaden. 

Fler kronor till salu ska enligt teoriboken pressa priset på kronan, eller med riksbanksspråk: förhindra att kronan stärks för snabbt.

Louise Andrén Meiton, SvD 22 januari 2017

Om man vill vara konspiratorisk kan man ana att Riksbanken vill hålla kronan inom det spann som krävs för att ansluta oss till euron. Det vill ju både Löfven och Batra...

America's Unsustainable Current Account Deficit

"Never in the history of modern economics has a large industrial country run persistent current account deficits of the magnitude posted by the U.S. since 2000."

A day of reckoning for what economists call our "current account deficit" is likely to arrive soon.

And the price will be paid in a currency drop that will significantly reduce domestic economic growth.

That's the conclusion of a study by NBER Research Associate Sebastian Edwards.

National Bureau of Economic Research, 23 January 2017

I reached the same conclusion in 2001...
Stein's Law: If something cannot go on for ever it will stop.

The current climate is far too permissive of share-repurchase programs

In nominal terms, the Dow is up 70% from its peak in January 2000.

The Dow is up only 19% in real (inflation-adjusted) terms since 2000. 

A 19% increase in 17 years is underwhelming.

The national home price index that Case and I created is still 16% below its 2006 peak in real terms. 

But hardly anyone focuses on these inflation-corrected numbers.

Robert J. Shiller, Project Syndicate 18 Jnuary 2017


A Greek tragedy: how much can one nation take?

Greece’s economic crisis has disappeared from the minds of many in Europe, but inside the country, the pain is only getting worse  

FT 20 January 2017

Varoufakis: From the mid-1970s to 2008, the US economy had kept global capitalism in an unstable, though finely balanced, equilibrium.

It sucked into its territory the net exports of economies such as those of Germany, Japan and later China, providing the world’s most efficient factories with the requisite demand. 

How was this growing trade deficit paid for?

Yanis Varoufakis 11 November 2016


Gränskontrollen vid Öresundsbron och muren mot Mexiko

Sverige har gränskontroll vid Öresundsbron mot Danmark. Varför skulle inte USA ha gränskontroll mot Mexiko? 

Trump kommer inte att stänga gränsen. Muren skall bara se till att de som kommer från Mexiko till USA blir registrerade liksom de som kommer till Sverige från Danmark. 

Eller har jag fel?

Inflation-Protected Securities. Demand was so great

Inflation-Protected Securities 

Demand was so great that primary dealers were left with about 16 percent of the bonds, the lowest on record in data going back to 2003.

Robert Burgess, Bloomberg 19 January 2017 with nice charts


EU ambassadors “line of protection”, Libyan authorities will intercept people before they leave territorial waters

After dozens of summits, half-a-million arrivals in Italy and more than 10,000 dead or missing since 2014, the EU is no closer to finding a solution to the crisis in the central Mediterranean.

När Khaddafi fick jobb som EU:s gränspolis
I början av oktober 2010 åkte EU-kommissionär Cecilia Malmström till Libyen

More here


Explanations for the Financial Crisis Ritholtz

Discussions of causation frustrate those who seek to oversimplify the complex as they pursue a political agenda 

Any theory that claims to explain the financial crisis should be able to answer these 10 questions

Barry Ritholtz, 18 January 2017

Can Italy maintain the €?

Yes, if it grows, unlike in the last 17 years.

Francesco Papadia January 17, 2017


Trump said the U.S. currency, has gotten “too strong,”

In a Friday interview with The Wall Street Journal, 

Trump said the U.S. currency, which touched a more-than 14-year high about two weeks ago, has gotten “too strong,”

“Our companies can’t compete with them /China/ now because our currency is too strong. And it’s killing us,” he told WSJ.

MarketWatch 17 January 2017

U.S. Trade and Current Account Deficit

Huntington, The Davos Man and The Clash of Civilizations, Ambrose

It was Harvard professor Samuel Huntington who first hurled the epithet “Davos Man” at the new elites 

He warned of a cosmopolitan superclass of 20 million people.. This rootless supra-culture was cornering the gains of the global economy, and capturing ideological power. 

“They have little need for national loyalty, view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations,” he wrote.

Prof Huntington has earned his posthumous vindication.

Ambrose Evans-Pritchard, Telegraph 12 January 2017

The Clash of Civilizations (COC) is a hypothesis that people's cultural and religious identities will be the primary source of conflict in the post-Cold War world.

It was proposed by political scientist Samuel P. Huntington in a 1992 lecture at the American Enterprise Institute

Tåg i Schweiz


Why Trump attacks China and Germany

It may have someting to do with that those countries have large trade surpluses with USA, I guess.

The United States has the world's largest trade deficit and has run one since 1975. 

In 2015, the deficit on goods and services was $500.4 billion, higher than the $490.2 billion deficit in 2014. 

The deficit occurred because exports, at $2.3 trillion, were lower than imports, at $2.761 trillion. 

(Source: "U.S. International Trade in Goods and Services," U.S. Census Bureau.)

The U.S. trade deficit in goods alone was $762.5 billion, 2.4 percent higher than last year.

Read more here


Moody’s in $864m settlement over subprime mortgage bonds

The settlement is smaller than the $1.375bn that rival rating agency S&P Global reached in February 2015.


Milton Friedman's Cherished Theory - The permanent income hypothesis - Is Laid to Rest Noah Smith

But as economists get better and better data, they’re finding that even modification isn’t enough. 

A new study by Peter Ganong and Pascal Noel shows that consumer behavior is more short term than almost any mainstream model predicts.

Even the greatest scientists can be wrong. The measure of a science is how quickly it comes to grips with the mistakes its heroes make.

Noah Smith, Bloomberg 12 January 2017

The Need for Different Classes of Macroeconomic Models (DSGEs). Blanchard

This is is my third piece on dynamic stochastic general equilibrium models (DSGEs). 

The first, a PIIE Policy Brief, was triggered by a project, led by David Vines, to assess how DSGEs had performed during the financial crisis (namely, badly) and how they could be improved. 

That brief went nearly viral (by the standards of blogs on DSGEs ☺).

Olivier Blanchard (PIIE)  January 12, 2017

Robert Shiller presidential address to the American Economic Association

It was something out of the usual — as we should expect from as fertile, contrarian and original thinker as Shiller — namely a plea for economists to take seriously the importance of “narrative epidemics”. 

That is to say, be aware of the stories people tell one another about the economy, because they may have real effects.

Shiller’s paper is a rich read. It proposes a causal role for stories: because people’s beliefs affect their actions, the “viral spread” of some ideas and narratives over others can constitute a causal mechanism in the unfolding of an economic phenomenon or event.

Martin Sandbbu, FT 12 January 2017


The real number to keep an eye on is 2.6 per cent yield on the 10-year Treasury note, says Bill Gross.

The Janus portfolio manager, dubbed the “Bond King”, warned that if the 10-year yield crosses that threshold, it will signal the start of a “a secular bear bond market”.

FT 10 January 2017 

Mr Obama’s presidency began amid the worst financial crisis since the 1930s. Wolf

The latest Economic Report of Obama’s Council of Economic Advisers

Mr Obama’s presidency began amid the worst financial crisis since the 1930s. 

If we consider the disaster he inherited and the determination of the Republicans in Congress to ensure he would fail, his record is clearly successful. 
This does not mean it is perfect.

Martin Wolf, FT 10 January 2017


Stephanie Flanders about Richard Baldwin book, The Great Convergence.

The driving force of the old globalisation was the falling cost of moving goods. 

The driving force of this more recent wave has been the falling cost of moving ideas.

Stephanie Flanders, chief market strategist for Europe at JPMorgan Asset Management, 

FT 8 January 2017

Policymakers seem to think the European project will be safe if the mainstream political leaders can survive the next 12 months.

Stephanie Flanders, chief market strategist for Europe at JPMorgan Asset Management, 

FT 8 January 2017


The Bank of England’s chief economist has admitted his profession is in crisis

having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote. 

So what can the dismal science do to regain the trust of the public and politicians?

Guardian 6 January 2017


Economics seems incapable of answering the great questions of our time. Are we heading for deflation or inflation? Jeremy Warner

Are we locked in secular stagnation or have we finally put the financial crisis behind us?

The conceit of modern economics is that it sees itself as an evidence-based science...

In a devastating recent analysis, the American economist Paul Romer asserted that macro-economics has been going backwards for more than three decades, with economic modelling succumbing to what he has called “mathiness”,

an obsession with mathematic laws and equations which bear very little relation to the real world, ignore the lessons of other disciplines and are frequently out of touch with the inherently unpredictable nature of human behaviour.

As Andy Haldane, chief economist at the Bank of England, pointed out in a recent lecture, economic models provided an exceptionally poor guide to economic dynamics at the time of the financial crisis. 

Even after the crisis erupted, the profession seemed oblivious to its likely consequences. Virtually all the economic forecasts produced in the final quarter of 2007 – that’s after the collapse of Northern Rock - were not just mildly wrong about the coming year, but spectacularly so.

Jeremy Warner 4 January 2017

Economic theory discredited

Sandbu The inability of the world’s major central banks to create either inflation or stronger demand growth

has sustained a needed debate over whether the way monetary policy is conducted in most rich countries is ripe for reform.

Martin Sandbu, FT 4 January 2017

Erian Although lots of jobs were created in the impressive recovery from the dark days of the global financial crisis, other elements of the labor market did not respond as would be expected based on historical experience.

Wolf: Behind the tendency towards economic growth lie two powerful forces

innovation at the frontier of the world economy, particularly in the US, and catch-up by laggard economies. 

The two are linked: the more the frontier economies innovate, the greater the room for catch-up.

Martin Wolf, FT 3 January 2017


Do Central Bankers Know A Bubble When They See One?

From its March 2000 peak to its October 2002 bottom the NASDAQ declined 80%.

In August 2002 Greenspan gave a speech at the Fed’s conference in Jackson Hole.

Ben Bernanke, gave a speech titled, “The Great Moderation.” 

zerohedge 3 January 2017

Krugman: policymakers chose to believe in the confidence fairy to justify attacks on the welfare state, because that’s what they wanted to do.

Now, policymakers chose not to believe this. 
They chose to believe that monetary policy could do the job absent fiscal support, because for several reasons they refused to use fiscal policy to promote jobs; they chose to believe in the confidence fairy to justify attacks on the welfare state, because that’s what they wanted to do.

And yes, some economists gave them cover.
But that’s a very different story from the claim that economics failed to offer useful guidance. 
On the contrary, it offered extremely useful guidance, which policymakers, for political reasons, chose to ignore.

Krugman, NYT 24 December 2016

Economic theory discredited

Internal devaluation 

Basel Sweden has objected because its banks have bigger holdings of mortgages. Sweden’s historically stable housing market makes such mortgages less risky...

Catherine Mann, the OECD’s chief economist, Canada and Sweden, had “very high” commercial and residential property prices

Catherine Mann, the OECD’s chief economist, said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”.

Telegraph 2 January 2017


Ambrose strong dollar lead to credit crunch

As the Fed’s broad dollar index pushes towards an all-time high of 130, the mechanical effects will expose the Achilles Heel of an international system that has never been more dollarized - and never been more sensitive to US interest rates since the end of the Bretton Woods era.
King dollar will tighten the noose on emerging market debtors with $3.5 trillion of liabilities in US currency. 
It will force banks in Europe - through complex hedging contracts - to curtail offshore lending to the Pacific Rim, Turkey, Russia, Brazil, and South Africa. 
It will lead to a credit crunch in the developing world.

Secular Stagflation The next big thing?

Inflation, deflation and Secular Stagnation.

What could possibly be worse?

Secular Stagflation.


Secular Stagnation


Mr Macron wants to make the eurozone work; Ms Le Pen wants to destroy it.

Paul A. Samuelson’s “factor-price equalization theorem” - In a perfect world, people don’t have to move to another country to get a higher wage. Robert J. Shiller

In 1948, Paul A. Samuelson’s “factor-price equalization theorem” lucidly showed that under conditions of unlimited free trade without transportation costs (and with other idealized assumptions), market forces would equalize the prices of all factors of production, including the wage rate for any standardized kind of labor, around the world. 

In a perfect world, people don’t have to move to another country to get a higher wage. 

Ultimately, they need only be able to participate in producing output that is sold internationally.

Robert J. Shiller, a 2013 Nobel laureate in economics, Project Syndicate 19 September 2016

The European Commission was rocked by the news that Goldman Sachs had added former commission president Jose Manuel Barroso to its payroll.

EUobserver 27 December 2016

När Khaddafi fick jobb som EU:s gränspolis

Minsky wanted to understand why financial crises occurred. It was an unpopular focus. The Economist

The dominant belief in the latter half of the 20th century was that markets were efficient

Robert Lucas

The Economist 30 July 2016

How Japan resists the populist tide

The starting point might be the extraordinary hierarchical, consensual and inclusive nature of Japanese society.

John Plender, FT 1 January 2017