There has been lot’s of debate in the press and in academic circles over the last week or so about whether Italy’s latest contraction constitutes a triple dip recession or simply a continuation of what’s been going on over many many years. This is an interesting theoretical nicety, but in fact what is happening in Italy at the moment goes a lot further than problems faced by a recession dating committee. The real issue that arises in the context of the Euro Area at the moment is a far more specific one. Will the ECB do QE? And if it does when will it push the button? And what could happen if it doesn’t. Perhaps a case study of the Italian case is worth the effort here. What is likely to happen to Italian debt if there is no ECB intervention soon? Let’s take a look at the dynamics. Continue reading
“Spain has turned the corner”. With this stark statement the IMF opened it’s annual Article IV consultation report for 2014. Naturally the statement rankled, with this author among others, because at first sight it seems to be saying something which on closer reading of the report you find it isn’t. At best it’s misleading, possibly from a PR point of view intentionally so, but then Article IV reports are supposed to be more sober, measured assessments. One Spanish journalist summed up the surprise many felt in the following tweet.
You can’t say “Spain has turned the corner” and “the unemployment remains unacceptably high” in the same paper
Just in case anyone was in any doubt last weeks newspaper headlines blared it out for us loud and clear – Japanese inflation is back, and has even hit levels last seen in 1982. (Click on image below for better viewing).
So this is a thing. It must be – it’s in the New York Times Magazine and the Süddeutsche Zeitung on the same weekend.
Dean Baker is rough on It’s Official: the Boomerang Kids Won’t Leave. To be fair, the NYT article actually does make the point that flat-to-falling wages, the invention of student debt, and crazy-high house prices have been pushing back the age of economic independence. It’s not just some sort of moral degeneracy that makes them live at home.
And it makes the important point that this has been going on for some time. We’re not living through the hangover after the party; for the majority, there was no party, as recovering Lib Dem economic advisor Giles Wilkes points out.
Of course, Baker could point at tens to hundreds of articles of pure whining and moralising about why today’s kids just won’t get on their bikes. He would be right, too. Very importantly, he could point to many of them that long predated the crash. I certainly remember this as a subject of intensely tiresome and self satisfied public whining for my parents’ generation, and as a subject of real trouble for my contemporaries. Hey, Euromoney Institutional Investor offered me a job on £14k in central London in 2005. And Baker has the great advantage that he names the guilty men.
But there is no real dispute between Baker and the NYT writer, I think. Contrast this effort from the SZ, in which we are told that this is a phenomenon well known and laughed at in Italy (!), and that it has gone up in Europe since 2007. Well, gee, how could it happen? Perhaps the policies that led to this have something in common with the casual contempt the crack at Italians betrays.
Further, this is special:
Manchen Kindern sind Zusatzkosten, die sie verursachen, nicht bewusst – und das in einer Phase, in der Eltern für ihre Altersvorsorge arbeiten.
Ah, the problem is that if the economic order you voted for means your kids move back in with you, that might cost you money you’re putting into your HSH Nordbank ship-rental fund because of the pension reform you voted for them to have and the tax cut you voted for you to have. Clearly the debate, even at this level, is a notch more honest in the US than in Germany.
Reading the most recent statements from Bank of Japan Governor Haruhiko Kuroda or Finance Minister Taro Aso you would get the impression that the days of deflation are now well and truly numbered in Japan. Martin Schulz, economist at Fujitsu Research Institute in Tokyo, goes even further. “Deflation is over in Japan,” he told Bloomberg Television First Up’s Angie Lau . Even Japan’s industrial leaders now believe inflation is here to stay: the country’s inflation rate will be 1.5 percent in the spring of 2015, and 1.7 percent in 2017, according to average forecasts in a Bank of Japan survey conducted in March this year. Continue reading
“I now suspect that the kind of moderate economic policy regime…… that by and large lets markets work, but in which the government is ready both to rein in excesses and fight slumps – is inherently unstable.”
Paul Krugman – The Instability of Moderation
“Conventional macreconomic theory leaves us in a very serious problem, because we all seem to agree that whereas you can keep the federal funds rate at a low level forever it’s much harder to do extraordinary measures that go beyond that forever. But the underlying problem may be there forever. It’s much more difficult to say, well we only needed deficits during the short period of the crisis if equilibrium interest rates can’t be achieved given the prevailing rate of inflation.”
Strong growth. Rising real estate prices. Rapid job creation. Surging immigration. This list sums up the Switzerland of 2014 down to a tee. However, it also sounds like a description of what things were like in Spain in 2007 – shortly before the country’s economy fell off a cliff. What follows is a conversation between financial journalist Detlef Gürtler and economist and crisis expert Edward Hugh about possible parallels and differences between the two booms, and the role of a new phenomenon which Hugh describes as “Hot Labour“.
Hugh argues that this is a new phenomenon, and on the increase as a result of central bank bubble inducing activity. While immigration is a vital tool aiding economies to manage the population ageing process, it is important that economic activities be balanced. Immigration fueling boom/bust cycles is far from innocuous, and harm a country just as much as a sudden stop in capital flows if the immigration is followed by emigration.
Looking for trends and correlations in that landslide of economic data which arrives, day in and day out, on our desks is normally something akin to trying to find a needle in a very large and raggedy haystack. From time to time, however, some things are just to obvious not to be noticed, like the ever rising levels of debt on the EU periphery and the growing demand from political leaders there for some kind of QE type initiative from the European central bank, for example. Sure, there is no obvious causal connecting here – the missing “middle term” linking the two would probably be all that ongoing deflation risk – but the inability of governments to contain their debt levels is a consequence of having low growth and low inflation, as is the wish being ever more insistently expressed by Southern Europe’s political leaders that the ECB were more like the Bank of Japan. Continue reading
According to wikipedia, “overdetermination is a phenomenon whereby a single observed effect is determined by multiple causes at once, any one of which alone might be enough to account for (“determine”) the effect.That is, there are more causes present than are necessary to generate the effect”. In this strictly technical sense Japan’s deflation problem is overdetermined – there are multiple causes at work, any one of which could account for the observed phenomenon. Those who have been following the debate can simply choose their favourite – balance sheet recession, liquidity trap, fertility trap – each one, taken alone, could be sufficient as a cause. The problem this situation presents is simply epistemological – in a scientific environment the conundrum could be resolved by devising the requisite, consensually grounded, tests. Continue reading