• Europe’s delusional economic policies

    Yesterday three big things happened in three different eurozone economies that I think are interrelated. And I am going to tell you what I believe they mean for the European political economy by tying them together in this post under the somewhat provocative banner of “Europe’s delusional economic policies”. The reason for the title is that what I see happening is an anti-growth economic framework which is having political consequences by fomenting nationalism and anti-EU sentiment.

    Europe’s delusional economic policies
  • If foreigners are dumping Treasuries, how should you respond as an investor?

    One of the lead stories at Bloomberg this morning is an article about foreigners shying away from “financing the US government”. And the conclusion of this article is that it could mean higher interest rates in the US. Is this conclusion the right one though, and how should you respond as an investor? I have some thoughts on that below.

    If foreigners are dumping Treasuries, how should you respond as an investor?
  • If Donald Trump remains a cultural warrior, he will fail

    Early on in President Trump’s new administration, too much of his energy is being placed on divisive ‘cultural’ issues and not enough attention is being paid to economic policies. To the degree Trump has turned to the economy, much of his policy has been focused on issues that will not yield long-term economic benefits but contain considerable risk, like trade with Mexico and China. And so, while Donald Trump is only a few weeks into his presidency, I think we can begin to take stock of what his presidency will mean for the US economy.

    Republican presidential candidate Donald Trump speaks to supporters as he takes the stage for a campaign event in Dallas, Monday, Sept. 14, 2015. (AP Photo/LM Otero)
  • Trump is dead wrong on Germany. It won’t matter though

    The FT is reporting that US President Donald Trump sees Germany as a ‘currency manipulator’ of sorts, a view bound to have negative consequences on bilateral relations. What’s more, according to the Financial Times, Trump’s top trade advisor, Peter Navarro, has accused Germany of using a “grossly undervalued” euro to “exploit” the United States as well as Germany’s own EU monetary union partners. This makes three countries in Trump’s sights: China, Mexico and, now, Germany.

    Trump is dead wrong on Germany. It won’t matter though
  • A Q&A With Prime Economics’ Jeremy Smith on Brexit, Immigration and Democracy

    On Monday, UK Prime Minister Theresa unveiled her vision for Britain’s exit from the European Union. The Prime Minister couched her outlook in positive terms, speaking of Britain leaving the EU but remaining in Europe. She spoke of EU member states as friends and partners. And she insisted that Britain would prosper after Brexit is achieved. I have written about what the key takeaways from her speech were. But to get a better sense of how realistic her vision is in political and economic terms, I also asked Prime Economics Co-Director Jeremy Smith for his take.

    A Q&A With Prime Economics’ Jeremy Smith on Brexit, Immigration and Democracy
  • Demographics are driving wages lower, which is negative for investment returns

    For managers of money, the post-crisis low growth world has had major implications for asset allocation strategies. Assumptions about returns are greatly affected by the both monetary easing used to counteract the slowing and the yield curve flattening indicative of that easing’s ineffectiveness. Recent research on demographic trends and wage growth suggest trends now in place may continue, with grave implications on returns.

    Demographics are driving wages lower, which is negative for investment returns
  • Monetary policy is at the end of the line

    The last few days have made clear that monetary policy is having less and less impact as time goes along.In particular, the latest salvos from the Bank of Japan smack of desperation, as if BOJ Governor Kuroda has decided to throw everything but the kitchen sink into his grab bag of unorthodox monetary policy. Because the Bank of Japan is so far along the curve toward both secular stagnation and unorthodox policy to counteract that slowing, we should pay attention to how their experiments go. I do not expect good results.

    Monetary policy is at the end of the line
  • The problem at euro banks

    As the Brexit worries began two weeks ago, I flagged Italian banks – more than the UK economy – as one of my principle concerns, because of the potential to cause systemic damage to the euro system. And now the contagion is spreading, with Deutsche Bank the most obvious weak link. The question now is twofold. First, does the Italian banking crisis solve itself without a major overhaul of EU institutional arrangements. Second, if not, how does the EU solve this problem? Some brief thoughts below.

    The problem at euro banks
  • Why Britain might not leave the EU and the next Prime Minister could be female

    This is a quick run through of the post-Brexit vote decision tree. The opportunities and constraints after the UK vote to leave the EU are now coming into view. It is clear that the UK is likely to leave the EU given not only statements by Prime Minister Cameron but also the Home Secretary Theresa May, both of whom campaigned for ‘Remain’. But it is also clear that the EU will not broker formal or informal discussions with the UK until the UK has invoked Article 50, which can only be done by an act of Parliament. Below, I want to run through some of the constraints in order to build a few scenarios that I see as possible now that we are a week into the post-Brexit era.

    Britain's Home Secretary Theresa May delivers her keynote address on the second day of the Conservative party annual conference in Manchester, northern England September 30, 2013.  REUTERS/Phil Noble (BRITAIN  - Tags: POLITICS SOCIETY) - RTR3FFSM
  • The downside risks introduced by the UK Brexit referendum

    The unexpected ‘Leave’ victory in the recent referendum on EU membership introduces considerable political risk by elevating tail risk scenarios to reasonable worst case status. However, in a global economy that is already slow and already lacks policy space, the referendum outcome also introduces economic and financial risk. Below I have some general thoughts on those risks, with the US dollar, Italian banks, and Japanese deflation foremost among them. At a later point, I hope to also go into some more detailed scenario handicapping.

    The downside risks introduced by the UK Brexit referendum

All Content

Germany leading by example

Germany leading by example

Here’s an example of Germany’s leading by example on fiscal policy.

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Why the US Treasury should issue zero coupon consols

Imagine you could issue 30- or 50-year paper today at 3 or 4%. And you have a strong suspicion that – in the future – 2-year paper won’t be 1.15% like it is today. You think it could be 4, 5 or 6%. Why not lock in the long-term rates of today and not have to roll over that debt for 30 or 50 years? Wouldn’t you save a shed load of money for the US government?

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Why the Trump Administration’s calls for lengthening bond maturity make no sense

Why the Trump Administration’s calls for lengthening bond maturity make no sense

The problem with the Trump administration’s talk about lengthening the maturity of debt issuance is that it confuses the future path of interest rates with the steepness of the yield curve. They talk about locking in low rates. And what they mean is locking in low nominal rates today for fear that interest rates will rise in the future. But what you want to do is issue bonds at the lowest possible rate that you can while still supplying the market with the liquidity — the slug of safe assets — it needs to function properly.

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Two things you should know about Germany’s budget surplus

Two things you should know about Germany’s budget surplus

You probably heard that Germany recorded its third consecutive year of government budget surpluses. This year it was the highest full year surplus since German reunification – 24 billion euros. A lot of the commentary on this will stress whether it’s a good thing or a bad thing that Germany has surpluses. Forget all of that. There are two other things you need to know.

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Is Trump just a conventional politician who uses over-the-top bluster?

Forget about the executive orders and Trump press conferences. This is all for show – reality TV, if you will. Concentrate instead on what actually happens, what policies are actually implemented and what impact this is going to have on the economy.

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Why the election timetable favours the Five Star Movement in Italy

Yesterday, I was talking to a veteran journalist based in Rome. He remarked that youth unemployment in southern Italy was 60% and that this was one of the biggest problems to deal with politically. The spectre of strong, able-bodied young men sitting idle is always something that should fill any political system with dread – because it is exactly those same young men who always lead violent protests or revolution, no matter where in the world.

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The negotiations over Greece aren’t about Greece

Earlier today, I was listening to an interview with IMF head Christine Lagarde dance around the issue of the unsustainability of Greece’s debt load. And she said something very telling. She said that debt haircuts were not on the table but that maturity extensions and interest rate reductions were, but only AFTER Greece implemented reforms demanded by the Troika.

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Not All Germans Love The Euro These Days

Not All Germans Love The Euro These Days

Bloomberg View had a good column today on the popularity of the European single currency. The article shows how the euro has gone from being unloved in Germany at introduction in 2002 to well accepted, while the opposite has happened in Italy and France. But behind the aggregates, deep fissures lie that tell a different story. Let me start the conversation on that story here.

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Some incomplete comments on the current US economic environment

Some incomplete comments on the current US economic environment

This is going to be a quick hit post to get some thoughts down on paper because a few threads are coalescing for me that I want to give some coherence to. The essence of the threads revolves around the tension at the Fed between normalizing policy and the ability of the economy to withstand it. My view has been upbeat about the US economy – and that’s been without a trace of recession worry for the last several months. But there are some negative factors coming together that give me pause. And it begins with housing.

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Europe’s delusional economic policies

Europe’s delusional economic policies

Yesterday three big things happened in three different eurozone economies that I think are interrelated. And I am going to tell you what I believe they mean for the European political economy by tying them together in this post under the somewhat provocative banner of “Europe’s delusional economic policies”. The reason for the title is that what I see happening is an anti-growth economic framework which is having political consequences by fomenting nationalism and anti-EU sentiment.

Read more ›
If foreigners are dumping Treasuries, how should you respond as an investor?

If foreigners are dumping Treasuries, how should you respond as an investor?

One of the lead stories at Bloomberg this morning is an article about foreigners shying away from “financing the US government”. And the conclusion of this article is that it could mean higher interest rates in the US. Is this conclusion the right one though, and how should you respond as an investor? I have some thoughts on that below.

Read more ›
Republican presidential candidate Donald Trump speaks to supporters as he takes the stage for a campaign event in Dallas, Monday, Sept. 14, 2015. (AP Photo/LM Otero)

If Donald Trump remains a cultural warrior, he will fail

Early on in President Trump’s new administration, too much of his energy is being placed on divisive ‘cultural’ issues and not enough attention is being paid to economic policies. To the degree Trump has turned to the economy, much of his policy has been focused on issues that will not yield long-term economic benefits but contain considerable risk, like trade with Mexico and China. And so, while Donald Trump is only a few weeks into his presidency, I think we can begin to take stock of what his presidency will mean for the US economy.

Read more ›