Category: Political Economy

How Brexit makes Britain poorer, forcing Carney to stay his hand

How Brexit makes Britain poorer, forcing Carney to stay his hand






The risk in the UK is an inflationary recession. For now, Mark Carney is resisting a rate hike. But how long will the Bank of England hold out? And how long can British consumers keep spending if real wages are falling? Two things would ease this pressure. One is some sort of fiscal support for real wages. The second is the fall in oil prices. As in the US, I see oil prices as key.

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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

Why talk of a soft Brexit is misplaced






I have been hearing a lot of pundits talk about how the UK election changes the outlook for Brexit. And a lot of this stuff is misguided because the election doesn’t change the outlook in any discernible way. Here’s why.






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Secular stagnation is a policy choice

Secular stagnation is a policy choice






In my most recent posts, I have been saying that bond markets are pricing in secular stagnation scenarios based on how shallow the yield curve is. But secular stagnation is a policy choice. And that is something I thought I should highlight in view of UK Prime Minister Theresa May’s change of heart in pursuing austerity. Some comments below






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All politics are local: understanding Trump’s threats and misunderstanding Merkel’s disappointment

All politics are local: understanding Trump’s threats and misunderstanding Merkel’s disappointment






What Angela Merkel was doing this past weekend when she spoke of the need for Europe to “take our fate into our own hands” was using an international issue for domestic purposes.






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The threat of an overheated German economy

The threat of an overheated German economy






The Eurozone economy is doing really well. Some data points to 3% growth. The German economy is doing even better – with some data pointing to 5% annualized growth. But there’s a downside – overheating. And with the ECB at negative rates and engaged in 60 billion Euros of QE to boot, overheating in Germany is a reasonable fear. Some thoughts below






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Why Macron’s work was made harder by German regional elections

Why Macron’s work was made harder by German regional elections






Germany held elections in Nordrhein-Westfalen (NRW) this past weekend. And the results, while encouraging for Angela Merkel’s CDU, point to difficulties that lie ahead for French President Emmanuel Macron’s reform agenda in Europe. This is negative for periphery bonds.






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What Schäuble is really saying about Macron and Europe

What Schäuble is really saying about Macron and Europe






German Finance Minister Wolfgang Schäuble talked to German weekly Der Spiegel about the election of Emmanuel Macron as French President, and this interview is being widely quoted in the English-language press without benefit of a translation. Having read the article, I would say there is nothing extraordinary in his commentary. None of his positions have changed. Let me explain what he said below.






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Why Comey’s dismissal is negative for the economy and markets

Why Comey’s dismissal is negative for the economy and markets






It is now clear that Donald Trump dismissed FBI Director James Comey in a fit of pique over the investigations into Trump’s ties to Russia. But this move has already backfired, with the Senate investigation issuing subpoenas to former Trump National Security advisor Michael Flynn. Rather than recede, the Russian investigations will dominate headlines for weeks and months to come. […]

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Competitiveness: two tales of systemic reform with Trump and Macron

Competitiveness: two tales of systemic reform with Trump and Macron






I just finished reading an illuminating article by Andrew Ross Sorkin on healthcare and it got me to thinking about a review of structural reforms by Dani Rodrik which encapsulates the problem with fixes to ‘competitiveness’. The message: target reforms like a laser or they won’t work.






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More Europe

More Europe






At the height of the European Sovereign Debt Crisis, German leader Angela Merkel was openly calling for ‘more Europe, not less’. With Emmanuel Macron elected to the Presidency of France on that platform, Merkel has perhaps her only chance to make good on that vision. First she needs to get re-elected though. But if she gets that far — and her party’s election win last night in Schleswig-Holstein suggests she will — she has to meet Macron with a reformer’s fervour or lose Europe to nationalism.






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Some brief thoughts on Brexit negotiations and the Norway model

Some brief thoughts on Brexit negotiations and the Norway model






All negotiations are mechanisms to split the benefits of mutually acceptable outcomes. The point is to figure out if there actually is a mutually acceptable outcome, and then to get as much of the benefit for one’s side as possible. The threat of walking away from a deal is the most powerful tool in extracting benefits.






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Can Macron reform Europe?: A mental model for thinking about the economics






Having written the last piece on the intersection of Austrian economics and Post-Keynesian economics, I was asking myself the question: so what? Yes, the punch line of the piece was that both of these schools of thought lead to a world view marked by worry. But, as my friend Marcus, always asks me: how to make money from that. Here’s my answer – and I’m going to use Emmanuel Macron as the example.






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