Post Tagged with: "credit crisis"

Understanding what a neutral macro-economic policy looks like






This is going to be a quick follow-on to the last post on monetary policy as the only game in town. I feel like the obvious question that post doesn’t answer is this one: what other policy tools we should use? And I want to tee up that question with this post.

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Why the euro crisis will happen again and Italy will be involved

Why the euro crisis will happen again and Italy will be involved






What happened in 2010 with Greece, Spain, Portugal and Ireland will happen again. But this time, Italy will be the first domino to fall. And when it does fall, Italian sovereign and bank credit risk will skyrocket. Caveat Emptor.






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The country to watch in 2017 is Turkey

The country to watch in 2017 is Turkey






If I could name three countries that will be particularly difficult for the US to deal with geopolitically, I would pick Russia, China and Turkey. The first two are obvious choices but the third is going to be equally tricky because of the increasingly heavy-handed way Turkish President Erdogan is cracking down on alleged Gulenists in the aftermath of last summer’s attempted Coup d’etat. It is Turkey’s unique relationship to the West via NATO and the increasingly authoritarian rule which will make the relationship tricky in 2017.






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Why I’m on US recession watch despite 2% growth

Why I’m on US recession watch despite 2% growth






As I start this post, I am naming it “Why I’m on US recession watch despite 2% growth”. I don’t know if that name will stick when I publish this piece; nonetheless, that is the theme I am trying to get across. When I look at the economic data, it shows a near-term in the 2% growth range – stall speed or slightly below. But when I look at the same data for medium-term clues, I still see reasons to be concerned, and, therefore, I continue to be on recession watch. Finally, I am not at all sure the Fed sees the picture as I do. December was a policy mistake. And I can’t rule out others going forward.






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The new normal that never was

The new normal that never was






The extended period of low growth following the Global Crisis was denoted the ‘New Normal’ by some. This column argues that the period is still ongoing, and would be more usefully described as the ‘New Abnormal’. Far from being an equilibrium, the low growth was achieved by progressively more aggressive and unprecedented monetary policy actions, in response to a series of financial panics. Furthermore, the aftershocks of the Crisis are still colliding with a series of profound structural changes to and instabilities in the global economy.






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The Saudis as the driving surplus oil producer

The Saudis as the driving surplus oil producer






As Brent crude hits 11-year lows, it’s worth thinking about why it is so low and what the likely outcomes will be. Warren Mosler has a view I think works regarding the Saudis as swing producer, targeting quantity instead of price and I want to run this concept by you to understand where this is headed. I believe oil is headed down. And this will have big implications for capital expenditure and economic growth.






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Thinking about the Third Avenue fund freeze as BNP Paribas from 2007

Thinking about the Third Avenue fund freeze as BNP Paribas from 2007






Last week, the high yield market seized up, in part due to jitters surrounding a high profile freeze of funds at the Third Avenue Focus Credit fund. The big problem for Third Avenue was energy high yield credit and the contagion from that sector into other credits. This latest event bears some similarities to the fund freeze at three funds at BNP Paribas in August 2007. And I think it makes sense to think of energy high yield as the equivalent in this credit cycle of residential MBS in the last cycle. So I want to put what’s happening in a broader context and make some conclusions about what it says about the credit cycle.






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The Chinese currency crisis: a mental model on catalysts, contagion and vulnerability






Many markets have now recovered from the initial wave of selling associated with the Chinese mini-devaluation catalyst. This should be expected. Some of these markets will surely continue higher. Nevertheless, the Chinese devaluation still represents an important marker in terms of global economic vulnerability. And so I want to map out a mental model on how a crisis is transmitted and why I believe this is a crisis.






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Chinese devaluation crisis has limited US impact so far

Chinese devaluation crisis has limited US impact so far






My base case is that the US stock market correction will not extend to major losses without a U.S.-based economic slowdown. Therefore, as potent as the Chinese devaluation crisis is as a signal for increasing global deflationary pressures, the U.S. should weather this episode until its vulnerable areas like shale oil run into trouble. Earnings growth vulnerability is a downside risk. In the meantime, emerging markets will continue to be impacted negatively via trade flows and commodity prices.






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The Chinese currency devaluation is now a crisis

The Chinese currency devaluation is now a crisis






After hard selling into Friday’s close in the U.S. and a global selloff in stocks today, it is clear that the Chinese mini-devaluation has begun a crisis, despite the Yuan appreciating for a seventh day. The mini-devaluation is merely a catalyst for a long overdue correction, But three questions remain. First, will the capital flows out of China force China to let the Yuan slip again? Second, will the downdraft in emerging market and commodity-heavy economies like Canada infect Europe and the United States? And, third will the US Federal Reserve resist rate hikes in the wake of the turmoil? My thoughts on those issues are below.






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How do you say “dead cat” in Latvian?

How do you say “dead cat” in Latvian?






By Frances Coppola This, my third post on Latvia, looks at its recovery from the 2008-9 recession. Latvia is often held up as the “poster child” for harsh austerity measures as the means of returning to strong economic growth. In order to hold its currency peg to the Euro, it embarked on a brutal front-loaded fiscal consolidation in 2009, sacking public […]

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Property, inequality and financial crises

Property, inequality and financial crises






So where did they get the money?

It’s an all too familiar story. Inflows of foreign capital, mainly from Scandinavian banks, attracted by low interest rates and a population hungry for credit – credit advanced, of course, against property. Latvian house prices soared and there was a construction boom. Easy credit, wealth effects and incomes from construction and real estate activities also fuelled a consumption boom: suddenly Latvia, one of the poorest countries in Europe, was flooded with Porsches and Bentleys.






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