Last week’s default of Thornburg Mortgage had an ominous sound, like the cracking of sheet ice. Wall Street now sits atop a potential collapse of confidence in asset valuations, threatening a panic that will wipe away both sound and unsound financial institutions. The week’s events also reveal how the Federal Reserve’s bail-out policy has failed to address the underlying problem of credit market seizure. Here’s what’s going on, and what must be done to prevent a meltdown. Read the rest of this entry »
Meltdown Moment: What Must be Done
March 10th, 2008The Debt Delusion
February 26th, 2008A second big American interest-rate cut in a fortnight, alongside an economic stimulus plan that united Republicans and Democrats, demonstrates that US policymakers are keen to head off a recession that looks like the likely consequence of rising mortgage defaults and falling home prices. But there is a deeper problem that has been overlooked: the US economy relies upon asset price inflation and rising indebtedness to fuel growth. Read the rest of this entry »
Winning the Edwards Vote
February 11th, 2008John Edwards’ exit from the presidential race puts his supporters up for grabs. Both Senators Clinton and Obama want those votes. Here’s how to win them.
The central plank of the Edwards’ campaign was restoring a prosperous and secure middle class, which requires ending wage stagnation and having wages again grow with productivity. This must be the central economic policy goal of any candidate wanting the Edwards vote. Read the rest of this entry »
Breaking the Neoclassical Monopoly in Economics
February 7th, 2008For the past 25 years, the so-called “Washington Consensus†– comprising measures aimed at expanding the role of markets and constraining the role of the state – has dominated economic development policy. As John Williamson, who coined the term, put it in 2002, these measures “are motherhood and apple pie, which is why they commanded a consensus.†Read the rest of this entry »
Welfare for Wall Street, Federal Reserve-Style
January 25th, 2008The Federal Reserve’s recent surprise decision to lower its short-term interest rate target by three-quarters of a point has received much attention. Most commentary has focused on the idea that the Fed is trying to stimulate spending in the hope of preventing a recession. Over-looked, and equally important, is the fact that lower interest rates raise asset prices, which is something Wall Street desperately needs to prevent a systemic meltdown. Read the rest of this entry »
Investing in China: Fool’s Gold?
January 15th, 2008Americans tend to disregard history. Henry Ford declared bluntly, “History is bunk,†while Gore Vidal calls the U.S. “the United States of Amnesia.†Usually, this disregard has few consequences, but sometimes not. That may be so with investing in China, where history suggests profits will be far below expectations, possibly making those investments fool’s gold. Read the rest of this entry »
The Subprime – Trade Deficit Connection
January 7th, 2008In recent months the U.S. subprime mortgage crisis has been rippling outward affecting other countries. British banks have made large loan loss provisions and there has been a run on the Northern Rock bank. German banks have incurred similar losses and Germany has suffered two large bank failures. European banks have also become leery about lending to each other, forcing the European Central bank to infuse emergency liquidity. Now, Japan’s banks are feeling the heat. Read the rest of this entry »
Democrats and the Meaning of Change
January 2nd, 2008Many people now believe the United States cannot afford to continue with the policies of the Bush-Cheney administration. Those policies have undermined global support for America – a key part of national security – and have produced an economic expansion that has bypassed working families and looks as if it will bequeath years of house-price pain. Read the rest of this entry »
Don’t Bet Against the Dollar
December 12th, 2007The global economy runs on the dollar, and that isn’t about to change. Today the world’s central banks hold about two thirds of their reserves in U.S. dollars. Most commodities are priced in American currency, and much of world’s trade is invoiced in dollars as well. The dollar is the lifeblood of the international system. Read the rest of this entry »
Through the Looking Glass: Saving Glut or Demand Shortage
November 7th, 2007The old saying is that “If you only have a hammer everything looks like a nailâ€. For economists, the hammer is “saving†and a host of problems are reduced to questions of saving. Nowhere is this clearer than discussions of the U.S. trade deficit and global financial imbalances, which are often explained as a saving problem. Unfortunately, this focus on saving distorts understanding and distracts from the real challenge of creating mass consumption markets in developing countries. Read the rest of this entry »