What a difference a year makes …
We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. ... Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.Weiterlesen
1. Taxes should be more regressive. [...]
2. Austerity works. [...]
3. Export growth models are sustainable. [...]
4. Fannie and Freddie did it. [...]
5. Cutting Social Security benefits is a priority. [...]
6. Inflation is just around the corner. [...]
7. The Medicare eligibility age should be raised. [...]
8. Competition between Medicare and private health insurance will reform the health care system and reduce costs. [...]
9. Federal spending should be capped at 21 percent of GDP. [...]
10. Balancing the budget should involve equal parts tax hikes and government spending cuts.
Recessions after financial crises are long and severe, and the subsequent recoveries are protracted. That is the bold conclusion of “This Time Is Different,” the book by Carmen Reinhart and Kenneth Rogoff, and it has become conventional wisdom. [...]
But while there are strong patterns in the authors’ mountains of data, this simple summary misses an important fact: There’s dramatic variation in the aftermaths of crises, and much of it is caused by how policy makers respond. [...]
The [...] importance of the policy response in determining the effects of crises argues strongly against complacency here at home. A country as creditworthy as the United States can continue to use fiscal stimulus to help return the economy to full employment. And, as I argued in a previous column, there’s much more the Fed could be doing. Whether we continue to fester or finally embark on a robust recovery depends on whether we choose to use the tools available. [...]
The outlook for the global economy in 2012 is clear, but it isn’t pretty: recession in Europe, anemic growth at best in the United States, and a sharp slowdown in China and in most emerging-market economies. Asian economies are exposed to China. Latin America is exposed to lower commodity prices (as both China and the advanced economies slow). Central and Eastern Europe are exposed to the eurozone. And turmoil in the Middle East is causing serious economic risks – both there and elsewhere – as geopolitical risk remains high and thus high oil prices will constrain global growth. [...]
Restoring robust growth is difficult enough without the ever-present specter of deleveraging and a severe shortage of policy ammunition. But that is the challenge that a fragile and unbalanced global economy faces in 2012. To paraphrase Bette Davis in All About Eve, "Fasten your seatbelts, it’s going to be a bumpy year!"Quelle: Project Syndicate
The half-life of the effectiveness of European summits is growing increasingly shorter. While I have been a long-term Europessimist, market participants are more willing to trade on whatever appears to be positive news, thus markets jump whenever it appears the Europeans are taking action. But eventually the game will wear thin as market participants increasingly realize European "solutions" are never more than half-measures intended to kick the can down the road another few months.
And the last summit was no exception. The reality is quickly sinking in that, relative to the dimensions of the challenge, very little was really accomplished two weeks ago. And very little will be accomplished until European leaders come to the realization that they continue to treat the symptoms of the disease, not the cause of the disease. They need to find a mechanism to address Europe's internal imbalances that does not rely exclusively on deflation as a cure.
...the European Stability and Growth Pact ... seems to be delivering exactly the opposite of what the name of the title suggests: Instability and lack of growth.
European countries agreed to limit their government deficits and government debt (to 3% and 60% respectively) as part of the Maastricht Treaty that led to the creation of the Euro. The limits were not strictly enforced...
The constraints on fiscal policy were made more explicit through the Stability and Growth Pact that ... developed ... more specific interpretations of the limits as well as a process to deal with deviations from the rule. The Pact was a failure with many countries (including Germany) going above the deficit and debt limits. The rules were then rewritten once and just last weekend, during the European summit, there has been a proposal to rewrite them once again. This is what some have referred to as a proposal to create a fiscal union, which is clearly not the case. The proposal is simply about changing the enforcement rules of the Pact.
Academics have written extensively on how the Stability and Growth Pact was poorly designed and could not work (my own work can be found here, here or here. The criticisms can be summarized by the following three points:
- simple numerical limits are "too simple" to deal with fiscal policy. Applying the same rules to every country and every year makes no sense. And the moment you open the door for exceptions then the rules lose their meaning.Quelle: Antonio Fatas
- enforcement of the Stability and Growth Pact does not work because the enforcers is the same group as the sinners. ...
- ...even if fines are applied, what would happen to a country in trouble (Italy today) if the other European countries imposed a fine on the Italian government? That their deficit would be even larger and it would simply make things worse. [...]
And here is where we are today: starting with the concern about long-term sustainability we conclude that short-term austerity is the right policy for all European countries. But imposing coordination combined with a short-term focus on what should be a long-term goal will not deliver stability or growth. It will lead to stagnation in the region and instability in some countries as fiscal policy is not allowed to play a proper countercyclical role.
Let’s talk, in particular, about what’s happening in Europe... First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.
Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have ... failed as economic policy...; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.
Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.
Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. ...
In the event of a downgrade, S&P’s rating on EFSF will be downgraded to the lowest rating of the previously triple-As countries backing the structure (except Luxembourg6). Since France could potentially be downgraded by two notches, EFSF could potentially be downgraded to AA. If France is ultimately only downgraded by one notch, then EFSF will also only be downgraded one notch since the downgrade of the five triple-As backing the structure will be limited to one notch according to S&P. [...]
Currently, the ESM would have 58.1% share of AAA shareholders. If the six AAA euro area countries are downgraded, then this will drop to zero and it seems highly unlikely that the ESM would be able to achieve an AAA. If France is downgraded to AA flat then we see a significant risk that the ESM will not be able to be rated above that level, particularly if the lending volume significantly exceeds the paid-in capital.
Nowadays there is no shortage of pundits, economic or otherwise, warning of impending disaster. ... My view is different: 2012 ... will be a year of muddling through.
Many people think that 2012 will be the make-or-break year for Europe – either a quantum leap in European integration,... or the eurozone’s disintegration, igniting the mother of all financial crises.
In fact, neither scenario is plausible. The collapse of the eurozone would, of course, be an economic and financial calamity. But that is precisely why the European Central Bank will overcome its reluctance and intervene in the Italian and Spanish bond markets, and why the Italian and Spanish governments will, in the end, use that breathing space to complete the reforms that the ECB requires as a quid pro quo. ...
While the eurozone is unlikely to collapse in 2012, there will be no definitive answer to the question of whether the euro will survive, because there will be no quantum leap in European integration. Treaty revisions take time to draft – and more time to ratify. ...
It is a sad state of affairs when a recession qualifies as muddling through. But such is the European condition. ... But muddling through cannot continue forever. Europe needs to draw a line under its crisis and figure out how to grow. The US needs to overcome its political polarization and policy gridlock. And China needs to rebalance its economy – shifting from construction and exports to household consumption as the main engine of growth – while it still has time.
Of course, if none of this happens – or if not enough of it does – 2013 could turn out to be the annus horribilis of the perma-bears’ dreams.
[T]he most obvious point about the recent summit is that the “fiscal stability union” that it proposed is nothing of the sort. Rather than creating an inter-regional insurance mechanism involving counter-cyclical transfers, the version on offer would constitutionalize pro-cyclical adjustment in recession-hit countries, with no countervailing measures to boost demand elsewhere in the eurozone. Describing this as a “fiscal union,” as some have done, constitutes a near-Orwellian abuse of language.Quelle: Project Syndicate
Many Greeks are draining their savings accounts because they are out of work, face rising taxes or are afraid the country will be forced to leave the euro zone. By withdrawing money, they are forcing banks to scale back their lending -- and are inadvertently making the recession even worse. [...]The hemorrhaging of bank savings has had a disastrous impact on the economy. Many companies have had to tap into their reserves during the recession because banks have become more reluctant to lend. More Greek families are now living off their savings because they have lost their jobs or have had their salaries or pensions cut.
In August, unemployment reached 18.4 percent. Many Greeks now hoard their savings in their homes because they are worried the banking system may collapse.
Once again it’s Nomura taking the plunge on covering the break-up issue. In his December 4 note, the bank’s FX analyst Jens Nordvig warned that conclusions about the value of a post-euro currencies would have to be extremely provisional:
... we want to stress up-front that these estimates are unlikely to be particularly precise. They are intended to give a sense of potential magnitudes involved over a 5-year forward time frame, after which we believe temporary transition effects should be smaller.
...
A eurozone break-up will create additional short-term risks and require new risk premia for investors. These extraordinary risk premia will vary by country depending on factors such as market volatility, liquidity conditions, as well as issues relating to capital controls, including possible taxes on capital flows. Since our analysis is focussed on equilibrium considerations over a 5-year period, we will not focus directly on these more temporary effects, although we recognize that they could be crucial in the short-term.
Joe Weisenthal weist uns auf die heutige Entwicklung an den Anleihenmärkten hin:
The yields on the Italian 10-year has [sic!] fallen below 6.2%!
Just remember, it was just the week before Thanksgiving that the yield here was above 7.4%, so this is a huge move.
Obviously investors are reacting to the twin promises of new austerity as well as prospects of this week's euro crisis discussions.
Paul Krugman stellt folgendes richtig:
[J]ust about every report states as a fact that excessive [sovereign] borrowing caused the crisis. [...] So, one more time, here are some data (from the IMF World Economic Outlook database). Debt as a % of GDP for Spain and Italy:
Before the crisis Spain had low and declining debt. Italy had high debt inherited from the past, but it was steadily working that debt down relative to GDP. Neither country was being profligate — that’s just not what happened. Since the crisis debt has been rising relative to GDP, but that’s what happens when you have an economic crisis.
Quelle: NYTimes
John Maynard Keynes, who never tried to conceal that he knew more than most people, also knew the limits to his knowledge. He wrote “about these matters – the prospect of a European war, the price of copper 20 years hence – there is no scientific basis on which to form any calculable probability whatever. We simply do not know.”
And Keynes was right. He published these observations in 1921, and 20 years later Britain was engaged in a desperate, and unpredictable, struggle with Germany.
But lesser men find prognostication easier. I have been looking at some of the models people use, in both the public and private sectors to predict events.
The models share a common approach. They pose the question: “How would we make our decision if we had complete knowledge of the world?” With such information you might make a detailed assessment drawing together many different pieces of relevant information on matters such as costs, benefits, and consequences.
But little of this knowledge exists. So you make the missing data up. You assume the future will be like the past, or you extrapolate a trend. Whatever you do, no cell on the spreadsheet may be left unfilled. If necessary, you put a finger in the air. [...]
The future is assumed to be essentially like the present, with differences mainly derived from mechanical projection of current developments. Uncertainty is ignored, or dealt with in unsatisfactory ways.
Quelle: John Kay
