Research Programs

The State of the US and World Economies

The State of the US and World Economies

This program's central focus is the use of Levy Institute macroeconomic models in generating strategic analyses of the US and world economies. The outcomes of alternative scenarios are projected and analyzed, with the results—published as Strategic Analysis reports—serving to help policymakers understand the implications of various policy options.

The Levy Institute macroeconomic models, created by Distinguished Scholar Wynne Godley, are accounting based. The US model employs a complete and consistent system (in that all sectors “sum up,” with no unaccounted leakages) of stocks and flows (such as income, production, and wealth). The world model is a “closed” system, in which 11 trading blocs—of which the United States, China, Japan, and Western Europe are four—are represented. This model is based on a matrix in which each bloc’s imports are described in terms of exports from the other 10 blocs. From this information, and using alternative assumptions (e.g., growth rates, trade shares, and energy demands and supplies), trends are identified and patterns of trade and production analyzed.

The projections derived from the models are not presented as short-term forecasts. The aim is to display, based on analysis of the recent past, what it seems reasonable to expect if current trends, policies, and relationships continue. To inform policy, it is not necessary to establish that a particular projection will come to pass, but only that it is something that must be given serious consideration as a possibility. The usefulness of such analyses is strategic: they can serve to warn policymakers of potential dangers and serve as a guide to policy instruments that are available, or should be made available, to deal with those dangers, should they arise.



Program Publications

United States

  • Fitch Ratings Warns U.S. on Credit Rating

    In the Media | October 2013
    Tim Mullaney
    USA Today, October 16, 2013. All Rights Reserved.

    Fitch Ratings took a step toward cutting the U.S. government's AAA debt rating Tuesday, as the clock ticked toward the Thursday deadline to raise the nation's debt ceiling or risk default.

    Chicago-based Fitch, the third-largest of the major debt-rating companies behind Standard & Poor's and Moody's Investors Service, put U.S. Treasury bonds on Rating Watch Negative, which is sometimes but not always a first step before a downgrade. Fitch said in a statement that it still thinks the debt ceiling will be raised in time to prevent a default.
      Fitch said the government would have only limited capacity to make payments on the $16.7 trillion national debt after Treasury Department's emergency measures run out Thursday.

    Some Republicans have advocated Treasury make debt service payments before paying day-to-day bills, but Fitch said that may not be legal or technologically possible. Even Treasury could do that, a failure to act would still leave the U.S. missing payments for Social Security and payments to government contractors, Fitch said.

    "All of (these) would damage the perception of U.S. sovereign creditworthiness and the economy,'' Fitch said in a statement. "The prolonged negotiations over raising the debt ceiling ... risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S. This `faith' is a key reason why the U.S. 'AAA' rating can tolerate a substantially higher level of public debt than other AAA" bonds.

    Fitch said it could make a decision on whether to lower its AAA rating on U.S. debt by the end of the first quarter.

    "The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy," the Treasury Department said in response.

    One money manager quickly backed Fitch's action, which affects all U.S. bonds.

    "This action by Fitch is not about ability to pay,'' said Cumberland Advisors chief investment officer David Kotok. "It is about governance and our willingness to pay. In that category the United States has reached the brink of political failure.'' Economists have warned that there are two main ways failing to raise the debt ceiling could hurt the economy.

    One is by causing chaos in financial markets, forcing stock prices lower and freezing credit to many borrowers. The other is by forcing the government to cut spending by as much as $130 billion over as little as six weeks to avoid borrowing more, Moody's Analytics estimated last week.

    A study Tuesday by Bard College estimated that a rapid-fire balanced budget scenario would cause the U.S. economy to shrink by almost 3% in 2014 and the unemployment rate to surge to more than 9.5%.

    That is before accounting for the chance that a failure to raise the debt ceiling will push U.S. trading partners into recession, the Bard study says.

    "A recession in the United States would certainly exert a negative influence on growth in the rest of the world, which would in turn feed back to the States," Bard economist Michalis Nikiforos said.

    Moody's says it has no plans to change its Aaa rating on U.S. debt.

    Political brinksmanship was a key reason for S&P's downgrade of the U.S. to AA+ from AAA in 2011, the last time Washington flirted with refusing to raise the debt ceiling. The lack of an agreement on the debt limit this week would not necessarily trigger another S&P downgrade, spokesman John Piecuch said.

    "Passing (Oct.) 17th is not a specific trigger," Piecuch said.

    If the U.S. missed a debt payment, however, its rating would be lowered to selective default, he added.

    Contributing: John Waggoner, Adam Shell and David M. Jackson 
    Associated Program:
    Region(s):
    United States
  • Rescuing the Recovery: Prospects and Policies for the United States

    Strategic Analysis | October 2013
    If the Congressional Budget Office’s recent projections of government revenues and outlays come to pass, the United States will not grow fast enough to bring down the unemployment rate between now and 2016. The public sector deficit will decline from present levels, endangering the sustainability of the recovery. But as this new Strategic Analysis shows, a public sector stimulus of a little over 1 percent of GDP per year focused on export-oriented R & D investment would increase US competitiveness through export-price effects, resulting in a rise of net exports, and slowly lower unemployment to less than 5 percent by 2016. The improvement in net export demand would allow the US economy to enter a period of aggregate-demand rehabilitation—with very encouraging consequences at home. 

  • A New “Lehman Moment,” or Something Worse?

    Policy Note 2013/9 | October 2013
    A Scenario of Hitting the Debt Ceiling

    The United States entered the second week of a government shutdown on Monday, with no end to the deadlock in sight. The cost to the government of a similar shutdown in 1995–96 amounted to $2.1 billion in today’s dollars. However, the cost and broader consequences of today’s shutdown are not yet clear—especially since the US economy is in the midst of an anemic recovery from the biggest economic crisis of the last eight decades.

  • Embracing Wynne Godley, an Economist Who Modeled the Crisis

    In the Media | September 2013
    By Jonathan Schlefer

    The New York Times, September 10, 2013. All rights Reserved.

    Wynn Godley

    BOSTON — With the 2008 financial crisis and Great Recession still a raw and painful memory, many economists are asking themselves whether they need the kind of fundamental shift in thinking that occurred during and after the Depression of the 1930s. “We have entered a brave new world,” Olivier Blanchard, the International Monetary Fund’s chief economist, said at a conference in 2011. “The economic crisis has put into question many of our beliefs. We have to accept the intellectual challenge.”

    If the economics profession takes on the challenge of reworking the mainstream models that famously failed to predict the crisis, it might well turn to one of the few economists who saw it coming, Wynne Godley of the Levy Economics Institute. Mr. Godley, unfortunately, died at 83 in 2010, perhaps too soon to bask in the credit many feel he deserves.

    But his influence has begun to spread. Martin Wolf, the eminent columnist for The Financial Times, and Jan Hatzius, chief economist of global investment research at Goldman Sachs, borrow from his approach. Several groups of economists in North America and Europe — some supported by the Institute for New Economic Thinking established by the financier and philanthropist George Soros after the crisis — are building on his models.

    In a 2011 study, Dirk J. Bezemer, of Groningen University in the Netherlands, found a dozen experts who warned publicly about a broad economic threat, explained how debt would drive it, and specified a time frame.

    Most, like Nouriel Roubini of New York University, issued warnings in informal notes. But Mr. Godley “was the most scientific in the sense of having a formal model,” Dr. Bezemer said.

    It was far from a first for Mr. Godley. In January 2000, the Council of Economic Advisers for President Bill Clinton hailed a still “youthful-looking and vigorous” expansion. That March, Mr. Godley and L. Randall Wray of the University of Missouri-Kansas City derided it, declaring, “Goldilocks is doomed.” Within days, the Nasdaq stock market peaked, heralding the end of the dot-com bubble.

    Why does a model matter? It explicitly details an economist’s thinking, Dr. Bezemer says. Other economists can use it. They cannot so easily clone intuition.

    Mr. Godley was relatively obscure in the United States. He was better known in his native Britain — The Times of London called him “the most insightful macroeconomic forecaster of his generation” — though often as a renegade.

    Mainstream models assume that, as individuals maximize their self-interest, markets move the economy to equilibrium. Booms and busts come from outside forces, like erratic government spending or technological dynamism or stagnation. Banks are at best an afterthought.

    The Godley models, by contrast, see banks as central, promoting growth but also posing threats. Households and firms take out loans to build homes or invest in production. But their expectations can go awry, they wind up with excessive debt, and they cut back. Markets themselves drive booms and busts.

    Why did Mr. Godley, who had barely any formal economics training, insist on developing a model to inform his judgment? His extraordinary efforts to overcome a troubled childhood may be part of the explanation. Tiago Mata of Cambridge University called his life “a search for his true voice” in the face of “nagging fear that he might disappoint [his] responsibilities.”

    Mr. Godley once described his early years as shackled by an “artificial self” that kept him from recognizing his own spontaneous reactions to people and events. His parents separated bitterly. His mother was often away on artistic adventures, and when at home, she spent long hours coddling what she called “my pain” in bed.

    Raised by nannies and “a fierce maiden aunt who shook me violently when I cried,” Mr. Godley was sent at age 7 to a prep school he called a “chamber of horrors.”

    Despite all that, Mr. Godley, with his extraordinary talent, still managed to achieve worldly success. He graduated from Oxford with a first in philosophy, politics and economics in 1947, studied at the Paris Conservatory, and became principal oboist of the BBC Welsh Orchestra.

    But “nightmarish fears of letting everyone down,” he recalled, drove him to take a job as an economist at the Metal Box Company. Moving to the British Treasury in 1956, he rose to become head of short-term forecasting. He was appointed director of the Department of Applied Economics at Cambridge in 1970.

    In the early 1980s, the British Tory government, allied with increasingly conventional economists at Cambridge, began “sharpening its knives to stab Wynne,” according to Kumaraswamy Velupillai, a close friend who now teaches at the New School in New York. They killed the policy group he headed and, ultimately, the Department of Applied Economics.

    But after warning of a crash of the British pound in 1992 that took official forecasters by surprise, Mr. Godley was appointed to a panel of “six wise men” advising the Treasury.

    In 1995 he moved to the Levy Institute outside New York, joining Hyman Minsky, whose “financial instability hypothesis” won recognition during the 2008 crisis.

    Marc Lavoie of the University of Ottawa collaborated with Mr. Godley to write “Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth” in 2006, which turned out to be the most complete account he would publish of his modeling approach.

    In mainstream economic models, individuals are supposed to optimize the trade-off between consuming today versus saving for the future, among other things. To do so, they must live in a remarkably predictable world.

    Mr. Godley did not see how such optimization is conceivable. There are simply too many unknowns, he theorized.

    Instead, Mr. Godley built his economic model around the idea that sectors — households, production firms, banks, the government — largely follow rules of thumb.

    For example, firms add a standard profit markup to their costs for labor and other inputs. They try to maintain adequate inventories so they can satisfy demand without accumulating excessive overstock. If sales disappoint and inventories pile up, they correct by cutting back production and laying off workers.

    In mainstream models, the economy settles at an equilibrium where supply equals demand. To Mr. Godley, like some Keynesian economists, the economy is demand-driven and less stable than many traditional economists assume.

    Instead of supply and demand guiding the economy to equilibrium, adjustments can be abrupt. Borrowing “flows” build up as debt “stocks.”

    If rules of thumb suggest to households, firms, or the government that borrowing, debt or other things have gone out of whack, they may cut back. Or banks may cut lending. The high-flying economy falls down.

    Mr. Godley and his colleagues expressed just this concern in the mid-2000s. In April 2007, they plugged Congressional Budget Office projections of government spending and healthy growth into their model. For these to be borne out, the model said, household borrowing must reach 14 percent of G.D.P. by 2010.

    The authors declared this situation “wildly implausible.” More likely, borrowing would level off, bringing growth “almost to zero.” In repeated papers, they foresaw a looming recession but significantly underestimated its depth.

    For all Mr. Godley’s foresight, even economists who are doubtful about traditional economic thinking do not necessarily see the Godley-Lavoie models as providing all the answers. Charles Goodhart of the London School of Economics called them a “gallant failure” in a review. He applauded their realism, especially the way they allowed sectors to make mistakes and correct, rather than assuming that individuals foresee the future. But they are still, he wrote, “insufficient” in crises.

    Gennaro Zezza of the University of Cassino in Italy, who collaborated with Mr. Godley on a model of the American economy, concedes that he and his colleagues still need to develop better ways of describing how a financial crisis will spread. But he said the Godley-Lavoie approach already is useful to identify unsustainable processes that precede a crisis.

    “If everyone had remained optimistic in 2007, the process could have continued for another one or two or three years,” he said. “But eventually it would have broken down. And in a much more violent way, because debt would have piled up even more.”

    Dr. Lavoie says that one of the models he helped develop does make a start at tracing the course of a crisis. It allows for companies to default on loans, eroding banks’ profits and causing them to raise interest rates: “At the very least, we were looking in the right direction.”

    This is just the direction that economists building on Mr. Godley’s models are now exploring, incorporating “agents” — distinct types of households, firms and banks, not unlike creatures in a video game — that respond flexibly to economic circumstances. Stephen Kinsella of the University of Limerick, the Nobel laureate economist Joseph Stiglitz and Mauro Gallegati of Polytechnic University of Marche in Italy are collaborating on one such effort.

    In the meantime, Mr. Godley’s disciples say his record of forecasting still stands out. In 2007 Mr. Godley and Dr. Lavoie published a prescient model of euro zone finances, envisioning three outcomes: soaring interest rates in Southern Europe, huge European Central Bank loans to the region or brutal fiscal cuts. In effect, the euro zone has cycled among those outcomes.

    So what do the Godley models predict now? A recent Levy Institute analysis expresses concern not about serious financial imbalances, at least in the United States, but weak global demand. “The main difficulty,” they wrote, “has been in convincing economic leaders of the nature of the main problem: insufficient aggregate demand.” So far, they are not having much success.

    A version of this article appears in print on September 11, 2013, on page B1 of the New York edition with the headline: Embracing Economist Who Modeled the Crisis.

    Associated Program:
    Region(s):
    United States
  • Reorienting Fiscal Policy

    Working Paper No. 772 | August 2013
    A Critical Assessment of Fiscal Fine-Tuning

    The present paper offers a fundamental critique of fiscal policy as it is understood in theory and exercised in practice. Two specific demand-side stabilization methods are examined here: conventional pump priming and the new designation of fiscal policy effectiveness found in the New Consensus literature. A theoretical critique of their respective transmission mechanisms reveals that they operate in a trickle-down fashion that not only fails to secure and maintain full employment but also contributes to the increasing postwar labor market precariousness and the erosion of income inequality. The two conventional demand-side measures are then contrasted with the proposed alternative—a bottom-up approach to fiscal policy based on a reinterpretation of Keynes’s original policy prescriptions for full employment. The paper offers a theoretical, methodological, and policy rationale for government intervention that includes specific direct-employment and investment initiatives, which are inherently different from contemporary hydraulic fine-tuning measures. It outlines the contours of the modern bottom-up approach and concludes with some of its advantages over conventional stabilization methods.

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    United States

  • 22nd Annual Hyman P. Minsky Conference

    Building a Financial Structure for a More Stable and Equitable Economy
    A conference organized by the Levy Economics Institute of Bard College with support from the Ford Foundation   The 2013 Minsky Conference addressed both financial reform and poverty in the context of Minsky’s work on financial instability and his proposal for a public job guarantee. Panels focused on the design of a new, more robust, and stable financial architecture; fiscal austerity and the sustainability of the US economic recovery; central bank independence and financial reform; the larger implications of the eurozone debt crisis for the global economic system; improving governance of the social safety net; the institutional shape of the future financial system; strategies for promoting poverty eradication and an inclusive economy; sustainable development and market transformation; time poverty and the gender pay gap; and policy and regulatory challenges for emerging-market economies. The proceedings include the conference program, transcripts of keynote speakers’ remarks, synopses of the panel sessions, and biographies of the participants. 
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    Associated Program(s):
    Author(s):
    Barbara Ross Michael Stephens
    Region(s):
    United States

  • Economists Slow to Detect Dodgy Data

    In the Media | April 2013
    By Gareth Hutchens
    The Age (Melbourne), April 21, 2013. All Rights Reserved.

    If we needed more evidence that economics is not a science, we have it now.

    A shock wave hit the economics world this week when two of its most famous practitioners—Kenneth Rogoff and Carmen Reinhart—were found to have produced some very dodgy data to support their claims about the consequences of high government debt.

    It comes back to a research paper of theirs, Growth in a Time of Debt widely quoted since it was published in 2010. The paper shows that if government debt becomes too high—say, around 90 per cent of gross domestic product—then economic growth will almost always suffer. Global policymakers have taken it to mean that if countries with too-high debt levels want to kick-start flagging economies then they ought to begin the resuscitation process by reducing debt levels first.

    It has been repackaged into a simple message: Reduce your debt and economic growth will begin to pick up. But the corollary is that highly indebted governments should not try to spend their way out of economic stagnation because spending more will only make things worse. It has helped to provide the intellectual justification that the proponents of austerity wanted; thus the wave of austerity policies washing around the world since 2010. Millions of people have suffered because of it.

    But the intellectual edifice for the global austerity movement was severely weakened this week after it emerged that professors Reinhart and Rogoff had made some basic errors in their interpretation of data that supported their research. The errors were discovered by Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics. He published a paper this week explaining what he found, with help from two of his teachers, Michael Ash and Robert Pollin.

    The paper shows Reinhart and Rogoff had omitted data, made a mistake in their Excel spreadsheet, and used a bizarre statistical methodology, all of which skewed results. It set the academic world ablaze.

    As Nobel laureate Paul Krugman wrote: "In this age of information, maths errors can lead to disaster. NASA's Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase's "London Whale" venture went bad because modellers divided a sum instead of an average. So, did an Excel coding error destroy the economies of the Western world?"

    Reinhart and Rogoff have acknowledged they made a spreadsheet error, but they also say it didn't affect their result much.

    "It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."

    But in the brouhaha that followed, a few people have been asking why it took so long for Reinhart and Rogoff's research to be tested.

    Imagine you've handed your assignment in at school. You make some wonderful claims in it about the way the world works. Your research—based on an analysis of data of 44 countries spanning 200 years—has led you to discover that high government debt to GDP ratios above a "90 per cent threshold" almost always lead to a slowdown in economic growth. It's a law that seems to hold no matter what you throw at it. You can compare different countries in disparate regions, and once you try to take account of the fact that a country's political and financial systems evolve over time you can mix and match these things across centuries of data and the law stays the same.

    It's a striking thesis. And luckily for you, you're not expected to hand your data in with your assignment so your work can be checked. Your teacher takes your word for it. That's not how the scientific method is supposed to work. Some economists, such as L. Randall Wray of the Levy institute, say they have written to Reinhart and Rogoff in the past to ask for data, but have been rebuffed. "They ignored our request. I have heard from several other researchers that Reinhart and Rogoff also ignored their repeated requests for the data," Professor Wray wrote this week.

    It is sobering to be reminded that economic analyses, produced in this way, can have such influence in the real world. It's worth remembering next time we hear some politician referring to "economic modelling" that supports his or her claim.
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Europe

  • BCE: Constancio, faremo qualcosa perche' inflazione troppo bassa

    In the Media | April 2014
    Class Editori, April 11, 2014. All Rights Reserved.

    MILANO (MF-DJ)--La Banca centrale europea e' pronta a intervenire per affrontare il problema della bassa inflazione che continua a rimanere sotto il target ufficiale della Bce. Lo ha dichiarato il vice presidente della Bce Vitor Constancio, aggiungendo che i policy maker stanno ancora cercando di capire quali misure devono prendere e confermando che l'acquisto di titoli e' una possibilita'. "Faremo qualcosa perche' l'inflazione e' troppo bassa, e anche considerando solo il compito principale sulla stabilita' dei prezzi, noi chiaramente, nel medio termine, non stiamo raggiungendo il nostro target di inflazione del 2%. Quindi dobbiamo affrontare seriamente il nostro compito", ha detto Constancio in una conferenza a Washington sponsorizzata dal Levy Economics Institute. Il vice presidente ha sottolineato che neanche se il sistema bancario europeo ritornasse in piena salute si potrebbe garantire una ripresa della crescita economica. La Banca centrale ha posto grande enfasi sulla valutazione dei bilanci degli istituti europei prima di diventare supervisore unico alla fine dell'anno. Si spera che l'esercizio costringera' le banche a ripulire i bilanci e a raccogliere capitali, con l'obiettivo di renderli piu' forti in modo da concedere maggiori prestiti all'economia reale. Ma secondo Constancio questo modo di agire e' troppo semplicistico. "I bilanci delle banche sono gia' stati largamente riparati". Inoltre, ha aggiunto il membro della Bce, non e' assolutamente chiaro che "la finanza sia una condizione sufficiente per far ripartire la crescita europea". L'Eurozona deve affrontare numerosi problemi che "potenzialmente sono molto piu' seri dei danni inflitti dalla crisi finanziaria e la conseguente crisi del settore bancario". Questi problemi sono anche molto piu' difficili da affrontare", ha concluso il vice presidente. 
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    Europe
  • Real Time Economics

    In the Media | April 2014
    The Wall Street Journal, April 11, 2014. All Rights Reserved.

    ECB’s Constancio: “We Will Do Something” About Low Inflation.  The ECB is poised to take action to tackle the problem of low inflation that continues to consistently undershoot its official target, ECB Vice President Vitor Constancio said Thursday. He said policy makers are still trying to figure out which measures to take, adding that bond buying is a possibility.   “We will do something because the situation is that inflation is indeed very low, and even considering only our primary mandate of price stability we are clearly not achieving our target of having, on a medium-term basis, inflation below but close to 2%,” Mr. Constancio told a conference in Washington sponsored by the Levy Economics Institute. http://on.wsj.com/1n92J4q 

    ECB Constancio Says Healthy Bank Sector Won’t Guarantee Quick Economic Rebound. 
    http://on.wsj.com/1sHfLdz

    ECB’s Praet: Euro-Zone Economies ‘Will See Economic Slack Until 2017.’ The euro zone economy will see economic slack persist until 2017 at least, European Central Bank executive board member Peter Praet said Thursday, suggesting that the ECB will maintain its easy-money policies well into the future. Still, Mr. Praet signaled that the ECB is in no rush to provide additional stimulus through rate cuts or other measures, saying that the bank’s inflation outlook remains in place despite a string of weak reports. http://on.wsj.com/1ixBFaW  
    Associated Program:
    Region(s):
    Europe
  • ECB Constancio: Fully Healthy Bank Sector Won't Guarantee Quick Economic Rebound

    In the Media | April 2014
    ECB VP: Euro Zone Faces Problems That Are More Profound Than Just Weakness in the Banking Sector
    By Todd Buell and Christopher Lawton

    The Wall Street Journal, April 10, 2014. All Rights Reserved.


    The euro zone faces problems that are more profound than just weakness in the banking sector and that are harder to address, European Central Bank Vice President Vitor Constancio said Thursday.

    In remarks prepared for delivery in Washington, Mr. Constancio said that even if banks in the euro zone could completely erase the damage from the financial crisis, it wouldn't be a guarantee that strong growth and low unemployment would return quickly.

    The ECB has placed great emphasis on its assessment of banks' balance sheets, which it is carrying out before becoming the single currency's banking supervisor later this year. It is hoped that the exercise, culminating in a stress test, will force banks to clean up their balance sheets, raise capital, which should put them in a stronger position to lend to the real economy.

    But Mr. Constancio said this story line is too simplistic.

    Firstly, "bank balance sheets in the euro area have to a large degree already been repaired," he said. Furthermore, he said it was "far from clear that finance is a sufficient condition for jump-starting growth in Europe."

    "Even a complete rehabilitation of the euro area's banking system…will not guarantee a quick return to high growth and low unemployment," he added. The euro zone's economy faces numerous issues, he said, that are "are potentially more serious than the damage inflicted by the financial crisis and the subsequent euro area crisis on the euro area banking sector. These issues are also far more difficult to address."

    Mr. Constancio mentioned three issues that he called the "chief obstacles" to growth in Europe: the "remarkable" slowdown in emerging markets, the "large" drop in domestic private investment in Europe since the financial crisis, and weak domestic demand.

    The last point "is often left out of the public discourse, but micro evidence suggests that it is a problem that cannot be underestimated." He added that survey data suggest that euro-zone firms face problems on the demand side that are more serious than problems coming from bank lending.

    Mr. Constancio said that while bank deleveraging "certainly plays an important role in the inadequate current levels of credit supply to the real economy, factors related to the demand side are even more important," he said.

    Lending to the private sector has been declining in annual terms for nearly two years in the euro zone and many experts have said that this is a signal of the weakness of the recovery in the currency bloc and a factor that may force the ECB to pump more money into the 18-nation currency bloc.

    Mr. Constancio, however, said that a "creditless" recovery is "far from unusual," especially after a financial crisis.

    He said that based on current trends, the euro zone faces a future over the medium term of "stable but low growth, with unemployment evolving to lower levels in 15 years as a result of a declining active population."

    "Europe has to react swiftly if it wants to avoid a whole generation being wasted and sacrificed," he said.

    Turning to monetary policy, he said that while ECB policy will continue "to provide stimulus", the central bank can't be called upon to "do everything." Indeed, "people seem to expect too much from central banks." Rather, governments must accept responsibility to promote investment, increase demand, and implement active labor market policies, he said.

    In an apparent reference to Samuel Beckett, Mr. Constancio said that commentators have been "waiting for the Godot of a new wave of technical innovations that will save the day" out of a trap of low growth and low inflation.

    "Maybe it will come," he said. "But I am sure that we also need active policies and new economic thinking to deal with the income distribution problems that the coming technology will aggravate as well as the role of finance and demand in monetary economies where it is wrong to try to reduce macroeconomics to narrow real and long-term supply-side considerations, as our present predicament so impressively demonstrates."
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    Region(s):
    Europe
  • ECB's Peter Praet Says Euro-Zone Economies "Will See Economic Slack until 2017"

    In the Media | April 2014
    By Brian Blackstone and Christopher Lawton
    The Wall Street Journal, April 10, 2014. All Rights Reserved.

    WASHINGTON—The euro zone economy will see economic slack persist until 2017 at least, European Central Bank executive board member  Peter Praet  said Thursday, suggesting that the ECB will maintain its easy-money policies well into the future.

    Still, Mr. Praet signaled that the ECB is in no rush to provide additional stimulus through rate cuts or other measures, saying that the bank's inflation outlook remains in place despite a string of weak reports.

    "The degree of slack in the economy is very high," Mr. Praet said in a speech at a conference in Washington, D.C., sponsored by the Levy Economics Institute. "Whatever the measure you take of output gap, this output gap is unlikely to be closed in the euro zone before 2017."

    The output gap refers to the difference between the present level of gross domestic product with where it should typically be based on the economy's growth potential. When economies experience recession, as the euro zone did from late 2011 until early last year, this gap rises, limiting inflationary pressures and giving central banks added leeway to ease monetary policy.

    Mr. Praet, who heads the ECB's economics department, also noted that bank lending to the private sector remains weak in the euro zone, although there seems to be some substitution toward greater debt issuance in the capital markets.

    Mr. Praet is in Washington, D.C. for the spring meetings of the International Monetary Fund, which brings together top central bankers and finance ministers from around the world. The IMF has in recent weeks pressed the ECB to consider more dramatic stimulus measures to keep inflation from staying too low. But outside of a small rate reduction last November, the ECB has largely resisted such steps, saying inflation should gradually accelerate toward its target of just under 2%.

    Annual euro-zone inflation was 0.5% in March, more than a four-year low.

    "We have a sequence of monthly inflation that have been weaker than what we have expected. But we are still in our base scenario," Mr. Praet. The ECB expects a gradual acceleration in annual consumer-price growth toward 1.7% by the end of 2016.

    "There is a lot of noise also in the monthly figures," he said.

    At its monthly meeting last week, the ECB held interest rates steady, but it beefed up its commitment to ease policy if needed. The ECB's rate board "is unanimous in its commitment to using also unconventional instruments within its mandate to cope effectively with risks of a too prolonged period of low inflation," the bank said in its policy statement last week.

    Mr. Praet called this signal "quite important." Still, he added that expectations of future inflation remain well anchored. The design of any future ECB stimulus program will depend on the problem the bank is trying to tackle, he said.

    In his speech, Mr. Praet said divergent economic growth and productivity continues to plague the euro zone, and urged the monetary bloc's various members to embark on reforms to narrow the gap between richer and poorer countries.

    "The first decade of Economic and Monetary Union failed to produce real convergence," Mr. Praet said.

    "What the euro area needs, in my view, is to 'rerun' the convergence process."
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  • ECB’s Constancio: “We Will Do Something” About Low Inflation

    In the Media | April 2014
    By Pedro Nicolaci da Costa
    The Wall Street Journal, April 10, 2014. All Rights Reserved.

    The European Central Bank is poised to take action to tackle the problem of low inflation that continues to consistently undershoot its official target, ECB Vice President Vitor Constancio said Thursday.

    Mr. Constancio said policy makers are still trying to figure out which measures to take, adding that bond buying is a possibility.

    “We will do something because the situation is that inflation is indeed very low, and even considering only our primary mandate of price stability we are clearly not achieving our target of having, on a medium-term basis, inflation below but close to 2%. So we do take seriously our mandate,” Mr. Constancio told a conference in Washington sponsored by the Levy Economics Institute.

    During his prepared remarks, Mr. Constancio argued returning Europe’s banking system to full health would not be enough to ensure economic growth picks up.

    The ECB has placed great emphasis on its assessment of banks’ balance sheets, which it is carrying out before becoming the single currency’s banking supervisor later this year. It is hoped that the exercise, culminating in a stress test, will force banks to clean up their balance sheets, raise capital, which should put them in a stronger position to lend to the real economy. But Mr. Constancio suggested this story line is too simplistic.

    “Bank balance sheets in the euro area have to a large degree already been repaired,” he said. Furthermore, he said it was “far from clear that finance is a sufficient condition for jump-starting growth in Europe.”

    “Even a complete rehabilitation of the euro area’s banking system…will not guarantee a quick return to high growth and low unemployment,” he added. The euro zone’s economy faces numerous issues, he said, that are “are potentially more serious than the damage inflicted by the financial crisis and the subsequent euro area crisis on the euro area banking sector. These issues are also far more difficult to address.” 
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  • Fed's Tarullo: Recovery Looking "Well-Grounded" Going Forward

    In the Media | April 2014
    By Brai Odion-Esene
    MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

    WASHINGTON (MNI) - Federal Reserve Board Gov. Daniel Tarullo Wednesday night sounded bullish in his outlook for the U.S. economy the rest of this year, saying the Fed's aggressive actions have continued to play a major role.

    "Unconventional monetary policies have been critical in supporting the moderate recovery that we have had, which I think now is looking reasonably well-grounded going forward," he said during a question and answer question following a speech at the Levy Economic Institute's Hyman Minsky Conference.

    This is reflected in the "fairly large" expectations that growth is going to be picking up over the course of this year," he said.

    The U.S. economy is recovering at a modest pace, Tarullo said, and he argued that the policy pursued by the Fed "has been essential to ensure that moderate pace of recovery."

    At the same time, he acknowledged that the Fed's aggressive actions have not created "the kind of recovery that everybody would have preferred."

    Tarullo said the Fed's asset purchase program and its zero interest rate policies have had "a pretty demonstrable effect" on interest rate-sensitive sectors such as auto sales and the housing market.

    "In doing what we have done to try to affect longer term rates and not just short-term rates, I think we've actually facilitated a bunch of economic activity that would not have otherwise taken place," he added.

    The level of aggregate demand continues to be inadequate, he said, a fact that is highlighted by the "relatively low rates" of capital investments by businesses.

    This is because firms have decided that "the demand they expect does not justify the additional investment in capacity," Tarullo said.
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  • Structural Asymmetries at the Roots of the Eurozone Crisis

    Working Paper No. 794 | March 2014
    What’s New for Industrial Policy in the EU?

    In this paper, we analyze and try to measure productive and technological asymmetries between central and peripheral economies in the eurozone. We assess the effects such asymmetries would likely bring about on center–periphery divergence/convergence patterns, and derive some implications as to the design of future industrial policy at the European level. We stress that future European Union (EU) industrial policy should be regionally focused and specifically target structural changes in the periphery as the main way to favor center–periphery convergence and avoid the reappearance of past external imbalances. To this end, a wide battery of industrial policy tools should be considered, ranging from subsidies and fiscal incentives to innovative firms, public financing of R & D efforts, sectoral policies, and public procurements for home-produced goods. All in all, future EU industrial policy should be much more interventionist than it currently is, and dispose of much larger funds with respect to the present setting in order to effectively pursue both short-run stabilization and long-run development goals.

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  • The Jobs-Currency Connection in Greece

    In the Media | March 2014
    Dimitri B. Papadimitriou
    Huffington Post, March 25, 2014. All Rights Reserved.

    Negotiations between the Greek government and its international lenders were finally resolved last week, after seven long months. In January, Prime Minister Antonis Samaras made a celebratory announcement projecting a small, 2013 primary budget surplus of 1.5 billion euros. Also recently announced: European Union co-funding for a long-delayed 7.5 billion euro road construction project in 2014.

    Sounds good. No reason to suggest that Greece needs an extreme monetary makeover right now, is there? Yes, there is. Talk of a recovery isn't just premature, it reflects a complete fantasy. For starters, at today's rate of net job creation Greece won't reach a reasonable employment level for more than a decade. That's too long.

    An alternative domestic currency could be the basis for a solution. A parallel currency that was used to finance a government employment program would provide a relatively quick restoration of a lost standard of living to a large fraction Greece's population. We reached that conclusion at the Levy Institute after modeling multiple scenarios based on the narrow range of available options.

    Here's the context that makes such a radical move rational: The failures of the current strategy have been so great that even a total abandonment of austerity programs now would provide relief only at a very slow pace. A modest increase in government spending like the infrastructure project, while the right approach, isn't nearly powerful enough to fuel a turnaround; once it's finished the economy will contract again. And the primary surplus stems from conditions unlikely to be sustained: dramatic spending cuts, higher taxes, and a one-off return of earnings by European central banks on their holdings of Greek government bonds.

    Bank lending is down (by 3.9 percent), real interest is up to its highest rate since Greece joined the European Monetary Union (8.3 percent), and price deflation has set in. Unemployment just reached a new high of 24.9 percent for men, 32.2 percent for women, and a breathtaking 61.4 percent for youths. Even the shots at reducing the debt to GDP ratio, the foremost priority of Greece's creditors, have been spectacular misfires. It has risen from 125 percent at the crisis onset to 175 percent now.

    To repair Greece's position, numerous ideas have been floated for a currency that would function alongside the euro. Proposals have been termed everything from 'government IOUs' to 'tax anticipation notes' to 'new,' 'local,' or 'fiscal' currencies; most visibly, Thomas Mayer of Deutsche Bank coined (so to speak) 'geuros.' Some plans envisioned an orderly exit out of the euro. Most shared the perspective of the troika -- the European Central Bank, the European Commission, and the International Monetary Fund -- that export-led growth through increased price competitiveness and lower wages is central to solving the problem.

    Our policy synthesis fundamentally differs from those views. We see Greece remaining in the Eurozone and initiating a parallel financial system that, most importantly, restores liquidity in the domestic market.

    Why not stress exports? Price elasticity in Greece's trade sector is low, our analysis shows, which explains why there hasn't been much evidence of success in export growth. Of course exports are important, but even China, with its gigantic export-guided economy, has recognized the need to increase and stabilize domestic demand.

    That should be the focus in Greece, too. We modeled a parallel financial system that would stimulate demand by financing an employment guarantee program known as an ELR; the government serves as the Employer of Last Resort. It would hire anyone able and willing to work to produce public goods. Wage levels would be low enough to make private employment more attractive, but high enough to ensure a decent living standard. The program would be financed by a government issue of a parallel currency... call it the geuro.

    Geuros would essentially be small denomination zero-coupon bonds: transferable instruments with no interest payment, no repayment of principal, and no redemption, that would be acceptable at par for tax payments. This kind of arrangement is well-known in public finance.

    The government would use the alternative currency to pay domestic debts, unemployment benefits, and a portion of wages for public employees. And it would demand that a share of taxes and social benefits be paid in geuros.

    Foreign trade would still require euros, which would remain in circulation, and Greece's private sector would still do business in euros. The currency would be convertible only in one direction, from euro to geuro.

    In our simulation, 550,000 jobs (and many more indirect ones, via a sensible fiscal multiplier) would be created at a net cost of 3.5b geuros per year. The infusion would contribute a 7 percent GDP increase, and there would still be a sizable euro surplus. As with any fiscal stimulus, the overall deficit would increase and there would be a deterioration in the balance of payments, although a manageable one.

    Restoring domestic demand needs to be Greece's economic policy emphasis. Despite any downsides, a parallel currency that supports an employment guarantee program would be a U-turn towards rebuilding the population's purchasing power -- and rebuilding Greece's ravished economy.

    This article originally appeared on EconoMonitor on March 24, 2014, under the title "The Currency/Jobs Connection in Greece."
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  • The Myth of the Greek Economic “Success Story”

    Policy Note 2014/3 | February 2014
    In 2001, a three-year, multicountry study by the Structural Adjustment Participatory Review International Network (SAPRIN), prepared in cooperation with the World Bank, national governments, and civil society organizations, offered a damning indictment of the policies of structural adjustment reform pursued by the IMF and the World Bank in third world countries. The structural adjustment programs in Greece, combined with the policies of austerity, are producing results that fit the patterns outlined in the SAPRIN study like a glove.   This policy note rejects the myth of Greece as an economic success story and argues that current trends and developments in the country make for a bleak economic future. The experiment under way in Greece will produce an economy resembling, not the Celtic Tiger of the mid-1990s to early 2000s, as the current government envisions, but an underdeveloped Latin America country of the 1980s.

Asia

  • China: The Bad Way and the Good Way to Burst Asset Bubbles

    In the Media | April 2014
    By Panos Mourdoukoutas

    Forbes, April 14, 2014. All Rights Reserved.

    For years, China has been enjoying robust economic growth that has turned it into the world’s second largest economy.

    The problem is, however, that China’s growth is in part driven by over investment in construction and manufacturing sectors, fueling asset bubbles that parallel those of Japan in the late 1980s. With one major difference: China’s overinvestment is directed by the systematic efforts of local governments to preserve the old system of central planning, through massive construction and manufacturing projects for the purpose of employment creation rather than for addressing genuine consumer needs.

    Major Chinese cities are filled with growing numbers of new vacant buildings. They were built under government mandates to provide jobs for the hundreds of thousands of people leaving the countryside for a better life in the cities, rather than to house genuine business tenants.

    China’s real estate bubble is proliferating like an infectious disease from the eastern cities to the inner country. It has spread beyond real estate to other sectors of the economy, from the steel industry to electronics and toys industries.  Local governments rush and race to replicate each other’s policies, especially local governments of the inner regions, where corporate managers have no direct access to overseas markets, and end up copying the policies of their peers in the coastal areas.

    We all know how the Japanese bubble ended. What should Chinese policy makers do? How can they burst their bubble?

    There is  a bad way and a good way, according to L. Randall Wray and Xinhua Liu, writing in "Options for China in a Dollar Standard World: A Sovereign Currency Approach.” (Levy Economics Institute, Working Paper No 783, January 2014).

    The bad way is to pursue European-style austerity, which reins in central government deficits.

    We all know what that means–the Chinese economy is almost certain to be placed in a downward spiral that will jeopardize employment growth. Besides, as the authors observe, China’s fiscal imbalances aren’t with central government, but with local governments. In fact, China’s main imbalance “appears to be a result of loose local government budgets and overly tight central government budgets.”

    That’s why the authors propose fiscal restructuring rather than austerity. Rein in local government spending, and expand central government spending.

    That’s the good way to burst the bubble. But is it politically feasible? Can Beijing reign over local governments?

    That remains to be seen. 

  • Options for China in a Dollar Standard World

    Working Paper No. 783 | January 2014
    A Sovereign Currency Approach
    This paper examines the fiscal and monetary policy options available to China as a sovereign currency-issuing nation operating in a dollar standard world. We first summarize a number of issues facing China, including the possibility of slower growth, global imbalances, and a number of domestic imbalances. We then analyze current monetary and fiscal policy formation and examine some policy recommendations that have been advanced to deal with current areas of concern. We next outline the sovereign currency approach and use it to analyze those concerns. We conclude with policy recommendations consistent with the policy space open to China.

  • Policy Options for China

    One-Pager No. 44 | December 2013
    Reorienting Fiscal Policy to Reduce Financial Fragility
    Since adopting a policy of gradually opening its economy more than three decades ago, China has enjoyed rapid economic growth and rising living standards for much of its population. While some argue that China might fall into the middle-income “trap,” they are underestimating the country’s ability to continue to grow at a rapid pace. It is likely that China’s growth will eventually slow, but the nation will continue on its path to join the developed high-income group—so long as the central government recognizes and uses the policy space available to it. 

  • Managing Global Financial Flows at the Cost of National Autonomy

    Working Paper No. 714 | April 2012
    China and India

    The narrative as well as the analysis of global imbalances in the existing literature are incomplete without the part of the story that relates to the surge in capital flows experienced by the emerging economies. Such analysis disregards the implications of capital flows on their domestic economies, especially in terms of the “impossibility” of following a monetary policy that benefits domestic growth. It also fails to recognize the significance of uncertainty and changes in expectation as factors in the (precautionary) buildup of large official reserves. The consequences are many, and affect the fabric of growth and distribution in these economies. The recent experiences of China and India, with their deregulated financial sectors, bear this out.

    Financial integration and free capital mobility, which are supposed to generate growth with stability (according to the “efficient markets” hypothesis), have not only failed to achieve their promises (especially in the advanced economies) but also forced the high-growth developing economies like India and China into a state of compliance, where domestic goals of stability and development are sacrificed in order to attain the globally sanctioned norm of free capital flows.

    With the global financial crisis and the specter of recession haunting most advanced economies, the high-growth economies in Asia have drawn much less attention than they deserve. This oversight leaves the analysis incomplete, not only by missing an important link in the prevailing network of global trade and finance, but also by ignoring the structural changes in these developing economies—many of which are related to the pattern of financialization and turbulence in the advanced economies.

  • The Rise and Fall of Export-led Growth

    Working Paper No. 675 | July 2011

    This paper traces the rise of export-led growth as a development paradigm and argues that it is exhausted owing to changed conditions in emerging market (EM) and developed economies. The global economy needs a recalibration that facilitates a new paradigm of domestic demand-led growth. Globalization has so diversified global economic activity that no country or region can act as the lone locomotive of global growth. Political reasoning suggests that EM countries are not likely to abandon export-led growth, nor will the international community implement the international arrangements needed for successful domestic demand-led growth. Consequently, the global economy likely faces asymmetric stagnation.

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    Thomas I. Palley
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  • China in the Global Economy

    Working Paper No. 642 | December 2010

    China occupies a unique position among developing countries. Its success in achieving relative stability in the financial sector since the institution of reforms in 1979 has given way to relative instability since the beginning of the current global financial crisis. Over the last few years, China has been on a path of capital account opening that has drawn larger inflows of capital from abroad, both foreign-direct and portfolio investment. Of late, a surge in these inflows has introduced problems for the monetary authorities in continuing with an autonomous monetary policy in China, especially with large additions to official reserves, the latter in a bid to avoid further appreciation of the country’s domestic currency. Like other developing countries, China today faces the “impossible trilemma” of managing the exchange rate with near-complete capital mobility and an autonomous monetary policy. Facing problems in devising and sustaining this policy, China has been using expansionary fiscal policy to tackle the impact of shrinking export demand. The recent drive on the part of Chinese authorities to boost real demand in the countryside and to revamp the domestic market shows a promise far different from that of the financial rescue packages in many advanced nations.

    The close integration of China with the world economy over the last two decades has raised concerns from different quarters that relate both to (1) the possible effects of the recent global downturn on China and (2) the second-round effects of a downturn in China for the rest of world.

     

  • Asia and the Global Crisis

    Working Paper No. 619 | September 2010
    Recovery Prospects and the Future

    The global crisis of 2007–09 affected developing Asia largely through a decline in exports to the developed countries and a slowdown in remittances. This happened very quickly, and by 2009 there were already signs of recovery (except on the employment front). This recovery was led by China’s impressive performance, aided by a large stimulus package and easy credit. But China needs to make efforts toward rebalancing its economy. Although private consumption has increased at a fast pace during the last decades, investment has done so at an even faster pace, with the consequence that the share of consumption in total output is very low. The risk is that the country may fall into an underconsumption crisis.

    Looking at the medium and long term, developing Asia’s future is mixed. There is one group of countries with a highly diversified export basket. These countries have an excellent opportunity to thrive if the right policies are implemented. However, there is another group of countries that relies heavily on natural resources. These countries face a serious challenge, since they must diversify.

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  • How to Sustain the Chinese Economic Miracle?

    Working Paper No. 617 | September 2010
    The Risk of Unraveling the Global Rebalancing

    This paper investigates China’s role in creating global imbalances, and the related call for a massive renminbi revaluation as a (supposed) panacea to forestall their reemergence as the world economy recovers from severe crisis. We reject the prominence widely attributed to China as a cause of global imbalances and the exclusive focus on the renminbi-dollar exchange rate as misguided. And we emphasize that China's response to the global crisis has been exemplary. Apart from acting as a growth leader in the global recovery by boosting domestic demand to offset the slump in exports, China has in the process successfully completed the first stage in rebalancing its economy, which is in stark contrast to other leading trading nations that have simply resumed previous policy patterns. The second stage in China’s rebalancing will consist of further strengthening private consumption. We argue that this will be best supported by continued reliance on renminbi stability and capital account management, so as to assure that macroeconomic policies can be framed in line with domestic development requirements.

  • Why China Has Succeeded—and Why It Will Continue to Do So

    Working Paper No. 611 | August 2010
    The key factor underlying China’s fast development during the last 50 years is its ability to master and accumulate new and more complex capabilities, reflected in the increase in diversification and sophistication of its export basket. This accumulation was policy induced and not the result of the market, and began before 1979. Despite its many policy mistakes, if China had not proceeded this way, in all likelihood it would be a much poorer country today. During the last 50 years, China has acquired revealed comparative advantage in the export of both labor-intensive products (following its factor abundance) and sophisticated products, although the latter does not indicate that there was leapfrogging. Analysis of China’s current export opportunity set indicates that it is exceptionally well positioned (especially taking into account its income per capita) to continue learning and gaining revealed comparative advantage in the export of more sophisticated products. Given adequate policies, carefully thought-out and implemented reforms, and skillful management of constraints and risks, China has the potential to continue thriving. This does not mean, however, that high growth will continue indefinitely.
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  • Asia's revenge

    In the Media | October 2008
    By Martin Wolf

    October 8, 2008. Copyright 2008 The Financial Times Limited. “FT” and “Financial Times” are trademarks of the Financial Times.

    “Things that can’t go on forever, don’t.” —Herbert Stein, former chairman of the US presidential Council of Economic Advisers

    What confronts the world can be seen as the latest in a succession of financial crises that have struck periodically over the last 30 years. The current financial turmoil in the US and Europe affects economies that account for at least half of world output, making this upheaval more significant than all the others. Yet it is also depressingly similar, both in its origins and its results, to earlier shocks.

    To trace the parallels—and help in understanding how the present pressing problems can be addressed—one needs to look back to the late 1970s. Petrodollars, the foreign exchange earned by oil exporting countries amid sharp jumps in the crude price, were recycled via western banks to less wealthy emerging economies, principally in Latin America.

    This resulted in the first of the big crises of modern times, when Mexico’s 1982 announcement of its inability to service its debt brought the money-centre banks of New York and London to their knees.

    Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University identify the similarities in a paper published earlier this year.* They focus on previous crises in high-income countries. But they also note characteristics that are shared with financial crises that have occurred in emerging economies.

    This time, most emerging economies have been running huge current account surpluses. So a “large chunk of money has effectively been recycled to a developing economy that exists within the United States’ own borders,” they point out. “Over a trillion dollars was channelled into the subprime mortgage market, which is comprised of the poorest and least creditworthy borrowers within the US. The final claimaint is different, but in many ways the mechanism is the same.”

    The links between the financial fragility in the US and previous emerging market crises mean that the current banking and economic traumas should not be seen as just the product of risky monetary policy, lax regulation and irresponsible finance, important though these were. They have roots in the way the global economy has worked in the era of financial deregulation. Any country that receives a huge and sustained inflow of foreign lending runs the risk of a subsequent financial crisis, because external and domestic financial fragility will grow. Precisely such a crisis is now happening to the US and a number of other high-income countries including the UK.

    These latest crises are also related to those that preceded them—particularly the Asian crisis of 1997–98. Only after this shock did emerging economies become massive capital exporters. This pattern was reinforced by China’s choice of an export-oriented development path, partly influenced by fear of what had happened to its neighbours during the Asian crisis. It was further entrenched by the recent jumps in the oil price and the consequent explosion in the current account surpluses of oil exporting countries.

    The big global macroeconomic story of this decade was, then, the offsetting emergence of the US and a number of other high-income countries as spenders and borrowers of last resort. Debt-fuelled US households went on an unparalleled spending binge by dipping into their housing “piggy banks.”

    In explaining what had happened, Ben Bernanke, when still a governor of the Federal Reserve rather than chairman, referred to the emergence of a “savings glut.” The description was accurate. After the turn of the millennium, one of the striking features became the low level of long-term nominal and real interest rates at a time of rapid global economic growth. Cheap money encouraged an orgy of financial innovation, borrowing and spending.

    That was also one of the initial causes of the surge in house prices across a large part of the high-income world, particularly in the US, the UK and Spain.

    What lay behind the savings glut? The first development was the shift of emerging economies into a large surplus of savings over investment. Within the emerging economies, the big shifts were in Asia and in the oil exporting countries (see chart). By 2007, according to the International Monetary Fund, the aggregate savings surpluses of these two groups of countries had reached around 2 per cent of world output.

    figures

    Despite being a huge oil importer, China emerged as the world’s biggest surplus country: its current account surplus was $372bn (£215bn, €272bn) in 2007, which was not only more than 11 per cent of its gross domestic product, but almost as big as the combined surpluses of Japan ($213bn) and Germany ($185bn), the two largest high-income capital exporters.

    Last year, the aggregate surpluses of the world’s surplus countries reached $1,680bn, according to the IMF. The top 10 (China, Japan, Germany, Saudi Arabia, Russia, Switzerland, Norway, Kuwait, the Netherlands and the United Arab Emirates) generated more than 70 per cent of this total. The surpluses of the top 10 countries represented at least 8 per cent of their aggregate GDP and about one-quarter of their aggregate gross savings.

    Meanwhile, the huge US deficit absorbed 44 per cent of this total. The US, UK, Spain and Australia—four countries with housing bubbles—absorbed 63 per cent of the world’s current account surpluses.

    That represented a vast shift of capital—but unlike in the 1970s and early 1980s, it went to some of the world’s richest countries. Moreover, the emergence of the surpluses was the result of deliberate policies—shown in the accumulation of official foreign currency reserves and the expansion of the sovereign wealth funds over this period.

    Quite reasonably, the energy exporters were transforming one asset—oil—into another—claims on foreigners. Others were recycling current account surpluses and private capital inflows into official capital outflows, keeping exchange rates down and competitiveness up. Some described this new system, of which China was the most important proponent, as “Bretton Woods II,” after the pegged adjustable exchange rates set-up that collapsed in the early 1970s. Others called it “export-led growth” or depicted it as a system of self-insurance.

    Yet the justification is less important than the consequences. Between January 2000 and April 2007, the stock of global foreign currency reserves rose by $5,200bn. Thus three-quarters of all the foreign currency reserves accumulated since the beginning of time have been piled up in this decade. Inevitably, a high proportion—probably close to two-thirds—of these sums were placed in dollars, thereby supporting the US currency and financing US external deficits.

    The savings glut had another dimension, related to a second financial shock—the bursting of the dot-com bubble in 2000. One consequence was the move of the corporate sectors of most high-income countries into financial surplus. In other words, their retained earnings came to exceed their investments. Instead of borrowing from banks and other suppliers of capital, non-financial corporations became providers of finance.

    In this world of massive savings surpluses in a range of important countries and weak demand for capital from non-financial corporations, central banks ran easy monetary policies. They did so because they feared the possibility of a shift into deflation. The Fed, in particular, found itself having to offset the contractionary effects of the vast flow of private and, above all, public capital into the US.

    A simple way of thinking about what has happened to the global economy in the 2000s is that high-income countries with elastic credit systems and households willing to take on rising debt levels offset the massive surplus savings in the rest of the world. The lax monetary policies facilitated this excess spending, while the housing bubble was the vehicle through which it worked.

    The charts show what happened, as a result, to “financial balances”—the difference between expenditure and income inside the US economy. If one looks at three sectors—foreign, government and private—it is evident that the first has had a huge surplus this decade—offset, as it has to be, by deficits in the other two.

    In the early 2000s, the US fiscal deficit was the main offset. In the middle years of the decade, the private sector ran a large deficit while the government’s shrank. Now that the recession-hit private sector is moving back into balance at enormous speed, the government deficit is exploding once again.

    Looking at what happened inside the private sector, a striking contrast can be seen between the corporate and household realms. Households moved into a huge financial deficit, which peaked at just under 4 per cent of GDP in the second quarter of 2005. Then, as the housing bubble burst, housebuilding collapsed and households started saving more. With remarkable speed, the household financial deficit disappeared. Today’s explosion in the fiscal deficit is the offset.

    Inevitably, huge household financial deficits also mean huge accumulations of household debt. This was strikingly true in the US and UK. In the process, the financial sector accumulated an ever greater stock of claims not just on other sectors but on itself. This frightening complexity, which lies at the root of many of the current difficulties, was facilitated by the environment of easy borrowing and search for high returns in an environment of low real rates of interest. These linked dangers between external and internal imbalances, domestic debt accumulations and financial fragility were foretold by a number of analysts. Foremost among them was Wynne Godley of Cambridge University in his prescient work for the Levy Economics Institute of Bard College, which has laid particular stress on the work of the late Hyman Minsky.**

    So what might—and should—happen now? The big danger, evidently, is of a financial collapse. The principal offset, in the short run, to the inevitable cuts in spending in the private sector of the crisis-afflicted economies will also be vastly bigger fiscal deficits.

    Fortunately, the US and the other afflicted high-income countries have one advantage over the emerging economies: they borrow in their own currencies and have creditworthy governments. Unlike emerging economies, they can therefore slash interest rates and increase fiscal deficits.

    Yet the huge fiscal boosts and associated government recapitalisation of shattered financial systems are only a temporary solution. There can be no return to business as usual. It is, above all, neither desirable nor sustainable for global macroeconomic balance to be achieved by recycling huge savings surpluses into the excess consumption of the world’s richest consumers. The former point is self-evident, while the latter has been demonstrated by the recent financial collapse.

    So among the most important tasks ahead is to create a system of global finance that allows a more balanced world economy, with excess savings being turned into either high-return investment or consumption by the world’s poor, including in capital-exporting countries such as China. A part of the answer will be the development of local-currency finance in emerging economies, which would make it easier for them to run current account deficits than proved to be the case in the past three decades.

    It is essential in any case for countries in a position to do so to expand domestic demand vigorously. Only in this way can the recessionary impulse coming from the corrections in the debt-laden countries be offset.

    Yet there is a still bigger challenge ahead. The crisis demonstrates that the world has been unable to combine liberalised capital markets with a reasonable degree of financial stability. A particular problem has been the tendency for large net capital flows and associated current account and domestic financial balances to generate huge crises. This is the biggest of them all.

    Lessons must be learnt. But those should not just be about the regulation of the financial sector. Nor should they be only about monetary policy. They must be about how liberalised finance can be made to support the global economy rather than destabilise it.

    This is no little local difficulty. It raises the deepest questions about the way forward for our integrated world economy. The learning must start now.

    *“Is the 2007 US subprime financial crisis so different? An international historical comparison.” Working paper 13761, www.nber.org

    **The US economy: Is there a way out of the woods? November 2007, www.levyinstitute.org

    The writer is the FT’s chief economics commentator and author of Fixing Global Finance, published in the US this month by Johns Hopkins University Press and forthcoming in the UK through Yale University Press.

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  • Antídoto

    In the Media | April 2014
    Por Alfredo Zaiat
    Fracasos Múltiples Internacionales está regresando al escenario político y económico argentino. La moción de censura y la amenaza de iniciar el camino de la expulsión del país de esa institución por la calidad de las estadísticas públicas colocó al Gobierno en una situación incómoda. La opción era romper con ese organismo internacional, convirtiéndose en el único país del mundo en quedar fuera de esa entidad multilateral, lo que hubiera derivado en la marginación del G-20, en la clausura al acceso de créditos del Banco Mundial, el BID y del mercado, y en deteriorar la reputación internacional frente a otros países, o negociar el espacio de intervención de sus técnicos. Esta última fue la elección del gobierno de CFK. Implicó una primera evaluación silenciosa del FMI sobre el sistema financiero local el año pasado y luego la cooperación técnica para la elaboración del nuevo índice de precios al consumidor y la actualización del indicador PBI. La evaluación general de la economía (el conocido artículo IV del convenio constitutivo del Fondo, en cuya sección 3 establece “la supervisión de las políticas de tipo de cambio de los países miembros”) es la única cuestión de tensión en la relación Argentina-FMI.

    Aceptar la revisión anual es una decisión política, de carácter simbólico, más que económico. En Washington, en el marco de la Asamblea Anual conjunta del FMI-BM Axel Kicillof le reiteró a David Lipton, subdirector gerente del Fondo Monetario Internacional, que el país no analiza volver a aceptar las auditorías anuales. Argentina no registra deuda con el FMI después de que el 5 de enero de 2006 cancelara el total por 9530 millones de dólares, y no está negociando ni requiere de un crédito del organismo atado a condicionalidades en la política económica. Instrumenta una estrategia heterodoxa que no es simpática al staff del Fondo, como quedó expresado en el último Perspectivas Económicas Mundiales. Estos técnicos consideran a la Argentina como un mal ejemplo por su política económica de crecimiento, inclusión social y autonomía del mercado de capitales. También es resistida por la persistente crítica a las recetas ortodoxas realizada por CFK en foros internacionales.

    Después de ocho años de esa tensa relación, para las autoridades del Fondo les resulta satisfactorio retomar el vínculo con el país, como lo dijo su director gerente, Christine Lagarde, para mostrar que todas las ovejas están en el rebaño. Mientras, para el Gobierno le resulta necesario para despejar el frente externo en un contexto de escasez de divisas, y para facilitar la negociación del default de doce años con el Club de París. Incluso sin revisión anual de la economía es una reconciliación por conveniencia mutua.

    El entusiasmo que manifiestan analistas y economistas del establishment por cada comentario de funcionarios del Fondo o del Banco Mundial, excitación exacerbada si incluye algún componente crítico, es una particularidad argentina. En general las observaciones del Fondo no son tomadas con seriedad, puesto que ya ha habido suficiente experiencia global para comprobar el fracaso de sus recomendaciones. En los hechos, el FMI es esencialmente un actor político para condicionar políticas económicas en función de garantizar el pago de la deuda a los acreedores, además de preservar los intereses económicos de las potencias (Estados Unidos y Europa).

    Sobre ese rol del Fondo, la ex presidenta del Banco Central, Mercedes Marcó del Pont, señaló que “frente a los datos que muestran una desaceleración en las economías de la región el FMI, una vez más con serios problemas de diagnóstico, recomienda medidas que profundizarían los problemas. El desafío para América latina es utilizar el espacio de política ganado en estos años para sostener los niveles de actividad y empleo, con políticas anticíclicas, fundamentalmente en el terreno fiscal, para sostener la demanda interna”. Lo afirmó el miércoles pasado en la Minsky Conference, en Washington, siendo la primera vez que habló en público desde que dejó el cargo, ratificando que es diferente a otros ex funcionarios que cuando dejaron el gobierno se dedicaron a castigar a la Argentina en foros internacionales. Marcó Del Pont destacó la solvencia de la economía argentina en el 23rd Annual Hyman P. Minsky Conference on the State of the US and World Economics, organizado por el Levy Economics Institute. Participó del panel Financial re-regulation to support growth and employment (re-regulación financiera para impulsar el crecimiento y el empleo). Los principales conceptos de Marcó del Pont sobre la situación económica de América latina y, en particular, de Argentina, fueron los siguientes:

    - No puede ignorarse que los dos factores clave que han promovido a nivel agregado el crecimiento de la región, el denominado viento de cola (precios de los commodities y flujos de capital) han acentuado, salvo casos excepcionales como el de Argentina, la primarización de sus estructuras productivas.

    - América latina deberá lidiar con estos fenómenos en un contexto internacional que se presenta menos benévolo para nuestras naciones ya que ni las condiciones de liquidez internacional ni los términos del intercambio se proyectan tan favorables como hasta ahora.

    - El desafío pasa entonces por delinear estrategias anticíclicas que al mismo tiempo que busquen sostener los niveles de actividad y empleo, actúen también en la transformación de sus estructuras productivas, alentando la diversificación e industrialización. Para ello deben maximizar el uso del espacio de política ganado durante la década.

    - La región tiene márgenes de maniobra para encarar ese desafío. En gran medida ello quedó de manifiesto durante lo peor de la crisis de 2008-2009. Disponen, por un lado, de mercados internos dinámicos que han constituido la base de sustentación del crecimiento durante los últimos años. Y a diferencia de lo ocurrido en las décadas del ’80 y ’90 América latina no atraviesa en general por situaciones de fragilidad financiera o elevada exposición en materia de endeudamiento externo. Ambos rasgos son particularmente ciertos en el caso de Argentina.

    - Ahora bien, esta descripción no supone ignorar que en la gran mayoría de los países de la región (ciertamente no en Argentina) persiste un elevado grado de integración con los mercados financieros internacionales, lo cual potencia su exposición a los ciclos de liquidez internacional. Recordemos que la cuenta capital y financiera de América latina registra el más elevado grado de apertura de todas las economías del mundo en desarrollo.

    - El diagnóstico predominante y las recomendaciones subsecuentes que surgen del main stream no toman en cuenta estos fenómenos estructurales, complejos, que caracterizan a nuestras economías. Persiste, en cambio, una unilateral preocupación por la ausencia de “reformas estructurales” (léase mayor flexibilización del mercado de trabajo) o por la presencia de la “dominancia fiscal” (léase ajuste fiscal) como uno de los principales fenómenos explicativos de inestabilidad macroeconómica y de crisis. Se soslaya en el debate la importancia de la “dominancia de la balanza de pagos” como factor que históricamente ha truncado los procesos de desarrollo de América latina.

    - Abordar las condiciones de la re-regulación financiera para el crecimiento y el empleo requiere incorporar a la regulación de los flujos de capital dentro del instrumental permanente de política económica de los países en desarrollo. Y los bancos centrales deberían jugar un rol activo en ese terreno.

    - Esa regulación de la cuenta capital incluyó, a partir de 2011, restricciones a la compra de moneda extranjera para fines de ahorro por parte de los argentinos, la cual se había constituido en una fuente desestabilizadora del mercado de cambios y en canal de fuga del excedente económico por fuera del circuito de inversión y consumo. En efecto, el elevado bimonetarismo que todavía caracteriza a nuestra economía es un condicionante no menor para la administración del mercado de cambios.

    - Ahora bien, ¿cómo se ubica Argentina frente al ya mencionado escenario internacional menos favorable? Sin duda alguna el haber regulado el ingreso de capitales de portafolio nos torna menos vulnerables a los cambios que se presentan en el ciclo de liquidez, no sólo en términos de volúmenes sino, en un futuro no tan lejano, de tasas de interés. Frente a la aparición en los últimos años de un ligero desequilibrio externo el desafío de la política económica es garantizar las fuentes de recursos externos que nos permitan sostener los niveles de actividad y empleo, y en paralelo abordar los déficit sectoriales que impactan en las cuentas externas. Y en ese sentido el desequilibrio industrial y energético deben ubicarse en el centro de las prioridades.

    - Argentina tiene, entonces, espacio para buscar recursos externos que se orienten hacia los destinos estratégicos que remuevan los obstáculos estructurales y garanticen capacidad de repago.

    - Vale la pena insistir, el carácter virtuoso o no que asuma el acceso de Argentina, ya sea de su soberano como de sus empresas, a corrientes de inversión directa o de financiamiento depende de manera decisiva en la asignación de esos recursos y su capacidad para remover las causas estructurales del estrangulamiento externo. Dicho en otros términos en la capacidad para promover el proceso de desarrollo, esto es, de transformación productiva y una más equitativa distribución del ingreso. Este conjunto de ideas puede actuar de buen antídoto ante tanta contaminación en el debate económico, al que ahora se ha vuelto a incorporar en forma activa el FMI. 
    Associated Program:
    Region(s):
    Latin America
  • Fundamentos da economia estão razoáveis, diz diretor do FMI

    In the Media | October 2013
    Agência Brasil
    DCI, 26 Setembro 2013. © 2013 DCI - Diário Comércio Indústria & Serviços. Todos os direitos reservados.

    RIO DE JANEIRO - Batista citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial...

    RIO DE JANEIRO - O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse nesta quinta-feira (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
    Associated Program:
    Region(s):
    Latin America, Europe
  • Fundamentos da economia estão razoáveis e país está em recuperação, diz diretor do FMI

    In the Media | September 2013
    Marcos Barbosa
    RBV News, 27 Setembro 2013. © 2012 www.rbvnews.com.br. Todos os Direitos Reservados.

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
    Associated Program:
    Region(s):
    Latin America, Europe
  • Fundamentos da economia estão razoáveis e país está em recuperação, diz diretor do FMI

    In the Media | September 2013
    Fator Brasil, 27 Setembro 2013. © Copyright 2006 - 2013 Fator Brasil.

    Rio de Janeiro – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse no dia 26 de setembro (quinta-feira), que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas. 

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo. 

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute. 

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.  “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse. 

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
    Associated Program:
    Region(s):
    Latin America, Europe
  • Pesquisador argentino diz que América do Sul não vai escapar de desvalorização cambial: Roberto Frenkel afirma que vulnerabilidade externa da região foi reduzida

    In the Media | September 2013
    Lucianne Carneiro
    O Globo Econômico, 26 Setembro 2013.  © 1996–2013. Todos direitos reservados a Infoglobo Comunicação e Participações S.A. 

    RIO – Professor da Universidade de Buenos Aires e pesquisador do Centro de Estudos de Estado e de Sociedade (Cedes), Roberto Frenkel afirma que os países emergentes, especialmente na América do Sul, não escaparão de um processo de desvalorização cambial para se ajustar ao novo cenário mundial, com elevação das taxas de juros nos Estados Unidos e menor ritmo de expansão da economia chinesa. A atual situação do câmbio muito apreciado tende a dificultar esse ajuste, com consequências como inflação.

    — Peru, Colômbia, Chile, Brasil e Argentina são alguns dos países que apreciaram demais suas moedas e agora terão que subir o câmbio — diz Frenkel, que está no Rio para participar do seminário “Governança Financeira depois da Crise”, promovido pelo Minds, Instituto Multidisciplinar de Desenvolvimento e Estratégia, em parceria com o Levy Economics Institute.

    Na avaliação de Frenkel, a vulnerabilidade externa dos países sul-americanos recuou e não se deve ver uma crise como no passado. A região não aproveitou integralmente, no entanto, o bom momento da economia mundial nos últimos anos. Crítico às políticas do governo de Cristina Kirchner, Frenkel diz que a Argentina tem um grave desequilíbrio em seu balanço de pagamentos, além de uma inflação “insustentável”.

    Alguns economistas afirmam que a recuperação da economia mundial está forte, outros dizem que o movimento não é sustentável. Qual é a sua avaliação?

    Os Estados Unidos estão se recuperando lentamente. Aliás, é isso que tem provocado o ajuste na política monetária. A Europa, por sua vez, continua na crise, a situação não está resolvida para nenhum país. Houve um incremento do Produto Interno Bruto (PIB, soma dos bens e riquezas de um país), mas a União Europeia vai continuar com sua grande crise. O que se vê de diferente é o ritmo de crescimento econômico dos países emergentes. Os países emergentes continuam crescendo mais rápido que os desenvolvidos, mas a taxa de expansão desacelerou. Aquele ganho mais rápido dos emergentes acabou.

    Países emergentes tiveram um certo alívio quando o Federal Reserve (Fed, o banco central americano) manteve os estímulos à economia na última semana. O que veremos agora?

    A decisão do Federal Reserve (Fed, banco central americano) de manter os estímulos é temporária. É certo que em algum momento as taxas de juros dos Estados Unidos vão subir. Essa perspectiva é bem concreta, mesmo que o Fed diga que vai manter o estímulo. É certo que a política monetária vai mudar. E a China também está mudando seu ritmo de crescimento para permitir a transição de seu modelo de crescimento de uma base de exportações para ser puxado pelo consumo interno. O que vemos é um novo ritmo de crescimento da economia mundial, e é preciso se ajustar a isso.

    Como os emergentes devem ficar nesse cenário?

    O crescimento menor da China afeta principalmente os exportadores de minerais e metais, já que o investimento será menor. E muitos emergentes estão com o câmbio apreciado e terão que se ajustar. A Índia, com um déficit grande em conta corrente e saída de capitais, tem uma situação mais complicada.

    A vulnerabilidade externa dos países da América do Sul está menor?

    A situação hoje na maioria dos países é robusta, existe um endividamento menor e esse ajustamento (ao novo ritmo da economia) não vai gerar crise como no passado. A vulnerabilidade externa foi muito reduzida. Mas o que na verdade se viu é que quase uma década excepcionalmente boa para a economia (entre 2002 e 2012) não foi aproveitada pelos países da América do Sul. A Argentina vive hoje tomada pelo forte populismo. O Brasil, por sua vez, alcançou um crescimento baixo. A região precisa de um crescimento econômico maior, que seja suficiente para alcançar um novo nível de desenvolvimento.

    Como os países da América do Sul terão que lidar com o câmbio?

    O tema central da economia da América do Sul hoje é como lidar com a desvalorização do câmbio neste momento de ajustamento ao novo cenário mundial, que complica a política econômica. Os países da região estão com o câmbio muito apreciado. Os exportadores foram beneficiados pela melhora do preço de exportações. Houve uma desvalorização transitória, mas seguiu-se uma apreciação cambial. Nessa situação de câmbio apreciado, fica mais difícil se ajustar a um novo cenário mundial. Esse ajuste se faz pelo câmbio mais alto. Quanto mais apreciado o câmbio, mais custoso é o ajustamento. E a desvalorização cambial traz consequências como o impacto na inflação e a queda salarial a curto prazo. Peru, Colômbia, Chile, Brasil, Argentina são alguns dos países que apreciaram demais suas moedas e agora terão que subir o câmbio.

    Quais as principais dificuldades hoje da economia argentina?

    Há um problema grave no balanço de pagamentos. Nós estamos perdendo reservas e, por causa do risco político, não temos acesso ao financiamento do mercado externo. E nesse contexto temos um controle forte do câmbio. Há o câmbio paralelo e o fixo, com uma diferença de cerca de 60%. Esse câmbio paralelo é o sintoma do grande desequilíbrio atual. Vamos ter que sair dessa situação.

    É possível esperar um ajuste pelo governo?

    Está claro que o governo de Cristina Kirchner não deve ser reeleito. A dúvida é se esse governo vai fazer esse ajuste antes de sair ou deixar os problemas para o próximo presidente.

    A desvalorização do câmbio deve ter impacto maior na Argentina por causa de uma inflação já elevada?

    A inflação na Argentina está muito distante dos números oficiais, o governo falsifica os dados. É uma situação insustentável. Nós temos uma inflação de 25% ao ano. No Brasil, os economistas estão preocupados com o efeito do câmbio na inflação. Agora imagine o impacto na Argentina. O país vai enfrentar uma aceleração inflacionária grande por causa do câmbio, que terá que passar por uma desvalorização significativa.
    Associated Program:
    Region(s):
    Latin America, Europe
  • Dimitri B. Papadimitriou: Regulação atual é incapaz de evitar nova crise

    In the Media | September 2013
    Ana Paula Grabois
    Brasil Econômico, 26 Setembro 2013. © Copyright 2009–2012 Brasil Econômico. Todos os Direitos Reservados.

    Dimitri Papadimitriou defende uma regulação do sistema financeiro mais forte: “A vigente não foi capaz de evitar o colapso de 2008.”

    Pesidente do Instituto Levy Economics, de Nova York, Dimitri Papadimitriou, é um crítico feroz da autorregulação do mercado financeiro. O economista grego, radicado há 45 anos nos Estados Unidos, dirige o instituto que elabora pesquisas sobre os mercados financeiros e sobre o que se pode fazer para evitar crises, como a de 2008. Papadimitriou defende uma regulação financeira mais forte que se antecipe aos choques. "Precisamos re-regular o sistema financeiro. Porque a regulação vigente não foi capaz de evitar o colapso de 2008".

    Em sua primeira visita ao Brasil, para participar da conferência "Governança financeira depois da crise", organizada pelo instituto que preside em parceria com o Instituto Multidisciplinar de Desenvolvimento e Estratégia (Minds), o economista diz que a instabilidade é inexorável ao sistema capitalista. "O aspecto mais importante é como regular esse sistema para prevenir que esse tipo de coisa aconteça de novo. Ou se entende as crises como acasos que ocorrem por choques e que não podem ser regulados", afirma o economista, ao Brasil Econômico, na véspera da conferência, que ocorre hoje e amanhã, no Rio.

    Para o economista, é possível prever eventos que determinam instabilidades futuras, e assim, evitar crises mais complexas. Apesar de governos espalhados pelo mundo defenderem a ampliação dos mecanismos de regulação financeira, Papadimitriou diz que muito pouco foi feito.

    "Desde o colapso de Lehman Brothers, nós ainda não tivemos nenhum progresso para prevenir que isso aconteça de novo", afirma. Parte do progresso quase nulo diz respeito à concentração das transações financeiras mas mãos de um grupo pequeno de grandes bancos. "É mais fácil regular os bancos pequenos porque você sabe o que realmente ele faz. Algumas vezes, é difícil entender o que os grandes bancos fazem e precificar o risco. A tendência desde 2008 é subprecificar os riscos dos bancos".

    Com tantos tipos de transações, entre depósitos, empréstimos, títulos, investimento, derivativos em poucos bancos, a atual estrutura regulatória - seja nos Estados Unidos, na Europa ou na América Latina - é ineficaz. "É preciso saber quem regula e supervisiona quem e o quê", completa.

    Na sua avaliação, os grandes bancos atingidos pela crise e depois ajudados pelo governo americano, como Citibank, JPMorgan e Chase Manhattan, continuam no controle das transações financeiras no mundo, sem avanços na regulação de suas atividades. "As restrições foram incapazes, por exemplo, de controlar questões como o caso da Baleia de Londres. O JP Morgan perdeu US$ 6 bilhões para seus clientes e teve US 1 bilhão de multa. Isso mostra que ainda falta regulação", diz. O escândalo do JP Morgan envolveu operações de alto risco com papeis derivativos.

    O presidente do Levy Economics afirma que num mundo onde as transações financeiras equivalem a 35 vezes o valor do comércio de bens e serviços entre os países, a complexidade das transações aumenta, o que dificulta ainda mais a supervisão do mercado. Papadimitriou defende a modificação das estruturas de regulação no mundo, a começar pelos Estados Unidos. "O grande problema é o lobby dos bancos no Congresso, que querem evitar a regulação. O governo Obama não é muito agressivo em implementar novas regulamentações", complementa.

    Totalmente favorável ao controle de capitais, o economista do instituto de pesquisa ressalta a conexão entre as crises financeiras e a economia real de vários países no ambiente globalizado atual.

    "Wall Street não é isolado da economia real", diz. Uma crise financeira pode aumentar desemprego, retrair o crescimento da atividade econômica de vários países, além de forçar o corte de gastos do governo para evitar déficits de orçamento. "Isso significa menos infraestrutura, menos educação, menos seguridade social", afirma.
    Associated Program:
    Author(s):
    Region(s):
    Latin America, Europe
  • Fundamentos da economia estão razoáveis e país está em recuperação, diz FMI O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, o que pode sinalizar um início de recuperação

    In the Media | September 2013
    Agência Brasil
    Correio Braziliense, 20 Setembro 2013.

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse nesta quinta-feira (26/9) que os fundamentos da economia brasileira estão razoáveis e que o único ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
    Associated Program:
    Region(s):
    Latin America, Europe
  • Fundamentos da economia brasileira estão razoáveis, diz diretor do FMI

    In the Media | September 2013
    Jornal do Brasil, 26 Setembro 2013. Copyright © 1995-2013 | Todos os direitos reservados

    Paulo Nogueira Batista ressalta que o único ponto que merece atenção são as contas externas

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o único ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
    Associated Program:
    Region(s):
    Latin America, Europe
  • Sobre reportagem da revista britânica The Economist intitulada Has Brazil blown up?, Batista acredita que país está apresentando recuperação progressiva

    In the Media | September 2013
    Vladimir Platonow / Agência Brasil
    Exame, 26 Setembro 2013. Copyright © Editora Abril - Todos os direitos reservados

    Rio de Janeiro – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta.

    Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
    Associated Program:
    Region(s):
    Latin America, Europe
  • Diretor do FMI diz que economia brasileira está em recuperação

    In the Media | September 2013
    Vladimir Platonow, Agência Brasil
    Brasil 247, 26 de Setembro de 2013.  © Brasil 247. Todos os direitos reservados.

    Segundo Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, os fundamentos fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa; "no setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta", afirma

    Rio de Janeiro
    – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
    Associated Program:
    Region(s):
    Latin America, Europe