Euro crisis is the biggest danger to world recovery, says OECD.
But it is hopeful. It expects output to increase faster in the near future. Provided fiscal cliff is avoided and Europe does not fall apart, growth will pick up by 2014, just in time for your graduation.
Thursday, 29 November 2012
75. Greece will be ok
in 2020 or some time later.
But at least for now, they will live to fight another day. An agreement between the IMF and the Euro area lenders will provide the next installment of EU money and keep lights in Athens on.
For how long? It is difficult to say: " the IMF had stuck to a bottom line of getting the Greek debt level to 120% by 2020, far below what eurozone and IMF inspectors concluded was possible."
The agreement is to have Greek debt, in 2020, to fall only to 124% of GDP, rather than 120%. The IMF would like to have some of Greek debt forgiven; te creditor countries do not agree.
Everyone will now wait to German elections in 2014 which will clarify what German voters want.
In a pinch, there is always Super Mario. Who?
The guy in the picture, Mario Draghi, the president of the European Central Bank. ECB can pump money into the Euro area as needed.
PS. In case you were looking for a Christmas present - look on the right of the page
But at least for now, they will live to fight another day. An agreement between the IMF and the Euro area lenders will provide the next installment of EU money and keep lights in Athens on.
For how long? It is difficult to say: " the IMF had stuck to a bottom line of getting the Greek debt level to 120% by 2020, far below what eurozone and IMF inspectors concluded was possible."
The agreement is to have Greek debt, in 2020, to fall only to 124% of GDP, rather than 120%. The IMF would like to have some of Greek debt forgiven; te creditor countries do not agree.
Everyone will now wait to German elections in 2014 which will clarify what German voters want.
In a pinch, there is always Super Mario. Who?
The guy in the picture, Mario Draghi, the president of the European Central Bank. ECB can pump money into the Euro area as needed.
PS. In case you were looking for a Christmas present - look on the right of the page
Wednesday, 28 November 2012
74. A job opening
A job just opened, that of the Gover nor of the Bank of Canada. A short description is here
Important points:
Important points:
- The Governor of the Bank of Canada is the Bank's chief executive officer, and, as such, has control and full authority over the business of the Bank. The Governor also presides over the Board of Directors.
- The Governor of a country's central bank must have a thorough understanding of financial markets and the economy and possess wide experience in international finance. There are eligibility requirements laid down in the Bank of Canada Act, including a requirement that the Governor must be a Canadian citizen.
-
The Governor is appointed for a fixed term of seven years.
If a profound disagreement on the conduct of monetary policy were to occur, the Minister of Finance, with the Cabinet's authorization, can issue a written directive to the Governor specifying a change in policy. No directive has ever been issued.
So once you get it, you are pretty safe.
73. The Bank of England job is more difficult
As you know, the governor of the Bank of Canada accepted an offer to become the head of the Bank of England. The job is supposedly more difficult. This article points out that, at the Bank of Canada, the governor is the most important member of the policy-making body (the Governing Council).
Decisions are made by consensus, and only the governor has the right to change interest rates. The governor explains the changes and other members of the Governing Council talk to various stakeholders (business groups, bankers, etc) and provide the same explanation. Nobody offers a dissenting opinion.
In the Bank of England members of the policymaking body vote on the decision. Disagreement are accepted and dissent noted. The governor has less power.
David Dodge, Mr. Carney's predecessor points out other differences:
1. Bank and regulator talk to each other in Canada, less so in the UK;
2. Bank of England is responsible for bank regulation, Bank of Canada is not
3. What is the biggest financial centre in the world?
So Mr. Carney chose to be a smaller fish in a bigger pond. Given his character, he will try to become a big fish in the bigger pond. We will see how it goes.
By the way, the governor of the Bank of Canada has to be Canadian (see the next post), the governor of the Bank of England does not have to be British.
But, apparently, there is not much to do for the first 18 months
Decisions are made by consensus, and only the governor has the right to change interest rates. The governor explains the changes and other members of the Governing Council talk to various stakeholders (business groups, bankers, etc) and provide the same explanation. Nobody offers a dissenting opinion.
In the Bank of England members of the policymaking body vote on the decision. Disagreement are accepted and dissent noted. The governor has less power.
David Dodge, Mr. Carney's predecessor points out other differences:
1. Bank and regulator talk to each other in Canada, less so in the UK;
2. Bank of England is responsible for bank regulation, Bank of Canada is not
3. What is the biggest financial centre in the world?
So Mr. Carney chose to be a smaller fish in a bigger pond. Given his character, he will try to become a big fish in the bigger pond. We will see how it goes.
By the way, the governor of the Bank of Canada has to be Canadian (see the next post), the governor of the Bank of England does not have to be British.
But, apparently, there is not much to do for the first 18 months
Monday, 26 November 2012
72. World economy in poor shape but our exports increase
Here is why: the Governor of the Bank of Canada, Mike Carney, will become the Governor of the Bank of England. It is a more interesting job as UK is a mess.
It is also a testimony to the excellent job of Bank's board. Mr Carney was selected from outside of the Bank 9 years ago.
It is also a testimony to the excellent job of Bank's board. Mr Carney was selected from outside of the Bank 9 years ago.
71. Three articles on taxes in the US
1. by Paul Krugman, Nobel Prize winner, a columist at NYT and a leading progressive economist.
Krugman argues that we should not worry about the deficit at present. The economy is weak and austerity (increasing taxes and reducing spending) can wait until the economy improves.
He argues that people who have been warning about the perils of the current deficit in the US are exagerating. The US economy is no Greece. Even though deficits are very high, interest rates are at historical lows.
Question: Indeed, even though the deficit in the US is greater than in Greece (as percentage of GDP). What is the main difference between Greece and US causing it not to be a problem?
2. by Steven Rattner, an investment banker who led the auto bailout
The main problem in the "fiscal cliff issue" is what to do with Bush tax cuts. In 2001-2003 the Bush administration cut the top tax rate from 39.6% to 35%. Republicans are against the return to old rates for anyone; Democrats want to increase tax rates on people making more than $250 000. Ratner looks at alternatives. These include limiting deductions, introducing minimum taxes on the rich etc.
\
3. Warren Buffett wants to pay a higher tax rate than his secretary.
Warren Buffett, the most successful investor in the world, started a debate on tax fairness by pointing out that his secretary pays a higher tax rate than he does. He suggests that:
- taxes on dividends can be raised without causing disruption in the economy
- there should be a "Buffett tax": anyone making over $1 mln should pay at least 30% in federal tax.
The argument against raising taxes is that it would depress investment. The return on investment is the amount after tax; the higher is the tax rate, the lower is the benefit of investment.
Buffet argues that, for the rich, the effect does not apply. They work hard making money regardless of tax rates. Note the extraordinarily high tax rates in the past.
Krugman argues that we should not worry about the deficit at present. The economy is weak and austerity (increasing taxes and reducing spending) can wait until the economy improves.
He argues that people who have been warning about the perils of the current deficit in the US are exagerating. The US economy is no Greece. Even though deficits are very high, interest rates are at historical lows.
Question: Indeed, even though the deficit in the US is greater than in Greece (as percentage of GDP). What is the main difference between Greece and US causing it not to be a problem?
2. by Steven Rattner, an investment banker who led the auto bailout
The main problem in the "fiscal cliff issue" is what to do with Bush tax cuts. In 2001-2003 the Bush administration cut the top tax rate from 39.6% to 35%. Republicans are against the return to old rates for anyone; Democrats want to increase tax rates on people making more than $250 000. Ratner looks at alternatives. These include limiting deductions, introducing minimum taxes on the rich etc.
\
3. Warren Buffett wants to pay a higher tax rate than his secretary.
Warren Buffett, the most successful investor in the world, started a debate on tax fairness by pointing out that his secretary pays a higher tax rate than he does. He suggests that:
- taxes on dividends can be raised without causing disruption in the economy
- there should be a "Buffett tax": anyone making over $1 mln should pay at least 30% in federal tax.
The argument against raising taxes is that it would depress investment. The return on investment is the amount after tax; the higher is the tax rate, the lower is the benefit of investment.
Buffet argues that, for the rich, the effect does not apply. They work hard making money regardless of tax rates. Note the extraordinarily high tax rates in the past.
Wednesday, 21 November 2012
70. Greece - more problems
Finance ministers of the Eurozone did not come to an agreement on how to make Greek financial situation viable
The current goal is to for Greek debt/GDP ratio to fall to 120% in 2020. It is clear now it is not going to happen. An estimate says it will be 144%. There are three solutions
1. Stop support and let Greece go bankrupt. This seems to be the least preferred option.
2. Cut Greek debt
3. Lend Greece more money and reset the 120% goal to 2022.
Cutting Greek debt is the simplest approach, but
- Germany argues that, for debt to the EU, it cannot be done legally. The special fund that has been lending Greece money can only lend, not make grants;
- ECB (the European Central Bank) which holds a large portion of Greek debt would not agree;
- debt forgiveness for Greece would be unfair to countries that made the necessary reforms: Portugal and Ireland;
- debt forgiveness would entrench bad fiscal behaviour in Greece.
The current goal is to for Greek debt/GDP ratio to fall to 120% in 2020. It is clear now it is not going to happen. An estimate says it will be 144%. There are three solutions
1. Stop support and let Greece go bankrupt. This seems to be the least preferred option.
2. Cut Greek debt
3. Lend Greece more money and reset the 120% goal to 2022.
Cutting Greek debt is the simplest approach, but
- Germany argues that, for debt to the EU, it cannot be done legally. The special fund that has been lending Greece money can only lend, not make grants;
- ECB (the European Central Bank) which holds a large portion of Greek debt would not agree;
- debt forgiveness for Greece would be unfair to countries that made the necessary reforms: Portugal and Ireland;
- debt forgiveness would entrench bad fiscal behaviour in Greece.
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