Stocks Slide

According with NYT:

"Stocks plunged Friday in the face of weak consumer data, erasing a powerful rally the day before and ending a pattern of monthly gains."

"By the end of trading, the three major stock averages had more el tema dethan given up the 2 percent gains they made on Thursday, when enthusiasm over economic growth data sent stocks surging."

"The Dow Jones industrial average closed down 249.85 points, or 2.5 percent, to 9,712.73, according to preliminary calculations. The Standard and Poor’s 500-stock index was off 29.93 points, or 2.81 percent, to 1,036.18, and the Nasdaq composite showed a decline of 52.44 points, or 2.50 percent, to 2,045.11."

Meanwhile, VIX Volatility Index hits highest level since july.

US Economic Growth

Algunas reacciones a la cifra de crecimiento económico de EEUU correspondiente al tercer trimestre de 2009 - GDP’s 3.5% rise; y un cuadro comparativo de episodios de recuperación - Comparing Expansions (Interactive Graphics).

Economics Profession

Como respuesta a la crisis económica y financiera actual Akerlof y Stiglitz señalan la necesidad de nuevos desarrollos en la teoría económica. Recomiendan alejarse del equilibrio competitivo y la racionalidad de los agentes, y enfocarse en la economía experimental "Behavioral Economics", modelos de redes, modelos basados en agentes, modelos de innovación.

"[W]hile some economists were pushing the idea of self-regulating, fully efficient markets that always remain at full employment, other economists and social scientists have been exploring a variety of different approaches. [vs.] These include agent-based models that emphasize the diversity of circumstances; network models, which focus on the complex interrelations among firms (such as those that enable bankruptcy cascades); a fresh look at the neglected work of Hyman Minsky on financial crises (which have increased in frequency since deregulation began three decades ago); and innovation models, which attempt to explain the dynamics of growth."

Source: Project Syndicate

Hacer cumplir las Leyes

Gabriel Zaid señala que "la Democracia [en México] ha traído una obsesión legislativa", pero se necesita, "[…] Cumplir y hacer cumplir las leyes que ya existen es más urgente que negociar otras."

"Las imposibles Grandes Soluciones (que sirven para regatear ventajas partidarias o personales) son el pretexto perfecto para desentenderse de la buena solución posible en este caso, sin más, dentro de las leyes que ya existen. Cumplir y hacer cumplir las leyes que ya existen es más urgente que negociar otras. Antes que mejores leyes, urgen mejores gobiernos."

"Juzgar es gobernar. Un poder judicial que gobernara bien, empezando por su propia casa, haría mucha diferencia. La confianza en la justicia es capital para la democracia, y desgraciadamente no existe. Hay muchas quejas, y no todas se refieren al ministerio público y la policía. La mayor parte de los mexicanos no cree en la probidad de los jueces."

Social Democracia en América Latina

Según Jorge Lanzaro entre los gobiernos de izquierda de América latina se pueden identificar dos tipos: las manifestaciones populistas (Venezuela, Bolivia y Ecuador), y por otra parte las experiencias de tipo social democrático (Brasil, Chile y Uruguay).

[…] These social democrats were once part of a socialist, revolutionary, or reformist left, tightly allied with labor unions. But they ultimately accepted the market economy, and came to lean toward ideological moderation and to compete for votes in the political center. At the same time, motivated by their political competition and their own leftist ideology, these social democratic governments emphasize both economic growth and social inclusion.

El próximo 25 de octubre se celebrará la primera ronda de la elección presidencial en Uruguay. Después de haber gobernado bajo un esquema de mayoría con el apoyo de los grupos de izquierda y apoyos sindicales, el Frente Amplio (FA) y el Partido Nacional (PN) enfrentan una situación muy reñida por el voto.

Por un lado se ubica el candidato de centro-izquierda José Mujica con 48% de las preferencias electorales y en alianza con el ex-ministro de finanzas Danilo Astori. El PN de orientación centro-derecha muestra como candidato al ex-presidente Luis Alberto Lacalle con 30% de las intenciones. En caso de no lograr la mayoría absoluta alguno de los candidatos hacia el 29 de noviembre se celebrará una segunda ronda.

For the moment, the patient is stable

Barry Eichengreen señala que es complicado poder determinar el valor tipo de cambio en el corto plazo (vs. euro o vs. yen o vs. renminbi o vs. una canasta de divisas), el mismo se equivoco en "Why Now is a Good Time to Sell the Dollar". Señala que la volatilidad del dólar en los últimos meses se origina por la re-configuración del apetito al riesgo global. Sin embargo dos factores estructurales deben de considerarse como claves:

The one thing that could precipitate the demise of the dollar would be reckless economic mismanagement in the US. One popular scenario is chronic inflation. But this is implausible. Once the episode of zero interest rates ends, the US Federal Reserve will be anxious to reassert its commitment to price stability. There may be a temptation to inflate away debt held by foreigners, but the fact is that the majority of US debt is held by Americans, who would constitute a strong constituency opposing the policy.

The other scenario is that US budget deficits continue to run out of control. Predictions of outright default are far-fetched. But high debts will mean high taxes. The combination of loose fiscal policy and tight monetary policy will mean high interest rates, sluggish investment, and slow growth. Foreigners – and residents – might well grow disenchanted with the currency of an economy with these characteristics.

Three stylized facts for achieving Growth

Accordingly with Michael Spence:

1) A 1% slowdown in advanced-country growth translates into roughly $350 billion of missing aggregate demand every year, in addition to the shortfall because of rebalancing in the US.

2) […] countries with current-account surpluses such as Germany, Japan and China must recognize that their own growth (and that of others) depends on reducing the global savings-investment imbalance, which will result in narrowing external deficits elsewhere. This needs to be done on a sustained basis following the withdrawal of extraordinary fiscal stimulus.

3) […] everyone must recognize their stake in restoring balanced advanced-country growth as much and as soon as possible in order to counter the ongoing shortfall in aggregate demand. After all, advanced countries account for about two-thirds of global GDP, so slow growth in these countries will inevitably impede global growth and truncate the growth potential of much of the developing world. This challenge, however, is very complex because deleveraging and rebalancing cannot be completed overnight.

Our distrust is very expensive

It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence. Kenneth Arrow

Accoringly with Davies:

"That fall in confidence affected banks, the stock market, and the government and its regulators. Furthermore, the survey [Financial Trust Index] showed that declining trust was strongly correlated with financial behavior. In other words, if your trust in the market and in the way it is regulated fell sharply, you were less likely to deposit money in banks or invest in stocks. So falling trust had real economic consequences."

Sweden’s Financial Crisis Synthesis

Bäckstrom sintetiza los efectos de la crisis financiera que sufrió Suecia a principios de la década de los noventa.

a) Most of the banking system fell into deep crisis. One bank went into liquidation, while the rest of the system required extensive governmental emergency aid.

b) Property values fell by approximately 35% over four years. Equities fell by 55% over a three-year period.

c) Despite the central bank’s 500% interest rate, it was impossible to defend the Swedish krona, which was pegged to the euro’s forerunner, the European Currency Unit or Ecu. The krona depreciated by around 25% in the autumn of 1992, a year after the crisis began.

d) The crisis triggered a sharp economic downturn. GDP fell by 7% over three years, and unemployment rose by 7% over five years.

e) During a three-year period, government debt increased by about 50%, with the public deficit reaching 12% of GDP. Falling GDP led to declining tax revenues, while rising unemployment led to an automatic increase in public expenditure.

Greenhouse gases numbers

Nicholas Stern apunta algunas posibles tendencias, consecuencias y recomendaciones sobre el efecto de los gases de efecto invernadero:

1. Concentrations of carbon dioxide and other greenhouse gases in the atmosphere have reached 435 parts per million (ppm) of CO2-equivalent, compared with about 280 ppm before industrialization in the nineteenth century.

2. [C]oncentrations could reach 750 ppm by the end of the century. Should that happen, the probable rise in global average temperature relative to pre-industrial times will be 5˚C or more.

3. It has been more than 30 million years since the earth’s temperature was that high [5˚C]. The human species, which has been around for no more than 200,000 years, would have to deal with a more hostile physical environment than it has ever experienced.

4. To avoid the severe risks that would result from a rise in global average temperature of more than 2˚C, we must get atmospheric concentrations below 450 ppm. This will require a cut in annual global emissions from about 50 gigatonnes of CO2-equivalent today to below 35 gigatonnes in 2030, and less than 20 gigatonnes by 2050.

5. Today, per-capita annual emissions in the European Union are 12 tonnes, and 23.6 tonnes in the United States, compared to six tons for China and 1.7 tons for India. As the projections for 2050 suggest that the world’s population will be about nine billion, annual per-capita emissions must be reduced to approximately two tons of CO2-equivalent, on average, if the global annual total is to be less than 20 gigatonnes.

¿Coraje? ¿Audacia Reformista?

Denise Dresser en El Mañana apunta sobre la decisión de liquidar LyFC.

Sin duda el Presidente ha demostrado en días recientes la intención de combatir privilegios, confrontar cotos y desmantelar cuellos de botella que han retrasado la modernización de México. Ahora le falta hacerlo consistentemente. Ahora necesita enseñar que los cojones tan celebrados están bien puestos, y que los usará para enfrentar intereses atrincherados dondequiera que estén: tanto en la izquierda como en la derecha; tanto en el mundo sindical como en el ámbito empresarial. Porque si no lo hace, la confrontación con el Sindicato Mexicano de Electricistas terminará por ser una demostración de fuerza, más que un acto de buen gobierno.

El Presidente ha desplegado valor para cerrar una empresa ineficaz, pero no el suficiente como para impedir su simple absorción por parte de otro monopolio público con pocos incentivos para ofrecer un servicio mejor y más barato.

Too low for too long

John Taylor considera que la prevención de Burbujas en los precios de los activos, se logra con la no creación [To Prevent Bubbles, Don’t Create Them]

"By deviating from the rule and keeping interest rates too low, the Fed caused the acceleration in housing prices. If the Fed had simply conducted monetary policy as it had in the 1980s and 1990s, we would likely not have had the housing boom"

" […] adding asset prices to the equation [Taylor Rule] would not address the real problem. Saying that adding asset prices to the central bank’s rule would prevent bubbles is like saying that requiring hikers in the forest to carry cell phones to call the fire department will prevent the damage from forest fires they start. By the time they call and the fire trucks arrive, the heat and flames will have caused tremendous damage. Far better to prevent hikers from starting fires in the first place. Far better for central bankers not to create bubbles in the first place."

Bebo Valdés & Javier Colina

A DÚO CON BEBO VALDES

The Median Consumer Price Index

IRENA

Kandeh Yumkella in Project-Syndicate

A decade ago, renewable energy was viewed as an unwelcome offspring of fossil fuels, but the recent establishment of the International Renewable Energy Agency (IRENA) indicates that governments worldwide are taking “renewables” seriously. With mounting concerns about climate change and volatility in oil and other fossil-fuel prices, renewables are finally becoming a viable proposition.

Big business is spending billions of dollars to explore the opportunities that renewables can bring. There are serious plans to turn the Sahara desert’s heat and sunlight into Europe’s major power source, supplying energy to half a billion people. Some estimates suggest it could cost up to $60 billion to start sending Sahara power to Europe a decade from now. With public support, progress could be much faster. The price tags are huge, but the current economic and financial crisis has taught us not to be afraid of ten-digit numbers.

Multidisciplinary Research, Nobel Prize 2009

The Nobel committee’s decision, like earlier awards to Amartya Sen[,] Daniel Kahneman [and Coase] is a welcome shot in the arm for research that crosses disciplinary boundaries in the social sciences.

Source: ECONOMIST.com

Skyhooks

Accordingly with Barro:

Elinor’s fieldwork [pointed us] To understand BOTH why we don’t need police officers in some cases AND why police officers don’t follow the rules in other cases, we have to expand models of human preferences to include a contingent taste for punishing others.

Current financial crisis stylized facts (Export-Led vs. Dollar Crisis)

These stylized facts follow Kenneth Rogoff’s article

1. Global Imbalances – euphemism for the huge US trade deficit and the corresponding trade surpluses elsewhere, not least China (70% of the excess funds saved by China, Japan, Germany, Russia and Saudi Arabia).

2. Cheap money from abroad juiced an already fragile financial regulatory and supervisory structure that needed discipline more than cash.

3. America’s current-account deficit has now shrunk to just 3% of its annual income, compared to nearly 7% a few years ago.

4. Reinhart & Rogoff find that if financial crises hold one lesson, it is that their aftereffects have a very long tail.

5. Any real change in the near term must come from China [This economy] needs to strengthen its social safety net and to deepen domestic capital markets before consumption take off - consumption represents 35% of national income.

Source: Project-Syndicate.org

En contra del Rent-Sharing Equilibrium

Denise Dresser identifica

25 razones por las cuales la izquierda se equivoca al "solidarizarse" con Martín Esparza, líder del Sindicato Mexicano de Electricistas

Fuente: ELMAÑANA.com.mx

A period of higher short-run price volatility

Robert Shiller writing for the New York Times:

Could the more extreme recent shift mean that home prices will just keep rising this time?

For a home buyer who borrows 90 percent of the money to acquire a house, an appreciation rate of 11.2 percent offers an investment bonanza. By putting a small amount of money down, investors stand to make a large gain if home prices climb. That is the power of leveraging. Recently, however, home buyers have also experienced the unpleasant consequences of leverage when home prices fall. Investing in a home during the wild past few years has been like gambling in a casino: You can leave with riches or empty pockets.

At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs […] in an effort to time their home-buying decisions.

Some reactions to Nobel Prize in Economics

Accordingly with Steven D. Levitt

What’s interesting is that in the ensuing 15 years, it seems to me that economists have talked less and less about Williamson’s research, at least in the circles in which I run. I suspect most assistant professors of economics have barely heard of him. Yet I suspect the older generation of economists will applaud this choice.

The reaction of the economics community to Elinor Ostrom’s prize will likely be quite different. The reason? If you had done a poll of academic economists yesterday and asked who Elinor Ostrom was, or what she worked on, I doubt that more than one in five economists could have given you an answer. I personally would have failed the test. I had to look her up on Wikipedia, and even after reading the entry, I have no recollection of ever seeing or hearing her name mentioned by an economist. She is a political scientist, both by training and her career — one of the most decorated political scientists around.

Paul Krugman

Oliver Williamson’s work underlies a tremendous amount of modern economic thinking; I know it because of the attempts to model multinational corporations, almost all of which rely to some degree on his ideas. I wasn’t familiar with Ostrom’s work, but even a quick scan shows why she shared the prize: if the goal is to understand the creation of economic institutions, it’s crucial to be aware that there is more variety in institutions, a wider range of strategies that work, than simply the binary divide between individuals and firms.

Nobel Prize in Economics

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009

"for her [Elinor Ostrom] analysis of economic governance, especially the commons"

"for his [Oliver Williamson] analysis conomic governance, especially the boundaries of the firm"

Buscando América

Un golpe de recuerdos te modela...

Un golpe de recuerdos te modela
como a la nube el soplo imprevisible.
¡La música y la enamorada tela
que cruza por tus ojos! Suprimible

y oscuro lo demás, aquí te espera,
frente a mi vida absorta o despiadada,
un país al que vuelves, pasajera
del eterno sabor de tu mirada.
-¿Será tú lo que miro? ¿Y a qué sombra
de tu soñar inmóvil pertenece
la antigua calidad en que me abismo?

Pero de pronto en mí tu voz me nombra
como un golpe de rara luz que acrece.
¡Oh música y milagro de lo mismo!

Cintio Vitier

Theory is crystallized history

A commentary of DeLong

[…] After all, economic theory should be grappling with economic history. […]Someone observes some instructive case or some anecdotal or empirical regularity, and says, “This is interesting; let’s build a model of this.” After the initial crystallization, theory does, of course, develop according to its own intellectual imperatives and processes, but the seed of history is still there. What happened to the seed?

This is not to say that the macroeconomic model-building of the past generation has been pointless. But I do think that modern macroeconomists need to be rounded up, on pain of loss of tenure, and sent to a year-long boot camp with the assembled monetary historians of the world as their drill sergeants. They need to listen to and learn from Dick Sylla about Alexander Hamilton’s bank rescue of 1825; from Charlie Calomiris about the Overend, Gurney crisis; from Michael Bordo about the first bankruptcy of Baring brothers; and from Barry Eichengreen, Christy Romer, and Ben Bernanke about the Great Depression.

¿La estetización de un crimen en el arte es impune? ¿En la realidad puede ser punible?

Del Blog de Rafael Rojas:

Si el gusto de Polanski por las ninfetas hubiera sido una obsesión liberada por medio del cine, como Balthus liberó la suya en la pintura o Lewis Carroll en sus fotografías de Alice Liddel, la musa de Alicia en el país de las maravillas, hoy el creador de Repulsión no sería un convicto, además de uno de los grandes cineastas de la segunda mitad del siglo XX.

Por un Sistema Nacional de Rendición de Cuentas

Mauricio Merino apunta:

Si tuviéramos mayor conciencia sobre la importancia de la administración pública y mayor capacidad de indignación, buscaríamos evitar que nos quiten lo poco que se había ganado. [Con] un consejo amplio de evaluación, control y vigilancia de los recursos públicos (con representantes de las OSC, de los medios, del trabajo, del capital y la academia), capaz de construir un verdadero sistema nacional de rendición de cuentas y de poner en manos de la sociedad las funciones a las que el gobierno ha decidido renunciar. Es decir, estaríamos exigiendo que en lugar de volver a los años del presidente Echeverría, México se ponga a la vanguardia de la gestión pública en el mundo.

Fuente: ELUNIVERSAL.com.mx

Finding a route to recovery

Source: FT.com

Europe Financial Regulation

Overall, financial integration has greatly contributed to economic growth in Eastern Europe. Industries that depend heavily on external finance grew faster in countries with large capital inflows than in countries with more modest inflows. BUT the rapid expansion of credit brought about by foreign financial intermediaries using various channels (including direct lending, lending via banking subsidiaries, and lending via leasing subsidiaries) has fueled asset booms and heightened exposure to foreign-exchange risk. In the absence of effective regulation, financial integration has made the region vulnerable to a sudden and massive contraction of capital inflows.

Proposal
[W]hen the effects of a financial institution’s activities are sufficiently large, the country affected should be allowed to assume regulatory power, irrespective of the institution’s domicile.

The authors believe
[…] that an effect-based approach, based on an agreed threshold, would minimize the negative consequences of more host-country intervention in regulation and supervision.

Project-Syndicate, Berglof & Pistor

Announcement of the Prize in Economic Sciences

On Monday, October 12, 1:00 p.m. CET, 11:00 a.m. GMT at the earliest; the Royal Swedish Academy of Sciences will announce the names of the 2009 Laureates in Economics Sciences.

For a live transmission see Nobelprize.org

All Laureates in Economic Sciences

En defensa de la ineficiencia, una compañía quebrada y un sindicato beligerante

[LyFC] emplea a 44 mil personas aunque podría operar con 8 mil 500. Las transferencias y los subsidios gubernamentales para mantenerla funcionando equivalen a dos veces el presupuesto del programa Oportunidades y a 157% del presupuesto de la UNAM.

[…] el privilegio de gozar con un contrato colectivo que otorga el ascenso con base en la antigüedad, sin tomar en cuenta el desempeño o la capacitación. El privilegio de que un trabajador no tenga que ponerse al corriente aunque se haya ausentado del trabajo.

El Mañana, Denise Dresser

Markets have gone up too much, too soon, too fast

Accordingly with Bloomberg Nouriel Roubini said:

I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.

In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets

S&P 5000 (from Oct08 to date)

Dow Jones (from Oct08 to date)

We are facing many crises

The 64th opening of the General Assembly asks us to rise to an exceptional moment. We are facing many crises – food, energy, recession, and pandemic flu – occurring all at once. If ever there were a time to act in a spirit of renewed multilateralism, a time to put the “united” back into the United Nations, it is now.

[…] And that is what we are doing, as action on three issues of historic consequence demonstrates. […] the threat of catastrophic climate change, […] nuclear disarmament, [and] turning the corner to recovery (from financial Recession).

Project-Syndicate, Ban Ki-moon

Confidence, Confidence and Trust

On a fundamental level, all crises share causes and cures but they also have many differences. The cure is made up of two ingredients: 1) regain confidence to resolve a crisis; and 2) preserve confidence to prevent a crisis from repeating itself. Given the international dimension of this crisis and the proliferation of cross-border banking, the cure for this crisis also involves a third component – trust between authorities to enhance cross-border crisis management.

Stefan Ingves at the Eurofi Forum

At the Mortgage Broker's...

Una síntesis del inicio de la crisis actual (Selección Adversa y Daño Moral)

RSG Investment Bank, "Trust the 'Really Smart Guys' for all your investment needs"

60th anniversary of the PRC’s founding

China’s government is making massive preparations for a grand National Day parade in Beijing’s Tiananmen Square to celebrate both the 60th anniversary of the PRC’s founding and the 30th anniversary of Deng Xiaoping’s program of “reform and opening up.”

China has been formulating a whole series of new, well-considered policies and forging ahead with bold decision-making to tackle one daunting problem after another. […] its leaders have undertaken the most impressive infrastructure program in history, implemented a highly successful economic stimulus package, and now are moving into the forefront of green technology, renewable energy, and energy efficiency – the activities out of which the new global economy is certain to grow.
Project-Syndicate, Orville Schell


What happens next? For all our sakes, I hope that the future does not derail China’s economic progress, though it will be a surprise if it does not challenge its arthritic and adamantine political system.
Project-Syndicate, Chris Patten

IMF World Economic Outlook

US Spending Multipliers

Accordingly with Robert Barro

[...] The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

El Insomnio de Bolívar

De acuerdo con Rafael Rojas "Como un Tocqueville al revés, Volpi constata la melancolía y el tedio que invade las nuevas democracias latinoamericanas. Los nuevos caudillos carecen de la aureola redentora de un Cárdenas, un Perón o un Vargas y los nuevos revolucionarios, que no han hecho revolución alguna, invocan epopeyas cada vez más alejadas de los discursos y las prácticas del presente, como la independencia bolivariana o las guerrillas guevaristas. 'La súbita desaparición del típico dictador latinoamericano –dice Volpi- tiene como consecuencia la jubilación momentánea del típico guerrillero latinoamericano'."