24.2.10

Greece

Writing for PS Soros suggested:

"The most effective solution would be to issue jointly and separately guaranteed eurobonds to refinance, say, 75% of the maturing debt, as long as Greece meets its agreed-upon targets, leaving Greece to finance the rest of its needs as best it can. This would significantly reduce the cost of financing, and it would be the equivalent of the IMF disbursing its loans in tranches as long as conditions are met."

"But this is politically impossible at present, because Germany is adamantly opposed to serving as the deep pocket for its profligate partners. Therefore, makeshift arrangements will have to be found."

Forward

"It is clear what is needed: more intrusive monitoring and institutional arrangements for conditional assistance. Moreover, a well-organized eurobond market would be desirable. The question is whether the political will to take these steps can be generated."

Who's Greg? – It's a small world after all

From Wellesley and Weston:

"The world of economics is quite small, smaller than the town of Wellesley," says Mankiw. Mankiw's career trajectory provides a glimpse at the interconnectedness of the world of economics. "I was lucky to study and conduct research with Harvey Rosen, a fantastic professor of microeconomics at Princeton," Mankiw says. After receiving a PhD from MIT, Mankiw had several job offers: going back to Princeton to work with Rosen; following Larry Summers, whom he had worked with at MIT, to Harvard; or working with Stanford Business School's rising star: Ben Bernanke. In the end, he went to Harvard. Several years later, when Mankiw had the opportunity to head the Council of Economic Advisors for President George W. Bush, Mankiw encouraged President Bush to hire Rosen as his colleague. Two years later, Mankiw returned to the classrooms at Harvard to work with then-Harvard President Larry Summers, whose uncles are Nobel Prize winning economists, Paul Samuelson and Kenneth Arrow. Today Summers is President Obama's top economic advisor, serving as Director of the National Economic Council, and Bernanke is the Chairman of the Federal Reserve. It's a small, small world.

An interview with Greg Mankiw

16.2.10

Why Mexico is the missing Bric?


Gideon Rachman for FT said:

"[Mexico's] Economic underperformance has been matched by diplomatic underperformance. As a member of the newly influential G20 group of leading economies, the Mexicans should be well placed. Instead, Brazil has been anointed as the unofficial leader of Latin America. Felipe Calderón, Mexico's president, is serious and hard-working, but he lacks the charisma and high profile of Brazil's President Luiz Inácio Lula da Silva. Brazil's voice matters a lot in world trade talks and in global climate change negotiations, while Mexico’s views barely feature."

15.2.10

¡It was't ready!

In this post I quoted Krugman, Eichengreen and Roubini in order to have a Euro-zone’s Big Picture.

Krugman said that the troubles came from the adoption of the euro before Spain and Greece were ready:

Now what? A breakup of the euro is very nearly unthinkable... As Berkeley's Barry Eichengreen puts it, an attempt to reintroduce a national currency would trigger "the mother of all financial crises". So the only way out is forward: to make the euro work, Europe needs to move much further toward political union, so that European nations start to function more like American states.

But that's not going to happen anytime soon. What we’ll probably see over the next few years is a painful process of muddling through: bailouts accompanied by demands for savage austerity, all against a background of very high unemployment, perpetuated by the grinding deflation I already mentioned.

It’s an ugly picture. But it’s important to understand the nature of Europe's fatal flaw. Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready.

Eichengreen emphasized the failure to create a "proper emergency financing mechanism"

[…] reating the euro was not a mistake, but it could still be a mistake in the making. The Greek crisis shows that Europe is still only halfway toward creating a viable monetary union. If it stays put, the next crisis will make this one look like a walk in the park.

Completing its monetary union requires Europe to create a proper emergency financing mechanism. Currently, other member states can provide assistance to Greece only by bending the rules, which prevent them from lending except in response to natural disasters or circumstances beyond a country's control. This heightens uncertainty. When Europe’s leaders do help, it makes the public and markets think that they are being dishonest. If it is the Lisbon Treaty that creates these problems, then the Lisbon Treaty should be changed.

Roubini requested a "partial bailout by the EU and the ECB […] in order to avoid the risk of contagion to the rest of the euro zone"

A shadow or actual International Monetary Fund program would vastly enhance the credibility of a policy of fiscal retrenchment and structural reforms. Under the former, the European Commission would impose fiscal and structural conditionality on Greece, while the EU and/or ECB would provide financing, which would be absolutely necessary, because announcing even the best conceived reform program would not be sufficient to restore lost policy credibility. Markets will remain skeptical, especially if implementation leads to street demonstrations, riots, strikes, and parliamentary foot-dragging. Until credibility is re-established, the risk of a speculative attack on public debt – reflected in the current rise in credit default swap spreads – would linger, given the ongoing budget deficit and the need to roll over maturing debt.

Since the European Union has no history of imposing conditionality, and ECB financing could be perceived as a form of bailout, a formal IMF program would be the better approach. The most successful programs undertaken in the presence of a risk of a fiscal and/or external debt financing crisis were those – as in Mexico, Turkey, and Brazil – where a large amount of liquidity/financing support by the IMF beefed up an increasingly credible commitment to adjustment and reform.

Sovereign spreads are already pricing the risk of a domino effect from Greece to Spain, Portugal, and other euro-zone members. The EU and the ECB are worried about the moral hazard of any "bailout". But that is precisely why a credible IMF program that ties financial support to the progressive achievement of fiscal and structural reform goals is the right way to teach Greece and the other PIIGS how to fly.

Ciudad Juárez

Juárez necesita Justos que reduzcan La Lista de Agravios (Dresser, "Sí, pedir perdón")
Parafraseando a Borges se necesita:

Un hombre que cultiva un jardín, como quería Voltaire.
El que agradece que en la tierra haya música.
El que descubre con placer una etimología.
Dos empleados que en un café del Sur juegan un silencioso ajedrez.
El ceramista que premedita un color y una forma.
Un tipógrafo que compone bien esta página, que tal vez no le agrada.
Una mujer y un hombre que leen los tercetos finales de cierto canto.
El que acaricia a un animal dormido.
El que justifica o quiere justificar un mal que le han hecho.
El que agradece que en la tierra haya Stevenson.
El que prefiere que los otros tengan razón.
Esas personas, que se ignoran, están salvando el mundo.

(Borges, "Los Justos")

12.2.10

Entre 12 de Diciembre y Ahuatenco

Se les invita a visitar y comentar el trabajo Entre 12 de Diciembre y Ahuatenco
De acuerdo con el autor:
"[...] el pensamiento colectivo de los habitantes nativos se perfila como un desconcierto ante una comunidad que se moderniza rápidamente pero que acarrea consigo mayor contaminación, desplazamientos, inseguridad, desigualdad, deficiencias en infraestructura y caos."

"Entre 12 de diciembre y Ahuatenco reúne parte de esta crónica gráfica, en la que pretendo dar cuenta de las transformaciones y mutaciones que presencio y vivo cotidianamente en el paisaje urbano de mi comunidad. Este trabajo busca ofrecer una lectura del espacio urbano de Cuajimalpa y de sus actores, así como de la manera en que los habitantes-usuarios perciben, habitan, conviven y se apropian de su espacio.

11.2.10

Three Conclusions and the Past 12-months


Accordingly with Bill Gross based on Reinhart & Rogoff This Time is Different:

"[…] Banking crises are followed by deleveraging of the private sector accompanied by a substitution and escalation of government debt, which in turn slows economic growth and lowers returns on investment and financial assets". [See the Chart]

"What then is an investor to do? If, instead of econometric models founded on the past 30–40 years, an analysis must depend on centuries-old examples of deleveraging economies in the aftermath of a financial crisis, how does one select and then time an investment theme that can be expected to generate outperformance, or what professionals label “alpha?” Carefully and cautiously with regard to timing, I suppose, but rather aggressively in the selection process under the assumption that it’s never “different this time” and that history repeats as well as rhymes. Reinhart and Rogoff’s book, if anything, points to the inescapable conclusion that human nature is the one defining constant in history and that the cycles of greed, fear and their economic consequences paint an indelible landscape for investors to observe. If so, then investors should focus on the following 30,000-foot observations in the selection of global assets."

Last year it was banks; this year it is countries

"Three factors will determine whether such fears are justified [Optimism about a "V"-shaped recovery is being replaced with pessimism about a double-dip recession]. The first is the strength of the recovery—whether it is self-sustaining, or still propped up by government stimulus. The second is the scale of the sovereign-debt problems—whether Greece is a basket-case all of its own, or investors lose confidence in other heavily indebted governments. The third is the deftness with which the world's central bankers and finance ministers design and co-ordinate the withdrawal of policy stimulus."

New dangers for the world economy

10.2.10

Risky, Costly and Complicated

Eichengreen listed the risks for countries tempted to abandon the Euro

"[…] The temptation to exit the euro area remained, the technical barriers to exit would be almost impossible to surmount. It would be straightforward for a parliament or congress to pass a law mandating that the state and other employers would henceforth pay workers and pensioners in the new national currency. But with wages and other incomes redenominated into that national currency, it would become necessary to redenominate the mortgages and credit card debts of residents into the national currency as well. Currency depreciation would otherwise have adverse balance sheet effects for households, leading to financial distress and bankruptcies."

American PIGS

Accordingly with Barry Ritholtz:

While all the investing world seems to be utterly fixated on the outcome of Greece’s solvency woes, perhaps we need to step back and put this into perspective.

Portugal, Ireland, Italy Greece and Spain are in varied degrees of difficulty; but how significant are the PIIGS’ debts to the world’s economy? (If they require a workout, perhaps they can what we do. Give them lower rates and an extended term and/or a cramdown to their lenders).

In contrast, consider the distressed United States: How do our own economic “pigs” measure up? In terms of economic importance relative to the world, aren’t the bigger US States that are in deep distress more important (GDP sizewise)?

9.2.10

Ninguna recaudación es suficiente para el gasto en tonterías

Zaid señala:
"Ninguna recaudación es suficiente para el gasto en tonterías. De 1971 a 1978, la carga fiscal aumentó de 14.45% del PIB a 19.5%. Pero "No obstante el incremento extraordinario de carga en un periodo relativamente corto, los ingresos ordinarios siguen siendo insuficientes para financiar adecuadamente el gasto público" (Francisco Gil Díaz en el coloquio Panorama y perspectivas de la economía mexicana, El Colegio de México, 1980, pp. 583 y 597)."

"Si la carga fiscal en 1978 fue de 19.5% del PIB, ¿por qué bajó a un promedio del 10% en 1983-2006 (Tercer informe)? ¿Una economía estancada debe generar la misma recaudación que la de 1978, cuando el PIB creció al 7% (INEGI, Estadísticas históricas)? En la crisis de 1995, la recaudación bajó de golpe 2% del PIB, sin que bajaran las tasas impositivas, por una simple razón: la gente ganó menos. Y ¿quiénes son los responsables del estancamiento que reduce los ingresos?"

"¿Qué significa "adecuadamente"? ¿Subir la carga al 30%, al 40%? ¿Con base en qué? Según el mismo Gil Díaz (entrevistado por Milenio Semanal, 19 de febrero 2001), "La carga fiscal del país, comparada internacionalmente, es más o menos igual a la media de países comparables de América Latina". Pero ya se sabe que las autoridades fiscales gozan de impunidad declarativa: al día siguiente pueden declarar lo contrario"

8.2.10

"Las candidaturas ciudadanas no son una panacea […] y tampoco rayan zanahorias"

Denise Dresser señala:

"Es cierto, las candidaturas ciudadanas no son una panacea. No curan el AH1N1 ni el cáncer y tampoco rayan zanahorias. No constituyen un pasaje de entrada al paraíso ni tampoco -por sí solas- nos sacarán del infierno. No logran, en la mayoría de los casos, ganar más que 10-20% del voto. Pero sí ofrecen fórmulas alternativas de participación ante partidos que han erigido altas barreras de entrada alrededor de su alcázar. Sí proveen una ruta mediante la cual los ciudadanos pueden acceder a la representación sin someterse a los mandatos de las maquinarias. Sí son una amenaza permanente a partidos que han divorciado la agenda política de la agenda pública, y no hablan de nada que le importe verdaderamente a quienes se ven obligados a votar sólo por ellos. Sí son un correctivo a partidos que han perdido el rumbo, que han dejado de ser puente, que han privilegiado la lógica patrimonial por encima de la función representativa. Sí pueden ser un avatar necesario; la encarnación de fuerzas, de perfiles, de anhelos que los partidos acaparan o sofocan."

3.2.10

Greece as Argentina revisited

De acuerdo con Kenneth Rogoff:

"Avoiding default may be possible, but it will not be easy. One has only to look at official data, including Greece’s external debt, which amounts to 170% of national income, or its gaping government budget deficit (almost 13% of GDP)."

"But the problem is not only the numbers; it is one of credibility. Thanks to decades of low investment in statistical capacity, no one trusts the Greek government’s figures. Nor does Greece’s default history inspire confidence (Greece has been in default roughly one out of every two years since it first gained independence in the nineteenth century)."

"[…] Like Argentina, Greece has a fixed exchange rate, a long history of fiscal deficits, and an even longer history of sovereign defaults. Nevertheless, Greece can avoid an Argentine-style meltdown, but it needs to engage in far more determined adjustment."

2.2.10

Desorden de Identidad Disociativa

De acuerdo con Denise Dresser:

"Beatriz Paredes habla de "nuestra realidad hiperpresidencialista" cuando la presidencia imperial ha sido reemplazada por la presidencia acorralada. Habla de la necesidad de "controles y fiscalización" a nivel local, cuando en la última negociación presupuestal su partido los rechazó. Habla de la necesidad de fomentar "la transparencia en el manejo de los recursos públicos", cuando los estados controlados por el PRI son hoyos negros de opacidad. Habla de la "influencia creciente de los poderes fácticos", cuando el precandidato presidencial del PRI ya se ha encamado con ellos. Habla de acrecentar los derechos ciudadanos, al mismo tiempo que se opone a las candidaturas independientes. Critica "la propaganda como subterfugio para la manipulación social", cuando Enrique Peña Nieto la usa con ese objetivo. Argumenta que los Estados democráticos "son laicos", cuando ella misma ha contribuido a poner en jaque la laicidad en México."

A Timed Stimulus

Fan Gang for Project Syndicate said:

"No doubt, government macroeconomic management that is too strong may delay necessary market-oriented reforms. But the financial crisis has shown that a twenty-first-century market economy requires government participation to function. For a developing economy like China, it is better to have a government that plays an active role in avoiding the ups and downs that the Western economies experienced in their early days – and are still experiencing today."