Market is not worth trading, as volumes are run by juniors on the desks. For all those who have forgotten what they learnt at Econ 101, here is a great year end piece by the Economist.
Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America’s periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called “Modern Monetary Theory”. The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all.
The neo-chartalists are not the only people telling governments mired in the aftermath of the global financial crisis that they could make things better if they would shed old inhibitions. “Market monetarists” favour more audacity in the monetary realm. Tight money caused America’s Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can.
Maybe we should not be afraid, but at least cautious. Good must read report by The Economist.
IN DARK days, people naturally seek glimmers of hope. So it was that financial markets, long battered by the ever-worsening euro crisis, rallied early this week amid speculation that Europe’s leaders had been bullied by the rest of the world into at last putting together a “big plan” to save the single currency. Investors ventured out from safe-haven bonds into riskier assets. Stock prices jumped: those of embattled French banks soared by almost 20% in just two days.
But those hopes are likely to fade, for three reasons. First, for all the breathless headlines from the IMF/World Bank meetings in Washington, DC, Europe’s leaders are a long way from a deal on how to save the euro. The best that can be said is that they now have a plan to have a plan, probably by early November. Second, even if a catastrophe in Europe is avoided, the prospects for the world economy are darkening, as the rich world’s fiscal austerity intensifies and slowing emerging economies provide less of a cushion for global growth. Third, America’s politicians are, once again, threatening to wreck the recovery with irresponsible fiscal brinkmanship. Together, these developments point to a perilous period ahead.
Full article here.
Krugman on the Crisis, Economists and the need for psychologists and/or sociologists.
So we’re having an economic crisis. I say “having,” not “had,” because we have by no means recovered. Financial panic may have subsided, stocks may be up, but employment remains far below pre-crisis levels, and unemployment — especially long-term unemployment — remains disastrously high. And while you can make the case that the economy is slowly on the mend, slowly is the operative word. We have already been through two years of economic purgatory, and there’s no end in sight.
There is a real sense in which times like these are what economists are for, just as wars are what career military officers are for. OK, maybe I can let microeconomists off the hook. But macroeconomics is, above all, about understanding and preventing or at least mitigating economic downturns. This crisis was the time for the economics profession to justify its existence, for us academic scribblers to show what all our models and analysis are good for.
We have not, to put it mildly, delivered.
What do I mean by that? As I see it, there are three main complaints one can make about economists and their role in the current crisis. First is the complaint that economists fell down on the job by not seeing the crisis coming. Second is the complaint that economists failed even to see the possibility of this kind of crisis — and that by pointing out the possibility, they could have helped head the crisis off. Third is the complaint that they have either failed to offer useful advice on what to do after the crisis struck, or that they have offered such a cacophony of voices as to provide no useful guidance for policy.
Full article here.