Professor Joseph Stiglitz suggests the US needs more fiscal stimulus but no more monetary stimulus. Failed monetary policy helped to create the current economic crisis.
Wednesday, 10 August 2011
Monday, 8 August 2011
Can the US Ever Pay Off its Debt?
According to this blog post, the answer is, no. At 14 plus trillion dollars it really is not possible to pay off the debt. Moreover, including future liabilities like social security, medical costs and pensions drives the debt load into the stratosphere somewhere between 60 and 70 trillion dollars. In comparison, the entire stock of assets in the US is estimated between 40 and 50 trillion dollars. This post makes me want to re-read the book "The Creature From Jekyll Island". This is an interesting book that details the creation of the US Federal Reserve.
In Europe, the ECB is faced with the task of coming up with several trillion dollars over the next few years to keep the PIIGS from being slaughtered. Money, that will keep these economies afloat for a few years but will ultimately never be paid back in full. With the American and European debt situations so mind boggling, perhaps debt repudiation is the answer. The alternatives (do nothing or do small patch work debt deals) may well lead to a global depression. As this chart below shows, the biggest problem in America right now is lack of jobs. Japan has shown how it is possible for a major economic powerhouse to sustain two decades of lost economic opportunity with high debt loads and very slow economic growth.. It is now time for the US to decide which path to follow.
In Europe, the ECB is faced with the task of coming up with several trillion dollars over the next few years to keep the PIIGS from being slaughtered. Money, that will keep these economies afloat for a few years but will ultimately never be paid back in full. With the American and European debt situations so mind boggling, perhaps debt repudiation is the answer. The alternatives (do nothing or do small patch work debt deals) may well lead to a global depression. As this chart below shows, the biggest problem in America right now is lack of jobs. Japan has shown how it is possible for a major economic powerhouse to sustain two decades of lost economic opportunity with high debt loads and very slow economic growth.. It is now time for the US to decide which path to follow.
Sunday, 7 August 2011
High Frequency Trading
What does high frequency trading look like? For mere mortals, here is a link to an interesting video that shows what one second of high frequency trading looks like as it is spread out over one minute.
High frequency trading is a concern because, by some estimates, it accounts for between 50 and 60 percent of total trading market volume.
High frequency trading is a concern because, by some estimates, it accounts for between 50 and 60 percent of total trading market volume.
NON_CARBON BASED LIFE FORMS from arc w on Vimeo.
Global Smart Phone Sales
RIM has been heavily criticized for lagging sales on its products, but as this chart from Reuters shows, at least RIM sales of smart phones have not fallen as fast as Nokia's. RIM is ready to release some new products. Here in Canada, RIM’s new BlackBerry Bold 9900 and BlackBerry Torch 9810 are scheduled for release in the next few days.
Country Debt Ratings
Courtesy of Thomson Reuters, here is a map of Standard & Poor's sovereign debt ratings by country. The US has just lost its triple A rating and joins China and Spain with a double A plus rating. Notice that Canada belongs to a relatively elite group of countries with a triple A rating.
As for the US downgrade, here are some bright moments from other countries. Canada lost its AAA rating in April 1993 when the Canadian Bond Rating Service downgraded the country's crediting rating from triple-A to AA-plus. The year after, Canadian stocks gained more than 15%. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
Felix Solomon has an interesting post on soverign debt ratings as well as a link in his article to all S&P sovereign ratings actions since 1975. A very interesting read.
As for the US downgrade, here are some bright moments from other countries. Canada lost its AAA rating in April 1993 when the Canadian Bond Rating Service downgraded the country's crediting rating from triple-A to AA-plus. The year after, Canadian stocks gained more than 15%. The Tokyo stock market climbed more than 25% in the 12 months after Moody's downgraded Japan in November 1998.
Felix Solomon has an interesting post on soverign debt ratings as well as a link in his article to all S&P sovereign ratings actions since 1975. A very interesting read.
Friday, 5 August 2011
Emerging Economies Taking a Greater Share of World GDP
In 1990, developed economies share of world GDP was 80% and emerging economies share of global GDP was 20%. The Economist has some nice charts showing how quickly things have changed in the past 20 years. Somewhere around 2019, emerging economies are expected to account for a greater share of world GDP than developed economies.
Tuesday, 2 August 2011
The Big Max Index Gets Beefed Up
The Economist's Big Max Index, long a topic of discussion in many of the courses that I teach has been given an upgrade. In its original form, the Big Max Index compares the prices of Big Macs around the world. The relative price of Big Macs in two countries gives an approximate value of purchasing power parity (PPP). The currency exchange rate between two countries can be compared to this PPP value to get a sense of whether currencies are over or under valued. PPP is a long run concept and is used to determine what exchange rates should be in the long run. PPP, however, is less useful for determining whether current exchange rates are over or under valued. The Big Max itself is not a traded basked of goods, but one could argue that the components of a Big Mac are traded.
The Economist has released a new and improved trade weighted Big Max Index that takes into account GDP per capita. This new index should be better suited for comparing exchange rate valuations in the short term because this index takes into account price differences between countries. On average, prices are cheaper in poor countries. The different versions of the Big Max Index do give different results for some countries. The differences are large for the BRIC countries. In the case of China, for example, the raw index indicates that the yuan is significantly undervalued while the new index indicates the yuan is close to fair value. For Canada, there is not much difference between the two calculations.
The Economist has released a new and improved trade weighted Big Max Index that takes into account GDP per capita. This new index should be better suited for comparing exchange rate valuations in the short term because this index takes into account price differences between countries. On average, prices are cheaper in poor countries. The different versions of the Big Max Index do give different results for some countries. The differences are large for the BRIC countries. In the case of China, for example, the raw index indicates that the yuan is significantly undervalued while the new index indicates the yuan is close to fair value. For Canada, there is not much difference between the two calculations.
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