Post-Crisis Rationalizations: The three-lane highway to recovery?

C.P. Chandrasekhar

In the effort to restore economic optimism and talk up global growth, the favourite phrase doing the rounds today is “multispeed recovery”. Unevenness in growth, which was earlier seen as a sign of global imbalance, is now being celebrated as cause for optimism.

World Bank President Robert Zoellick speaking on global economic prospects, and business leaders and experts debating in Davos, have recently argued that all segments of the global economy are on a highway to recovery, even if on lanes that permit different speeds. There are at least three speeds at which the recovery is expected to proceed during 2011: 6 per cent in the emerging economies led by China and India, 3 per cent in the US and less than 2 per cent in the euro area. Put together, these are presented as a significantly positive rate for the global economy as a whole. While the working people in a host of countries, developed and developing, may be short of jobs and incomes, a truly global perspective seems to provide cause for optimism.

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The Financial Crisis Inquiry Commission Report: Downplaying derivatives

Matías Vernengo

The Financial Crisis Inquiry Commission (FCIC) released its report last week, and concluded that the crisis was foreseeable and avoidable.  The FCIC argues that authorities were permissive and that: “the prime example [of permissiveness] is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards.”  The report is right to emphasize that failures of regulation and supervision were crucial to the eventual collapse, which by the way is a fitting indictment of Geithner, Bernanke and several other policy-makers still in key positions.

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Curbing Hot Capital Flows to Protect the Real Economy

Triple Crisis bloggers Stephany Griffith-Jones and Kevin P. Gallagher published the following proposal to stem the excessive flows of speculative capital into developing countries in Economic and Political Weekly. In their approach, the United States and developing countries each regulate the outflow and inflow of hot money and redirect investment toward the real economy.

Curbing Hot Capital Flows to Protect the Real Economy

Developing countries are once again the destination for speculative capital flows with in inlows reaching pre-crisis levels, leading to currency appreciation and asset bubbles. Many of these nations are deploying prudential capital regulations to stem these flows. However, this may only be a partial remedy to the problem – such measures should be coupled with action by the developed countries in order to fully steer capital to productive use and to avoid future crises.

Download the full article at Economic and Political Weekly.

Food Price Volatility: Market fundamentals and commodity speculation

Timothy A. Wise

As Jayati Ghosh explained in her recent post on the “Frenzy in Food Markets,” high food prices are back and market fundamentals do not adequately explain the price rise. Still, a wide range of analysts and commentators, from Paul Krugman to the International Food Policy Research Institute, dismiss the argument that a significant part of the 2006-8 food price surge was due to speculation. They are more dismissive now, two years further removed from the bursting bubbles of the housing and financial crises.

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State of the Union: US trade policies stuck in Neverland

Timothy A. Wise

In his State of the Union speech, President Obama made a mercifully quick stop in the Neverland of U.S. trade policy, promising – again – to double U.S. exports and to do so by reviving the long-dormant Bush-era trade deals (South Korea, Colombia, and Panama) and pursuing the TransPacific Partnership, which he held off on branding by name or acronym. TPP, after all, could start to sound a lot like NAFTA, that agreement he promised to renegotiate and in whose image the Bush deals were created, with a few post-Bush cosmetics (and side deals) to fool a few trade union leaders and perhaps a few more legislators.

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State of the Union: US trade policies stuck in Neverland

Timothy A. Wise

In his State of the Union speech, President Obama made a mercifully quick stop in the Neverland of U.S. trade policy, promising – again – to double U.S. exports and to do so by reviving the long-dormant Bush-era trade deals (South Korea, Colombia, and Panama) and pursuing the TransPacific Partnership, which he held off on branding by name or acronym. TPP, after all, could start to sound a lot like NAFTA, that agreement he promised to renegotiate and in whose image the Bush deals were created, with a few post-Bush cosmetics (and side deals) to fool a few trade union leaders and perhaps a few more legislators.

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State of the Union: The war on demand and the Sputnik moment

Matías Vernengo

President Barack Obama’s call for a five-year freeze in non-security, discretionary spending during his State of the Union address is exactly what should not be done, for the economy and for the future of his presidency.  The President’s call for a government that lives within its means shows that, at least in terms of ideas, he has caved to what Krugman has suitably termed the “war on demand.”  The great Polish economist Michael Kalecki long ago explained the reasons for the dislike of demand policies in his classic on “The Political Aspects of Full Employment,” in which he argues that it is the elites’ abhorrence of empowering the lower classes that is behind the doctrine of “sound finance” (i.e. balanced budgets).

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Nothing Lasts Forever: The Future of the Dollar in the International Monetary System

David Nelson Black, re-posted from the World Policy Institute’s World Policy Blog, a Triple Crisis partner. We periodically cross-post items of interest.

For the foreseeable future, the US government’s inability — or refusal — to embrace fiscal responsibility will likely remain one of the global economy’s most pressing issues and one of its most reliable constants. Barring any radical and unforeseen change of course, this means that the US dollar is likely to continue to decline in importance. Private investors, along with foreign governments and their central banks, will gradually lose confidence in the notion that the US possesses the political will or ability to preserve the underpinnings of a healthy monetary system. Gone will be the latitude afforded by being the world’s financial capital and holder of its reserve currency — what Charles DeGaulle and his finance minister 50 years ago labeled the United States’ “exorbitant privilege.”

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Approaches to Competitiveness: Double Standards and Hypocrisy

Mehdi Shafaeddin

There is a double standard in the way the concept of “competitiveness” is applied by governments of developed countries and the manner in which they impose it on developing countries. Developed countries aim at achieving competitiveness at a high level of development through specialization based on dynamic comparative advantage. By contrast, they advocate to, and impose on, developing countries policies that will lead to specialization based on static comparative advantage and will keep them at low level of development.

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Frenzy in Food Markets

Jayati Ghosh

So now we are back in another phase of sharply rising global food prices, which is wreaking further devastation on populations in developing countries that have already been ravaged for several years of rising prices and falling employment chances. The food price index of the FAO in December 2010 surpassed its previous peak of June 2008, the month that is still thought of as the extreme peak of the world food crisis.

Some of the biggest increases have come in the prices of sugar and edible oils. The US import price of sugar doubled over the second half of 2010. Traded prices of edible oils like soya bean oil and palm oil increased by an average of 50 per cent over the same period. But even staple prices have shown sharp increases, with the biggest increase in wheat prices, which went up by 95 per cent between June and December 2010. Rice prices have been relatively stable in global trade over the past year in comparison, but in fact the FAO reports that domestic rice prices in major rice producing and consuming countries, especially in Asia, continued to increase and are now at their highest ever levels.

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