SAO PAULO | By Benjamin Cole via Marcus Nunes‘ Historinhas | As I predicted, the right-wing has gone past its fixation on absolutely dead prices as an economic cure-all and moral imperative, to the even-better nirvana of…deflation. I wish I was making this up. But comes now University of Chicago scholar John Cochrane, path-breaking with stalwart allies such a FOMC member Charles Plosser, that deflation is an economic elixir, not a sign of stagnation. Cochrane authored a recent The Wall Street Journal op-ed genuflecting to southerly price drifts. I just don’t get it.
VIENNA | By Keith Weiner via Truman | I proposed seven drivers of financial implosion in my dissertation. My recent writing has focused on two of them. One is the falling rate of interest on the 10-year government bond. As interest falls, the burden of debt rises. Since the falling rate incentivized more and more people to borrow, the number of indebted people, businesses, corporations, and of course governments is large. When the rate gets to zero, the burden of debt becomes theoretically infinite.
By Kyohei Morita, Yuichiro Nagai, James Barber, and the CFA at Barclays | The BoJ shocked the markets with further easing on Halloween. The actual effect on the economy will likely be less direct. The weaker JPY and lower real interest rates have not boosted export volumes and private capex since the start of QQE, and this may not change in the near future. However, consumer spending could draw support from wealth effects and higher wages linked to stronger exporter profits under JPY depreciation
John Bruton | I recently attended a conference that looked at France’s domestic economic situation, and the impact that has on the country’s global and European role. According to budgets published in October, France and Italy are failing to meet the eurozone’s requirements for reducing government debts and deficits to sustainable levels.
SAO PAULO | By Marcus Nunes via Historinhas | Tim Worstall comes out and calls a “spade a spade” in “Europe Doesn’t Have A Debt Crisis, Europe Has A Monetary Crisis”: The stock markets plunge over concerns about the eurozone; there’s a flight from lower quality sovereign bonds; Greek, Spanish and other periphery bond yields spike. It looks like the eurozone debt crisis is back. But this time around we really should get to grips with the fact that what we’ve got here is really not a debt crisis.
BEIJING | By James A. Dorn via Caixin | In his new book Markets over Mao: The Rise of Private Business in China, Nicholas R. Lardy, one of the world’s leading China experts and a senior fellow at the Peterson Institute for International Economics, makes a strong case that the market, not the state, has been the key factor in the country’s remarkable rise. In 1978, Beijing began to loosen its grip on economic life and paramount leader Deng Xiaoping recognized the failure of central planning as a development model. Today China is the world’s second-largest economy, and the range of choices open to consumers has greatly expanded under economic liberalization and trade.
ZURICH | By UBS analysts | Global investors have been big sellers of Europe ex-UK equities in September and also the last 12 weeks (Figure 1). And this doesn’t include the heavy sell-off in the last week. US Treasury data shows that US-based investors were net sellers of $14.3bn in June–the biggest month of selling since the collapse of Lehman’s in 2008. How far through the current correction are we? So far the European market is down 8% from its September peak–in-line with the average of 9.5% in Bull market corrections since 1975.
LONDON | The Corner | According to experts at Barclays, the significant depreciation of EUR/USD (Fig 1) has been a key data event in the past few months. However, the sharp fall in oil prices has partially offset this positive effect on inflation, which has remained at 0.4% y/y in August. The inflation data remain crucial for the ECB, which has repeatedly emphasised that there is unanimous commitment to use all available tools to prevent a period of prolonged low inflation. We now expect QE on sovereign bonds, most likely by Q1 15.
MADRID | By Julia Pastor | It is likely that the Spanish government will revise its growth forecasts upwards for the country in 2014, but only by one tenth of a percentage point-to 1.3%. This is likely to be the submission that the Ministry of Economy together with the Ministry of Finance will give to the next Council of Ministers.
The British government has failed to condemn China for breaking its promise of greater democracy in Hong Kong. If you were told the Chinese government — an unelected, one-party state — will decide who you can vote for, what would your response be? Not only would you likely object, you would expect others, especially democracies, to loudly condemn the idea. But Britain has done just the opposite to the people of Hong Kong, when it failed to call China out for breaking its promise of greater democracy for the island territory.