European nationalists have successfully convinced the world, against all logic, that the European crisis is a conflict among nations, and not among economic sectors.
If the world does indeed face another decade or two of “superabundant capital” in spite of economic stagnation and slow growth, the historical precedents suggest a number of consequences.
Chinese economic growth will continue to slow. Although many economic analyses are based on the success of economic reforms, near-term growth is more accurately forecast in terms of balance sheet constraints.
China’s consumer price index (CPI) and producer price index (PPI) data suggest that China is facing deflationary pressures. Beijing must tackle the country’s debt and create alternative sources of demand to address them.
Economists tend to undervalue institutional flexibility, especially in the first few years after a major financial crisis, perhaps because in the beginning countries that adjust very quickly tend to underperform countries that adjust more slowly.
A slowing Chinese economy might be good or bad for the world, depending on domestic savings and domestic investment.
While China is a more integrated optimal currency zone than the EU, there are still frictional costs across provinces that will require Beijing to make some adjustments, which have their own costs.
Considering what would be the best subway fare in Beijing is a useful way to think about infrastructure investment more generally.
China’s disproportionate demand for iron is the result of its investment-driven growth model. In considering how Chinese adjustment will affect Australia, one must consider global savings imbalances.
The role of the U.S. dollar as the world’s global reserve currency has been regarded as a great advantage to the United States but actually it is a destabilizing burden rather than an “exorbitant privilege.”
The next few years could see a break-up of the current monetary and trading regime and a U.S. turn inward toward isolation.
Policies that affect the savings rate of a small country can have more-or-less predictable domestic impacts because the global economy is so large that domestic policies are not affected by external constraints. But with a large economy, the analysis changes.
Instead of a hard landing or a soft landing, the Chinese economy faces two very different options, and these will be largely determined by the policies Beijing chooses over the next two years.
If Pedro Sánchez Castejón hopes to lead Spain and his party out of its current economic crisis, he must recognize that the crisis is fundamentally a conflict between the interests of Europe’s bankers and of Europe’s workers.
While debt plays a key role in understanding the recent evolution of the Chinese economy and the timing and process of any further adjustment, there seems to be a remarkable amount of confusion as to why debt matters.
The past two decades of Chinese growth have disproportionately benefited a small elite that has become increasingly entrenched; the next stage must focus on liberal reforms to build social capital more broadly.
The European Central Bank has managed to head off the liquidity crisis that Spain and other peripheral countries faced, but little has been done to address concerns about solvency or global imbalances.
Rising inequality is inextricably tied to economic imbalances and, in a context of limited productive investment opportunities, the only sustainable outcome is sharply higher unemployment.
The plummeting valuation of China’s banks suggests that investors are losing confidence in China’s growth prospects.
An “efficient” market is one that has an efficient mix of investment strategies. Without this efficient mix, the market itself fails in its ability to allocate capital productively at reasonable costs.