Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

Deficits Matter

by Tuesday, February 16, 2010


As the global financial crisis went viral in September 2008, governments stepped in with enormous financial commitments to prop up their financial systems. Markets became increasingly skeptical that sovereigns would be able to meet their obligations, as illustrated by soaring CDS spreads. Spreads began falling in March of 2009 as the financial system stabilized. Yet whereas Ireland pushed through unpopular spending cuts in early 2009, Greece failed to initiate serious measures to reduce public spending commitments. Consequently, markets began pushing up Greek CDS spreads in late 2009, producing an enormous gap vis-à-vis Irish spreads. Greek spreads narrowed slightly after the European Union made its vague pledge last week to “safeguard financial stability in the euro area as a whole,” but default fears remain high. Read more »

Export Ambitions

by Wednesday, February 3, 2010


In his State of the Union address, President Obama set an ambitious goal of doubling exports in five years. To achieve this goal, exports must grow by nearly 15% annually, shown by the red line in the chart above. Since 1965, the only time such a nominal growth rate has been achieved for several years was in the mid-1970s. This growth was driven by high inflation, and was thus in large part a money illusion. In the early 1990s and late 2000s, export growth neared the 15% rate. As illustrated by the gray boxes, in each case the U.S. real exchange rate declined significantly during the period. Thus to realize his export ambitions, the president will likely need significant (and unwelcome) inflation or another major fall in the dollar – or both. Read more »