Benn Steil

Geo-Graphics

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

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Showing posts for "Countries"

China’s RMB Fairly Valued, Euro Overvalued, According to Our Geo-Graphics iPad mini Index

by Benn Steil and Dinah Walker

The “law of one price” holds that identical goods should trade for the same price in an efficient market. To what extent does it hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s burgers around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Yet it travels badly—cross-border flows of burgers won’t align their prices internationally. Read more »

French Banks Play Russian Roulette

by Benn Steil and Dinah Walker
bank exposure to russia

In the fourth quarter of last year, with tensions rising between Russia and the West over Ukraine, U.S., German, UK, and Swedish banks aggressively dialed down their credit exposures in Russia.  But as the graphic above shows, French banks, which have by far the highest exposures to Russia, barely touched theirs.  At $50 billion, this exposure is not far off the $70 billion exposure they had to Greece in 2010.  At that time, they took advantage of the European Central Bank’s generous Securities Market Programme (SMP) to fob off Greek bonds, effectively mutualizing their Greek exposures across the Eurozone.  No such program will be available for Russian debt.  And much of France’s Russia exposure is illiquid, such as Société Générale’s ownership of Rosbank, Russia’s 9th largest bank by asset value ($22 billion).  With the Obama Administration and the European Union threatening to dial up sanctions on Russia, is it time for U.S. money market funds and others to start worrying about their French bank exposures? Read more »

Should the ECB Go on a Bund Buying Spree?

by Benn Steil and Dinah Walker
bund buying

Should the European Central Bank finally join the Fed, the Bank of England, and the Bank of Japan and deliver a good, stiff dose of Quantitative Easing?

Maybe, came the surprise response from the hawkish Bundesbank president on March 25.  But “any private or public assets that we might buy,” Jens Weidmann warned, “would have to meet certain quality standards.” Read more »

IMF Reform and Ukraine: Amateur Hour for U.S. Economic Diplomacy

by Benn Steil and Dinah Walker
ukraine imf reform

In our March 5 post, we argued that the Obama administration linking Ukraine aid to IMF reform was disingenuous and counterproductive.  We were right: the legislation failed, congressional Republicans were angered, foreign governments were annoyed, and aid was delayed.  All for what?  Without IMF reform, Ukraine will still get every penny it would have gotten with IMF reform.  Today’s Geo-Graphic shows this.  And more… Read more »

“It’s (Still) the Inflation, Stupid.”

by Benn Steil and Dinah Walker
inflation and unemployment v targets

Fed officials have been tripping over themselves and each other trying to explain to the world what the right measure of unemployment is and how it should affect what the Fed does.

Using the headline unemployment rate (“U-3”) in official communications hasn’t worked out so well.  Last June, then-Chairman Ben Bernanke suggested that the taper would end with U-3 around 7%; in fact, taper only started with U-3 below that level, at 6.6%.  The FOMC’s December 2012 forward guidance specified a 6.5% threshold for potential rate rises; yet now, with unemployment barely above this, we have NY Fed President Bill Dudley arguing that the guidance should be discarded entirely, as the number is “not providing a lot of value right now in terms of our communications.” Read more »

Lew Does Not Need IMF Reform to Aid Ukraine

by Benn Steil and Dinah Walker
Ukraine IMF

The new provisional government in Ukraine is seeking $15 billion in assistance from the International Monetary Fund.  This would represent 700% of the country’s quota with the Fund, added on top of the loans it has already outstanding, amounting to 214% of its quota. Read more »

Was Ukraine Tapered?

by Benn Steil and Dinah Walker
ukraine

For Ukraine’s beleaguered bond market, the seminal event of 2013 was Ben Bernanke’s now-famous taper talk of May 22.  As today’s Geo-Graphic shows, it sent yields soaring to levels they never came back from.

Ukraine was uniquely susceptible to taperitis, having been sporting a current account deficit of 8% of GDP—considerably worse than other big victims such as India, Brazil, Indonesia, Turkey, and South Africa.  Its current political crisis clearly has deep roots, yet it is interesting to speculate as to whether Yanukovych could have held on had it not been for the country’s spiraling debt costs—sent spiraling by the Fed last May. Read more »

“It’s the Growth, Stupid” (Or Half of It): Unemployment in North Carolina

by Benn Steil and Dinah Walker
north carolina

In July, North Carolina cut off unemployment benefits for those who have been on benefits for 19 weeks, down from 99.  This made it a test run for what would happen nationally after January 1, when the federal extension of unemployment benefits expired. Read more »

“The Euro Crisis Is Dead! Long Live the Euro Crisis!”

by Benn Steil and Dinah Walker
spanish spreads

You’ve got to hand it to Mario Draghi.  Never in the history of central banking has one man accomplished so much with so few words and even less action.

Since having announced the creation of the Outright Monetary Transaction (OMT) program in August 2012, Draghi has had the pleasure of sitting back and watching yield spreads between Spanish and German government bonds fall relentlessly without having to buy a single bond.  Italian spreads have done the same. Read more »

Which Fed Guidance Should We Believe?

by Benn Steil and Dinah Walker
forward guidance

In October 2012, the Fed issued what came to be called a “pledge” to keep its target interest rate near zero through mid-2015.  The market immediately reacted as the Fed wanted, centering expectations on a rate hike in mid-2015.

At its next meeting, the Fed abandoned date-based guidance in favor of data-based guidance: a pledge to keep rates near zero until the unemployment rate fell below 6.5%.  The Fed emphasized, however, that the two pledges were consistent, as it didn’t expect unemployment to fall below that level until mid-2015. Read more »