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 "Financial Crisis and Recession"

The Politics of IMF Crisis-Country Growth Projections

by Benn Steil and Dinah Walker
IMF growth projections vs reality Greece and Ukraine

IMF GDP growth “projections” accompanying emergency lending programs are nothing of the sort; they are targets the level of which is necessarily set high enough to enable the interventions.

Take Greece.  After committing to lending of €30 billion over 3 years in 2010, the Fund projected that the crisis-mired nation would return to growth by 2012.  As shown in the left figure above, Greece’s economy actually plunged by 7% that year – the year it completed the world’s largest sovereign restructuring, covering €206 billion of bonds. Read more »

Bank Valuations Tank as ECB Flubs Its Stress Test

by Benn Steil and Dinah Walker
european bank valuations before and after stress test

Low market valuations (i.e., price to book ratios) for euro area banks reflect market concerns over their capital cushions, opined the Bank of England just prior to last-year’s launch of the ECB stress tests—the long-awaited results of which were published on October 26.  The tests, “by improving transparency,” said the BoE, have “the potential to improve confidence in euro area banks.” Read more »

The ECB Fails to Stress Banks Over the One Critical Variable It Controls: Inflation

by Benn Steil and Dinah Walker
ECB Stress Tests Inflation Scenario

Relentlessly falling inflation is bad news for Eurozone banks.  It increases the real (inflation-adjusted) value of borrower debt and the real cost of servicing that debt.  It causes loan defaults, and therefore bank loan losses, to rise.

So with Eurozone inflation, currently at a near-record low of 0.4%, clearly at risk of heading into deflationary territory, what did the ECB say was the “adverse scenario” for this year?  Inflation of 1% – more than twice its current level.  This is indefensible; the ECB’s dire scenario for this year is actually much cheerier than the IMF’s baseline forecast, which pegs inflation at 0.5%.  The country-by-country comparison is shown in the graphic above. Read more »

A Dovish Market Has History on Its Side in Tuning Out the Fed

by Benn Steil and Dinah Walker
Fed Transition Times

Market expectations for Fed policy have been decidedly more dovish than the Fed itself, a conundrum that is concerning San Francisco Fed economists.  As the Fed debates its rate-liftoff forward guidance this week, however, it is worth asking how much it really matters. Read more »

Bullard Has Fed History on His Side in Rate-Hike Debate with Yellen

by Benn Steil and Dinah Walker
unemployment and inflation august update

St. Louis Fed President James Bullard has moved decisively and vocally from the dove to hawk camp over the past year, and is now predicting a rate hike in the first quarter of next year – in contrast to Fed Chair Janet Yellen, who still does not appear to see one coming before the middle of the year.  The economy, Bullard said, was “way ahead of schedule for labor-market improvement.” But it’s not just the unemployment picture that’s changed dramatically over the past half-year; the inflation picture has as well. Read more »

Mr. Draghi, Tear Down These Rates!

by Benn Steil and Dinah Walker
euro area real and nominal lending rates

ECB President Mario Draghi was able to stabilize Eurozone nominal lending rates, which had been climbing dangerously in the periphery countries, with his famous do “whatever it takes” speech in July 2012.  Real (inflation-adjusted) lending rates for nonfinancial businesses, however, have risen steadily since then; in Spain, they are back up to their 2009 euro-era peak, as the right-hand figure in today’s Geo-Graphic shows. 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 »

“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 »