Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

Three Central Banks

by Robert Kahn Friday, October 31, 2014

Today’s central bank news tells us a lot about the risks and rewards of proactive central banking.

The Bank of Japan (BoJ) surprised me (and nearly everyone else ) with a dramatic expansion of its unconventional monetary policy this morning, citing renewed risks of deflation. The BOJ announced (i) an increase in the target for monetary base growth to ¥80 trillion ($730 billion) per annum from ¥60–70 trillion; (2) an increase in its Japanese government bond (JGB) purchases to an annual pace of ¥80 trillion from ¥50 trillion; (3) an extension of the average maturity of its JGB purchases to 7–10 years (3 years previously); and (4) a tripling of its targets for the annual purchases of Japan real estate investment trusts (J-REITs) and exchange-traded funds (ETFs).

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European Banks: Balance Sheet Clarity But A Cloudy Future

by Robert Kahn Monday, October 27, 2014

The European banking assessment results, released yesterday, were generally well received by markets. The test looked like earlier U.S. and Spanish stress tests in terms of structure, the results were in line with market expectations, and the report provided enough detail to keep analysts busy for weeks. This morning, the euro is firmer and European stocks were up a bit before weak data clawed them back.  Will this test succeed where previous efforts have failed and ultimately restore confidence in European banks? I suspect that your answer to this question depends on your outlook for the European economy. Without growth, Europe remains over-indebted, its banks undercapitalized, and a crisis return looks likely.

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October Monthly: Breaking the Sanctions Code

by Robert Kahn Friday, October 17, 2014

At last week’s World Bank and IMF meetings, I heard sharply divided views about the future path of sanctions and what lessons should be drawn from their use against Russia. Have they been successful, and at what cost to the West? Should sanctions be extended to the payments system, which enhances their power but risks damaging a global public good? What signal does it send to other countries? With growing evidence that sanctions are materially damaging the Russian economy, concerns have been raised that sanctions could become too easy an option for U.S. policymakers.

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When meetings matter—The World Bank and IMF Convene

by Robert Kahn Thursday, October 16, 2014

There are many reasons cited for this week’s market turndown and risk pullback, including concerns about global growth, Ebola, turmoil in the Middle East, and excessive investor comfort from easy money. What has been less commented on is the role played by last weekend’s IMF and World Bank Annual Meetings. Sometimes these meetings pass uneventfully, but sometimes bringing so many people together—policymakers and market people—creates a conversation that moves the consensus and as a result moves markets. It seems this year’s was one of those occasions. As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers—particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with it.

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New Energy for Russian Sanctions

by Robert Kahn Monday, September 15, 2014

Time will tell whether new sanctions on Russia announced by the United States and European Union last week will be a game changer. The most significant development concerns oil, as the new measures go much further than previously understood to shut down ongoing exploration and production of new Russian supply. While triggered by events on the ground in Ukraine, from a policy perspective this is a catch-up action, closing loopholes and bringing market practice more in line with the harsher intent of earlier measures. As such, I view the steps as an incremental, if logical, next step in the effort to punish Russia for its actions in Ukraine. Still, compared to what some energy companies thought they would be allowed to do, the new measures look to be material in terms of their effect on ongoing exploration, development and investment in securing new oil.

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The Geopolitical Paradox: Dangerous World, Resilient Markets

by Robert Kahn Wednesday, September 10, 2014

Should we be worried by how well global markets are performing despite rising geopolitical volatility? I think so. In my September monthly, I look at the main arguments explaining the disconnect, and argue Europe is the region we should be most worried about a disruptive correction. Here are a few excerpts.

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Financing Ukraine: Time for an Honest Assessment

by Robert Kahn Thursday, August 28, 2014

Russia’s invasion of Ukraine (“incursion” is far too polite a term) represents a major intensification of the conflict and should cross all red lines the West has established.  The logic of the earlier, incremental approach—put modest sanctions in place, and let the threat of worse create a chilling effect on investment and trade—has reached a dead end.  Whether President Putin seeks a stalemate within Ukraine or something more menacing, full sectoral sanctions (including, importantly, Russia’s access to payments systems) should now be put in place as a firm signal of western resolve.  The real cost-benefit to be done is not the costs on the West compared to Russia. Rather it is those relative costs contrasted against doing nothing and risking a situation that brings us closer to either armed conflict or acceptance of a new rule that states can redraw boundaries by force. German President Merkel has signaled that further sanctions are on the agenda for the September 30 EU leaders summit, and I expect the Obama Administration will move with them if not before.

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Argentina Defaults: The Day After

by Robert Kahn Thursday, July 31, 2014

Argentina has defaulted. The long-running court drama that ran for over ten years and pitted Argentina against a small group of holdout creditors was decided decisively in favor of the holdouts in June, and Argentina subsequently refused to make payments as required by the courts. As a result, neither the holdouts nor the holders of restructured external debt will get paid, resulting in S&P placing the country in “selective default.” (Payment on the restructured bonds was due June 30, and the grace period for making those payments expired yesterday.)

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EU Sanctions Rules Released

by Robert Kahn Thursday, July 31, 2014

The rules for implementing new EU sanctions against Russia have been released (see also here and here).  On quick glance, they are, as advertised, an important step that will have systemic effects in financial, energy and defense markets. In this respect, they are “sectoral” or “level three” sanctions in the language of policymakers.  While narrow in scope– the financial ban (Article V) is on new transferable securities of majority state-owned Russian banks with maturities greater than 90 days–one is left with the impression that Europe, like the United States, stands ready to extend the sanctions if there is evasion or further Russian efforts to destabilize Ukraine.

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