Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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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Russian Sanctions: Europe Prepares to Act

by Robert Kahn Tuesday, July 29, 2014

The Europeans look set to surprise us with significant economic sanctions against Russia (see here and here) that exceed in some respects U.S. measures. The United States likely would expand their sanctions in parallel. I yesterday published an op-ed on what we should make of the moves, and assuming reports of an agreement are true, I think it is worth highlighting four takeaways from that piece and recent developments:

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Addressing America’s Infrastructure Challenge

by Robert Kahn Tuesday, July 22, 2014

America’s woeful lack of infrastructure spending is well appreciated.  What is missing is action to address it.  My colleague Heidi Crebo-Rediker writes that the Administration has now launched a new Transportation Investment Center to share best practice, provide technical assistance, and give support for accessing credit programs for new infrastructure projects. This one-stop shop within the Department of Transportation has much in common with (and looks to draw heavily on) Heidi’s earlier proposal for an “Infrastructure USA” initiative.  While no silver bullet, it’s a valuable first step.

China Chooses Growth Over Reform

by Robert Kahn Friday, July 18, 2014

The Wall Street Journal piece on rapid credit growth in China yesterday describes the sharp tradeoff for the Chinese government: achieving growth targets in the near term comes at the expense of reform delays and further rapid debt accumulation. With growth likely to decelerate in 2015 without additional stimulus, the prospects for meaningful economic reform are receding. I’ve explored this tradeoff in my July Global Economics Monthly (here). Imposing hard budget constraints, tightening credit, recognizing losses, and addressing massive excess capacity in real estate, raw materials and other sectors is disruptive in the short term, and as long as growth is falling short of government targets the hard decisions are likely to be deferred. If it takes a crisis to force change, I argue in the GEM that the smooth rebalancing scenarios that China optimists predict will be at risk.

Russian Sanctions: The United States Takes the Lead

by Robert Kahn Wednesday, July 16, 2014

The United States has taken what, on first read, looks to be a significant step today, extending sanctions ( see also here) to block new debt and equity issuance by a number of energy, financial and military companies.  It is not quite full “sectoral” sanctions–both because it is limited in what it blocks (new debt and equity of maturity greater than 90 days) and because it excludes Sberbank, which holds the majority of Russian deposits. But I would argue that the reach of this new executive order in terms of institutions covered is sufficiently broad that the effects on the Russian financial system could be systemic.

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BRICS and Mortals

by Robert Kahn Tuesday, July 15, 2014

Leaders of the BRICS–Brazil, Russia, India, China, and South Africa–meet in Rio today to swap World Cup stories and launch a long-discussed “BRICS Bank.” The bank creates two funds–a development lending facility (New Development Bank or NDB) backed by $50 billion in capital ($10 billion from each of the BRICs), and a $100 billion rescue fund (Contingent Reserve Arrangement, CRA) for countries suffering from exogenous shocks.

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