Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Debt"

The International Economic Agenda Facing the New Congress

by Robert Kahn

The initial post-election talk is understandably about whether the shift to a Republican controlled Senate makes it easier or harder to make progress on central economic challenges facing the United States, including energy, immigration, social spending, and infrastructure. There is understandable concern that this next Congress will face the same gridlock that we have now. But even before that, there is the mundane issue of what we borrow and spend. Partly out of fear of being seen as crying wolf one too many times, I have been wary to advertise my concern that we are facing a new series of economic cliffs. First up is a likely standoff on the budget (in December, and likely again in the spring of 2015). Then comes the debt limit, which will be reset on March 15, but given the usual and not-terribly-extraordinary “extraordinary measures” that are at the disposal of Treasury, they can likely pay the nation’s bills until perhaps the fall of 2015 before cash balances fall to zero. Of course, in the past deals have been done, often at the last minute, and we have not, with the exception of the 2013 government shutdown, gone off the cliff (though there have been a few unnecessary fender benders along the way). But with the Senate as polarized as ever, it is easy to see getting to deals on these issues will be difficult and potentially unsettling to markets.

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Three Central Banks

by Robert Kahn

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

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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When meetings matter—The World Bank and IMF Convene

by Robert Kahn

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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Argentina Defaults: The Day After

by Robert Kahn

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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BRICS and Mortals

by Robert Kahn

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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Ukraine and IMF: Step Forward Now

by Robert Kahn

The IMF announced today that it has reached an agreement in principle on a two-year program (stand-by arrangement) with Ukraine. The headline numbers are $14-18 billion of IMF money and overall financing of $27 billion, which is lower than some had hoped, but don’t be fooled. This is a three-to-six month program, designed to meet Ukraine’s critical near-term financing needs and to get reforms going. Both are essential tasks, and rightfully the focus. The program will be revised (and likely boosted) after elections. It will be at that point that thorny issues like debt restructuring will be addressed.

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Five Financial Questions for Ukraine

by Robert Kahn

There is an interesting debate going on in Western capitals over financial support for Ukraine.  The possibility of political change, coupled with Russia’s decision to suspend disbursements on its $12 billion financial package, has created an opening for meaningful economic reforms and renewed ties with global financial bodies.  There are compelling political arguments for the West to respond with a financing program that makes it economically viable for Ukraine to choose the EU Association Agreement that it rejected last year.  But the economics make a deal hard to put together.  For now, the ball is in Ukraine’s court—tensions remain high and Western aid will require at a minimum a technocratic and reform oriented government be put in place.  But should that happen, here are five economic questions on the table. Read more »