Comments on: I am not sure there is much risk that emerging economies will become too enamored with floating any time soon.

By: Guest

Guest — Fri, 25 May 2007 03:41:05 +0000

May 24, 2007 - “Iran’s financial system suffered a fresh jolt yesterday with panic selling on the stock market after the president, Mahmoud Ahmadinejad, abruptly ordered banks to cut interest rates sharply, despite surging inflation. The order, which Ahmadinejad issued by telephone during a visit to Belarus and which flew in the face of expert advice - has triggered warnings of a financial crisis and spiralling corruption amid fears of a capital flight from the country’s lending institutions…” http://www.iranian.ws/iran_news/publish/article_22113.shtml

By: Guest

Guest — Fri, 25 May 2007 03:25:59 +0000

Yes - but with income disparities rising everywhere, along with foreign born populations of all income classes and the ongoing integration of firms and institutions, the definition of any nation’s best interests is debatable. So if America or any other nation is “to deal with other countries’ intervention to its own advantage” the question of who and what is best served gets very interesting, along with the strategies and tactics used to achieve specific outcomes.

By: RebelEconomist

RebelEconomist — Thu, 24 May 2007 20:26:20 +0000

Regarding policy space:

Commentators - probably including me - often talk about “the exchange rate”, but of course any currency area actually has about two hundred exchange rates with other currency areas. Big as it is as a US trade partner, China can only affect the US exchange rate in a, say effective, sense to a minor degree.

No country with an open capital account can peg to another currency area without the acquiescent of that area, because if the reserves inflow is not welcome, they can effectively send it back. This would be interesting (and perhaps not as fruitless an exercise as it might initially seem).

As I have said before, it seems to me that any exchange rate constraint unilaterally imposed by another country does not need to be disadvantageous to the object of the peg (”pegee”?) - ie a geeky “constrained optimum cannot be superior to an unconstrained optimum” argument. This must be right, no? If so, then the problem for America is how to deal with other countries’ intervention to its own advantage.

By: bsetser

bsetser — Thu, 24 May 2007 20:05:41 +0000

we economists, we Americans (tho that may imply more power than we have now, tho the implication is that we shouldn’t protest too much about undervalued RERs), we who have worked in international financial institutions … i was trying to wrap a lot of possibilities in, but i can see how it came across in a way that i didn’t really intent (patronizing).

there are some very concrete cases i have in mind — for example, the US China FTA had a provision that outlawed inflow controls more or less. that reduced Chile’s policy space — and it came b/c of a request from the US policy makers (early Bush 43), not b/c of any strong us lobby that wanted it.

By: Eddy

Eddy — Thu, 24 May 2007 17:50:48 +0000

Russia’s reserves increased once again 8bln (11-18May)
Amazing….

By: Cassandra

Cassandra — Thu, 24 May 2007 16:40:35 +0000

gillies has parsimonioulsy distilled a Britannica’s volume of detailed facts and verbiage into a most-concise political-economic observation worthy of BW2’s epitaph. Bravo!

By: Guest

Guest — Thu, 24 May 2007 15:12:23 +0000

it’s just the idea of a bunch of wonks sitting around a boardroom table and someone saying “we should allow countries enough policy space to find approaches that work for them” as if that’s a new or debatable concept. But it does raise the question of who it works for now and how that’s enforced.

By: gillies

gillies — Thu, 24 May 2007 12:03:51 +0000

the blame game - mr. nixon went off the gold standard and opened up to trade with china. if you are looking for where the buck stops for starting the dollar tsunami why not try there ?
a flaw has developed now in the logic of labour arbitrage, or a flaw that was there all the time is becoming apparent - you cannot cobble together an alliance of the american casino-capitalist elite and the chinese communist working class, to squeeze the life out of the american middle class, who are supposed to be the consumer engine of both.
the logic is flawed - or has logic anything to do with it ?

By: Guest

Guest — Thu, 24 May 2007 09:04:08 +0000

“that we should allow countries enough policy space to find approaches that work for them”

sorry if I’ve missed it, but it sounds like readers are to assume “we” means the “U.S.” - anything or anyone more specific? - and isn’t part of the problem in the difficulty of adopting the ‘right’, or even feasible? means for ‘disallowing’ countries the policy space to find approaches that work for them, with some consideration for the broader impact of ‘not working?’ - not only to the nation at hand, but any number of possibilities for different types of obvious and not so obvious blowback.

By: Macro Man

Macro Man — Thu, 24 May 2007 08:58:48 +0000

Alejandro, what’s interesting is that Lula and co. appear to be getting jealous of Argentina’s growth. What’s interesting is that they are, to a degree, using the capital inflow in their favour to spur growth, taking advantage of the dramatically lower borrowing costs to fund a huge fiscal stimulus package. It will be interesting to see if it works…