Comments on: Will the world’s macroeconomic imbalances soon reduce to China’s surplus and offsetting deficits in the US and Europe? http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/ Sat, 21 Nov 2009 16:40:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: RebelEconomist http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-117255 RebelEconomist Sat, 08 Nov 2008 15:14:51 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-117255 Test 2: <a href="http://reservedplace.blogspot.com/2008/10/just-say-no.html" rel="nofollow">Reserves Control</a> Test 2: Reserves Control

]]> By: RebelEconomist http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-117254 RebelEconomist Sat, 08 Nov 2008 15:12:08 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-117254 Test: <a href="http://reservedplace.blogspot.com/2008/10/just-say-no.html" title="Reserves Control" rel="nofollow"> Test:

]]> By: srinath http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115407 srinath Thu, 16 Oct 2008 16:28:34 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115407 I am a layman in economics. But I surely have enough common sense to think that in times of crisis Gold and Silver would act as the saviour. But it just seems to act in the opposite direction violating all laws that govern it. This is not a bubble but a high tension spring highly compressed which when released would surely sent shockwaves. I really doubt anyone can dispute this theory. I am a layman in economics. But I surely have enough common sense to think that in times of crisis Gold and Silver would act as the saviour. But it just seems to act in the opposite direction violating all laws that govern it. This is not a bubble but a high tension spring highly compressed which when released would surely sent shockwaves. I really doubt anyone can dispute this theory.

]]> By: DJC http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115406 DJC Thu, 16 Oct 2008 16:22:09 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115406 If Bernanke had said this back in the day instead of sucking up, he would not be Fed chairman now. http://www.bloomberg.com/apps/news?pid=20601068&sid=a_EGuB7kQmyo&refer=home “Federal Reserve Chairman Ben S. Bernanke said the central bank will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies.” “Officials should review how supervision and interest rates can minimize the ‘dangerous phenomenon’ of bubbles in housing, stocks and other assets that risk bringing the financial system and economy down with them when they burst, Bernanke said.” If Bernanke had said this back in the day instead of sucking up, he would not be Fed chairman now.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a_EGuB7kQmyo&refer=home

“Federal Reserve Chairman Ben S. Bernanke said the central bank will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies.”

“Officials should review how supervision and interest rates can minimize the ‘dangerous phenomenon’ of bubbles in housing, stocks and other assets that risk bringing the financial system and economy down with them when they burst, Bernanke said.”

]]> By: Twofish http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115404 Twofish Thu, 16 Oct 2008 16:18:03 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115404 Chidambaram writes: Your basic contention is that due to complex financial engineering products, lax lending standards, etc the mortgage crisis has come up. Really no. The root cause was that the US kept interest rates very low which resulted in money lent to people it probably shouldn't have been lent to. Chidambaram writes: Twofish, how about creating a model to determine the current value of a home, using time value of money, mortgage interest rate, expected rent, risk free rate, inflation, etc? Even creating that model tells you that something is very wrong. At one point a house was *some place you lived in* and you were willing to pay a certain amount of money for a house because it had a nice yard, a good location, and large living room. When people started looking at houses and real estate mainly as *financial instruments* and not as *places to live in*, then we really started to have problems, because at that point people just started to make fake wealth by flipping houses to each other. Chidambaram writes: What caused the real estate downturn is speculation in oil futures, and the reaching of an inflexion point beyond which upward elasticity of home prices was not possible. No. What caused the real estate downturn was that at some point someone realized that to generate real wealth, someone would actually have to buy a house and live in it, and not just flip it to someone else. It's your classic bubble. The good thing about this real estate bubble is that economic bubbles have happened hundreds of times before, and there is some experience in what to do and what not to do when one pops. You need to deflate the bubble in a way that minimizes collateral damage. Chidambaram writes: Your basic contention is that due to complex financial engineering products, lax lending standards, etc the mortgage crisis has come up.

Really no. The root cause was that the US kept interest rates very low which resulted in money lent to people it probably shouldn’t have been lent to.

Chidambaram writes: Twofish, how about creating a model to determine the current value of a home, using time value of money, mortgage interest rate, expected rent, risk free rate, inflation, etc?

Even creating that model tells you that something is very wrong. At one point a house was *some place you lived in* and you were willing to pay a certain amount of money for a house because it had a nice yard, a good location, and large living room.

When people started looking at houses and real estate mainly as *financial instruments* and not as *places to live in*, then we really started to have problems, because at that point people just started to make fake wealth by flipping houses to each other.

Chidambaram writes: What caused the real estate downturn is speculation in oil futures, and the reaching of an inflexion point beyond which upward elasticity of home prices was not possible.

No. What caused the real estate downturn was that at some point someone realized that to generate real wealth, someone would actually have to buy a house and live in it, and not just flip it to someone else.

It’s your classic bubble. The good thing about this real estate bubble is that economic bubbles have happened hundreds of times before, and there is some experience in what to do and what not to do when one pops.

You need to deflate the bubble in a way that minimizes collateral damage.

]]> By: Cedric Regula http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115399 Cedric Regula Thu, 16 Oct 2008 15:09:29 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115399 Brad:"I never quite understood the fair value models of the fx world. they seem to assume some mean reversion" Ditto, which is why I have been generally ignoring them. I've never bothered to research how they model these. I have heard they ignore a lot of hard to quantify factors, and maybe it has something to do with corporate profit levels, or maybe partly purchasing power parity. But like you say, those factors are counter intuitive no matter which countries you compare. I will be interested in end of 2009 OECD numbers on debt/gdp ratios of the developed world. Especially since Occam's Razor says credit contraction causes GDP contraction. Brad:”I never quite understood the fair value models of the fx world. they seem to assume some mean reversion”

Ditto, which is why I have been generally ignoring them. I’ve never bothered to research how they model these. I have heard they ignore a lot of hard to quantify factors, and maybe it has something to do with corporate profit levels, or maybe partly purchasing power parity.

But like you say, those factors are counter intuitive no matter which countries you compare.

I will be interested in end of 2009 OECD numbers on debt/gdp ratios of the developed world. Especially since Occam’s Razor says credit contraction causes GDP contraction.

]]> By: DJC http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115397 DJC Thu, 16 Oct 2008 14:49:30 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115397 Wow, FDIC Chairwomen attacks Paulson's $700 billion bailout scheme as corporate welfare for Wall Street. http://finance.yahoo.com/tech-ticker/article/96631/FDIC-Head-Bair-Rips-Bailout-Where%27s-Love-For-Consumers?tickers=%5Edji,%5Egspc,%5Eixic The Bush Administration's bailout plan bails out Wall Street but ignores demolished consumers, FDIC head Sheila Bair says--and she blames politics. Her criticism gets at the reason why the bailout plan has so far failed to unlock the credit markets: because banks are now unwilling to lend money to people who can't pay them back. "Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it," [Bair] said. "It's been a frustration for me." Wow, FDIC Chairwomen attacks Paulson’s $700 billion bailout scheme as corporate welfare for Wall Street.

http://finance.yahoo.com/tech-ticker/article/96631/FDIC-Head-Bair-Rips-Bailout-Where%27s-Love-For-Consumers?tickers=%5Edji,%5Egspc,%5Eixic

The Bush Administration’s bailout plan bails out Wall Street but ignores demolished consumers, FDIC head Sheila Bair says–and she blames politics. Her criticism gets at the reason why the bailout plan has so far failed to unlock the credit markets: because banks are now unwilling to lend money to people who can’t pay them back.

“Why there’s been such a political focus on making sure we’re not unduly helping borrowers but then we’re providing all this massive assistance at the institutional level, I don’t understand it,” [Bair] said. “It’s been a frustration for me.”

]]> By: bsetser http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115393 bsetser Thu, 16 Oct 2008 14:02:46 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115393 Glory -- I didn't notice anything in the Gawker article that seemed inaccurate. Cedric -- I never quite understood the fair value models of the fx world. they seem to assume some mean reversion -- but I would think that the United STates trade deficit (much larger than Europe's by any measure) would imply a trend depreciation rather than mean reversion. that isn't to say the Euro wasn't somewhat overvalued at 1.55 -- it was. that was a price that assumed a strong europe/ weak US. at the same time, 1.20 is a $/ euro that doesn't provide much impetus for adjustment. and then there is whole question of the emerging world v the US and Europe. Glory — I didn’t notice anything in the Gawker article that seemed inaccurate.

Cedric — I never quite understood the fair value models of the fx world. they seem to assume some mean reversion — but I would think that the United STates trade deficit (much larger than Europe’s by any measure) would imply a trend depreciation rather than mean reversion.

that isn’t to say the Euro wasn’t somewhat overvalued at 1.55 — it was. that was a price that assumed a strong europe/ weak US. at the same time, 1.20 is a $/ euro that doesn’t provide much impetus for adjustment. and then there is whole question of the emerging world v the US and Europe.

]]> By: Cedric Regula http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115382 Cedric Regula Thu, 16 Oct 2008 06:43:42 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115382 Yikes, Japan wants to sic the IMF on us! There goes the national health care plan. =========================================== Japan's PM says US bank bailout is 'insufficient' Thursday October 16, 12:29 am ET By Shino Yuasa, Associated Press Writer Japan's prime minister says US bank bailout is 'insufficient' and leading markets lower TOKYO (AP) -- Japanese Prime Minister Taro Aso said Thursday the U.S. bank bailout is "insufficient" and is contributing to the renewed plunge in global stock markets. "Since it was insufficient, the market is again falling sharply," Aso told lawmakers at the upper house budget committee in parliament. The committee was wrapping up talks on a supplementary budget aimed to help struggling small- and mid-sized firms amid an economic downturn. ADVERTISEMENT Aso made his comments as Japan's key stock index plummeted 10 percent in early Thursday following another dive on Wall Street amid growing fears of a global recession. The U.S. Congress earlier this month approved a plan to use $700 billion of public money to buy bad mortgage-related securities and other assets from troubled financial institutions. Some $250 billion of that will be used to buy shares in leading U.S. banks. Aso said that the continued market volitility suggests that more action is needed. He did not elaborate. Japan has said that it is willing to offer funding to help prop up crumbling financial companies around the world. Japan is sitting on more than $950 billion in foreign exchange reserves, second only to China's $1.9 trillion. Together, they control a major pool of funds that could come to the rescue of the West's severely strained financial industry. Options range from helping to provide credit to strapped financial institutions to cash infusions in return for ownership stakes in them. Finance Minister Shoichi Nakagawa said Tuesday that Japan would be willing to contribute to a rescue led by the International Monetary Fund. He said that at a Group of Seven meeting in Washington last weekend that brought together finance ministers from Japan, the United States and five other major economies. Yikes, Japan wants to sic the IMF on us!

There goes the national health care plan.

===========================================
Japan’s PM says US bank bailout is ‘insufficient’
Thursday October 16, 12:29 am ET
By Shino Yuasa, Associated Press Writer
Japan’s prime minister says US bank bailout is ‘insufficient’ and leading markets lower

TOKYO (AP) — Japanese Prime Minister Taro Aso said Thursday the U.S. bank bailout is “insufficient” and is contributing to the renewed plunge in global stock markets.

“Since it was insufficient, the market is again falling sharply,” Aso told lawmakers at the upper house budget committee in parliament. The committee was wrapping up talks on a supplementary budget aimed to help struggling small- and mid-sized firms amid an economic downturn.

ADVERTISEMENT
Aso made his comments as Japan’s key stock index plummeted 10 percent in early Thursday following another dive on Wall Street amid growing fears of a global recession.

The U.S. Congress earlier this month approved a plan to use $700 billion of public money to buy bad mortgage-related securities and other assets from troubled financial institutions. Some $250 billion of that will be used to buy shares in leading U.S. banks.

Aso said that the continued market volitility suggests that more action is needed. He did not elaborate.

Japan has said that it is willing to offer funding to help prop up crumbling financial companies around the world.

Japan is sitting on more than $950 billion in foreign exchange reserves, second only to China’s $1.9 trillion. Together, they control a major pool of funds that could come to the rescue of the West’s severely strained financial industry. Options range from helping to provide credit to strapped financial institutions to cash infusions in return for ownership stakes in them.

Finance Minister Shoichi Nakagawa said Tuesday that Japan would be willing to contribute to a rescue led by the International Monetary Fund. He said that at a Group of Seven meeting in Washington last weekend that brought together finance ministers from Japan, the United States and five other major economies.

]]> By: Chidambaram http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115374 Chidambaram Thu, 16 Oct 2008 03:56:27 +0000 http://blogs.cfr.org/setser/2008/10/15/will-the-world%e2%80%99s-macroeconomic-imbalances-soon-reduce-to-china-the-us-and-europe/#comment-115374 Hi Dr Brad/Satish, I just happen to share my first name with the Indian finance minister. What's more interesting is how I came across Dr. Brad. In February/March 2007, many global markets were crashing and Brad had explained in a lucid set of blogs on RGE the reasons for it. Especially I recollect one article on RGE on which he'd elaborated the 5 steps normally used to execute a yen carry trade against USD, in the absence of forex swaps' availability and regulatory restrictions on direct yen borrowings. Best regards, Chidambaram Hi Dr Brad/Satish,
I just happen to share my first name with the Indian finance minister.
What’s more interesting is how I came across Dr. Brad. In February/March 2007, many global markets were crashing and Brad had explained in a lucid set of blogs on RGE the reasons for it. Especially I recollect one article on RGE on which he’d elaborated the 5 steps normally used to execute a yen carry trade against USD, in the absence of forex swaps’ availability and regulatory restrictions on direct yen borrowings.

Best regards,
Chidambaram

]]>