Eco+Nomics

Many times, the private debates in which I have participated have been fueled by the debt and the banking crisis and the imminent recession. What went so uglily wrong? What should have been done? Is it too late? Can things take a turn for worse?  Firstly, it is essential to unfold the exact chain of events the way I apprehend it based on my knowledge of economic theory. Everything began in 2007-2008 when the financial sector of the US devastating losses following the collapse of both the sub prime lending and its securitization and gradually the rest of the world was infected. After Lehman Brothers everyone realized that there was nothing to end painlessly. In their effort to prevent a broader contamination, governments borrowed large sums in other to strengthen the balance sheet of the banking and financial sector and safeguard their economies. Put differently, tax payers are asked to pay for a risk they never undertake and for which they never compensated. Nations with we...

It has been a while, since  I posted " It's the animal spirits " trying to identify some reasons why the US economy is underachieving in terms of employment and growth. Unfortunately, I was unable to substantiate some of my claims one of which was: In addition, households curb their optimism for their future income and are intimidated to spend; either they cannot be confident that they will maintain their current job or the unemployed household members cannot be sure that they will be hired in the near future. David Beckworth on  Macro and Other Market Musings: The Ongoing Dereliction of Duty  fortunately provides evidence that actually expected household income plays a vital role in the future course of the US economy. Enjoy his post!

I would like to communicate my thoughts- fruits of my inexperienced existence and humble opinion- as far as "Eurozone cross-fire: the way out of economic recession - Assessment of a realist and a response to idealists and cynics"  by Jörg Asmussen. First of all, no one would be that naive as to accuse the board of the ECB of being the reason of today's debt-crisis. ECB is doing its best while complying with its mandate and a s a matter of fact it can indeed perform much better but it is not allowed to do so.  The fact that our central bank should have played a different, more active, role is a matter of political choice made by the European leaders and hence only the latter can be blamed for the current function of the ECB. So, critics targeting ECB, most probably do not target the governing body of the ECB but these who defined on what they should focus. Below, you may browse the nominal World GDP and beneath that a stacked line chart of the exports of Greece, Portu...

The dream of a united Europe dates back in 1951 in the form of the "European Coal and Steel Community" (ECSC). 41 years later, on February 7, the 12 members of the EU signed the Maasticht Treaty probably a treaty with the most lethal omissions, lethal for the future of EU. During all the years following the Maastricht Treaty even more mistakes were made and are currently being made and more facts were neglected. Currently, we are playing down the spill-overs of austerity policies while we are concentrated in maintaining a "lower than, but close to, 2% inflation in the mid-term", like a ship being trapped in a port without the crew knowing that they have actually been trapped... Decisions were made as if the only economic variables that could hamper economic growth and social prosperity are debt and inflation. Given that false, sometimes rather naive, perception and regardless the 5 year long inert growth of Euro area we are still focusing on "sound governmen...

After DeLong's " L ESS THAN 100,000 PAYROLL JOBS, A 58.5% EMPLOYMENT-TO-ADULT-POPULATION RATIO EXACTLY WHERE IT WAS A YEAR AGO, AND LABOR FORCE PARTICIPATION DOWN BY 0.5 PERCENTAGE POINTS IN THE PAST YEAR " I once more started thinking of the Keynesian animal spirits . Keynes attributed the so called "Great 1929 Depression", back in 1933, to the low profit expectations of the business coordinators and other economic agents. As a result, investment was being gravely hindered by the adverse economic environment and by the blunted consumption (demand) resulted by the unemployment.  Bradford DeLong  is anxiously concerning for what he could reply to future "whippersnapper economic historians who will come to interview him" for the currently sluggish economic activity of the US. I do not blame him! He does not overreact, either! I have something in mind that could serve as an answer to future historical quests. It has been a while since I first started ...

Since the very beginning of the debt crisis in Europe and the subsequent government spending cuts implemented, everyone- at least from my shallow academic entourage- was arguing, if not shouting, for the vicious circle of austerity. Shortly, beginning from a high debt-to-GDP ratio, public spending cuts affect more intensively the GDP than they do to the deficit and hence more cuts are required (the decrease of the denominator is larger that the one of the numerator) but at the same time GDP has already decreased more steeply. If you wish to argue for the opposite do not even dare; I am living in the center of this vicious circle. Currently, troika is coming back to Greece and from what I read they intend to respond to government revenues shortfall by more cuts... In other words, they remove another wooden block  from the disposable income and they place it on top.  That is exactly what happens in Greece over the last 3 years!  Eventually, we will run out of wooden bloc...

This post is an attempt to use my rather inexperienced and naive instinct in economics in order to respond to the allegations of the necessity of austerity and tight monetary policy. More specifically, I post  my reply to the arguments presented in "The Live arguments of austerity right now: A bestiary" by Mr. DeLong . Please, forgive me if I am wrong. The first group stresses the importance of tight monetary policy. "The Jeremy Stein argument" : Stein ignores the other element of GDP; the consumption. With lower interest rates households can more easily substitute future for current income. Secondly, risk premium is added to the risk-free rate both when the risk-free is 0% and when it is higher, e.g. 10%, and hence risky assets yield by definition higher returns regardless the level of the risk-free rate. Therefore, bank managers will always prefer more risky assets due to the higher returns they offer anyway. Thirdly, there is always the Basel Accord tha...