Eco+Nomics

I would like to point out a few thoughts of mine with respect to a speech by Mario Draghi on April 15, 2013; " The role of monetary policy in addressing the crisis in the euro area ". Firstly, it is the controversial Outright Monetary Transactions (OMT). OMT was announced by Draghi on September 6, 2012 . When I first heard the news I couldn't believe my ears and I watched the whole press conference. After that I was kind of emotionally overheated believing that Mario Draghi crossed the Rubicon and Euro area would never be the same again! A few months later my expectations dashed. What happened is that I fooled my own self by playing down the condition of ESM involvement... So far the unlimited bond buying mechanism has never been activated; bank deposits haircut is on its way instead. ECB is not allowed to finance sovereign debt; it is a matter of credibility. Indeed... But the question that needs an answer is how credible our banking system and our hard currency is n...

When I read Feldstein's article at Project-Syndicate.org  where he was expressing his rigorous concerns about the low long-term US public debt yields, I admit I begun to worry about yet another bubble crush this time due to manipulation by the FED. Shortly after that my concerns faded away... On the one hand, increasing market prices of the Government issued debt securities partly depicts the continuous, though sluggish, increase of US real GDP since 2009Q3 and the decreasing public consumption and investment since 2010Q4 (US BEA). The result of this developments of the economic climate was the anchoring of the debt concerns and the subsequent increasing trends in bond prices. These trends, finally, intensified by the FED's Maturity Extension Program and Reinvestment Policy (MEP) resulting to a further decrease of the debt yields.  Bernanke gave a speech a month ago concerning the low long-term interest rates . Shortly, he attributes the decrease of the long-term yield...

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...

I honestly have to admit that I never was, and I hope I will never be, a supporter of the EMU dissolution, or of the exit of any member-state from the Euro. I have previously expressed myself as far as Cyexit is concerned and I am not intending to reconsider my views. When Krugman wrote that the only solution left for Cyprus given the current circumstances is quiting Euro  I started thinking about debt dynamics, currency in circulation, destabilization, spillovers, etc. A couple of hours later Krugman described Cyrpus being between Scylla and Charybdis  and as a matter of fact Cyprus is indeed between the two monsters of Greek Mythology.  The main argument is that by cutting a deal with troika austerity measures- the one and only panacea- will be implemented, Cypriot economy will dip into recession and thus debt will become explosive. Correct! Absolutely correct!  I believe that everyone who has at least some non-neoclassical logic left would agree. Below,...

It has not been a very long time (at all) since I begun my undergraduate studies in economics and from what I remember there were only a few (conventionally) risk free assets: cash, government bonds, deposits. At this moment we really need to focus on the Euro-zone. Government bonds, i.e. debt issued by government, although involving some risk this is low- currently a little higher; cash is the bills and coins in circulation and is totally riskless, unless in cases of over-inflation; and deposits which... used to be risk-free. That is because European Commission is thinking of de jure haircutting savings when the firm that accommodates them is at stake. If that is approved, Euro will never be much of a  hard currency  and hence there is no point at all calling upon low inflation exclusively.  In addition, we have to start thinking of our deposits as risky and, as a matter of fact, the probability that we lose a given fraction of our deposits equals the probability of b...

A while ago, I read an article of WSJ written by  Katie Martin  concerning the market tranquillity with respect to what happens in Cyprus; the probable bank deposits haircut and the non-attainment of any agreement among EMU member countries. Among the explanations of this calmness reported by apparently successful analysts I found one, that of Mr.  Beat Siegenthaler, a UBS analyst, who more or less states that the risk of diffusion of a crunch in Cyprus is perceived to be low. I really do not know if that is indeed a general sense- although several other rather interesting interpretations are listed- but that is not the case at all and claiming the opposite is naive especially in the aftermath of Lehman Brothers collapse. The risk of contagion following a crash in the Cypriot financial system is high and most certainly non negligible. I shall elaborate. After doing some trivial digging I found an article that matches my needs; Billio et al. (2012)[1], concerning the es...

After the ultimatum issued by the ECB  one might wonder about the independence of the ECB and its subsequent credibility. Is the orchestrator of the Eurosystem really independent, conditionally independent or totally dependent to the political agenda of any given moment? Its dependence or independence extends to which degree? First of all, the direct funding of public sector, i.e. public debt, is prohibited in the name of the credibility and independence of a central bank (here, the ECB). I must admit that I do not rigorously disagree with the necessity of independence, at least under certain circumstances. What about when a central bank is used as a leverage to political negotiation? What about when the central bank (any given one) turn a blind eye to imminent systemic risks of extended destabilization? What are the motives of this attitude? Why all of the ECB controversial measures have been proven to be cripple so far? When the monetary authority does not seem annoyed at al...

Earlier today I received a text from a friend of mine reporting that none of the commercial banks in Greece accept cheques issued by Cypriot credit institutions and I got really concerned for "the day after tomorrow"- it is either a signal that they fear the worst or perhaps just the fact they they cannot "liquefy" these cheques at the moment. Although I am really confident that depositors may not inundate the Cypriot banks to withdraw their funds, such a risk is still lurking...  While we are focusing on restoring (via government debt and haircuts) the regulatory capitals we seem to  ostentatiously exhibit our negligence for the bank-run risk; even of the slightest probability that that scenario might actually occur.  If someone had € 100,000 of deposits and suddenly the government decided to levy a 10% tax on their value how this depositor would react? First of all, he does not know whether this tax is collected once and for all or not and, even worse, his neig...

The term "economics" goes way back to the ancient Greek civilization; one may find this term in most, if not all, etymology dictionaries. Economics derives from oikos , i.e. the house, the household; and nemein, i.e to manage, to allot (alternatively from oikos and nomos , i.e  the law). Conclusions are up to you... I created this blog to communicate my thoughts on this magnificent and rather fascinating science- to whoever is interested- as well as on all of its aspects and implications. Ecoplusnomics was born by the seed of  my economic instincts and concerns and the ova of the post-2008 era. That is not to say that I shall stop posting as soon as the international economic scene returns to prosperity. Why in English? To be honest, I would rather write in Greek. However, language is both the root of a civilisation- and hence an inseparable part of the native speakers' culture- and an instrument of communication among native and non-native speakers; a common...