Eco+Nomics

Asset values have been rising somehow intensively, following amid liquidity injection (QE) by major Central Banks over the last few years. A controversial, yet rather effective, policy choice. And this controversy, currently, derives from the asset bubble argument. In other words, the increase in the value of assets is a bubble, and, inevitably, it will burst. Is this policy controversy well justified? Perhaps, not very well. I will not argue whether asset inflation is a bubble or not. That is not the point I am trying to make.  I will argue, however, that the rising asset values is exactly how the whole policy should work! It is a key mechanism of transmitting monetary policy to the real economy. Not only for banks, but for households, as well. If you own assets, their value rises your net value rises, too, and, hence, you can borrow more or/and at a lower cost. Most importantly, households and businesses can remain solvent while deleveraging stops, and their liabilities rise...

We reed at Reuters that  "Greek stocks plummet as bond yield surge threatens bailout exit" ! The over optimism of the Greek government turned out to be a huge bomb they have been playing with for a very long time. Perhaps, in an attempt to shape expectations, or to tame the animal spirits...  Anyway, as I wrote a few months earlier the borrowing cost was,  is and will remain   prohibitive  for a very long time. Until we raise adequate budget surpluses to finance our debt obligations, including annual interest payments, we cannot cut all ties with the IMF. Why particularly the IMF? Because, our Euro partners will find it hard to convince their tax payers to fund us even more, and the markets know that.  Added to the enormous borrowing cost, considerable political unrest is about to unveil. Naturally, after almost five years of continuous social turmoil - increasing unemployment, poverty, social exclusion, income losses - it would be naive to expect...

In my last post, " An Advocacy ", I pointed out two facts about modern economics and financial markets in an attempt to defend them both. The following two posts become more explicit in indentifying exactly who particularly should be blamed as opposed to generally accusing the Economists as a whole.  The first one by  Simon Wren-Lewis and the second one by Paul Krugman. Enjoy!   [1]  mainly macro: Attacks on mainstream economics and reforming  economics teaching : Mainstream (orthodox) economics is having a hard time in the pages of the Guardian. First Aditya Chakrabortty writes “ How do elites remain in charge?... [2] The Consience of a Liberal:  The Trouble With Economics Is Economists : " That’s in large part what Simon Wren-Lewis is saying in this post  defending mainstream economics. And I largely agree.  It is deeply unfair to blame textbook economics either for the crisis or for the poor response to the crisis. The mania for ...

It has been a while since the public discourse of the "success story" begun, generating discussions over whether there is some short of success or not and, if yes, to what extent. Anyway, I am with those who strongly believe that there is no "success story" at all to talk about . However, there is something that I have failed to pay attention to: the expectations and the way they make the economy - and the world - move. Expectations play a very important role in any economy and, although they do not constitute the main nor the major factor of economic (both financial and non) incidents, they can make scenarios materialize that otherwise would not; mostly through a self-fulfilling prophecy.  What am I trying to suggest? That the only reason why our prime minister might argue for a success (story) is to create the perception that the ongoing reforms have begun bearing fruit and subsequently to form the expectation that economic environment is going to improve. Appa...

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...

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...

Over the past few days, the Cyexite scenario has been communicated several times, either via journalists or bloggers and some other times as a leverage for negotiations... I shall  examine some implications of this undesired though improbable- if you ask me- scenario First of all, Cypriot firms, both financial and non-financial, and households have issued debt denominated in Euro, such as loans, bonds, commercial credit, cheques etc. Then, in case Cypriot pound (CP) substitutes for euro a practical question arises: the just mentioned debt will be repaid in what currency? If some of you see an obvious answer, please take some time to reconsider your thoughts. First of all, the debt holder will have to agree to be paid back in an other that the agreed currency and then he will have to negotiate the exchange rate this will happen (for now let us ignore the exchange rate related problems). On the other hand, the debt issuers, will have to find adequate funds to pay back its borrower...

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...

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...