News & Commentary:

November 2008 Archives

Articles/Commentary

Issues facing low-income countries
Finance and Development Sep/Nov 2008
Examines key issues facing low-income countries, including how they should respond to high oil and food prices. Some African economies are now successfully attracting international investors and are seen as a new tier of frontier emerging markets. Separate articles look at problems of aid effectiveness, aid predictability, and aid fragmentation. Other articles include an account by Eswar S. Prasad and Raghuram G. Rajan of their new report on financial sector reforms in India; Martin Ravallion and Dominique van de Walle draw lessons on reducing poverty from Vietnams agrarian reforms; Sanjeev Gupta and Shamsuddin Tareq make a strong case for sub-Saharan countries to mobilize their domestic revenue bases. In addition, Simon Willson profiles Beatrice Weder di Mauro, the first woman on Germanys Council of Economic Experts; and the outgoing IMF Chief Economic Simon Johnson talks about the new drivers of global growthemerging markets.

Keys to a Stronger Financial System Far Eastern Economic Review Subscription Required
Don Hanna (FEER) Nov 2008
Three essential steps that are necessary to make the financial system sound.

What Should Bretton Woods II Look Like?
Jose Antonio Ocampo (Project Syndicate) Nov 2008
For those of us who have long claimed that the world’s international financial architecture needed deep reform, the call for a “Bretton Woods II” is welcome. Of course, similar calls were made after the Asian and Russian crises of 1997-1998, but were not taken seriously by the rich industrial countries. Now that these countries are at the center of the storm, perhaps they will now be serious.

Boom, Bust, and Recovery in the World Economy
Jeffrey D. Sachs (Project Syndicate) Nov 2008
This global economic crisis will go down in history as Greenspan’s Folly. This is a crisis made mainly by the United States Federal Reserve Board during the period of easy money and financial deregulation from the mid-1990’s until today.

Confronting Fear
Dominique Strauss-Kahn (Project Syndicate) Nov 2008
Even as the squeeze in interbank lending has started to ease after the rescue of financial systems across the advanced countries, falling economic indicators have sent stock markets tumbling. Pressures on emerging-market countries, which were once thought by many to have “decoupled” from the rest of the world, have intensified as foreign loans are called in and assets sold off.

Development beyond 2015
Jean-Michel Severino (Project Syndicate) Nov 2008
It is now halfway to the target date of 2015 for the Millennium Development Goals (MDGs) – the ambitious blueprint, backed by the entire development community, for development in the world’s poorest countries. In the wake of the global financial crisis, which is about to hit the developing world, it is time to ask the right questions about the international community’s commitment to achieving these goals.

The IMF’s Moment
Age Bakker (Project Syndicate) Nov 2008
The world is in the midst of an unprecedented financial crisis affecting all countries. Coordinated measures have been taken, unique in size and scope, to restore confidence and limit the damage caused to the world economy. President George W. Bush has invited world leaders to a summit in Washington on November 15 to design a new financial architecture that could prevent crises like this one from recurring. The International Monetary Fund, the only global institution with a mandate to protect financial stability, can play a central role.

A New Bretton Woods? Recommended!
Harold James (Project Syndicate) Nov 2008
The chaotic and costly international response to the world’s current financial disorder has prompted French President Nicolas Sarkozy, British Prime Minister Gordon Brown, and German President Horst Köhler, a former head of the International Monetary Fund, to call for a new Bretton Woods Conference in order to design a new global financial system. But such a demand depends on a clear understanding of what a new agreement might provide.

The Next Bretton Woods
Joseph E. Stiglitz (Project Syndicate) Nov 2008
The world is sinking into a major global slowdown, likely to be the worst in a quarter-century, perhaps since the Great Depression. This crisis was “made in America,” in more than one sense.

The Financial Hurricane Hits Latin America
Sebastián Edwards (Project Syndicate) Nov 2008
A few weeks ago, the world was on the edge of disaster. Fortunately, the decisive actions taken by the advanced countries’ monetary authorities – including provision of unprecedented amounts of liquidity – prevented a complete financial meltdown. The world has avoided the “Argentinization” of the international financial system.

Save the Emerging Markets
Dani Rodrik (Project Syndicate) Nov 2008
If the world were fair, most emerging markets would be watching the financial crisis engulfing the world’s advanced economies from the sidelines – if not entirely unaffected, not overly concerned either. For once, what has set financial markets ablaze are not their excesses, but those of Wall Street.

Lessons from the Crisis Recommended!
A. Michael Spence (PIMCO) Nov 2008
The current financial crisis has complex origins and will require complex solutions. The crisis response has focused on unlocking credit and preventing extensive damage to the global economy. In the longer term, I see a number of potential regulatory approaches, including changes that dramatically improve market transparency as well as coordination among global authorities, and potentially a more effective supranational agency. A global commission could address the challenge of creating an early warning system that would better alert market participants and governments to growing risks of impending financial crisis.

How India should address the financial contagion
Arvind Subramanian (VoxEU) Nov 1, 2008
Financially integrated India has been hit by the financial contagion. This column explains what Indian policymakers need to do in order to restore confidence in the financial system and avoid the risks of easing monetary policies. The time has come for the Reserve Bank of India to use its foreign exchange reserves to inject liquidity into the financial system.

A quick fix
Economist Nov 1, 2008
The IMF's new scheme to help emerging economies weather financial turmoil.

Aid Group Says Zimbabwe Misused $7.3 Million
NYT Nov 2, 2008
The government of President Robert Mugabe is accused of misspending funds donated to fight killer diseases.

Currencies: An Even Bigger and Broader Dollar Smile
Stephen Jen & Spyros Andreopoulos (MSDW) Nov 3, 2008
We believe that the world is still short the dollar, and further ‘deleveraging’ or ‘liquidation’ of cross-border positions will ultimately be dollar-positive. We now see even more upside for the dollar in the coming 3-6 months, against most of the majors and almost all of the EM currencies.

Currencies: EM Currencies: Sell Into the Rally
Stephen Jen & Spyros Andreopoulos (MSDW) Nov 3, 2008
The IMF’s latest facility and the Fed’s swap lines will provide marginal support for selected EM currencies, but will not be sufficient to fully offset a global recession pushing EM currencies lower from here.

Trade and the November 15 Summit: First, Do No Harm
Jeffrey J. Schott (PIIE) Nov 3, 2008
The leaders of the world's major economic powers (the so-called G-20 nations), convening in Washington on November 15, plan to discuss the global financial crisis and the need for reform of the international financial system. That seems like a lot to do on a weekend retreat. But in addition, the notables will also be asked to deal with the collateral damage to world trade caused by the financial and economic turmoil.

The Father of Portfolio Theory on the Crisis Recommended!
WSJ Nov 3, 2008
Harry Markowitz says valuation is the critical step.

Some Lessons of the Financial Crisis
Stephen Schwarzman (WSJ) Nov 4, 2008
Seven principles to guide reform, here and abroad.

Why agreeing a new Bretton Woods is vital
Martin Wolf (FT) Nov 4, 2008
What is happening now may well be the last chance for an open and dynamic world economy. First, we have to get through the present crisis. Then we have to have to make such catastrophic financial collapses vastly less likely.

In Modeling Risk, the Human Factor Was Left Out
Steve Lohr (NYT) Nov 4, 2008
Today’s economic turmoil, it seems, is an implicit indictment of the arcane field of financial engineering — a blend of mathematics, statistics and computing. Its practitioners devised not only the exotic, mortgage-backed securities that proved so troublesome, but also the mathematical models of risk that suggested these securities were safe.

Will the Crisis Compel Asian Countries to Go Their Own Way?
Marcus Noland (PIIE) Nov 5, 2008
The Asian reaction to the current financial-market turmoil has been strongly conditioned on its experience during the previous 1997 crisis. It is no exaggeration to say that the Asians were deeply disappointed, even embittered, by the response in that earlier episode of "Washington"—not simply the US government but the Washington-based Bretton Woods institutions, particularly the International Monetary Fund (IMF), which imposed tough conditions for the assistance it provided. Among the countries that went through painful retrenchments were Thailand, Indonesia, South Korea, and the Philippines. In response, Japan proposed an Asian Monetary Fund, but the plan was blocked by objections from the United States, the IMF, and China.

Why diversifying abroad doesn’t reduce investment risk
Dennis P. Quinn & Hans-Joachim Voth (VoxEU) Nov 5, 2008
Investing in foreign markets may seem a good strategy for reducing risk. But this column shows that financial globalisation has resulted in increased correlation amongst international asset prices, thereby eliminating the diversification opportunities it was supposed to let investors harness.

The president-elect must ease Asian anxieties
David Pilling (FT) Nov 5, 2008
Historically, the region's leaders have preferred Republicans, who are viewed as more stalwart defenders of free trade.

IMF Urges Stimulus as Global Growth Marked Down Sharply
IMF Survey Nov 6, 2008
The IMF urges countries to stimulate their economies in the face of a bigger-than-expected slowdown in the global economy triggered by recent financial turmoil. In its latest forecast for world economic growth, the IMF sharply revises its growth projections downward.

The meaning of global recession: The global slumpometer
Economist Nov 6, 2008
Rich countries face their deepest recession since the 1930s. For poorer nations it could still be relatively mild ...

The great untangling Recommended!
Economist Nov 6, 2008
Some of the criticism heaped on credit-default swaps is misguided. The market needs sorting out nonetheless

Obama's Trade Stance Coming into Focus Recommended!
BRIDGES Weekly Trade News Digest Vol. 12, Number 37 Nov 6, 2008
Barack Obama, who will become the 44th president of the United States in 75 days, will have the opportunity to make drastic changes to the country’s role in international trade at a time of global financial turmoil and deep frustration at the slow progress of multilateral trade talks at the WTO.

Sarkozy Turns Sovereign Fund Idea Upside Down
Michael R. Sesit (Bloomberg) Nov 7, 2008
It was bound to happen. And it should surprise no one that the French were the ones to initiate it.

Global: Euro Wreckage? A Remix
Joachim Fels (MSDW) Nov 7, 2008
The euro break-up theme that we warned almost five years ago has made a comeback as the financial turmoil in Europe has deepened. We think the financial turmoil actually makes it less likely that the euro will break apart in the foreseeable future. Thus, sovereign yield spreads within the euro area may have overshot.

Recipe for a Successful G-20: Preparation, the Right Actors, and Political Sensitivity Recommended!
C. Randall Henning (PIIE) Nov 7, 2008
The impending Group of 20 summit in Washington, DC, November 14–15, organized to discuss solutions to the economic crisis and reforms to the international financial architecture, is potentially the most important international economic meeting in a very long time. However, it has been hastily convened, insufficiently prepared, and President-elect Barack Obama will not participate. To make this meeting and those that will follow successful, officials of the Bush administration and other governments should heed six key principles for successful international negotiations. The Obama team should also reflect on them as it prepares to take office.

Development and political influence: Corruption happens, lobbying rules
Nauro F. Campos (VoxEU) Nov 8, 2008
This column presents evidence that lobbying is not only much more prevalent in developing countries than previously thought but also much more effective than corruption as a means of influencing public policy and supporting enterprise growth.

How Far Will Deleveraging Go?
David Roche (WSJ) Nov 8, 2008
Credit will still have to shrink to keep leverage at precrisis levels.

What the G20 should do on November 15th to fix the financial system
Richard Baldwin & Barry Eichengreen (VoxEU) Nov 10, 2008
This column introduces a collection of essays by leading economists from around the world on what the G20 leaders should do this weekend. Four priorities are identified: nations should act quickly to strengthen and coordinate their firefighting responses; they should immediately reinforce the IMF’s ability to fire-fight the crisis as it spreads to emerging markets and vulnerable developing nations; they should 'above all, do no harm'. Finally, they should start 'thinking outside the box' when it comes to long-run fixes.

Currencies: A Fundamental and Critical Reconsideration of EM
Stephen Jen & Spyros Andreopoulos (MSDW) Nov 10, 2008
The US C/A deficit may shrink sharply as its private savings rate rises in the coming years. This will reverse many of the trends of the past years and could expose the EM economies that rose more on the back of the US housing/current-account cycle than on efforts of their own.

Currencies: SWFs: Growth Tempered – US$10 Trillion by 2015
Stephen Jen & Spyros Andreopoulos (MSDW) Nov 10, 2008
We now believe a target of US$10 trillion for total AUM of SWFs by 2015 may be more reasonable than our previous prediction due to (i) paper losses SWFs may have suffered in 2008; (ii) lower oil prices/a possible compression in the US C/A deficit; (iii) the need to replenish official reserves; and (iv) risks of SWFs being asked to finance extraordinary fiscal operations.

Super-sizing the IMF is wrong
Kenneth Rogoff (RGE Monitor) Nov 10, 2008
As the global financial crisis radiates out from the developed economies into emerging markets, it is ravaging not only governance-challenged economies such as Venezuela, Russia and Argentina, the crisis is also striking countries like Brazil, Korea, and South Africa, which appeared to have made substantial and lasting progress towards macroeconomic stability.

The Bretton Woods sequel will flop
Gideon Rachman (FT) Nov 10, 2008
Bringing rising powers into the system is no guarantee of success. The more voices around the table at the summit on the way the global economy is governed – and the more equality between them – the harder it will be to reach agreement.

What lower oil prices mean for the world
Daniel Yergin (FT) Nov 10, 2008
The worried question around Washington is: to what degree lower prices will crimp investment in renewables and efficiency.

Should the crisis be the trigger for a reshaping of euro-area entry rules?
Zsolt Darvas (VoxEU) Nov 11, 2008
Some new EU member states that have not yet adopted the euro have come under much greater pressure during the financial crisis than nations in the euro area. This column says that that does not mean the Maastricht criteria for euro entry ought to be relaxed. New member states suffering in the crisis are paying the price for their policy mistakes.

The Oil Investment Dilemma
Toni Johnson (CFR) Nov 11, 2008
Global oil production is flat and could fall if tightening credit limits further investment. The possibility of shrinking supplies has raised new concerns about spiking prices.

World Bank in $100bn aid push
FT Nov 11, 2008
The World Bank is set to provide up to $100bn in new aid to developing countries amid fears that the spreading effects of the financial crisis could devastate poorer and middle-income states.

The Objectives of International Financial Regulation
Howard Davies and David Green (Globalist) Nov 11, 2008
What are some key issues a new system of global financial regulation must tackle?

Dig into the IMF's Tool Box to Tackle the Crisis
Morris Goldstein (PIIE) Nov 11, 2008
With a global recession in prospect, now is the time to strengthen the provisions of the International Monetary Fund's (IMF) old Compensatory Financing Facility (CFF) and to put it back into action. It is increasingly apparent that emerging and developing countries will be unable to "decouple" from this global financial crisis. Indeed, the developing world is in a six-fold economic shock: a significant decline in economic growth in its leading export markets, a sharp fall in export prices for commodity exporters, an unwinding of the global carry trade, an upsurge in investor risk aversion, a drop in private capital inflows, and a retreat in lending from foreign-owned banks operating in their economies.

Human frailty caused this crisis
Richard Thaler and Cass Sunstein (FT) Nov 11, 2008
People are not stupid, but when things get complicated they flounder: they suffer from bounded rationality.

How bad could the crisis get? Lessons from Iceland
Jon Danielsson (VoxEU) Nov 12, 2008
Iceland’s banking system is ruined. GDP is down 65% in euro terms. Many companies face bankruptcy; others think of moving abroad. A third of the population is considering emigration. The British and Dutch governments demand compensation, amounting to over 100% of Icelandic GDP, for their citizens who held high-interest deposits in local branches of Icelandic banks. Europe’s leaders urgently need to take step to prevent similar things from happening to small nations with big banking sectors.

Capitalise on the crisis: How to move forward
Richard Portes (VoxEU) Nov 12, 2008
The financial crisis offers opportunities for reform. This column argues the IMF and Financial Stability Forum should be refocused and beefed up, the G7 scrapped, the G20 reshuffled, and group memberships suited to the issues. On November 15, leaders should agree on principles, rather than getting bogged down in details, and explain their reforms to the public.

Stopping a Global Meltdown
C. Fred Bergsten (WP) Nov 12, 2008
The Group of 20 meets this weekend to try to find a way to save the world economy.

Obama's Lame Duck Opportunity
WSJ Nov 12, 2008
Let Bush take the free-trade heat.

Is Now the Time to Buy Stocks?
John H. Cochrane (WSJ) Nov 12, 2008
Here is what the historical evidence suggests.

Turning Point for Trading Costs
II Nov 12, 2008
As advanced electronic trading technology meets the most volatile markets of our time, the volatility is winning—and costs are rising. The growing trading costs are evident in Institutional Investor’s 12th annual global transaction cost analysis survey.

Crisis management in Mexico
Economist Nov 12, 2008
Mexico's economy will slow, despite measures to respond to the global financial crisis

The first casualty of the crisis: Iceland
Jon Danielsson (VoxEU) Nov 12, 2008
Iceland’s banking system is ruined. GDP is down 65% in euro terms. Many companies face bankruptcy; others think of moving abroad. A third of the population is considering emigration. The British and Dutch governments demand compensation, amounting to over 100% of Icelandic GDP, for their citizens who held high-interest deposits in local branches of Icelandic banks. Europe’s leaders urgently need to take step to prevent similar things from happening to small nations with big banking sectors.

Free Trade a Hot Topic in US Election Season
Bridges Weekly Trade News Digest, Vol 12 Number 38 Nov 12, 2008
Candidates for the US Congress in 2008 campaigned on trade more than they ever have in the past, a new study suggests, drawing on growing sentiment within the US electorate that lowering barriers to cross-border commerce is bad for the American economy. Read more

WIPO Copyright Discussions Focus on Exceptions and Limitations
Bridges Weekly Trade News Digest, Vol 12 Number 38 Nov 12, 2008
Exceptions and limitations to copyright protection took a central place in the deliberations of WIPO's Standing Committee on Copyright and Related Rights (SCCR), which met last week.

Unadulterated version of China's growth
David Pilling (FT) Nov 12, 2008
Given its need to reassure shaken consumers, Beijing's selling of old money as new may not be bad policy.

Building a Better Global Financial System
Lex Rieffel (Globalist) Nov 12, 2008
Under what terms should countries meet to build a better global financial system?

Reform institutions; do not write new rules
Alberto Alesina & Francesco Giavazzi (VoxEU) Nov 13, 2008
What should a “new Bretton Woods” involve? This column argues that the major task at hand is reorganising international economic institutions rather than tackling regulatory details. The G7, International Monetary Fund, and Financial Stability Forum are falling behind because they are not structured for the roles we need them to play.

Supersize the IMF
Sebastian Mallaby (WP) Nov 13, 2008
Saturday's financial summit in Washington will be a good thing in itself: After years of "G-7" and "G-8" meetings, the new "G-20" format will give most of the key emerging economies seats at the world's top table. The summit could be even better if it spurs governments to pass stimulus packages: Already, China has announced a gargantuan infrastructure spending program that should soften a global recession. But the tricky challenge for the summit is to make global finance safer. To understand how headway could be made on that, it helps to think about finance as you might think about car insurance.

Can China save the world?
Economist Nov 13, 2008
We look at its economy and what may be the biggest stimulus plan ever.

The global economic summit
Economist Nov 13, 2008
On November 15th world leaders are due to sit around a table in Washington, DC, to fix finance. They have their work cut

Redesigning global finance
Economist Nov 13, 2008
Government leaders cannot rewrite the rules this weekend. But they can still do some useful things.

Europe could cede to emerging nations at IMF
IHT Nov 13, 2008
The head of the European Commission said he believed leaders in Europe accepted that they were over-represented at Washington institutions, and may cede some influence.

Fixing Finance
Lee Hudson Teslik (CFR) Nov 13, 2008
This weekend's summit of leading world economies won't match the scope of the Bretton Woods conference, to which it has been compared. But it could send important signals at a time of global economic distress.

Hardball at Bretton Woods II
Arvind Subramanian (PIIE) Nov 13, 2008
The rising powers must hold Western feet to the fire. Their motives may be in part a mixture of the expedient (Europe) and the desperate (the lame duck US administration). But there is no denying that the existing powers—Europe and the United States—are the instigators of the Bretton Woods II process that aims to rewrite the rules of the international economic system. How should the new powers, the emerging-market countries, respond?

Remember the bottom billion in our brave new world
Bob Geldof (FT) Nov 13, 2008
There is a chance to live up to a commitment to the poor while regulating the more irresponsible sides of capitalism.

A vision of a more resilient global economy
Mario Draghi (FT) Nov 13, 2008
There is a strong case for enlarging the Financial Stability Forum and this must be translated into action soon.

That G-20 Show
WSJ Nov 14, 2008
Obama is right to keep his distance from this photo shoot.

Stable Money Is the Key to Recovery
WSJ Nov 14, 2008
How the G-20 can rebuild the 'capitalism of the future.'

This Summit's Promise
James D. Wolfensohn (WP) Nov 14, 2008
The G-20 gathering can mark the end of gridlock on a host of global challenges.

Five Million Dead and Counting
Michael J. Kavanagh (Slate) Nov 14, 2008
The disaster in Congo is all the more tragic because it was utterly avoidable.

Understanding liquidity risk and its role in the crisis Recommended!
Lasse Heje Pedersen (VoxEU) Nov 15, 2008
What is liquidity? Why is it at the heart of the crisis? How can we fix it? This column explains it all in terms any trained economist can understand.

World Leaders Launch Action Plan to Combat Financial Crisis
IMF Survey Nov 15, 2008
Leaders of the world's major economies draw up an action plan to combat the burgeoning financial crisis and pull the global economy back from one of the worst downturns in decades, giving the IMF a central role in crisis response and reform of the financial architecture.

At global finance talks, 20 different agendas
IHT Nov 16, 2008
How world leaders approached the summit had a lot to do with how the financial crisis affected their political fortunes.

Why the British may decide to love the euro
Wolfgang Münchau (FT) Nov 16, 2008
Public opinion in Iceland shifted from hostile to enthusiastic when people discovered monetary independence came at a crippling cost. Corruption in Bulgaria and Romania
IHT Nov 16, 2008
When the European Commission decided in September 2006 to admit Bulgaria and Romania into the European Union, nobody pretended they were really ready.

Japan's Economy, World's Second Largest, Is in Recession
NYT Nov 16, 2008
Japan's economy has been hurt by weak export growth and steep cuts in corporate spending amid the worsening global slowdown.

Not a bad weekend’s work
Economist Nov 16, 2008
The G20 meeting in Washington, DC, did not fix global finance. But it brought more than empty rhetoric

Not Quite Mt. Everest
WP Nov 17, 2008
The G-20 summiteers met modest expectations.

A Global Grand Bargain
Robert Hutchings (FT) Nov 17, 2008
The world is on the cusp of the most profound shift in global power and influence in a century. Managing this quiet revolution calls for nothing short of a new international system, with a radical revision of existing institutions and patterns of doing business. It is a time for thinking big.

China's News Concession
WSJ Nov 17, 2008
Trade rules help Beijing's reformers.

G-20 Summit: Did It Make Things Worse?
Simon Johnson (PIIE/Forbes) Nov 17, 2008
The G-20 summit on Saturday has received favorable press reviews. Countercyclical fiscal policy was mentioned in favorable terms, more resources for the International Monetary Fund (IMF) were discussed, and an extensive work plan for regulators was specified in some detail.

Global: Policy Measures to Match the Deeper Recession
Manoj Pradhan (MSDW) Nov 17, 2008
Policy rates in the industrialised world are expected to move towards neutral in 2010 after spending 2009 in expansionary territory. The US, ECB and BoJ will leave their rates lower for longer. The AXJ region will use aggressive policy stimulus to buoy growth and the central banks in Eastern Europe and Latin America are constrained.

Globalisation and risks: Trends and crises
Roland Spahr (VoxEU) Nov 18, 2008
Globally integrated countries have suffered heavily from highly volatile stock markets during the current crisis. This column argues that globalised countries enjoy lower stock market risk in good times, but they suffer just as much in crises. Moreover, the transition to openness breeds financial instability. Policymakers need ways to manage these risk concerns.

Pass the Colombian Trade Pact
NYT Nov 18, 2008
Walking away from the Colombian free-trade agreement now would alienate many people in Colombia and undermine Washington's credibility.

Regulation should be international Recommended!
Carmen Reinhart and Kenneth Rogoff (FT) Nov 18, 2008
Insulating financial regulation from political meddling is critical to creating a more robust global financial system.

Scientists from poor countries need the west's help
Heather Ferguson (FT) Nov 18, 2008
In the past 50 years, there have been huge improvements in fighting diseases of affluence but little in diseases of poverty.

Fighting the Financial Crisis, One Challenge at a Time
Henry M. Paulson, Jr. (NYT) Nov 18, 2008
If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract.

2009 will be the nightmare on Main Street
Nicholas Bloom (VoxEU) Nov 18, 2008
Every economist is predicting a macabre 2009, but no one knows for sure how bad things will get or who will survive. This column, by comparing the current crisis to uncertainty shocks of the last 40 years, predicts GDP growth could be reduced by as much as 4.5%. But, if politicians protect free markets, growth should be back in 2010.

Bankers' greed and supervisors' folly
Hossein Askari and Noureddine Krichene (AT) Nov 19, 2008
Two constants that run through recent financial crises are the blind greed of bankers and the unwillingness of their regulators to face reality and prepare appropriate measures. It was a toxic brew that poisoned the financial system in the 1980s, and remains potent now.

Fear of appreciation: Asian exchange rate asymmetry
Victor Pontines & Ramkishen S. Rajan Nov 19, 2008
Why are emerging Asian economies accumulating massive foreign exchange reserve stocks? Much research has focused on precautionary or export-promoting motives. This column argues that emerging economies are pursuing exchange rate management with a strong bias towards preventing appreciation.

Global Financial Crisis Focuses Minds on Doha
Bridges Weekly Trade News Digest, Vol 12 Number 39 Nov 19, 2008
The chair of the farm trade talks at the WTO has warned Members that they must quickly show signs of new flexibility if an accord on the 'modalities' for agriculture subsidy and tariff cuts is to be struck before the end of the year. Read more

G-20 Recognises Central Role of Emerging Economies
Bridges Weekly Trade News Digest, Vol 12 Number 39 Nov 19, 2008
A weekend was never going to suffice for leaders from major industrialised and developing countries to redraw the rules governing global finance, as they met to grapple with the financial crisis and the prospect of a prolonged global recession. Read more

Financial Crisis Threatens Global Trade Flows, WTO Says
Bridges Weekly Trade News Digest, Vol 12 Number 39 Nov 19, 2008
The market for trade finance - what many consider the lifeline of cross-border commerce - is deteriorating, the head of the WTO said last week, and with the situation not likely to improve anytime soon, there could be serious ramifications for international trade.

Europe must act as one on the world stage
Marta Dassù (FT) Nov 19, 2008
Progress occurs in Europe only when strong national leadership combines with the collective weight of the eurozone.

Finance, market, globalisation: a plot against mankind?
Salvatore Rossi (VoxEU) Nov 20, 2008
Finance, the market and globalisation are at risk of being jointly demonised by the crisis. This column argues that the these three elements are neither good nor bad; they are just opportunities for individuals, for societies and for economies that must be understood and regulated.

Hazardous path out of crisis
Joergen Oerstroem Moeller (AT) Nov 20, 2008
The financial crisis looks certain to see more international regulation and control, while a new wave of concentration of financial institutions will result in a few disproportionately powerful mastodons. The evolving system risks being superficially robust but more fragile than the previous one, while the challenge will be to ensure US woes are not transferred to weaker nations.

Europe doesn’t need sovereign wealth funds
Kavaljit Singh (VoxEU) Nov 20, 2008
French President Nicholas Sarkozy has proposed that European nations create sovereign wealth funds to protect national companies from foreign “predators.” This column says that idea is protectionist and without merit. Emerging economies establish sovereign wealth funds to invest foreign reserves or commodity revenue – not to bail out domestic firms and stifle global competition.

An Auto Bailout Would Be Terrible for Free Trade
Matthew J. Slaughter (WSJ) Nov 20, 2008
Does anyone really expect other countries to ignore our subsidies?

The evil of the US dollar
Asif Salahuddin (AT) Nov 20, 2008
The failures of the Western economic model, based on a banking system tied to a fiat currency, are now evident for all to see - and suffer. An alternative does exist.

Global: Neither the Great Depression Nor Japan
Joachim Fels (MSDW) Nov 20, 2008
Bearish investors increasingly look to Japan’s ‘lost decade’ or even the Great Depression of the 1930s as a blueprint for things to come in the next several years. While it’s worth exploring those episodes, we beg to differ.

We need a 'safe-fail' approach against crises
Benn Steil (FT) Nov 20, 2008
Such policies would recognise that institutional failures will continue to occur and focus on limiting the systemic damage after they do.

Data dim hopes of Asian stability
IHT Nov 20, 2008
Japan's exports to the rest of Asia fell in October for the first time in nearly seven years, while China warned again of rising unemployment as its pace of growth slowed.

Oil dips below $50 a barrel
IHT Nov 20, 2008
The price of a barrel of oil has shed close to $100 in four months in a stunning - and sudden - reversal, as an ailing global economy reduced its consumption.

EU governments to overhaul farm subsidies
IHT Nov 20, 2008
European Union governments agreed Thursday to overhaul the way the trade bloc distributes tens of billions of euros in subsidies to farmers. But some said the measures did not go far enough and risked skewing markets.

Bailing out banks: Leaving Las Vegas
Economist Nov 20, 2008
Governments will find exiting banks far harder than entering them.

The deflation index
Economist Nov 20, 2008
A jump in mentions of “deflation” in news stories.

Health and wealth
Economist Nov 20, 2008
Improved health does not always make countries richer.

Food prices and food security: Don’t blame liberalisation
Maros Ivanic & Will Martin (VoxEU) Nov 21, 2008
Rising food prices are hurting many poor people across the globe. This column defends agricultural liberalisation, showing that agricultural protection actually increased over the last quarter-century in most poor countries and arguing that self-sufficiency would worsen food security. Policymakers should give direct aid to the very poor rather than resorting to export restrictions.

A week of living perilously
Martin Wolf (FT) Nov 21, 2008
Panic seized markets this week. Just one asset class is deemed safe: the liabilities of highly-rated governments.

Better targeted regulation: Let banks be banks, let investors be investors
Alberto Giovannini (VoxEU) Nov 22, 2008
Simplicity and transparency, two major causalities of recent financial market changes, are essential to restoring trust in financial markets. This column suggests that distinguishing two types of financial intermediaries – client servicers and capital managers – would be a big step in the right direction. Today’s lack of distinction means one set of regulations is applied to the two very different functions.

A new architecture for global financial regulation
Ngaire Woods and Walter Mattli (FT/RGE Monitor) Nov 22, 2008
At the G20 summit in Washington this month, it was agreed that global growth will require sound new global regulation of financial markets. But what would it take to achieve such regulation?

Not Everything Can Be Too Big to Fail
Peter J. Wallison (WSJ) Nov 22, 2008
There's a lot of loose talk about 'systemic' risk.

Bring back the link between gold and the dollar
Richard Duncan (FT) Nov 23, 2008
The 37-year experiment with fiat money and floating exchange rates has failed catastrophically.

The world's central banks must buy assets
John Muellbauer (FT) Nov 23, 2008
The best way to put cash into the pockets of consumers and companies is for central banks together to buy mainstream securities.

Quo vadis Islamic finance?
Heiko Hesse, Andreas Jobst & Juan Solé (VoxEU) Nov 24, 2008
This column discusses current trends in Islamic finance, which accounts for more than $800 billion worth of assets worldwide. The industry faces a number of challenges, including economic and legal bottlenecks, banking concerns, and unharmonised financial regulations, but most of them arise from the industry’s infancy. Islamic finance’s long-term prospects seem promising.

Currencies: JPY and USD the Preferred Safe-Haven Currencies
Stephen Jen & Spyros Andreopoulos (MSDW) Nov 24, 2008

The Perils of Efficiency
James Surowiecki (New Yorker) Nov 24, 2008
This spring, disaster loomed in the global food market. Precipitous increases in the prices of staples like rice (up more than a hundred and fifty per cent in a few months) and maize provoked food riots, toppled governments, and threatened the lives of tens of millions. But the bursting of the commodity bubble eased those pressures, and food prices, while still high, have come well off the astronomical levels they hit in April. For Americans, the drop in commodity prices has put a few more bucks in people’s pockets; in much of the developing world, it may have saved many from actually starving. So did the global financial crisis solve the global food crisis?
We maintain our thesis that, as the global economy slows, the USD and the JPY will continue to strengthen against virtually every other currency in the world. We continue to recommend that investors maintain a pro-USD pro-JPY posture.

Asian Growth to Slow Sharply in 2009, IMF Says
IMF Survey Nov 24, 2008
Growth in Asia, battered by the effects of the financial crisis that began in advanced economies and is now engulfing emerging markets, is expected to slow sharply in 2009, the IMF says in its latest forecast for the region.

Why Canada Loves Nancy Pelosi
WSJ Nov 25, 2008
Her protectionist stance has helped open markets - for others.

China: A New Renminbi Regime?
Qing Wang & Steven Zhang (MS) Nov 25, 2008
The renminbi appears to have returned to a nearly hard peg (to the USD) regime after three years’ practice of a crawling peg, which has resulted in about a 20% appreciation of the renminbi against the USD. We expect a broadly stable renminbi exchange rate against the USD over the course of 2009.

IMF Watching Out for Poor in Crisis Loan Talks
IMF Survey Nov 25, 2008
In loan negotiations with countries hit by the financial crisis, the IMF is encouraging governments to maintain or develop social safety nets for the poor even as they adjust to the harsher environment of the economic downturn, IMF chief says.

G-20 weenies on a golden spit
AT Nov 26, 2008
The Washington summit of 20 leading industrialized nations promised to keep spending money like mad instead of doing what should have been done, which was to install a gold standard. Dumb!! But it means that price inflation is a certainty, which is great for gold. Whee!!!

Industrial agglomeration and entrepreneurship
Edward Glaeser & William Kerr (VoxEU) Nov 26, 2008
Many academics, policy makers, and business leaders stress the importance of local conditions for explaining spatial differences in entrepreneurship and economic development. This column assesses the importance of various forces for agglomeration. The empirical evidence suggests that market effects, such as proximity to input suppliers and labour market pooling, play a big role, while there is less support for factors like entrepreneurial culture and industrial diversity.

Global: Aggressive Policy Actions Will Avert Both Depression and Deflation
Richard Berner (MS) Nov 26, 2008
Comparisons between the current crisis and the Great Depression or Japan’s Lost Decade have multiplied recently. In our view, comparisons with those disasters are greatly exaggerated.

Strings attached
Economist Nov 26, 2008
Pakistan gets $7.6 billion bail-out from the IMF.

Geneva Schizophrenic as Possible WTO Ministerial Looms
Bridges Weekly Trade News Digest, Vol. 12 Number 40 Nov 26, 2008
Negotiators in Geneva veered between cautious optimism and gloom as preparations for a proposed mini-ministerial meeting in December rapidly gathered pace. Read more

APEC Leaders Vow ‘Urgent’ Action on Financial Crisis, Call for Doha Conclusion
Bridges Weekly Trade News Digest, Vol. 12 Number 40 Nov 26, 2008
The leaders of 21 Pacific Rim economies pledged last week to “act quickly and decisively to address the impending global economic slowdown” and said they would impose no new barriers to trade in the face of the crisis. Read more

EU Ag Ministers Hammer out Farm Subsidy Reforms
Bridges Weekly Trade News Digest, Vol. 12 Number 40 Nov 26, 2008
European agriculture ministers agreed on changes to EU farm subsidies last week that will phase out quotas for milk production and divert some of farmers' direct payments toward rural development projects. Read more

The humbling of Russia's masters of the universe
Paul Betts (FT) Nov 26, 2008
Not so long ago, Russian oligarchs were considered the new masters of the universe – with even more money and power than the defunct old Wall Street masters of the universe. But the global credit crunch has also caught up with this arrogant and seemingly unassailable breed of modern robber baron.

Food Prices Expected to Keep Going Up
NYT Nov 26, 2008
Consumers should not expect lower food prices anytime soon because the prices on most meat and packaged items are holding firm or even increasing.

Global: Looking on the Bright Side
Joachim Fels (MS) Nov 27, 2008
Pessimism among investors about the economic outlook is pervasive, but in our view excessive. With reasons for (cautious) optimism, we reiterate our view that a sustained period of deflation as in the 1930s or in Japan in the last decade looks very unlikely to us.

Reviving the world economy: Plan C
Economist Nov 27, 2008
The perils of incrementalism.

Lest We Forget
Paul Krugman (NYT) Nov 27, 2008
The story of how we failed to see this coming has a clear policy implication -- that financial market reform should be pressed quickly, and that it should not wait until the crisis is resolved.

A history of financial panics: Modern financial insanity
Michael Lewis (Economist) Nov 27, 2008
It's always the end of the world.

Conflicts cause poverty, or is it vice-versa?
Raymond Fisman & Edward Miguel (VoxEU) Nov 29, 2008
This column suggests that in Africa an income drop of 5%—a large but altogether common deterioration in economic conditions—increases the risk of civil conflict in the following year to nearly 30%. This suggests that aid agencies could help prevent war by targeting short-term emergency aid towards countries hard-hit by adverse commodity price movements or weather shocks.



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