By Michael Prowse
In Luigi Pirandello’s famous play there were six characters in search of an author. Each had a story to tell but as yet nobody to relate it. The situation in global finance today is somewhat similar: a rather larger number of presidents and finance ministers are just as desperate for a script. They have the best opportunity in decades to redraw the ground rules of international finance. But so far they have no long-term strategy worth talking about.
Monday, June 14, 2010
Wednesday, June 9, 2010
Incomplete globalization, human nature and the problem of current account imbalances
By Michael Prowse
One of the striking aspects of today’s global economy is a distribution of external surpluses and deficits seriously at variance with what textbook theory leads us to expect.
The advanced economies ought to be running current account surpluses and the emerging economies current account deficits. As the counterpart to their trade surpluses the rich nations ought to be lending to, and investing in, the poor developing world. Why? Because returns on investment ought to be much higher in regions of the world where capital is scarce and labour abundant. In effect, young workers in emerging economies ought to be paying the pensions of the ageing populations of the developed world.
One of the striking aspects of today’s global economy is a distribution of external surpluses and deficits seriously at variance with what textbook theory leads us to expect.
The advanced economies ought to be running current account surpluses and the emerging economies current account deficits. As the counterpart to their trade surpluses the rich nations ought to be lending to, and investing in, the poor developing world. Why? Because returns on investment ought to be much higher in regions of the world where capital is scarce and labour abundant. In effect, young workers in emerging economies ought to be paying the pensions of the ageing populations of the developed world.
Friday, June 4, 2010
Soros, bad economic theory and the origins of the financial crisis
By Michael Prowse
Writers of detective fiction typically waste little time describing the murder. They reserve their ingenuity for the part that grips their readers. Who did it and how? Once the shock of the ghastly event has worn off, the focus naturally shifts to causes and motives.
It is much the same with the financial crisis of 2007-09. We are no longer so much interested in what happened as in why it happened. Who or what caused it? Broadly speaking there are four competing views.
Writers of detective fiction typically waste little time describing the murder. They reserve their ingenuity for the part that grips their readers. Who did it and how? Once the shock of the ghastly event has worn off, the focus naturally shifts to causes and motives.
It is much the same with the financial crisis of 2007-09. We are no longer so much interested in what happened as in why it happened. Who or what caused it? Broadly speaking there are four competing views.
Wednesday, June 2, 2010
EU financial regulation: Michel Barnier’s chance to outshine Tim Geithner and Larry Summers
By Michael Prowse
Don’t worry: I don’t expect Michel Barnier, the top European financial regulator, to come up with startlingly bold proposals this summer – proposals that would prove his critics wrong. But there is little doubt that the EU could, if it chose, take a tougher line than the US Treasury against what it calls “systemically important financial institutions” (SIFIs) – the likes of Goldman Sachs, Citibank, J P Morgan, Barclays and UBS.
Don’t worry: I don’t expect Michel Barnier, the top European financial regulator, to come up with startlingly bold proposals this summer – proposals that would prove his critics wrong. But there is little doubt that the EU could, if it chose, take a tougher line than the US Treasury against what it calls “systemically important financial institutions” (SIFIs) – the likes of Goldman Sachs, Citibank, J P Morgan, Barclays and UBS.
Thursday, May 27, 2010
Europe cannot agree with itself, let alone the US on financial market reform
By Michael Prowse
If Tim Geithner, US Treasury Secretary, did any blunt talking in Europe this week, it was strictly reserved for off-the-record meetings. In public he was as diplomatic as he was optimistic. He failed to chide Germany for not adopting more expansionary macroeconomic policies and claimed that the US and Europe are “in a very good position to reach agreement on a global framework to implement common rules for regulating financial institutions”.
If Tim Geithner, US Treasury Secretary, did any blunt talking in Europe this week, it was strictly reserved for off-the-record meetings. In public he was as diplomatic as he was optimistic. He failed to chide Germany for not adopting more expansionary macroeconomic policies and claimed that the US and Europe are “in a very good position to reach agreement on a global framework to implement common rules for regulating financial institutions”.
Wednesday, May 26, 2010
Don’t write off the EU
By Michael Prowse
From a US perspective Europe may appear to be self-destructing. Speaking on Tuesday Oli Rehn, the EU monetary affairs commissioner, warned of a “lost decade” in the wake of the financial crisis if member states failed to introduce structural economic reforms to boost productivity and innovation. The euro, meanwhile, seems in free fall with talk of parity against the dollar against $1.60 as recently as the summer of 2008.
From a US perspective Europe may appear to be self-destructing. Speaking on Tuesday Oli Rehn, the EU monetary affairs commissioner, warned of a “lost decade” in the wake of the financial crisis if member states failed to introduce structural economic reforms to boost productivity and innovation. The euro, meanwhile, seems in free fall with talk of parity against the dollar against $1.60 as recently as the summer of 2008.
Introducing New Rules Blogger Michael Prowse
Dear Members of New Rules',
It is my pleasure to introduce Michael Prowse, a volunteer with a background in journalism. Thanks to Michael, New Rules will be setting up a blog—which in turn requires an overhaul of our website. We should be operational in about a week.
Michael’s first posting is copied below. He is a British citizen, so not surprisingly his first posting is on the financial situation in Europe. Please join me in welcoming Michael, and start writing your own submissions, or comment on Michael’s piece.
Jo Marie
It is my pleasure to introduce Michael Prowse, a volunteer with a background in journalism. Thanks to Michael, New Rules will be setting up a blog—which in turn requires an overhaul of our website. We should be operational in about a week.
Michael’s first posting is copied below. He is a British citizen, so not surprisingly his first posting is on the financial situation in Europe. Please join me in welcoming Michael, and start writing your own submissions, or comment on Michael’s piece.
Jo Marie
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