Category: Economy

Analysis of the global economy

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Investing: Growth and the markets | The Economist

Buttonwood of The Economist quotes Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School:

….take the records of 83 countries from 1972 to 2009 (the most comprehensive set available) and rank them by GDP growth over the previous five years. Investing each year in the countries with the highest economic growth over the preceding five years earned an annual return of 18.4%, but investing in the lowest-growth countries returned 25.1%.

Read more at Investing: Growth and the markets | The Economist.

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Philip Maymin, Why Financial Regulation is Doomed to Fail | Library of Economics and Liberty

Philip Maymin highlights a problem with volatility:

…..securities with historically low volatility tended to have almost twice as much subsequent risk, while those with historically high volatility tended to have almost half as much subsequent risk. For both the riskiest and least risky securities, therefore, historical risk is a statistical illusion.

He further points out that regulation encourages banks to act in concert, increasing systemic risk, while deposit insurance reduces the level of self-imposed discipline among banks.

Read more at Philip Maymin, Why Financial Regulation is Doomed to Fail | Library of Economics and Liberty.

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Milton Friedman – The Free Lunch myth [video]

Milton Friedman, recipient of the 1976 Nobel Prize for Economic Science, was one of the most recognizable and influential proponents of liberty and markets in the 20th century, and the leader of the Chicago School of economics. Here he gives his views on the myth of the free lunch.

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Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP

Jonathan Hopkin argues that austerity has failed to produce results in Southern Europe and calls for European leaders to reconsider their approach:

…..perhaps the most important result of the election is that it will likely prove to be a turning point in the way in which the European Union deals with the debt crisis in the South. As was the case in Greece, the attempt to impose technocratic rule on a debtor nation to implement austerity and reform has been a political and economic disaster…… The Monti experiment produced no clear economic gains and has been decisively rejected at the polls. It would be reckless in the extreme of Europe’s leaders not to reconsider their approach.

via Far from being a disaster, the results of the Italian election could be a turning point for Italy and the Eurozone. | EUROPP.

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Quantitative easing does not address the fundamental problems underpinning struggling western economies. | EUROPP

John Doukas questions the benefits of quantitative easing:

…excessive money supply fails to increase real economic activity because it raises the labour cost while it lowers the cost of capital. Depressing yields at home, as a result of quantitative easing, in an open economy setting, leads yield-seeking investors into higher-risk investments such as emerging markets.

Read more at Quantitative easing does not address the fundamental problems underpinning struggling western economies. | EUROPP.

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Australia: Highest cost of living

Purchasing power parities (PPPs), exchange rates, and relative prices, by country, 2011

At 1.61, Australia has higher relative prices than Norway, Denmark, Sweden and Japan (listed in descending order). 61% higher than the US and 48% higher than the UK.

Index

Source: BLS

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Non-mining Australia “in recession” last quarter | MacroBusiness

Leith van Onselen considers that Australia’s non-mining economy may be in recession based on two consecutive quarters of negative growth in state final demand:

The blanket statement that Australia grew close to trend in 2012 not only obfuscates the fact that the current growth rate is well below trend and declining even further but also hides the fact that the majority of the population are living in regions which are in recession. That paints a totally different picture than the political spin coming from the Government.

Read more at Non-mining Australia “in recession” last quarter | | MacroBusiness.

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Volcker: Wall Street Kills Regs By Running Out the Clock

Josh Boak at Fiscal Times writes:

…..So when Volcker declared on Monday that the financial regulation system is broken, it’s time to sound the alarm. The gist of his complaint is that Dodd-Frank was passed in the middle of 2010, yet many of its biggest regulations have not been finalized and there is no end in sight.

“I know it’s a complicated bill. I know the markets are complicated,” Volcker said at a conference for the National Association for Business Economics. “Two-and-a-half years later you can’t have a regulatory apparatus that’s devised by the most important piece of legislation in recent years? That suggests something is rather wrong. Something is dysfunctional.”

Read more at Volcker: Wall Street Kills Regs By Running Out the Clock.

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