Financial Stability News

News about financial stability, central banking and theory of money

Category Archives: Global economy

Swiss Government issues debt at negative interest rates

Investors are paying the Swizz to take care of their monies in these uncertain times. Read this post from Zero Hedge to get the rest of the story.

IMF calls for fiscal austerity and lower real wages

This recent speech from IMF Managing Director Lagarde confirms the austerity for growth paradigm that has taken hold recently. She notes that to get growth

The most important element is to lay out a credible medium-term plan to lower debt. Without such a plan, countries will be forced to make an even bigger adjustment sooner.

The current reduction of budget deficits with about 1 % of GDP on average is at a “prudent pace”, according to Lagarde.

As for the southern European countries that has lost competitiveness, the choice is between increased productivity or lower wages. But since labor market reform takes time, “wage will have to adjust” (read: fall).

It is remarkable how the IMF has changed since Mr. Strauss Kahn provide strong leadership out of the 2008 financial crisis. I just quote from one of his many press releases, this one from November 15, 2008 commenting on the G-20 Action Plan:

Mr. Strauss-Kahn noted the G-20 leaders’ commitment to act together to meet global macroeconomic challenges, using both monetary and fiscal policy. Lower inflation risks provide room to ease monetary policy, he said, adding that this will be important, but will not be enough.

I welcome the emphasis on fiscal stimulus, which I believe is now essential to restore global growth,” Mr. Strauss-Kahn said. “Each country’s fiscal stimulus can be twice as effective in raising domestic output growth if its major trading partners also have a stimulus package.”

He noted that the Summit Declaration recognizes that some countries have more room for maneuver than others. “We believe that those countries-advanced and emerging economies-with the strongest fiscal policy frameworks, the best ability to finance fiscal expansion, and the most clearly sustainable debt should take the lead,” he said.

Two very interesting conferences

INET is hosting its second conference in Berlin shortly: Paradigm Lost: Rethinking Economics and Politics

The program is broad with a host of good speakers. By invitation only, but they usually post a lot of video.

Levy Institute will also host its 21st Annual Hyman P. Minsky Conference: Debt, Deficits, and Financial Instability at around the same time in NY City

with Gillian Tett, Claudio Borio, Andrea Enria, Peter Praet, Christine Cumming, Martin Wolf, Joseph Stiglitz among others.

Should be greatly interesting! Will keep you posted. Conference website is here.

Shipping Loans Go Bad for European Banks

This post shows the free fall of the Baltic Dry index in 2012. Could be “canary in the mine” warning about harder times to come. Last time the index has been this low was back in the midst of the credit crisis. With China rolling over and lots of new tonnage coming along, the situation could become bad for large banks with lots of shipping loans. Watch out.


Roubini Warns Of Tough Times Ahead

Dr. Doom is predicting tough times ahead in interview from Davos. Projections could be worse than the IMF’s. The debt overhang may lead to a decade of slow growth, according to Roubini.