QE For The People In The EZ

Quantitative Easing by the Fed has had a positive effect on the US economy.  This article shows the channels by which QE in the US has been beneficial.  However, since the EZ is much different from the US, it will not work as well as it has in the US.  Moreover, since QE has the effect of increasing the value of assets that are held primarily by the well-off,  it would create negative political repercussions in the EZ.  There are also important differences between the ECB and the US Federal Reserve.  The ECB is legally prohibited from doing some the things that the Fed had done.  Consequently, this article makes the case for a direct distribution of money to citizens by ECB.  This would be consistent with its mandate to prevent deflation, and it would be perfectly legal.  There are, of course, many objections to such a program.  Some of those objections are considered and countered in this article.

Would Ireland Be Better Off Today Without The Real Estate Boom and Bust?

Patrick Honohan is Governor of the Central Bank of Ireland.  He asked himself a question and provided his answer in this article.  Ireland experienced a real estate boom and the economy did much better than it would have done without the boom.  Honohan looked at how the economy would have performed during the boom years without the stimulus from real estate, and how the economy would have performed after the bust if it duplicated the EZ performance after 2008.  He compared the counterfactual with the actual performance of the economy and he concluded that Ireland would be much better off today if it had avoided the real estate boom.  He argues that Ireland should take steps to prevent the risky lending that made the real estate boom and bust possible.

Sweden Central Bank Cuts Interest Rates To Avoid Deflation

Sweden has joined other central banks in the US, Denmark, UK and the EZ in the use of extraordinary monetary policies to ward off price deflation.  Banks can now borrow money from Sweden's central bank at negative interest rates.  That is, the sum that they payback to the central bank will be less than the amount that they borrowed.  Although Sweden is not part of the EZ, its economy has been damaged by the decline in economic activity in the EZ.  Like most central banks, Sweden's central bank has an inflation target of 2%.  Currently, the inflation rate is well below its target rate.  Price deflation is harmful to the economy because consumers expect prices to fall further and they delay spending.  Corporations delay investments as well; they risk losing money if prices fall below plan.  Borrowers are also harmed by deflation; they must pay down the debt with more valuable money.

Ukraine Is Caught Between A Rock And A Hard Place

This article provides a bleak picture of the battle between the West and Russia over Ukraine.  Most Americans do not realize that Ukraine is a very large country.  It is the home to 46 million people, and it is about the size of Spain.  The US and Russia media portray the current situation as a battle between the good guys and the bad guys.  Putin's popularity in Russia has skyrocketed because he is standing up to the bad guys in the West.  Of course, Putin and Russia are still viewed by many Americans from the lens of the cold war.  This article claims that there are no good guys in this situation. The big guys in this story are engaged a contest over an immature state with one of worst economies in Eastern Europe.  Unfortunately, for the citizens in Ukraine, neither side offers them anything worthwhile.  Ukraine will not be made a full member of the EU, and Russia is only interested in aligning itself with puppet states on its periphery.  We should all be concerned about this contest because the game of chicken is being played by states with nuclear weapons.

A Conservative Intellectual Warns The GOP Against Mentioning Inequality

Ramesh Ponnuru explains why the GOP has been using rising inequality as weapon against Obama.

Republicans are taking up inequality as an issue now for three reasons. It provides a way of attacking Mr. Obama’s economic record even as unemployment rates drop. It gives them an opportunity to deploy rhetoric usually associated with liberals against him and his party. And Republicans have grown increasingly aware, since their defeat in the 2012 election, that their party has a damaging reputation for caring only about the economic interests of the rich.

Ponnuru claims that President Obama has shifted his rhetoric away from inequality to the problem of social mobility.  He argues that the electorate cares more about improving their living standards than it does about the rich getting richer.  The GOP ought to do the same thing.  If Ponnuru had his way, politicians in both parties would never mention the problem of rising income inequality.

The US Dollar Has Strengthened Against The World's Currencies

This article describes the strength of the dollar versus a sample of the world's currencies.  The strong dollar makes US imports from other countries cheaper and it increases the price of US exports.  The US trade deficit in December was $46 billion.  The trade deficit has been a major factor in restraining US GDP growth. The Fed is poised to increase US interest rates this summer.  That will push the value of the dollar even higher.

A Capital Flow Explanation For The Economic Woes in Eurozone

Economic growth in the EZ may pick up due to the policies of the ECB which has caused the euro to depreciate and lower the price EZ exports.  The Financial Times does not believe that the EZ can export its way out of its slump.  It argues capital flows from the North to the South created the problems in EZ and that they can't be solved without debt forgiveness.  Furthermore, many believe that irresponsible government borrowing caused the problem and that they must pay the price for their irresponsibility.  They don't believe that irresponsible lenders bear some of the responsibility for the wasteful borrowing.  That moral outlook will make it difficult to shift some of the pain away from the debtors to the lenders.

The flow of capital from Germany to Spain, for example, was not good for either nation.  Germany was able to grow by shifting its current account from a deficit in the 90's to a surplus in the 2000's.  It accomplished this by restraining wage growth.  Its savings flowed to countries like Spain; they were not invested in productivity enhancing capital. German productivity growth has been relatively low as a result, and the recipients of the capital in the South over invested in real estate and low productivity construction jobs.  There was more cheap financing available than productive investment opportunities.