Home prices have been rising rapidly, so much so that there is talk that we are entering another national bubble. Is it possible that we are lapsing into a bubble mentality, a self-reinforcing cycle of popular belief that prices can only go higher?
People who are now inclined to buy a home are most often just thinking that we are gradually recovering from a recession and that this is a good time to buy. The mental framing still seems to be about economic recovery and the likelihood that interest rates will rise. People mostly don’t seem to be prompted by the anticipation of another housing boom.
That is the thinking at the moment. But whether these attitudes mutate into a national epidemic of bubble thinking, one big enough to outweigh higher mortgage rates, fiscal austerity and other factors remains to be seen.
Monday, 30 September 2013
Friday, 20 September 2013
Currency depreciation
The liquidity trap hypothesis implies that countries are unable to devalue their currencies in the forex markets. There are several ways of answering this. A liquidity trap implies the central bank cannot inflate, but currency devaluation tends to raise the price level.
We have been taught that “liquidity traps” are all about the zero lower bound on nominal interest rates, but on closer inspection it is actually another zero bound that is crucial, the zero lower bound on eligible assets not purchased by the central bank.
Keynesian objections are:
1. The central bank can only legally buy certain assets.
2. The central bank may be fearful of having a large balance sheet.
Those objections then become the real reason for monetary policy ineffectiveness, not the zero bound.
In order to peg the exchange rate at a lower level they would have to sell so much domestic currency that their balance sheet would swell to unacceptable levels.
We have been taught that “liquidity traps” are all about the zero lower bound on nominal interest rates, but on closer inspection it is actually another zero bound that is crucial, the zero lower bound on eligible assets not purchased by the central bank.
Keynesian objections are:
1. The central bank can only legally buy certain assets.
2. The central bank may be fearful of having a large balance sheet.
Those objections then become the real reason for monetary policy ineffectiveness, not the zero bound.
In order to peg the exchange rate at a lower level they would have to sell so much domestic currency that their balance sheet would swell to unacceptable levels.
Thursday, 19 September 2013
The new money
Hedge funds which gambled on how much money would be recovered from the bankrupt carcass of Lehman Brothers are set to make hundreds of millions of pounds from a full payout to creditors of the European arm.
Five years on from the collapse, payouts to Lehman's creditors in Europe are on course to top 100 percent sometime next year, following a recovery of assets by administrators and legal victories over other parts of the ex-U.S. investment bank.
The collapse of Lehman Brothers on September 15, 2008, plunged the global financial system into chaos. Its European arm, headquartered in London, was the largest and most complex part of the group because it was a hub for trading and investments, spanning asset classes and dozens of countries.
Closing down the business and trying to recover assets for creditors has involved unwinding thousands of derivatives contracts and share trades and figuring out who owns what, making it the most complex bankruptcy of a single entity ever. Original creditors, including hedge funds which had Lehman as their prime broker, banks, and trade suppliers such as a photocopying or legal firms, may not all be winners, however.
Five years on from the collapse, payouts to Lehman's creditors in Europe are on course to top 100 percent sometime next year, following a recovery of assets by administrators and legal victories over other parts of the ex-U.S. investment bank.
The collapse of Lehman Brothers on September 15, 2008, plunged the global financial system into chaos. Its European arm, headquartered in London, was the largest and most complex part of the group because it was a hub for trading and investments, spanning asset classes and dozens of countries.
Closing down the business and trying to recover assets for creditors has involved unwinding thousands of derivatives contracts and share trades and figuring out who owns what, making it the most complex bankruptcy of a single entity ever. Original creditors, including hedge funds which had Lehman as their prime broker, banks, and trade suppliers such as a photocopying or legal firms, may not all be winners, however.
Wednesday, 18 September 2013
No split here!
The Lib Dem conference is living up to the title of what next!
Rumours abound of a leadership challenge and there is no shortage of media rhetoric concerning Nick Clegg’s current position, however, there does not appear to be anyone who wants to take the place!!
How on earth can there be a leadership challenge if there are no upcoming leaders waiting in the wings? There are some nice juicy rumblings most notably between Vince Cable and Danny Alexander as their tug of war as the media puts it gets even hotter. If either of these two are approached on the subject of leadership, they become rather distant.
So who is waiting in the wings?
Rumours abound of a leadership challenge and there is no shortage of media rhetoric concerning Nick Clegg’s current position, however, there does not appear to be anyone who wants to take the place!!
How on earth can there be a leadership challenge if there are no upcoming leaders waiting in the wings? There are some nice juicy rumblings most notably between Vince Cable and Danny Alexander as their tug of war as the media puts it gets even hotter. If either of these two are approached on the subject of leadership, they become rather distant.
So who is waiting in the wings?
Tuesday, 17 September 2013
What the voters want!
Our political class actively want to be out of step with public opinion, and are sorry they accurately represented it the other day. A survey of Tory MPs revealed that many actually want to vote again on attacking Syria, so that they can authorise this lunacy, even if it is only an incredibly small pinprick with no discernible purpose. And it is not just the Tories. Ed Balls, the Shadow Chancellor, also wants Another Chance To Bomb.
He confided to an elite TV show: ‘Our jaws dropped when the Prime Minister suddenly took the idea of military action right off the table. I wasn’t expecting that, nor was Ed Miliband. If David Cameron is going to put that back on the table, we will look at that.’
Well, if they so fervently want not to represent us, I will say it again.
We do not have to elect these people. I have reluctantly come round the view that we should bring in compulsory voting in this country, provided every ballot paper contains a slot at the top marked ‘None of the below’. And if the numbers voting ‘None of the below’ exceed 30 per cent in any constituency, nobody is elected for that seat. Parliament would get a lot smaller. MPs would become a lot more interested in us and in what we think.
He confided to an elite TV show: ‘Our jaws dropped when the Prime Minister suddenly took the idea of military action right off the table. I wasn’t expecting that, nor was Ed Miliband. If David Cameron is going to put that back on the table, we will look at that.’
Well, if they so fervently want not to represent us, I will say it again.
We do not have to elect these people. I have reluctantly come round the view that we should bring in compulsory voting in this country, provided every ballot paper contains a slot at the top marked ‘None of the below’. And if the numbers voting ‘None of the below’ exceed 30 per cent in any constituency, nobody is elected for that seat. Parliament would get a lot smaller. MPs would become a lot more interested in us and in what we think.
Monday, 16 September 2013
The Liberal Democrats
As you know the conference season has started and these ^^ people do not know whether they are coming or going.
Half of them are saying the worst thing they have done over the last three years is join the Tories, half of them are saying it is the best thing since sliced bread!
Surely they should gather up all the successful polices that have been ratified into statues over the last three years that were a deliberate act on behalf of the Lib Dems and promote them?
I am curious what the keynote speech is going to be about.
Half of them are saying the worst thing they have done over the last three years is join the Tories, half of them are saying it is the best thing since sliced bread!
Surely they should gather up all the successful polices that have been ratified into statues over the last three years that were a deliberate act on behalf of the Lib Dems and promote them?
I am curious what the keynote speech is going to be about.
Friday, 13 September 2013
erm, why no news?
The Davos economic forum is held every winter in the Swiss Alps, I have just found out about the summer one which is held in China.
The biggest surprise at this week’s Dalian forum was the East-West divergence of opinion on the economic outlook, both in the months ahead and in the very long term. Western economists mostly believe that developing countries in general, and China in particular, are threatened by serious financial crises as U.S. monetary policy begins to be tightened, probably as soon as the Federal Reserve Board’s meeting next week. The consensus view is that emerging economies have invested and borrowed too much, taking advantage of the Fed’s easy money and will now face painful de-leveraging similar to what Europe and the U.S. experienced five years ago. This de-leveraging means, in turn, that the glory days for developing economies are probably over, and most of these countries, perhaps including China, may never escape the “middle-income trap” that has prevented further progress in many developing economies.
Surprisingly, however, the Chinese economists in Shenzhen seemed largely unperturbed by the Western warnings, preferring to concentrate on environmental, governance and public health issues and the details of financial market design. In Dalian, too, the sense of financial foreboding was strangely absent, as speakers from other developing countries agreed with their Chinese colleagues that higher priorities than debt management were structural issues such as demographics and education, governance and corruption, bank regulation and competition, energy and urban design.
If China can manage and control its way to ever-greater prosperity, despite the sudden outbreak of skepticism among Western analysts, the same will probably be true of many other emerging economies, which increasingly look to China, instead of the West, for support and guidance.
The biggest surprise at this week’s Dalian forum was the East-West divergence of opinion on the economic outlook, both in the months ahead and in the very long term. Western economists mostly believe that developing countries in general, and China in particular, are threatened by serious financial crises as U.S. monetary policy begins to be tightened, probably as soon as the Federal Reserve Board’s meeting next week. The consensus view is that emerging economies have invested and borrowed too much, taking advantage of the Fed’s easy money and will now face painful de-leveraging similar to what Europe and the U.S. experienced five years ago. This de-leveraging means, in turn, that the glory days for developing economies are probably over, and most of these countries, perhaps including China, may never escape the “middle-income trap” that has prevented further progress in many developing economies.
Surprisingly, however, the Chinese economists in Shenzhen seemed largely unperturbed by the Western warnings, preferring to concentrate on environmental, governance and public health issues and the details of financial market design. In Dalian, too, the sense of financial foreboding was strangely absent, as speakers from other developing countries agreed with their Chinese colleagues that higher priorities than debt management were structural issues such as demographics and education, governance and corruption, bank regulation and competition, energy and urban design.
If China can manage and control its way to ever-greater prosperity, despite the sudden outbreak of skepticism among Western analysts, the same will probably be true of many other emerging economies, which increasingly look to China, instead of the West, for support and guidance.
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