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Global Economy

Precedential Election: Can Trust Be Maintained in Sovereign CDS Markets?
e21 Team | 2012-01-26

There is little doubt policymakers both within the EU and without will make sure a Hellenic default is avoided. Perhaps the better question is what precedent will the deal set and how will its impact reverberate throughout global financial markets? Whether considering the first deal proposed in October 2011 or the deal now being formulated at the beginning of 2012, the critical point is whether or not credit default swaps should be triggered.

When A Virtuous Cycle Turns Vicious
e21 Team | 2012-01-13

The interconnectedness of the global economy has substantially increased its rate of growth. However, that very interconnectedness can allow a local recession spread throughout the globe. A new article in the Financial Times titled “How the Globe Can Grind To a Halt” explains how real a danger we face. It is worth reading in full, but this excellent chart communicates the message clearly.

Financial Sector Not The Only One Hit By A European Collapse
e21 Team | 2012-01-09

It’s obvious to anyone that a financial crisis in Europe would be bad for the American economy. However, most of the coverage surrounds the difficulties for U.S. banks and other holders of European debt. A new chart from the San Francisco Fed helps refocus the concern towards the broader economy.

Not So Easy: ECB Liquidity Measures May Not Be Enough
e21 Team | 2012-01-06

The stability of economies in the Euro Zone and their financial underpinnings certainly look to be the main threat to a robust 2012 for both the United States and the global economy. The availability of liquidity to European financial institutions is an issue of the utmost importance. As 2011 closed, the European Central Bank took steps to ramp up liquidity, by offering €439 billion in long-term refinancing operations (LTRO) at 1.0% over 3 years.

Euro Zone Says "We're Sorry!"
e21 Staff Editorial | 2011-12-14

Of the decisions reached at last week’s euro area summit, the one with the biggest consequence was likely the decision to, in the words of Bloomberg news, “Drop Demands for Investors to Take Writeoffs in Future Bailouts.” In the future, policymakers decided that bailouts will be full service: 100 cents on the euro, with no demand for “voluntary private sector participation.”

Is There a $100B IMF Bailout Fund?
e21 Team | 2011-12-09

e21’s second favorite morning economics newsletter, Politico’s Morning Money, served as an intermediary between a Treasury bureaucrat and author James Rickards Thursday morning. The topic was whether the Treasury has given the IMF a $100 billion line of credit for Euro bailouts. Rickards gets the best of the interesting exchange, both on the merits and for style points:

Paul Krugman and the Euro
e21 Team | 2011-11-28

The looming potential collapse of Euro countries has brought increasing scrutiny over the merits of the European Welfare state and the future of a common monetary union. For Paul Krugman, a fan of the European welfare model, this presents a problem. While he granted enormous credence to the idea that bank failures in 2008 amounted to an indictment of the entire philosophy of free-market economics, he now refuses to see the current European problems as reflecting anything deeper about the sustainability of European economies.

Is Europe another Lehman?
e21 Team | 2011-11-04

In retrospect, the failure of Jon Corzine’s MF Global may be the first domino to fall in response to Eurozone troubles. Corzine’s fund had bought billions of Eurozone debt on the assumption that bondholders would either be protected or bailed out. In the end, the firm’s rapid decline came on the heels of a larger-than-expected quarterly loss and a downgrade by major credit rating agencies. As the firm revealed more details about its exposure to sovereign debt from Ireland, Italy, Belgium, Portugal, and Spain – counterparty concerns only grew, along with demands for more collateral.

Write Downs, Bank Bailouts, and Austerity Are Not Enough
Charles W. Calomiris | 2011-11-02

At an academic meeting recently, former Argentine Finance Minister Pablo Guidotti remarked that many Argentines see market liberalization policies of the 1990s, rather than the excessive government spending and the resulting unsustainable deficits of that period, as the source of Argentina’s collapse in 2001. A decade later, that misperception contributes to the continuing popularity of the incumbent Peronists and discourages growth-oriented reform.

Europe's Problems Deepen With Greek Vote
David Malpass | 2011-11-01

The euro began weakening sharply at 2pm EDT yesterday when Greece’s Prime Minister Papandreou announced his intention to seek another vote of confidence late this week and then hold a national referendum on Europe’s deal with Greece (130 billion euros in new aid and a 50% debt haircut in return for austerity measures.)  The Dow lost 150 point from 2pm to the market close.


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