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EUROPE
Bailed
out Austrian Volksbanken to wind itself down – FT
East Germany ceased to exist following the 1989
revolution and the fall of the Berlin Wall. But did the former communist
country help shape today's Germany? The answer is yes, and Chancellor
Merkel is a big reason why.
In an
interview, Finnish Prime Minister Alexander Stubb, 46, discusses relations with
neighboring Russia and his country's flirtation with
NATO. He says Finland will make a decision "without
asking for permission."
This
morning Sweden’s new Prime Minister Stefan Löfven
announced his new government. The Social Democrats and the Green Party has
formed a minority government (40% of the mandates in the Riksdag) which will
rely on jumping majority in the parliament.
Eurozone
- Heading towards Animal Farm – Merkelnomics
http://merkelnomics.blogspot.com/2014/10/eurozone-heading-towards-animal-farm.html
The 'dos
and don'ts' of a growth-friendly policy mix for the Euro area – Bruegel
http://www.bruegel.org/nc/blog/detail/article/1446-the-dos-and-donts-of-a-growth-friendly-policy-mix-for-the-euro-area/
http://www.bruegel.org/nc/blog/detail/article/1449-austerity-tales-the-netherlands-and-italy/
Austerity
has been an utter disaster for the eurozone – The
Guardian
All of the
suffering in Europe – inflicted in the service of a
man-made artifice, the euro – is even more tragic for being unnecessary, writes
Joseph Stiglitz
The
ECB’s Leap into the Unknown – Project
Syndicate
Jürgen
Stark: The ECB’s decision to double down on monetary stimulus should be
regarded as an act of desperation. Indeed, despite the central bank's
aggressive approach, monetary policy in the absence of structural economic
reform risks being ineffective.
Jean
Pisani-Ferry: As the eurozone debates how to escape the stagnation trap in
which it finds itself, one question has become increasingly important: Can
governments credibly commit to trim public spending in the future while
avoiding immediate cuts? Fortunately, the answer is yes: Fiscal accommodation
now does not rule out consolidation later.
Interactive:
Do it yourself European Unemployment Insurance – Bruegel
Following
on from our previous blog post on this topic, we invite you to try out our
improved European Unemployment Insurance (EUI) scheme simulator which now
includes a line graph to chart the evolution of the net flows from the scheme
and its situation, as well as a heat map of all European countries.
AUSTERITY
Austerity
has been an utter disaster for the eurozone – The
Guardian
All of the
suffering in Europe – inflicted in the service of a
man-made artifice, the euro – is even more tragic for being unnecessary, writes
Joseph Stiglitz
http://www.theguardian.com/business/2014/oct/01/austerity-eurozone-disaster-joseph-stiglitz
The 'dos
and don'ts' of a growth-friendly policy mix for the Euro area – Bruegel
Combining
monetary, fiscal and structural measures at the union level and at the national
level
UKRAINE / RUSSIA
Russian
Dissident Opens New Chapter in His Anti-Putin Movement – NYT
Mikhail
Khodorkovsky, Ex-Oil Tycoon, Plans to Lead Political Movement
Putin
Rules Out Capital Controls As Ruble Hits Record Lows, "Curbs Risk" By
Shifting To Non-Dollar Settlements – ZH
CRISIS COUNTRIES
No other
region in Spain receives as much European Union
funding as Andalusia. But do the projects being funded
make sense? Questions are mounting about the efficacy of the subsidies -- and
about their potential for feeding corruption.
Italy’s prime minister has appealed to Brussels and Berlin to be more understanding to
countries with no growth and high unemployment as they struggle to comply with
the EU’s rules on public finances.
Matteo
Renzi speaks in London to the Financial Times
For years, Ankara has been tolerating the rise of the
extremist Islamic State. But now that the jihadists are conquering regions just
across the border in northern Syria, concern is growing that Islamist
terror could threaten Turkey too.
The leaders
of France and Italy have a window to pursue genuine
reforms, but it is only a narrow one
Manuel
Valls heads the most reformist government France has seen for many years. But might
the beneficiaries be Nicolas Sarkozy and Marine Le Pen?
http://www.zerohedge.com/news/2014-10-04/here-we-go-again-greece-will-be-default-within-15-months-sp-warns
EUROPEAN CENTRAL BANK
Draghi’s
Challenge Underlined as Noyer Joins Opposition to ABS – BB
“It shows
there’s not just an issue of policy effectiveness, but an issue of policy
willingness,” said Mohamed El-Erian, an economic adviser to Allianz SE and a
Bloomberg columnist. “The market has been reasurred by the notion that the ECB
is willing to do whatever it takes, but if there’s now a willingess issue
that’s a completely different outlook.”
In February
2014, the German Federal Constitutional Court declared the Outright Monetary
Transactions (OMT) programme to be inconsistent with EU law. However, this did
not have a negative impact on the OMT and sovereign risk premia continued to
decline. This column argues that the benign response of financial markets may
be due to an expectation of a likely compromise between the European and German
Courts.
UNITED STATES
The
Astonishing Story of the Federal Reserve on 9-11 – Daily
Kos
ASIA
On
"Asian Values" – Noahpinion
There’s a
strain of thinking called “Asian Values,” which basically says that human
rights and democracy are things that the West either A) needs or B) is capable
of handling, but which does not suit East Asian countries…. This idea is
absurd, offensive, and obviously wrong. Studies show that Asian values place
just as much weight on freedom and rights and democracy as Western values.
HK
democracy activists come under attack – FT
Triads
suspected as students face violence from ‘thugs’
Update on
the crisis and the implications for the Chinese and Hong Kong economies and the potential risks
on the CNY/CNH.
MARKETS
EURUSD: Will
the Fed bail out the ECB? (& can the Riksbank teach us anything?) – Nordea
Martin
Enlund | Disclaimer
ECB QE is
all about inflation. The only way to bring about a near-term boost to inflation
is via a weaker currency. If the ECB can buy itself enough time, the Fed may
eventually bail out the ECB via a stronger USD. Recently however, weaker US sentiment and dropping oil prices
suggest that the odds may have been moving away from this no-QE scenario,
despite the ECB’s disappointing October meeting.
Risky
Asset Outflows Surge Again As "Up-In-Quality" Rotation Accelerates – ZH
*The
Power of Back Testing Investment Strategies – Jim
O'Shaughnessy
European
Stocks: Further downside ahead – TradingFloor
Markets’
Rational Complacency
– Project
Syndicate
Nouriel
Roubini: A century ago, financial markets priced in a very low probability that
a major conflict would occur, blissfully ignoring the risks that led to World
War I until late in the summer of 1914. Back then, markets were poor at
correctly pricing low-probability, high-impact tail risks; they still are.
FX
trading styles: Different strokes for different folks – TradingFloor
Why
cross asset analysis is important – TradingFloor
Understanding
that assets within and between asset classes see shifting correlation from time
to time is crucial for success as a trader and investor.
Why
macro matters – TradingFloor
As the
third quarter comes to a close, asset managers find themselves questioning the
relationship between portfolio performance and macroeconomic conditions. Here,
I provide a breakdown of the various risk factors and how they affect returns.
The
belated Michael Lewis effect? – FT
The five
and a half months since this book was published have not been an easy one for
the high frequency trading community, certainly in the US
Notes From Charlie
Munger's Daily Journal Meeting 2014 – Market
Folly
The 102 Finance
People You Have To Follow On Twitter – BI
The
Devil’s Financial Dictionary – Jason Zweig
ECONOMICS
Private
Sector Consumption and Government Consumption and Debt in Advanced Economies – IMF
The
propensity to consume out of income varies in a non-linear fashion with fiscal variables,
and in particular with government debt per capita.
The
distribution of wealth and the MPC – implications of new European data – ECB
Aggregate
consumption resp onse ranges b etween 0.1 and 0.4 and is stronger (i) in
economies with large wealth inequality, where a larger proportion of households
has little wealth, (ii) under larger transitory income shocks and (iii) when we
consider households only using liquid assets (rather than net wealth) to smooth
consumption
Cross-country
differences in perceptions of inequality – voxeu.org
Income
inequality is high in the US, but the support of social welfare
programmes is low. In Europe, income inequality is low and the welfare states are generous. This
column argues that this paradox is largely due to perceived inequality. Many
Europeans believe that there is high inequality in their countries, justifying
the need for redistributive policies. Americans, however, are less concerned
with income differences and with respective redistributive state intervention.
It all
makes sense when you realise there are TWO US dollar currencies – FT
The fact of
the matter is that there is a parallel dollar-based financial system – call it
the “Global Dollar system” – that operates outside the United States. As we have explained before, that
parallel dollar market is actually the same old eurodollar market that has been
befuddling academics such as Milton Friedman for decades.
How much
longer can the global trading system last? – mpettis
The current
system, in other words, is inherently unstable and will sooner or later force
the US economy into a position of choosing either to
take on excessive risk or to abdicate its role as shock absorber.
The world
has not yet begun to deleverage its crisis-linked borrowing. Global debt-to-GDP
is breaking new highs in ways that hinder recovery in mature economies and
threaten new crisis in emerging nations – especially China. This column introduces the latest
Geneva Report on the World Economy. It argues that the policy path to less
volatile debt dynamics is a narrow one, and it is already clear that developed
economies must expect prolonged low growth or another crisis along the way.
Debt
hysteria – Coppola
Comment
I have been
reading the Geneva 16 report, it's scary stuff. I found myself wondering why there was no
discussion of the other side of all this. Who are the owners of all this debt?
Exchange
Rate Movements and the Australian Economy – RBA
A temporary
10 per cent appreciation of the real exchange rate that is unrelated to the
terms of trade or interest rate differentials lowers the level of real GDP over
the subsequent one-to-two years by 0.3 per cent and year-ended inflation by 0.3
percentage points.
Global
disinflationary pressures – FT
Among the
main arguments for central bankers and other policymakers in developed regions
to risk an inflationary overshoot as they strain to close their output gaps is
the historical evidence that a central bank can credibly reduce inflation that
has become unmoored. The reverse isn’t true: whether because of unwillingness
or impotence, policymakers have struggled to spur growth, and to push inflation
sustainably back up to target, with rates at zero.
The impact
on the real deposit rate resulting from changes in the nominal rate set by the
ECB have been dwarfed by changes in the real deposit rate caused by changes in
inflation since the crisis. This is important, because the confusion about real
and nominal rates also happened to be a contributing factor to the Fed’s
failure to more aggressively fight deflation during the Great Depression.
Reconstructing
Macroeconomic Theory to Manage Economic Policy – NBER
Joseph E.
Stiglitz: The paper argues that any
theory of deep downturns has to answer these questions: What is the source of
the disturbances? Why do seemingly small shocks have such large effects? Why do
deep downturns last so long? Why is there such persistence, when we have the
same human, physical, and natural resources today as we had before the crisis?
Instead of
having one major cross-border payments system there could eventually be many
Why is
Thomas Piketty's 700-page book a bestseller? – The
Guardian
Thomas
Piketty is a French economist whose Capital in the Twenty-First Century has
swept American discourse. Four experts – Brad DeLong, Tyler Cowen, Stephanie
Kelton and Emanuel Derman – take on why that is
FINANCIAL STABILITY
Global
Financial Stability Report – IMF
Risk
Taking, Liquidity, and Shadow Banking: Curbing Excess While Promoting Growth -
Analytical Chapters
The
Growth of Shadow Banking – iMFdirect
Shadow
banking has grown by leaps and bounds around the world in the last decade. It is now worth over $70 trillion. We take a
closer look at what has driven this growth to help countries figure out what
policies to use to minimize the risks involved.
Shadow
banking defined, again and again – FT
Have we done
enough to regulate finance? – World
Economic Forum
Simon
Johnson: The first view is that “we have done a lot” since the global financial
crisis erupted in 2008. The second view is that we are a long way from
completing the far-reaching changes that we need. Much of what divides the two
sides in this debate comes down to this: Is it acceptable to say that banks
“hold” capital?
CENTRAL BANKING
Global
Central Banking in 2014, a Third Quarter Update for 25 Economies – WSJ
The
cross-currents of the global economy leave the world’s central banks
confronting varied policy choices in the months ahead. The U.S. and U.K. recoveries finally have enough
momentum for the Fed and BoE to anticipate raising raise short-term interest
rates from record lows next year. The ECB and BoJ see still weak growth and
inflation prompting calls for them to provide more stimulus. Several
emerging-market central banks are struggling with the twin challenges of
slowing growth and high inflation. And the central banks in China and South Africa may get new leaders soon.
Thinking
the unthinkable: The effects of a money-financed fiscal stimulus – voxeu.org
The time
may have come to leave old prejudices behind and come to terms with the urgent
need to increase aggregate demand in a more foolproof way than tried up to now,
especially in the Eurozone. The option of a money-financed fiscal stimulus
should be considered seriously.
Helicopter
money: Today’s best policy option – VoxEU.org
High debt
and deflation have afflicted Japan, the Eurozone, and the US. However, the monetary and fiscal
policies implemented so far have been disappointing. This column discusses the
importance of helicopter money in the form of overt monetary financing in
addressing these problems. Overt money financing is the policy with the highest
impact in raising demand and output without increasing public debt and interest
rates.
Wipeout – The
Economist
Debt
forgiveness, and the redesign of debt contracts to involve more risk-sharing,
is the answer to the problem of recurrent financial crises.
Follow
or Break the Rule?
– Greg
Mankiw
If you
believe [Taylor rule] was reasonably good during the period of the Great Moderation,
does this mean the Fed should start tightening now, as the economy gets back to
normal? Maybe, but not necessarily. There are two problems with interpreting
such rules today.
INFRASTRUCTURE INVESTMENTS
Now Is a
Good Time to Invest in Infrastructure – iMFdirect
There has
been a decline in the overall quality of infrastructure in the United States and Germany. In many emerging market and
developing economies, the expansion of the backbone has not kept pace with the
broader economy, and this is stunting the ability of these economies to grow.
The IMF
on Infrastructure –
Greg
Mankiw
http://gregmankiw.blogspot.com/2014/10/the-imf-on-infrastructure.html
It’s
Time to Build Roads to Prosperity, Literally, IMF Says – WSJ
Infrastructure
investment is the antidote to serial disappointments in global growth,
according to IMF
Concrete
benefits – The
Economist
Public
investments in infrastructure do the most good at times like the present
THE ECONOMIST’S SPECIAL: THE WORLD ECONOMYS
Wealth
without workers, workers without wealth – The
Economist
The digital
revolution is bringing sweeping change to labour markets in both rich and poor
worlds
The
third great wave – The
Economist
The first
two industrial revolutions inflicted plenty of pain but ultimately benefited
everyone. The digital one may prove far more divisive
Productivity:
Technology isn’t working – The
Economist
The digital
revolution has yet to fulfil its promise of higher productivity and better jobs
The
privileged few: Labour is steadily losing out to capital – The
Economist
Housing:
Home economics – The
Economist
Sky-high
house prices in the most desirable cities are holding back growth and jobs
Emerging
economies: Arrested development – The
Economist
The model
of development through industrialisation is on its way out
New
opportunities: Silver lining – The
Economist
How the
digital revolution can help some of the workers it displaces
Easing
the transition: Means and ends – The
Economist
How
governments can deal with the labour imbalance
OFF-TOPIC
Revisiting
the Lehman Brothers Bailout That Never Was – NYT
Why, given
all that happened, was Lehman the only bank that was not too big to fail? For
the first time, Fed officials have offered an account that differs
significantly from the versions that, for many, have hardened into history.
They let
it happen – The Economist
The
argument that American officials lacked the capability or authority to save
Lehman Brothers – and, potentially, to spare the world the most wrenching financial
crisis since the 1930s – never really withstood close scrutiny.
It’s
silly to be frightened of being dead – The
Guardian
At the age
of 96, the legendary editor Diana Athill writes, the idea of death has never
been less alarming. The process of dying is another matter
31
Pieces Of Advice For Surviving Your First Year On Wall Street – BI
We’ve
killed off half the world’s animals since 1970 – WaPo
The Ten
Golden Rules of Argument – Farnam
Street
10 Unusual
and offbeat experiences from Japan.
When a
Simple Rule of Thumb Beats a Fancy Algorithm – HBR
How AIDS
first spread – The
Economist
Why a
leading professor of new media just banned technology use in class – WaPo
The
Internet Is Broken, and Shellshock Is Just the Start of Our Woes – Wired
Somewhere
along the way, in about 1992, one engineer typed a bug into the code. Last
week, more then twenty years later, security researchers finally noticed this
flaw in Fox’s ancient program. They called it Shellshock, and they warned it
could allow hackers to wreak havoc on the modern internet.
What
Happens When We All Live to 100? – The
Atlantic
If life-expectancy
trends continue, that future may be near, transforming society in surprising
and far-reaching ways.
How
Gangs Took Over Prisons – The
Atlantic
Originally
formed for self-protection, prison gangs have become the unlikely custodians of
order behind bars—and of crime on the streets.
The way we
go out today started in the 1920s in The Big Apple
FINNISH
Kokoomuspoliitikolta kova viesti: Palkanalennukset jäävät
ainoaksi vaihtoehdoksi - maksumiesten joukko "mahdollisimman
laajaksi" – TE
Suomalaisten palkkoja leikattava ja työttömyyttä
lisättävä - tässäkö kokoomuksen uusi vaaliteema – Tyhmyri
Suomi: Teollisuuden suunta ei muutu – Nordea
Odotamme Suomen tavaraviennin ja teollisuuden uusien
tilausten lisääntyneen elokuussa pari prosenttia vuodentakaisesta. Sellaiset
kasvuluvut eivät riitä muuttamaan käsitystämme teollisuuden suunnasta puoleen
tai toiseen.