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t the eurozone rolls on with no sign that a depression in one of its smaller constituent economies is enough to bring about a fundamental change is disturbing it wouldn t be able to ignore an election of marine lepen as president of france gavyn davies considers the consequences of that update cecchetti and schoenholtz also had a good post on the implications of a lepen win labels europe 3 comments wednesday february 8 2017 dodd frank under fire over the weekend bloomberg reported as he prepared to sign orders designed to roll back bank regulations enacted to stop the next financial crisis president donald trump said that the rules are stifling lending we expect to be cutting a lot out of dodd frank because frankly i have so many people friends of mine that have nice businesses and they can t borrow money trump said on friday they just can t get any money because the banks just won t let them borrow because of the rules and regulations in dodd frank while rolling back restrictions on the financial sector seems contrary to the trump administration s populist veneer it is consistent with what he said he would do during the campaign we can expect more misleading rhetoric about holding capital like this from former goldman sachs president gary cohn who trump has appointed director of the national economic council every place a bank needs to hold capital and they need to retain capital prohibits them from lending cohn said in the interview so we re going to attack all aspects of dodd frank as the article admirably explains banks don t actually hold capital in banking capital refers to the funding they receive from shareholders every penny of it can be loaned out a 5 percent minimum capital requirement means that 5 percent of the bank s liabilities has to be equity while the rest can be deposits or other borrowing the more equity a bank has the smaller its risk of failing when losses pile up on their blog cecchetti and schoenholtz summarize findings that higher capital not detrimental to lending its not clear that congress will undertake a full repeal of dodd frank but there are plenty of ways it can be weakened brookings robert pozen outlines some of the things that may happen at vox matthew yglesias argues that dodd frank has been successful this paper by martin baily aaron klein and justin schardin provides a more detailed assessment of its provisions john cochrane has favorable views of some of the republican alternatives though its far from certain that there will be action on them the administration is also halting the labor department s fiduciary rule which requires investment advisors to act in the interest of their clients cohn s defense of this action seems rather strained i don t think you protect investors by limiting choices said cohn who previously was goldman sachs coo we think it is a bad rule it is a bad rule for consumers cohn told the wall street journal this is like putting only healthy food on the menu because unhealthy food tastes good but you still shouldn t eat it because you might die younger see columns by steve rattner paul krugman and mike konczal overall the administration s approach to financial regulation may have short run benefits to the financial industry and its not surprising that financial stocks largely drove the gains in the stock market after the election looser reins and more profits on wall street also likely mean bigger bonuses before the crisis financial industry compensation had been a substantial contributor to widening income inequality and that trend seems likely to resume rolling back or watering down dodd frank also will increase the likelihood of another financial crisis which we should know all too well from recent experience can have severe negative effects on the economy as a whole from january 2008 through december 2009 nonfarm payrolls dropped by 8 6 million before beginning an agonizingly slow recovery trashing the fiduciary rule and increasing the likelihood of future financial crises will also be detrimental to americans efforts to save for their retirements while there s been a short run boost to financial shares overall the risk of severe losses is increased as is the likely proportion of savings that will be eaten up by fees that is americans will be poorer and less financially secure in their old age populism indeed update 2 12 cnbc s ylan mui reports on efforts by jeb hensarling chair of the house financial services cmte to go after the cpfb the nyt has an op ed by vanguard founder john bogle on the fiduciary rule meanwhile at the fed daniel tarullo who has led efforts on regulation is stepping down from the board causing financial stocks to jump labels finance politics 2 comments monday january 30 2017 economic implications of the immigration order the most troubling aspects of president trump s immigration executive order are the moral and national security implications the later is outside my area of expertise but its hard to see how betraying our friends alienating our allies and handing an easy propaganda victory to our enemies advances the stated goal of protecting america the economic implications are pretty bad as well although the order currently applies only to people from seven countries the spectacle of people who ve jumped through all the bureaucratic hurdles to get permission to come to the us being detained and turned away at airports by a sudden incompetently planned and implemented policy change will no doubt deter many others from wanting to come in the short run making it less attractive to come to the us will hurt our tourism and education exports in the longer run it will harm our productivity by diminishing our universities science technology and human capital one of trump s stated economic concerns is the us trade deficit which was 499 5 billion in 2016 2 7 of gdp according to the bea s advance estimate while the us trade balance is negative in goods 770 5 billion that is partly made up for by a 271 1 billion surplus in services according to the ita the us had 77 5 million visitors in 2015 and colorado had 461 000 tourism is an important part of us service exports 2016 figures aren t available yet but in 2015 according to the bea 750 9 billion in service exports included 122 4 billion in other personal travel i e non business travel not related to health or education the order won t only deter tourists in addition to tourism education services are another major us export according to the institute of international education there were just over 1 million international students enrolled in us colleges and universities last year in 2015 the us exported 35 8 billion of education related travel which includes tuition paid by international students in addition to contributing to us gdp and exports international students play a vital role in us higher education at the undergraduate level an important part of the experience is learning from one s peers the presence of international students on our campuses enhances the educational opportunities for everyone international graduate students play a significant role in the life of our research universities particularly in the sciences and economics the impact of the order was felt immediately by scientists see also this story according to the nsf international students earn more than half of the doctorates granted in the us in mathematics and computer science and engineering and over one third in physical and earth sciences the ability to attract hard working talented students from around the world is a source of strength for american university research and one of the reasons us institutions dominate global rankings us leadership in many fields also means that many of the faculty in us institutions are immigrants and green card holders technology companies have spoken out about the impact of the immigration order on their workforces but the impact will be more widespread according to the nsf 21 of the us science and engineering workforce is foreign born if the grad students post docs scientists and engineers who are so vital to our universities and industries find america a less appealing place to live and work for example if they have to worry that if they leave to visit relatives they risk not being able to get back in they have other options the competition for talent is global and this hands an advantage to non us universities and businesses america is great but president trump s order will make it less so labels academe politics trade no comments monday october 24 2016 time for a sterling crisis the uk pound plunged again earlier this month two dates are marked with vertical lines the the brexit vote red line and the prime minister s speech signalling that the most likely outcome was a hard brexit green line where the uk leaves the european single market i e that it won t become part of the european economic area like finland norway or negotiate an arrangement like switzerland s departure from the eu and the single market make the uk a less attractive location for foreign investment see e g comments from nissan s ceo about its sunderland plant a decrease in demand for uk assets implies a drop in the pound the uk is also a less attractive location for domestic investment now as well and the situation is probably not a good one for consumer confidence a reduction in demand due to lower desired consumption and investment would imply lower interest rates which also would cause the pound to fall is this yet another sterling crisis not in the usual sense as gavyn davies notes there is no fixed exchange rate to defend this time and most of the uk s external debt is denominated in pounds as paul krugman explains a fall in the pound is a part of the adjustment process he writes but it s important to be aware that not everyone in britain is equally affected pre brexit britain was obviously experiencing a version of the so called dutch disease in its traditional form this referred to the way natural resource exports crowd out manufacturing by keeping the currency strong in the uk case the city s financial exports play the same role so their weakening helps british manufacturing and maybe the incomes of people who live far from the city and still depend directly or indirectly on manufacturing for their incomes however a rebalancing of the uk economy in favor of manufacturing exports will not come quickly according to barry eichengreen robert skidelsky goes further and argues for helping the process along through import substitution policies one likely consequence is inflation as ambrose evans pritchard writes prices of imported goods will rise significantly though the process of exchange rate pass through generally occurs with a lag the marmite row may have been a harbinger of things to come the inflation will hit lower income families especially hard according to evans pritchard s column because the government has frozen some benefit payments so inflation will cause their real value to fall rising costs for imports don t only impact consumers they also affect producers on the one hand domestic producers benefit from increases in the relative prices of imported substitutes on the other and this is becoming more and more relevant in an age of global supply chains prices of imported inputs intermediate goods will rise increasing production costs with the rise in cost of intermediate inputs and the greater costs of selling to its main trading partners the impact of brexit looks like a negative supply shock supply shocks create a nasty dilemma for monetary policy policy can accommodate the shock by allowing inflation to rise doing so minimizes the increase in unemployment and helps keep output near its diminished potential or the bank of england could tighten policy to keep inflation in check with negative consequences for output and employment the risk with accommodation is not just inflation itself but a potential increase in inflation expectations and loss of the central bank s credibility part of the standard interpretation of 1970 s stagflation is that the fed was too accommodating after the 1973 oil shock and which contributed to inflation expectations getting out of control the bank of england has a formal 2 inflation target right now inflation is running below target but that will change i personally think its to bank of england s credit that it s allowed inflation go above target at a couple of points during the turmoil of recent years if their policy is credible an occasional miss doesn t cause inflation expectations to rise but the point of inflation targeting is to achieve credibility by meeting a stated target so the bofe may be putting that at risk if it s always seen to be accommodating shocks corrected 10 26 labels europe exchange rates macroeconomics monetary policy 2 comments sunday september 4 2016 revisiting lehman the eighth anniversary of the bankruptcy of the lehman brothers investment bank is coming up later this month it marked a point where the financial crisis which had been simmering since summer 2007 seemed to go from bad to catastrophic one indicator of financial stress that we were all watching closely at the time was the ted spread the difference between the 3 month libor a rate on interbank loans and the yield on 3 month us treasuries essentially a measure of the risk premium paid by financial institutions which is normally quite low the blue line is drawn at sept 15 2008 the date of the lehman bankruptcy the fed creatively expanded its lender of last resort toolkit during the crisis creating a number of new lending programs in march it helped arrange the takeover of bear stearns by jp morgan chase monday morning quarterbacking of the government s actions both the fed s the treasury s began immediately and has never really stopped academic macroeconomists consider it part of our jobs after all one of the biggest questions has been why didn t lehman brothers get the same treatment as bear stearns the fed did try to arrange a takeover by a healthier firm a potential deal with barclays was reportedly scuppered by british regulators but no deal was finalized in time at the time moral hazard concerns were prominent and people felt the us government wanted to show that it was willing to let a financial institution fail lehman s troubles were well known so it was hoped that the financial disruption would be modest since everyone had time to prepare for its demise more recently officials have claimed that the fed lacked the legal authority to rescue lehman because it was truly insolvent the intention of lender of last resort is to lend to illiquid banks not insolvent ones the fed s loans are supposed to be backed by good collateral laurence ball of johns hopkins has dug into the records and is questioning the argument that the fed did all it could and should have in a summary at voxeu he writes i conclude that officials explanation for the non rescue of lehman is incorrect in t...
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