So what should governments do? Abandon austerity because financial markets might be shortsighted? This would only delay the day of reckoning as debt ratios would increase in the long run.
- A country which enters a period of heightened risk aversion with a large debt overhang faces only bad choices.
- Implementing credible austerity plans constitutes the lesser evil, even if this aggravates the cyclical downturn in the short.
All in all, the conclusion is that it difficult to argue that the peripheral countries in the Eurozone should abandon attempts to reduce their deficits because the results will arrive only in the long run.
Tuesday, November 29, 2011
Tuesday, November 22, 2011
If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare. And if government subsidies were the route to improved well-being, today’s growth problems could be solved at a stroke. Typically, this is not the way societies keep score. But it was those very misconceptions which caused the measured contribution of the financial sector to be over-estimated ahead of the crisis.
Friday, November 18, 2011
Because the printing presses in the periphery are still running at full speed, the Bundesbank has had to turn its own presses into shredding machines in order to destroy the money that has flooded in from the South. Since September, the Bundesbank has given no net credit to the German banking system; it instead borrows from it. After deducting the deposit facility, the net refinancing of credit the Bundesbank gave to German banks is now negative.
Wednesday, November 16, 2011
So much better for them, at least they are being forced to do their homework before it's not too late, and they may be the first to get out of the next wave of troubles: the slow but inevitable worldwide rise of sovereign debt nominal rates.
At the core of the current mess is the fact that countries shouldn't have ever got used to the idea that financing their excessive spending at nominal rates of 3% or less is sustainable. The carnival will end for all at some point, through financial constraints (as it's happening in Europe) or through inflationary revenues (as it will surely happen in most of the rest of the world).
I hope that in the process the last bastion of central bank independence, the European Central Bank, doesn't fall. The world will sorely need a benchmark when the tide changes.
Monday, November 14, 2011
Q: The overseas markets have been hammered by the potential collapse of European debt and accounting scandals in Asia. Why put more money in these markets?
A: It is true that as we get further away from well-regulated markets, international investing becomes a problem. I recommend buying publicly traded securities only in well-regulated markets. And the bad news about Europe is already priced into securities.
While the traditional purveyors of recorded music – the major record labels – have suffered since Napster, good music has continued to make its way to market. Independent labels account for a growing share of successful music, measured both by critical acclaim and sales. While many producers of recorded music have been made worse off by changes in technology, there is no evidence that the volume of high-quality music, or consumers, have suffered.
Sunday, November 13, 2011
What is more interesting however is how French urban infrastructure allowed me to engage in these lifestyle changes very efficiently. Not just because of generally good mass transportation systems, but also because of the way digital content is distributed in the country. My entire digital subscription comes from Orange, an obvious choice since it broadcasts most HBO series in France, besides offering an even better lineup of movies than HBO does. It offers me high-speed urban ADSL (much faster than the ADSL service that I had in the rural-like conditions of Minnesota), and in some buildings the system is being upgraded to jaw-dropping fast optical fiber.
Through the ADSL line I get three services together: high-speed Internet, unlimited domestic and international phone calls, and digital video subscription (live and on demand based on the Netflix unlimited downloads model). The three services together, including content from HBO and other English and Portuguese language channels, cost me only about US$79. I'm paying less than half the value that I was paying for lower service in the US, and don't forget that the euro is overappreciated despite the "euro crisis" chattering.
But the most important benefit is the flexibility that the service offers me. The on-demand content is excellent and we can watch it in our computers and Android phones (Apple devices not allowed - Apple policy is to enslave its users to the iTunes Shop). It means that I can for example watch the latest episode of "Boardwalk Empire" on my high-def Android screen using high-quality in-ear headphones while I ride the subway back home. By the way, I'll later post on "Boardwalk Empire" and "Game of Thrones." For now I'll just say that HBO did it again with both series.
Saturday, November 12, 2011
Friday, November 11, 2011
Other companies limited my access to senior executives. An analyst without access to executives—and the one-on-one insights that investors often pay for—can be perceived to be at a disadvantage compared to his or her peers. Goldman Sachs was fairly up front about it, a rarity in the industry. I had recently initiated coverage on the firm, so I had few established relationships I could leverage. When I told one point of contact at the company that I'd like to have more meetings with management, he told me that the firm wasn't singling me out—they treated everyone that way. When I pushed a little harder for a meeting, I received a message that we needed to "have a conversation."What is obvious is that there is no simple solution to these agency problems, as long as there is excessive concentration of financial power in financial markets. Regulation and central banks have typically reinforced concentration. I always believed that financial markets needed regulatory frameworks that promote above all competition, regional and political decentralization, and smaller scales, but since Alexander Hamilton (or maybe the Medici?) the world has taken the opposite direction. And nothing that has been done by current governments has changed this trend.
Feeling like a student being reprimanded by a teacher, I was told that the most efficient use of management's time was for the executives to generate money for the firm instead of talking to the 20 or so analysts covering the company. An analyst like me would simply have to be patient. While I could live with this—to a degree—the gatekeeper added one more point: A consideration in granting analysts meetings with management of Goldman Sachs was the analyst's standing, influence and knowledge. "In other words," the gatekeeper added, "we evaluate you."
Wednesday, November 9, 2011
"As the U.S. has moved away from the principles of economic freedom—instead promoting short-term fiscal and monetary interventionism with more federal government regulations—its leadership has declined. Some, even in the U.S., may cheer the decline, but it is not good for the world or for the U.S."