Commentary: Those who can afford it must spend more to save the economy

Consumers can do our part to increase consumer spending because it is a lever that could have a big impact and one that we have some control over, says The Smart Investor’s David Kuo.

By David Kuo

05 Oct 2020 

SINGAPORE: As countries around the world gradually lift their restrictions in place to tackle COVID-19 and normalise economic activity, global economic chiefs have warned that we are not out of the woods yet.

On Sep 9, Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), cautioned that a full recovery of the economy is unlikely without a vaccine and urged governments to continue their measures to support businesses and workers.

"This crisis, however, is far from over," she wrote in a column for Foreign Policy magazine, co-authored with IMF chief economist Gita Gopinath. "The recovery remains very fragile and uneven across regions and sectors. To ensure that the recovery continues, it is essential that support not be prematurely withdrawn."

Democrats can’t win until they recognize how bad Obama’s financial policies were

He had opportunities to help the working class, and he passed them up.


By Matt Stoller
January 12 2017

Matt Stoller is fellow at the Open Markets Program of New America.

During his final news conference of 2016, in mid-December, President Obama criticized Democratic efforts during the election. “Where Democrats are characterized as coastal, liberal, latte-sipping, you know, politically correct, out-of-touch folks,” Obama said, “we have to be in those communities.” In fact, he went on, being in those communities — “going to fish-fries and sitting in VFW halls and talking to farmers” — is how, by his account, he became president. It’s true that Obama is skilled at projecting a populist image; he beat Hillary Clinton in Iowa in 2008, for instance, partly by attacking agriculture monopolies .

But Obama can’t place the blame for Clinton’s poor performance purely on her campaign. On the contrary, the past eight years of policymaking have damaged Democrats at all levels. Recovering Democratic strength will require the party’s leaders to come to terms with what it has become — and the role Obama played in bringing it to this point.

Trump, the Dragon, and the Minotaur

NOV 28, 2016

ATHENS – If Donald Trump understands anything, it is the value of bankruptcy and financial recycling. He knows all about success via strategic defaults, followed by massive debt write-offs and the creation of assets from liabilities. But does he grasp the profound difference between a developer’s debt and the debt of a large economy? And does he understand that China’s private debt bubble is a powder keg under the global economy? Much hinges on whether he does.

The 2008 Financial Crisis (Sub-prime boom goes bust) - the Politics

A summary of the Republican position on the 2008 Sub-prime crisis:

It's important to remember that Republicans don't think the financial crisis was a case of bankers blowing up the global economy because that was what maximized their year-end bonuses, but rather the government pushing bankers to blow up the global economy out of a misguided attempt to help poor people buy homes. Never mind that it was Wall Street banks, and not Fannie Mae or Freddie Mac, that were behind the subprime boom. Or that even a conservative former Federal Reserve official says there's no evidence that the Community Reinvestment Act, which outlaws redlining, "contributed in any substantive way" to the housing bubble's bad lending.

Just a short entry on an interesting observation on the GOP's perspective.

Why the world is stuck with persistent stagnation

STEPHEN ROACH

MARCH 8, 2016

Concerns over global growth were at the top of the agenda at the recent Group of Twenty (G20) meeting in Shanghai — and with good reason. Seven years after the Great Recession, the world economy continues to struggle. After a wrenching financial crisis morphed quickly into a severe downturn in the global business cycle, the subsequent recovery has been unusually weak, lacking the vigour that normally insulates the world from subsequent shocks. With a multitude of shocks continuing to batter today’s troubled world — from Islamic State and a European refugee crisis, to a collapse in energy and other commodity markets — the probability of a relapse remains high.

To a large extent, the world is mired in a Japanese-like secular stagnation.

No repeat of the depths of 2008 for global economy

NOURIEL ROUBINI

MARCH 9, 2016

The question I am asked most often nowadays is this: Are we back to 2008 and another global financial crisis and recession?

My answer is a straightforward no, but that the recent episode of global financial market turmoil is likely to be more serious than any period of volatility and risk-off behaviour since 2009. This is because there are now at least seven sources of global tail risk, as opposed to the single factors — the eurozone crisis, the Federal Reserve “taper tantrum”, a possible Greek exit from the eurozone and a hard economic landing in China — that have fuelled volatility in recent years.

Inching towards uncertain times

Dec 19, 2015

ST Editorial

The US Federal Reserve's decision to nudge up the key interest rate by a quarter-percentage point ends an era of unprecedented cheap money that was put in place to tackle the global financial crisis, which was sparked by the bursting of the housing bubble and which spread through the US system to emerge as the worst crisis since the 1930s Depression, and thereafter roiled every Western market. Intimated months ago, the rate hike is a cautious endorsement of the health of the world's largest economy, which has emerged from its stupor to expand steadily, even if not spectacularly. As the recovery progresses, the Fed has signalled that it intends to lift rates by a quarter-percentage point every three months until next December. President Barack Obama, who assumed office when the crisis was at its most severe, can look back with satisfaction that he is bequeathing a robust enough economy to his successor, unlike the situation he inherited.

["Cautious Endorsement" or "Optimistic hope"?]

Low interest rates are here to stay

Noah Smith

22 Oct 2015

Why are interest rates so low? For macroeconomists, this is one of the Big Questions in the world today.

Government bond rates are at or near record lows. So are corporate bond rates, including junk bonds. Even the cost of equity capital is at or near an all-time low for most businesses. Whether you're a government, a big corporation or a tiny start-up, it has never been cheaper to obtain capital.

Interest rates have been in decline since the early 1980s. For a while, that looked like a simple regression to the mean. The early 1980s saw central banks tighten a lot, driving up rates in an effort to rein in inflation. But the decline during the past 15 years or so - and especially since the financial crisis - goes way beyond a simple normalisation. Something unusual is happening.

That's worrying for macroeconomists, because it means old theories may be wrong. It's also worrying for central bankers because it constrains their actions (nominal interest rates can't be pushed below zero) even as it increases the uncertainty under which they are forced to make their decisions.

So why are rates so bizarrely low? Interest rates are set in markets, where borrowers meet lenders (broadly defined). Any explanation for falling rates must involve an increased desire to lend, a decreased desire to borrow, or both. One common theory is that central banks are responsible. This makes sense to most people, since we all hear that the US Federal Reserve, or the Bank of Japan, has a policy of holding interest rates near zero. But just because central banks are setting their rate targets at zero doesn't mean they have to work very hard to achieve that target.

China market chaos blamed on exodus of regulatory 'turtles'

August 27, 2015


SHANGHAI - At the height of the 2008 financial crisis, as Wall Street slashed jobs, Beijing took advantage of the disarray to poach top Chinese financial talent from overseas to help reform its stock markets.

By summer 2015, China's Securities Regulatory Commission (CSRC) needed them more than ever; a year-long market boom had imploded in a few weeks, and the government was desperate to keep the crisis from widening.

But the best and brightest returnees, known in China as "sea turtles", had already left for the private sector, disillusioned and disappointed.

The liquidity time bomb

NOURIEL ROUBINI

JUNE 3

A paradox has emerged in the financial markets of the advanced economies since the 2008 global financial crisis. Unconventional monetary policies have created a massive overhang of liquidity. But a series of recent shocks suggests that macro liquidity has become linked with severe market illiquidity.

Policy interest rates are near zero (and sometimes below it) in most advanced economies, and the monetary base (money created by central banks in the form of cash and liquid commercial-bank reserves) has soared – doubling, tripling, and, in the United States, quadrupling relative to the pre-crisis period. This has kept short- and long-term interest rates low (and even negative in some cases, such as Europe and Japan), reduced the volatility of bond markets, and lifted many asset prices (including equities, real estate, and fixed-income private- and public-sector bonds).

Yet, investors have reason to be concerned. Their fears started with the “flash crash” of May 2010, when, in a matter of 30 minutes, major US stock indices fell by almost 10 per cent, before recovering rapidly.

In China, a Building Frenzy’s Fault Lines (Kaisa)

New York Times

By DAVID BARBOZA

MARCH 13, 2015

As the real estate market in the United States was collapsing in the mid-2000s, Wall Street went in search of new terrain, and found it in China. All across the country, from Beijing to Shenzhen, sprawling housing developments and business districts were popping up, seemingly overnight. Real estate prices were soaring. Western banks, hedge funds, private equity firms and other investors wanted a piece of the action.

Billions poured into Chinese real estate, and big foreign financial firms hunted for the next hit — the small bet that investors could ride to great heights. One of those firms, Credit Suisse, scoured the landscape and in 2007 discovered Kaisa, a relatively small property developer in Shenzhen that mostly bought and rehabilitated distressed properties. Credit Suisse brokered a $300 million investment deal for Kaisa, and two years later, it went public. Its chairman, Guo Yingcheng, posed for photographs on the floor of the Hong Kong Stock Exchange holding a statue of a bull, which seemed to signify hopes for his company’s coming bull run. His colleagues poured Champagne into an ice sculpture of the company’s stock code: 1638.

With the $450 million raised in the initial public offering, Kaisa embarked on an aggressive expansion into 20 more cities. It formed a partnership with Marriott hotels and announced plans to build one of the world’s tallest buildings. Kaisa shares skyrocketed, helping lift the fortunes of its Western patrons, including the Carlyle Group, an American private equity firm.

Then came the fall.

Re-employment age to be raised to 67 in two to three years’ time: Amy Khor

Amanda Lee

March 9, 2015


SINGAPORE — The extension of the re-employment age to 67 years old will take place in two to three years’ time, revealed Senior Minister of State for Manpower Amy Khor today (March 9), as she urged employers to tap on measures to support the implementation of age management practices to prepare for an older workforce.

Employers should also make use of the incentives for those who voluntarily re-employ those above 65 years old in the interim, said Dr Khor as she noted the “encouraging” signs of employers warming to older employees in the workplace.

The employment rate of Singaporeans aged 65 to 69 increased slightly from 38 per cent in 2013 to 40 per cent last year, close to figures in advanced economies such as Japan, said Dr Khor, speaking at the Manpower Ministry’s Committee of Supply debate today. “This is encouraging as it shows that employers find value in their older employees,” she said.

Nobody knows how to deal with debt

FEBRUARY 12

Many economists, including Ms Janet Yellen, chairwoman of the United States Federal Reserve, view global economic troubles since 2008 largely as a story about “deleveraging” — a simultaneous attempt by debtors almost everywhere to reduce their liabilities.

Why is deleveraging a problem? Because my spending is your income, and your spending is my income, so if everyone slashes spending at the same time, incomes go down around the world.

Or as Ms Yellen put it in 2009: “Precautions that may be smart for individuals and firms — and indeed essential to return the economy to a normal state — nevertheless magnify the distress of the economy as a whole.”

So how much progress have we made in returning the economy to that “normal state”? None at all.

You see, policymakers have been basing their actions on a false view of what debt is all about, and their attempts to reduce the problem have actually made it worse.

Oil price fall 'will boost global growth'

It should also allow some states to reassess fiscal policies, says G-20

FEB 11, 2015

ISTANBUL - The recent sharp decline in oil prices will provide "some boost" to global growth and should allow states to "reassess" fiscal policies to sustain economic activity, the Group of 20 (G-20) leading economies said in a draft communique obtained by the media.

"The fall in oil prices will provide countries with an opportunity to reassess their fiscal policies," finance ministers and central bank chiefs from the group said in the statement.

It said that fiscal policy "has an essential role" in building confidence and sustaining domestic demand.

At their two-day meeting in Istanbul this week, the G-20 have sought ways to boost faltering global growth against the background of the debt crisis in euro zone member Greece.

Wrecked in the name of responsibility

BY PAUL KRUGMAN

JANUARY 26

The United States and Europe have a lot in common. Both are multicultural and democratic; both are immensely wealthy; both possess currencies with global reach. Both, unfortunately, experienced giant housing and credit bubbles between 2000 and 2007, and suffered painful slumps when the bubbles burst.

Since then, however, policy on the two sides of the Atlantic has diverged. In one great economy, officials have shown a stern commitment to fiscal and monetary virtue, making strenuous efforts to balance budgets, while remaining vigilant against inflation. In the other, not so much.

And the difference in attitudes is the main reason the two economies are now on such different paths. Spendthrift, loose-money America is experiencing a solid recovery — a reality reflected in President Barack Obama’s feisty State of the Union address.

Meanwhile, virtuous Europe is sinking ever deeper into deflationary quicksand; everyone hopes that the new monetary measures announced on Thursday will break the downward spiral, but nobody I know really expects them to be enough.

Japan’s warning to the world

TODAY

BLOOMBERG EDITORS

NOVEMBER 19, 2014

Japan’s renewed descent into recession — its sixth in the past two decades — comes with an urgent if obvious warning to the United States, Europe and the rest of the developed world: Don’t let this happen to you. Japan’s famously stagnant economy may not be all that unique.

True, Japan’s predicament is exceptionally difficult. Extraordinary central-bank stimulus has helped boost markets, but has not been enough to prevent the economy from shrinking for two consecutive quarters. Prime Minister Shinzo Abe can and should postpone a planned sales-tax increase, but there is only so much that fiscal policy can do in a country with a giant government-debt burden.

Shift from luxury to thrift a test of Beijing's mettle

OCT 27, 2014 1:13 AM


BY JAMES KYNGE

THRIFT as a virtue is embedded deep within China's culture. Ideograms for words such as "save" and "store" sparkle with the feel-good symbols for grain, fields, silk and children. In contrast, the character for debt shows a man standing - forlornly one imagines - next to a pile of cowrie shells, an ancient form of IOU. Children are taught that "diligence is a cash cow and thrift is a gold mine", while adults are warned in one somewhat humorous proverb that "going to bed early to save candles is not economical if the result is twins".

Money, or the lack of it, was also among the main reasons for the Communist Party's decision to open the economy to foreign investors more than three decades ago. So acute was the cash crunch that when Deng Xiaoping - the subsequent architect of capitalist reforms - prepared to lead a delegation to the United Nations in 1974, he found in the state coffers only the equivalent of US$38,000 in foreign currency to pay for his trip.

So why, given such potent reminders of the importance of money management, has China's government in the past five years swerved so far off the financial straight and narrow? Total debts owed by the government, companies and households have ballooned to 240 per cent of the gross domestic product (GDP) - virtually double the level at the time of the global financial crisis.

Why debt relief may be in everyone’s interest

OCTOBER 14, 2014


Stop me if you have heard this before: The world economy appears to be stumbling. For a while, things seemed to be looking up and there was talk about green shoots of recovery. But now growth is stalling and the spectre of deflation looms.

If this story sounds familiar, it should; it has played out repeatedly since 2008. As in previous episodes, the worst news is coming from Europe, but this time there is also a clear slowdown in emerging markets — and there are even warning signs in the United States, despite pretty good job growth at the moment.

Why does this keep happening? After all, the events that brought on the Great Recession — the housing bust, the banking crisis — took place a long time ago. Why can we not escape their legacy?

The proximate answer lies in a series of policy mistakes: Austerity when economies needed stimulus, paranoia about inflation when the real risk is deflation, and so on. But why do governments keep making these mistakes? In particular, why do they keep making the same mistakes, year after year?

The answer, I would suggest, is an excess of virtue. Righteousness is killing the world economy.

What the secret Goldman Sachs recordings reveal

 Oct 04, 2014

By Michael Lewis

PROBABLY most people would agree that the people paid by the United States government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: a complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more-common practice among regulators of leaving their government jobs for much higher-paying jobs at the very banks they were once meant to regulate.

Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations. Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.

The fiscal policy debate: Austerity versus stimulus

PAUL KRUGMAN

AUGUST 21, 2014

It is hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. Many people, myself included, would like to move on to other subjects. But we cannot, because the crisis is by no means over. Recovery is far from complete and the wrong policies could still turn economic weakness into a more or less permanent depression.

In fact, that is what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience.

Before I get to the latest bad news, let us talk about the great policy argument that has raged for more than five years. It is easy to get bogged down in the details, but basically it has been a debate between the too-muchers and the not-enoughers.