Archive for January 2009
Jan 30th 2009
America’s economy shrank sharply in the fourth quarter. There are few reasons for optimism
The original article appears here.
IT IS a measure of the prevailing gloom that the worst economic performance in 26 years could still be described as better than expected. Real gross domestic product fell at an annual rate of 3.8% in the fourth quarter, below the decline of 5% or more that many economists had anticipated.
However, there is precious little reason for optimism. Read the rest of this entry »
This discussion can be followed in its entirety here.
UNCERTAINTY is a constant in economic life, but Olivier Blanchard notes that at present it is sufficiently pervasive as to be a major exogenous source of restraint on demand. He recommends policies that reduce uncertainty, as distinct from policies that simply boost aggregate demand.
Many of his policies, however, would take effect regardless of the state of the economy. It seems to me, by contrast, that the way to deal with uncertainty is through contingent policies that are triggered when a predetermined bad state of the economy is reached. Read the rest of this entry »
AMERICA may be moving closer to creating a “bad bank” to absorb its banking system’s impaired assets. Would it work? No one knows, but everyone is looking to Sweden—which used that model in the early 1990s after its banks crumpled under the weight of bad real estate loans—for guidance. I talked to Bo Lundgren, who was the minister in charge of taxation, financial markets, and sports (yes, sports) at the time of the bail-out, to learn more about which issues are likely to prove stickiest for America. What are the toughest challenges—the extent to which banks are nationalised, the relative importance of recapitalisation versus purchases of bad assets, or something else? What follows is based on our conversation. Read the rest of this entry »
The spectre of nationalisation
From The Economist print edition
There are ways for governments to revitalise banks without taking them over
IT IS generally easier to remove a kidney from a dead donor than a live one. When regulators in Scandinavia and America in the early 1990s started extracting the bad assets from their crisis-hit banking systems, it helped that the banks they dealt with were bust or in the government’s hands. Today, policymakers are trying to excise toxic assets from banks that are still, at least officially, private and viable. That is a much trickier proposition. Read the rest of this entry »
This was cowritten with my colleague, Washington Bureau Chief Adrian Wooldridge
The frat boy ships out
From The Economist print edition
Few people will mourn the departure of the 43rd president
HE LEAVES the White House as one of the least popular and most divisive presidents in American history. At home, his approval rating has been stuck in the 20s for months; abroad, George Bush has presided over the most catastrophic collapse in America’s reputation since the second world war. The American economy is in deep recession, brought on by a crisis that forced Mr Bush to preside over huge and unpopular bail-outs.
America is embroiled in two wars, one of which Mr Bush launched against the tide of world opinion. The Bush family name, once among the most illustrious in American political life, is now so tainted that Jeb, George’s younger brother, recently decided not to run for the Senate from Florida. A Bush relative describes family gatherings as “funeral wakes”.
Few people would have predicted this litany of disasters when Mr Bush ran for the presidency in 2000. Read the rest of this entry »
My article mentions invesetors’ estimates of the probability the U.S. will default based on spreads on credit default swaps. Some readers have asked how I computed the probabilities. What follows is a guide but should not be considered authoritative. Read the rest of this entry »