Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘International economics’ Category

What QE means for the world: Positive-sum currency wars

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Feb 14th 2013, 23:24 by G.I. | WASHINGTON, D.C.

Brazil’s finance minister coined the term “currency wars” in 2010 to describe how the Federal Reserve’s quantitative easing was pushing up other countries’ currencies. Headline writers and policy makers have resurrected the phrase to describe the Japanese government and central bank’s pursuit of a much more aggressive monetary policy, motivated in part by the strength of the yen.

The clear implication of the term “war” is that these policies are zero-sum games: America and Japan are trying to push down their currencies to boost exports and limit imports, and thereby divert demand from their trading partners to themselves. Currency warriors regularly invoke the 1930s as a cautionary tale. In their retelling, countries that abandoned the gold standard enjoyed a de facto devaluation, luring others into beggar-thy-neighbor devaluations that sucked the world into vortex of protectionism and economic self-destruction.

But as our leader this week argues, this story fundamentally misrepresents what is going on now, and as I will argue below, what went on in the 1930s. To understand why, consider how monetary policy influences the trade balance and the exchange rate.
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February 14, 2013 at 9:51 am

The global economy: Phoney currency wars

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The world should welcome the monetary assertiveness of Japan and America

Feb 16th 2013 |From the print edition
OFFICIALS from the world’s biggest economies meet on February 15th-16th in Moscow on a mission to avert war. Not one with bombs and bullets, but a “currency war”. Finance ministers and central bankers worry that their peers in the G20 will devalue their currencies to boost exports and grow their economies at their neighbours’ expense.

Emerging economies, led by Brazil, first accused America of instigating a currency war in 2010 when the Federal Reserve bought heaps of bonds with newly created money. That “quantitative easing” (QE) made investors flood into emerging markets in search of better returns, lifting their exchange rates. Now those charges are being levelled at Japan. Shinzo Abe, the new prime minister, has promised bold stimulus to restart growth and vanquish deflation. He has also called for a weaker yen to bolster exports; it has duly fallen by 16% against the dollar and 19% against the euro since the end of September (when it was clear that Mr Abe was heading for power).
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February 14, 2013 at 9:49 am

American growth vs. the world: At the top of an underperforming class

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Dec 17th 2012, 22:13 by G.I. | WASHINGTON

[Greg Ip] FOR those who started out the year optimists on American growth (such as me), 2012 was sobering. It looks like America will end the year having grown about 2%, according to Deutsche Bank, marginally below the average pace since the recovery began in mid-2009.Why was it disappointing? In great part part because the rest of the world had an even worse year. Take a look at the nearby table. Of the world’s four major developed economies plus China, America was the only country to grow roughly as fast as the International Monetary Fund projected in the fall of 2011. Europe and the U.K. actually contracted, while China (and several other emerging economies) grew notably less briskly.

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December 17, 2012 at 4:32 pm

Emerging markets: The great slowdown

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A sticky spell for the emerging world carries warnings for its long-term growth

Jul 21st 2012 | from the print edition

IN THE past decade emerging markets have established themselves as the world’s best sprinters. As serial crises tripped up America and then Europe, China barely broke stride. Other big developing nations paused for breath only briefly. Investors bet heavily that rapid growth in emerging markets was the new normal, while leaders from Beijing to Brasília lectured the world on the virtues of their state-centric economic models.

Lately, though, the sprinters have started to wheeze. Last week China reported its slowest growth in three years (see article). India recently recorded its weakest performance since 2004. Brazil has virtually stalled. This week the International Monetary Fund sharply cut its growth forecast for three of the four so-called BRICs; only Russia was spared (and even there growth is vulnerable to falling energy prices). Some investors darkly recall the developing world’s crisis-prone history and wonder whether the worst is yet to come.

No crisis looms, but serious concern is justified, for the emerging world faces two distinct risks: a cyclical slowdown and a longer-term erosion of potential growth. The first should be reasonably easy to deal with. The second will not.

Revival of the fittest

By rich-world standards, the emerging markets are still doing exceedingly well. The IMF still reckons developing economies will grow by 5.6% this year. Moreover, this deceleration is partly intentional. When the global financial crisis struck, emerging economies responded energetically: China launched a huge stimulus, Brazil’s state-owned banks lavished credit, interest rates were slashed. They succeeded so well that by 2010 they were forced to reverse course. To squash price pressures they raised interest rates, curbed speculation and allowed their currencies to appreciate. With a lag, that tightening has had the predicted result. Read the rest of this entry »

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July 19, 2012 at 3:44 pm

Greece and the euro: What Argentina tells us about Greece

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Feb 16th 2012, 19:16 by G.I. | WASHINGTON D.C.

[Greg Ip]The Free Exchange column in this week’s print edition is a guest article by Mario Blejer and Guillermo Ortiz, former central-bank governors of Argentina and Mexico respectively. They note that some advocates of Greek exit from the euro cite Argentina’s abandonment of its currency board in 2002. The peso devaluation that followed the collapse of the currency board led to a boom in Argentine exports and growth. Mr Blejer and Ortiz say these advocates understate the chaos that occurred in Argentina, and how much worse it would be in Greece: Read the rest of this entry »

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February 16, 2012 at 9:41 am

Austerity and the markets: The perils of prudence

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More evidence that austerity can backfire

Jan 28th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip] THE fiscal hawks should be pleased. For all the hand-wringing about public profligacy, budget deficits across the rich world fell by about 1% of GDP last year. Moreover, that was almost all the result of policy actions (spending cuts and tax rises) rather than cyclical effects.Germany, France, Spain and Italy all managed to reduce their structural budget deficits, the latter three thanks to austerity. All are expected to reduce those deficits further this year, the International Monetary Fund said on January 24th. But this may not be good news. Austerity can unnerve markets, not calm them. Read the rest of this entry »

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January 26, 2012 at 1:34 pm

China’s economy and the WTO: All change

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In two articles, we examine how China has been altered by its entry into the WTO ten years ago. First, the economy.

[By Greg Ip and The Economist's Asia Economics Editor] THE World Trade Organisation (WTO), like many clubs, denies patrons the right of automatic readmission. Having quit the organisation’s predecessor shortly after the Communist revolution of 1949, China had to wait 15 long years to gain entry after reapplying in the 1980s. The doors finally opened on December 11th 2001, ten years ago this week.

The price of re-entry was as steep as the wait was long. China had to relax over 7,000 tariffs, quotas and other trade barriers. Some feared that foreign competition would uproot farmers and upend rusty state-owned enterprises (SOEs), as to some extent it did. But China, overall, has enjoyed one of the best decades in global economic history. Its dollar GDP has quadrupled, its exports almost quintupled.

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December 8, 2011 at 6:03 pm

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