Greg Ip

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

Archive for January 2009

GDP: Even worse than it looks

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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 »


Written by gregip

January 30, 2009 at 12:04 pm

Blanchard roundtable: Pursue contingent policies

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15:20 GMT +00:00

Posted by:

The Economist l WASHINGTON


A response to Olivier Blanchard’s guest Economics Focus. The original article is here.

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 »

Written by gregip

January 30, 2009 at 11:22 am

Posted in Uncategorized

Lessons from Sweden’s “Bad bank”

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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. bankI 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 »

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January 28, 2009 at 11:36 pm

Posted in Uncategorized

The economics of “Good bank-bad bank”

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Economics focus

The spectre of nationalisation

Jan 22nd 2009
From The Economist print edition

There are ways for governments to revitalise banks without taking them over

Illustration by Jac Depczyk


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 »

Written by gregip

January 22, 2009 at 5:20 pm

George Bush’s legacy

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This was cowritten with my colleague, Washington Bureau Chief Adrian Wooldridge

The frat boy ships out


Jan 15th 2009
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. 0309fb1

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 »

Written by gregip

January 15, 2009 at 4:53 pm

We’re Borrowing Like Mad. Can the U.S. Pay It Back?

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By Greg Ip
Sunday, January 11, 2009; B01
From The Washington Post Outlook Section

In its battle against the financial crisis, the U.S. government has extended its full faith and credit to an ever-growing swath of the private sector: first homeowners, then banks, now car companies. Soon, President-elect Barack Obama will put the government credit card to work with a massive fiscal boost for the economy. Necessary as these steps are, they raise a worry of their own: Can the United States pay the money back?

The notion seems absurd: Banana republics default, not the world’s biggest, richest economy, right? The United States has unparalleled wealth, a stable legal tradition, responsible macroeconomic policies and a top-notch, triple-A credit rating. U.S. Treasury bonds are routinely called “risk-free,” and the United States has the unique privilege of borrowing in the currency that other countries like to hold as foreign-exchange reserves.

Yes, default is unlikely. But it is no longer unthinkable. Read the rest of this entry »

How to compute sovereign default probabilities

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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 »

Written by gregip

January 15, 2009 at 12:03 pm

Posted in Uncategorized