Current Affairs

Complex sentences to ponder

by on February 19, 2015 at 1:19 pm in Current Affairs, Economics | Permalink

How quickly are negative nominal interest rates self-correcting?  Izabella Kaminska at the FT serves up part of an answer here:

Yet, in a globalised FX market, it’s arguably not until all carry is exhausted that excess funds can lead to a commodity-style liquidation effect that corrects the price of money against a basket of goods and services, by means of actual consumption.

Quick: true, false, or uncertain?  Show your work.  The rest of the post will make your head hurt, in the best sense of course.

Via Craig Richardson, here is a story about a parmesan cheese bank.

In 1971 — when the North Sea oil was just beginning to flow — the average Norwegian was about as poor as the average Greek…

That is from Matthew C. Klein at the FT, the post on Norway is interesting more generally.  Here are my earlier remarks on whether Norway is an economically overvalued country.

Addendum: See the comments, it is not obvious this is true, I will look into the matter (but must teach shortly).  You can see in this OECD data source that, in 1971, Finland is only barely richer than Greece per capita, ppp-adjusted.  Via Klein on Twitter, here is the original source, from Norges Bank through BIS, but it seems to run counter to the other numbers.  Matt has some follow-up tweets here.

Syriza will deal. As with the “troika,” there’ll be a change in vocabulary so they can minimize loss of face, but they’ll deal. They simply don’t have a choice if they plan to remain in power very long.

Not only do most Greeks oppose Grexit, but the sympathies of far too much of the Greek army and law enforcement agencies are, frankly, not with Syriza. Nobody knows if they’ll acquiesce to being paid in drachmae and not deutschmarks by the grandsons of “anarcho-communists.”

Neither, incidentally, do the rest of the EU gain anything from another failed state and/or Russian client in the Balkans.

By now, they’ll have told Varoufakis, in some form, formally (during discussions) and informally (during networking breaks):

“Yanis. We get it. You’ve made your point. Greece is a miserable place right now. There’s a lot of it going around. Listen to us. Please. We secretly care about Greece enough not to want another 1967 or Balkan war. You don’t have to believe that, but it’s true.

“We may have overdone it. Fine. We’re flexible. But seriously—if you walk away we’re looking at another 1967 when you run out of cash. Greece will become an even more miserable place real fast. Do you want our help or not?”

That is from Richard Besserer.

No one knows.  Nor should you react too much to the latest headline or tweet.  The further apart the various parties appear to be, the more the whip of concession gets cracking.  The closer to an agreement they may seem, the greater the incentive to play hardball and demand further concessions.  So short-run news reports are hard to interpret, don’t obsess over them.  A given swing very often implies a counter-swing in the opposite direction, even if the latter has not yet made a headline.  So the direction of the last-reported swing just doesn’t contain that much information.

We won’t know until the proverbial “fat lady” sings, namely deposits leave the country at a critical pace, or not, or the ECB cuts off Emergency Liquidity Assistance, or not.

So why, then, do I believe that Greece will leave the eurozone?

First, I do not see that (most) extant commentary is properly accounting for the very recent fiscal collapse of the Greek economy.  I am not sure there is any fix, and the expression “failed state” comes to mind.  The momentum here does not seem to be positive.

Second, I do not assume Syriza — whom I have called The Not Very Serious People — have a coherent bargaining strategy at all.  I take this point from a broader reading of history, where I see that quite often leaders in critical positions simply do not know what they are doing.  By no means is that always the case, but it is more often the case than narrative-imposing journalism encourages us to perceive.

Third, I believe we as observers tend to overestimate the permanence of trends/state of affairs which have lasted ten to fifteen years or more.  That included the Great Moderation and that also includes Greece in the eurozone.  In a broader historical perspective, the arrangement simply doesn’t make sense to me, as there is more than one Europe.  So I am willing to predict its end.  And the next year seems like a quite possible time for that end to come about.

Fourth, I still don’t think enough commentators are stressing how much the creditor eurozone countries see this as a nested game, where concessions to Greece would have to imply larger concessions elsewhere and embolden Podemos in Spain.

Fifth, it is hard to see Greece being in truly safe territory for the next few years to come, even if a handy bargain is dispatched over the next day or two.

I gladly admit all of those reasons are speculative rather than firm or based in concrete information.  But that is what I think and why.  I don’t consider this kind of prediction to be very scientific, but still we proceed by engaging in discourse and, next time around, seeing what we got wrong the time before.

Kevin Drum reports an anomaly:

…here’s the rate of anti-Semitic incidents in the U.S., as tallied by the Anti-Defamation League. What you see is a peak in the early 90s and a decline ever since. This is exactly the same thing that you see in rates of violent crime in general. In other words, as violent crime fell, violent crime directed at Jews also fell. This makes sense.

But the global picture is quite different. Partly this is probably due to the fact that the worldwide numbers come from a different source (the Kantor Center in Tel Aviv) and are tallied up using a different methodology. But I doubt that accounts for the stark contrast: worldwide, anti-Semitic attacks have been on a straight upward path ever since the late 90s. This is despite the fact that violent crime in Europe, which accounts for most of the incidents, has followed a trajectory pretty similar to the U.S.

Kevin also reports that the Canadian pattern is closer to Europe than to the United States.  You also can find some charts at the link.

Are there any reasonable explanations which involve economic factors?

During the president’s two terms in office, the Washingtons relocated first to New York and then to Philadelphia. Although slavery had steadily declined in the North, the Washingtons decided that they could not live without it. Once settled in Philadelphia, Washington encountered his first roadblock to slave ownership in the region — Pennsylvania’s Gradual Abolition Act of 1780.

The act began dismantling slavery, eventually releasing people from bondage after their 28th birthdays. Under the law, any slave who entered Pennsylvania with an owner and lived in the state for longer than six months would be set free automatically. This presented a problem for the new president.

Washington developed a canny strategy that would protect his property and allow him to avoid public scrutiny. Every six months, the president’s slaves would travel back to Mount Vernon or would journey with Mrs. Washington outside the boundaries of the state. In essence, the Washingtons reset the clock. The president was secretive when writing to his personal secretary Tobias Lear in 1791: “I request that these Sentiments and this advise may be known to none but yourself & Mrs. Washington.”

There is more here, depressing throughout, and for the pointer I thank Michael Clemens.

Tom Warner writes:

…the budget balance fell off a cliff in December. State budget revenues were only 2.4% below adjustment program target in Jan-Nov, but were 14% below target in December and 20% below target in January. That’s a huge shortfall – if a 20% revenue shortfall were to persist for the whole of 2015, that would be more than €11b euros of missing revenues and more than 6% of GDP.

So the issue now isn’t whether Greece can hit some pie-in-the-sky target, it’s whether it can get back to where it was in Jan-Nov of last year. Syriza’s going to have to get the state finances in order very quickly or they’re going to go boom.

Here is Tom Warner’s blog.

Showing that you care:

“It’s always about upping the ante,” says Meredith Waga Perez of Belle Fleur in the Flatiron District, who says clients drop as much as $5,000 for the big day.

Last year, Aleks Degtyarev spent $6,000 at Flower District-based rose-delivery service, Ode à la Rose, to propose to his girlfriend of three-plus years, Lulu.

“I wanted 1,114 roses,” says Degtyarev, a 33-year-old from Bay Ridge. “A rose for every day we knew each other.”

A friend helped him strew the thousand-plus loose stems across a Montauk bluff.

There are a variety of other anecdotes at the link.  You don’t have to be a proponent of romantic countersignaling, or a member of Kakuhidou, to think this is overall counterproductive.

For the pointer I thank D.

On February 14th, Kakumei-teki himote doumei (革命的非モテ同盟) — literally, “Revolutionary Alliance of Men That Woman Are Not Attracted To”– will gather in Shibuya, an area of Tokyo popular with young couples, to protest Valentine’s Day and its roots in what they call “romantic capitalist oppression.”

The group, known as Kakuhidou for short, was started in 2006, when its founder, Katsuhiro Furusawa, returned home one day after being dumped by his girlfriend and began reading the Communist Manifesto. He quickly came to the realization that being unpopular with girls is a class issue.

Since then, the group has held several demonstrations each year, all coinciding with holidays that are associated with romantic love in Japanese culture, such as Valentine’s Day, Christmas, and White Day .

Kakuhidou’s slogans combine Japanese internet culture with classical Marxism, and its origins in cyberspace can be charted through its choice of language. For example, one frequent target of the group’s admonitions are the so-called “riyajuu” (リア充), a neologism frequently used in online communities such as 2chan to refer to those who experience fulfillment in their offline lives (riyajuu is a portmanteau that combines “real” with “jyuujitsu”, the Japanese word for fulfillment).

The release posted on Kakuhidou’s website for this year’s anti-Valentines parade says “the blood-soaked conspiracy of Valentine’s Day, driven by the oppressive chocolate capitalists, has arrived once again. In order to create a brighter future, we call for solidarity among our unloved comrades, so that we may demonstrate in resolute opposition to Valentine’s Day and the romantic industrial complex.”

At previous events, leaders of the group have yelled slogans such as “I hope all riyajuus explode! But we’re still a little jealous!” while wearing shirts that say, roughly, “sex is useless.”

There is more here.  By the way, the group’s official vehicle is a Mercedes-Benz.

For the pointer I thank Andrea Castillo.

So says my Twitter feed.

For the last few weeks there have been three models in the running:

1. The Greek government is calling the Germans Nazis because they figure Grexit is coming no matter what and they want to get the populace riled up as a distraction from the disasters, or

2. The Greek government will cave so cravenly on the substance that they want to have it on the record books that they supplied some expressive goods for a few weeks’ time, namely insulting the Germans and claiming that the Troika is dead and buried, or

3. The Greek government is simply full of out-of-control, ideological maniacs.

Right now it is looking like #2 — however unlikely it may sound as a model of retrospective voting and intertemporal substitution — is closest to reality.  What the relevant legislatures will go along with, however, still remains to be seen.  Arguably the insults and posturing have narrowed the possible bargaining space by hurting feelings all around.

Better-known and more mainstream European politicians are also cozying up to Putin: French ex-president Nicolas Sarkozy, who was recently re-elected head of the powerful UMP, came out this week in support of the EU formally ceding Crimea to Russia, and had some kind words for the Kremlin. Another UMP figure, the mayor of Nice, has come out in even stronger support of Putin.

There is more here, background information here.  As we already are seeing, the European response to the Russian invasion of Ukraine will not be overwhelmingly strong.

The petroleum sector is about 21% of gdp and half of exports.  It’s not just that prices are down, rather quantities produced have been declining throughout the oughties.  (That is the less well known angle here.)  Currently Norwegian oil production is at about half of its 2000 level, and the sector is now bracing for 40,000 job cuts.

Here is from a recent internal economists’ critique of the country:

The group has documented how Norwegian politicians all too often have approved major investment projects that benefit far too few people, are poorly managed and plagued by huge budget overruns. Costs in general are way out of line in Norway, according to the group, while schools are mediocre, university students take too much time to earn degrees and mainland businesses outside the oil sector lack enough prestige to help Norway diversify its oil-based economy. The group mostly blamed the decline in productivity, though, on systemic inefficiencies and too much emphasis on local interests at the expense of the nation.

Is this entirely reassuring?:

Prime Minister Erna Solberg recently spoke of the need to invest in areas where people actually live…

After you adjust for wage differences, it costs 60% more to build a road in Norway than in Sweden.

There is this too:

“Approximately 600,000 Norwegians … who should be part of the labor force are outside the labor force, because of welfare, pension issues,” says Siv Jensen, the finance minister.

The country has largely deindustrialized, oil of course aside.  And there is a fair amount of debt-financed consumption.

The country has falling and below average PISA scores by OECD standards.

Not everyone admires Norway’s immigration policy, and there is periodic talk of banning begging in the country.  It seems there are only about 1000 beggars — mostly Roma — in a country of about five million, so you can take that as a sign they are not very good at processing discord.  Far-right populist views do not seem to be going away.

For sure, Norway will be fine.  Did I mention per capita income is over $100,000 a year and they have no current problems which show up in actual life?  Hey, the “over” in “overrated” has to come from somewhere!  The country also has the world’s largest sovereign wealth fund and owns about one percent of global stocks.  Still, the idea of a rentier economy makes me nervous.  When most people don’t “have to” do that well, often cultural erosion sets in.

They’ve made a new film : “Here’s a beautiful video of Iceland and Norway, time-lapsed and tilt-shifted to show the hustle, the bustle, and the beautiful splendor of Scandinavia from a more toy-like perspective. Called The Little Nordics, it was filmed by Dutch design team Damp Design. Happy Friday!”

Sorry Magnus, Karl —  I know you guys are still underrated.  It’s not for nothing that I used to call it “the Norwegian century.”

Addendum: Here is my earlier post on whether Sweden is an economically overrated country.  At least it is cheaper to build a road there.

Sentences about Russia

by on February 9, 2015 at 2:46 pm in Current Affairs | Permalink

“Its Moscow can feel like an oligarchy in the morning and a democracy in the afternoon, a monarchy for dinner and a totalitarian state by bedtime,” he writes.

The longer FT article on Russia is here, the quotation is from Peter Pomerantsev.

Denmark’s central bank governor pledged to face down speculators testing its currency peg to the euro, saying he would do “whatever it takes” to defend it.

Lars Rohde told the Financial Times that Nationalbank could “go on forever” defending the peg, after lowering interest rates four times in three weeks to a global record low of minus 0.75 per cent. It has also swelled its balance sheet to a record size by printing krone in an attempt to weaken the Danish currency.

“The main message is that we are ready to do whatever it takes to defend the peg. We have unlimited access to Danish krone and we have no restrictions on our balance sheet,” he said, in his first public comments since the recent quadruple rate cuts.

The FT article is here, here is Bloomberg coverage.  I would bet against them, in any case this will be a neat test case for our judgments of Switzerland.  The Danish government also has stopped selling bonds to help maintain the peg; Lord Polonius comments on that policy.  The Danes have announced a true precommitment, in a way the Swiss never did, now let’s see what happens.  Defense of the peg is in fact their only official monetary policy target, and the central bank head claims it is supported by all segments of Danish society.

Denmark, of course, has not yet joined the euro, or wanted to.  Meanwhile, Crown Princess Mary of Denmark just turned forty-three.

The Greek People Have Punctured the Smugness of the “Moneymen” – hope is replacing despair

That is from a Dr. Adnan Al-Daini.  He links to this piece of his on the same theme.  It is noted that the Dr. used to teach at a British university.  Behind the first link, there are several comments on the tweet.

Yet, in reality, the ECB and the EU seem to be holding all of the cards.  I do not expect that to change.  Here is “Emergency Liquidity Assistance for Greek Banks: An Explainer.”