Bubbles are an enduring feature of financial and commodity markets. But it is when they are driven by debt that their bursting becomes dangerous * The best book I’ve read on financial bubbles is William Quinn and John D. Turner’s … Continued
Debt rating agencies have no particular expertise or special information on sovereign debt, especially for developed economies, so their views don’t matter * News that Fitch downgraded the US sovereign debt rating from AAA (the highest rating) to AA+ (the … Continued
I was asked a question by a student today and I thought I would share my answer in this blog. The question: “You rightly call the global financial crisis of ’08 the North American crisis – in attribution, correctly, to … Continued
A crumb of comfort during the 2008/09 financial crisis was the thought that we were living through historic times. But to face another historic event barely a decade later is perhaps a bit much. The financial – macro relationship The … Continued
As we commemorate the 10th anniversary of the Lehman Brothers bankruptcy, which marked the point where the US financial system truly moved into crisis, it’s worth reviewing the innovations that led to the real estate bubble that lay behind Lehman’s … Continued
The high and rising level of Chinese corporate and local government debt has been a concern for several years. Recent data from the People’s Bank of China suggests the true figure may be much higher than we thought, but things … Continued
There are two generic ways in which a company can raise long term funding, which we call capital: debt and equity. Combinations of these, called hybrid capital, are also possible but rare outside venture capital. Any economic agent, including individuals, … Continued
Debt is a contract but sometimes contracts must be broken, either in the mutual interests of the contracting parties or in the interests of justice. But it’s hard to come up with general rules for this. The long-running arguments about … Continued
Pretty much all financial crises involve too much debt. The global financial crisis was triggered by excessive lending for US property purchase. The slow recovery from the crisis is probably because of too much debt. China’s successful plan to insulate … Continued
Greece this week repaid €750m to the International Monetary Fund (IMF) which it funded by drawing on its SDR account at the IMF. This legitimate but unusual move caught many commentators by surprise and drew attention to the little known … Continued
Major world historical events such as the financial crisis that swept much of the world in 2007-09 typically have multiple causes. In 2014 there was an outpouring of new books about the causes of the First World War which started … Continued
The current stand off in talks to renegotiate the Greek debt bailout shows the difficulty of achieving an outcome that could be good for both sides. * Why lenders sometimes rationally forgive part of a loan There is plenty of … Continued
The economics blogosphere and now the mainstream financial press are full of discussion about the flaws in widely cited research done by Professors Ken Rogoff and Carmen Reinhart. These authors produced an excellent and path-breaking book This Time Is Different which … Continued
I make the point in classroom discussions of the US fiscal outlook that, simplifying only a little, the problem of US federal spending reduces to the problem of the US health care system. All rich countries face an increase in … Continued
Yesterday in class a question arose as to whether the Federal Reserve (the US central bank) is keeping US government interest rates down by buying government bonds in the market. By adding to the demand for bonds, relative to a … Continued