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 its origin. In the same light I was wondering why you don’t refer to the… Continue Reading
Tag Archives: debt
It really is different this time
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 so-called global financial crisis (which was actually a crisis of the US financial system and… Continue Reading
Financial innovations behind the US real estate boom and bust of 2002-2008
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 (and Bear Stearns’) problems: the separation of mortgage origination from who owned the debt; securitisation;… Continue Reading
Is China’s debt even higher than we thought?
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 are far from clear. * It is conventional wisdom that China’s corporate debt is too… Continue Reading
Classifying funds: the type of contract – is it equity or debt?
Another way to classify funds that are provided by a saver to an investor is whether they are in the form of debt or equity. These are the two main forms of contract through which one person or company can provide funding to another. Note that governments, which are very important actors in the financial system, can only… Continue Reading
When should we forgive debts?
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 whether to forgive Greek national debt provide an example of the difficulties. * Debt is… Continue Reading
Too much debt? There is a better way
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 its economy from the post-crisis recession has left it with its own debt problem. Those… Continue Reading
Greece repays IMF using the IMF’s own “currency”
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 SDR. * The SDR – Special Drawing Right – is something of a curiosity in… Continue Reading
Still debating the causes of the world financial crisis
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 a century before. Historians continue to disagree about why the nations of Europe went to… Continue Reading
Barriers to negotiating mutually beneficial outcomes: the example of Greece
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 excellent commentary on the Greek debt situation, arising from a newly elected Greek government which… Continue Reading
On the difficulties of using macroeconomic data for policy advice
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 surveyed in detail several centuries of financial crises. This book, which suggested, unfortunately correctly, that… Continue Reading
US healthcare spending as the central budgetary problem
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 public spending arising from a combination of a higher proportion older people and a rise… Continue Reading
Is the US government hiding its true level of debt?
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 given supply, the Fed would be pushing up the price and this would automatically push… Continue Reading