Martin Wolf posts
FeedPosted Feb 9th 2009 5:20PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Recession, Financial Crisis
Financial Times columnist
Martin Wolf reminds investors that, contrary to some views expressed in the United States, depressions are neither good for us, nor unavoidable.
Further, despite the recent year's many reverberations, the United States remains, Wolf argues (and the
U.S. Central Intelligence Agency agrees), the world's preeminent economy in the global economic system it has created and promoted. Moreover, U.S. policy errors had much to do with the current crisis, even if aided by policy errors abroad. By extension, the healing and recovery starts in the U.S. -- with America as the leader of determined, globally-coordinated action.
Continue reading Martin Wolf: If the U.S. dares to succeed, it will
Posted Jan 14th 2009 5:00PM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Recession, Financial Crisis
Can the U.S. government run $1 trillion budget deficits for two, three years? Indeed it can,
Financial Times columnist
Martin Wolf argues, and the deficits can even be higher, for a while. After that, there's more work ahead.
The specter of $1 trillion budget deficits may be vociferously opposed by Republicans and other economic conservatives, but Wolf, in so many words, says what other choice does the United States have? What would be the alternative? Simultaneously raising taxes now to lower the deficit? Hardly prudent. Doing nothing? Another dreadful idea. So, it's prime the pump, or sit there at the well and await nothing.
Up ahead: two bigger tasksWhat's more,
Wolf sees two additional tasks (structural changes) that are just as important to the goal of U.S. economic recovery -- but that may be even harder to implement: removing toxic assets from the banking system and reducing the U.S.'s structural current account deficit (the trade deficit).
The first is the forced write-off of bad assets, fiscal recapitalization of the banks, or debt-for-equity tactic, and it should be done comprehensively and quickly. Slow, gradual bad-debt reduction is not the correct policy, Wolf argues, as it would delay the economic recovery.
Continue reading Martin Wolf: U.S. fiscal stimulus is a necessary task, but not the only one
Posted Dec 31st 2008 6:30PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Recession, Financial Crisis
Financial Times columnist
Martin Wolf argues that the current financial crisis and global recession is best viewed through a Keynesian lens, and it's the lens of a pragmatist.
Wolf sees three Keynesian themes, or lessons, that policy makers would be wise to heed.
Keynes: Markets are essential, but not perfectThe first: if you expect markets to be self-correcting and self-policing, there's trouble up ahead.
Wolf: Mistakes occur, even among those who were following standard operating procedure. A market filled with bankers -- or other participants -- following standard operating procedures that were flawed leads to ... what we have today, pretty much -- a global recession and constrained credit.
The second: It's o.k. for a corporation to become more efficient, but it's not necessarily a good thing if a society or nation (or world) does so all at once. This reinforces one of Keynes's tenets: It's a good thing to have consumers amass savings, but if everyone saves everything all the time it would be a disaster.
Or, for the globalization version of the above, economist Richard Felson told BloggingStocks: "We need people in the United States to save more money, but if people in Europe, China, India, Japan, Brazil and Russia do the same thing simultaneously, the global economy will remain in a recession for a very long time."
Continue reading Martin Wolf: Wanted! Economic pragmatists with bold ideas
Posted Oct 2nd 2008 2:16PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Politics, Recession, Financial Crisis
Financial Times columnist
Martin Wolf inquires, do Americans understand their financial and economic system?
Anger at Wall Street's - - and regulators' - - lapses is justified, but at the end of the day to oppose the rescue package is at once self-defeating, contradictory, self-punitive, and borders on nihilism, Wolf states. Take your pick regarding which is the most damaging.
Congressional representatives, particularly conservative Republicans, but also others, opposed the flawed rescue plan as a bailout for the rich, and as a statement against
'socialism.' Socialism? Yes, the plan is flawed, Wolf states, but the ruin that will result from rejecting the plan will destroy the legitimacy not of socialism,
but of the market economy. Exactly what are the packages' opponents fighting?
The Congressmen/women also say that they are 'taking a stand for Main Street and against Wall Street.' A contradiction, Wolf writes.
Wolf: Wall Street and Main Street are streets that meet. That is what streets do.
Then there is the future. What is the opponents' alternative? The loudest voice here appears to be 'let the market sort things out by itself,' under the assumption that the damage, costs, and negative consequences really won't be that bad.
Wolf: This is not prudent, if the early 20th century's experiences are a guide.
Continue reading Martin Wolf: Wall Street and Main Street are streets that meet
Posted Apr 10th 2008 3:15PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Columns, Housing, Recession
Every economic problem or setback seeks a scapegoat -- someone decision makers, pundits, and others can blame (unjustifiably) for a turn of events that's preferred by virtually no one.
The criticism is parsimonious, unfair, and injurious -- but that hasn't seemed to stop practitioners from venturing forth with charges that are often tenuous, if not absurd.
Scapegoat-of-the-momentThe ever-incisive FT columnist
Martin Wolf points out that former U.S. Federal Reserve Chairman Alan Greenspan is being cast as 'the villain' for the housing bubble, its bursting, and consequent impact on credit/bond markets and credit availability. All of it is unfair, Wolf notes, and he provides ample evidence to support his point.
Chiefly: Greenspan did not create low, long-term interest rates. The low, long-term rates were caused primarily by a global savings glut,
Wolf said. (See: China's savings rate.) The Fed had little control over this -- Greenspan even creatively and accurately referred to the Fed's inability to force long-term rates higher despite the Fed's best effort: he called it "a conundrum." Given the surplus savings sloshing around in global markets at that time, among other factors, those low rates would have occurred regardless of who was Fed chairman.
Continue reading Martin Wolf: Don't scapegoat Greenspan for housing sector's woes
Posted Mar 27th 2008 3:59PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Other issues, Columns, Housing
Financial eras, like social periods, are often defined by moments or epiphanies when decision makers and/or citizens realized that a serious flaw/mistake/problem was occurring through time, and across space, and needed to be corrected.
The ever-incisive FT columnist and economist
Martin Wolf describes one contemporary concern that's likely to be addressed: the failure to align the interests of managers with those of investors.
My BloggingStocks colleagues
Peter Cohan and
Zac Bissonnette have also written on the subject on several occasions in this space, and now the FT's Wolf has assembled additional data that may very well lead to public policy changes, both in Wolf's United Kingdom and in the United States.
Continue reading Martin Wolf: 'Heads I win, tails you lose' financial incentives must stop
Posted Mar 14th 2008 3:32PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Housing, Federal Reserve, Recession
The ever-incisive FT columnist
Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.
A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.
Continue reading Martin Wolf: The financial situation is serious, but remains manageable
Posted Feb 26th 2008 2:49PM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Good news, Economic data
The ever-incisive FT columnist and economist Martin Wolf has some good news for investors, who are no doubt weighed down by the cacophony of pessimism permeating the U.S. stock and bond markets these days.
Wolf argues that the U.S. housing recession and accompanying credit market concerns are huge dangers, for the U.S. and for the rest of the world, and a bumpy road is ahead, but the public sector, led by the U.S. Federal Reserve, is now coming to the rescue.
Before offering his likely scenario for a return to economic health, Wolf summarizes a worst-case-scenario from Nouriel Roubini, economics professor at New York University and founder of RGE Monitor. (Fair warning: Roubini's scenario represents the bleakest of the bear views, hence it's best not to read it on a day when the Dow is down 300 points, etc.)
While recognizing that Roubini's scenario is plausible, Wolf argues that it's not likely to occur, at least not to the degree Roubini suggests.
Continue reading Martin Wolf: U.S. economic challenges are large but surmountable
Posted Feb 12th 2008 5:21PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Economic data, Housing
The ever-incisive FT columnist and economist
Martin Wolf offers fairly harsh advice for those in the United Kingdom (and the United States) considering a house purchase, on the belief that home prices have bottomed and will recover soon: that recovery is not happening any time soon. Nor should it, he argues.
The U.K. Government,
Wolf said, should not try to protect banks to save the housing market. To do this would encourage innocent prospective buyers (new borrowers) to buy at what is probably the top of "a hugely stretched market."
And the characteristics of the U.K.'s housing bubble versus the United States' deflating housing balloon/bursting bubble? Tax laws differ by nation, of course, but there are strong indications the U.K.'s bubble may at least be equal to the U.S.'s: U.K. home prices have increased 150%, in real terms, since 1996. At the same time, the ratio of U.K. household liabilities to disposable income is 175% in 2008, compared to slightly more than 100% in the mid-1990s.
Wolf's conclusion: that's an unsustainable growth in debt that is coming to an end.
Continue reading In the U.K., the bell tolling for housing market has a familiar ring to it
Posted Dec 18th 2007 6:56PM by Joseph Lazzaro (RSS feed)
Filed under: Other issues, Politics, Housing, Federal Reserve
In an essay/column in this week's issue of
The New Yorker magazine (
"Paulson's Plan," December 17, 2007) writer James Surowiecki offers a more-somber analysis of the subprime mortgage default issue than, say,
Financial Times' columnist Martin Wolf. In Surowiecki's analysis, (which, readers should note, was researched and published before the European Central Banks' infusion of $500 billion Tuesday to ensure year-end liquidity for banks), the current problem is one unlike any other that Wall Street has faced. The problem is not liquidity, as Martin Wolf argued, but 1) high-risk home owners who spent way too much n overpriced houses, and 2) a deep mistrust of the financial system because of the way the system rates and values assets like mortgages.
At issue: Wall Street? Hence, the Bush Administrations' proposed assistance plan to the mortgage sector and some homeowners, even if it becomes more-encompassing, would not solve the problem: the financial system - - and presumably Wall Street - - simply does not rate and value assets correctly, and the government package doesn't speak to that dimension.
Continue reading The U.S. mortgage public policy debate begins
Posted Dec 14th 2007 6:08PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Other issues, Economic data, Housing, Federal Reserve
Once again, the ever-incisive
Financial Times columnist Martin Wolf, an economist, identifies with laser-accuracy what ills the current market. The problem, Wolf argues, is not a lack of solvency but a lack of liquidity (i.e. 'panic').
Wolf does not deny that there have been bad loans (there have been) or that no companies will go out of business (some will). But the circumstance that froze credit markets, that caused quality corporate bonds to fail to price, and that leads to 100-point spreads between the LIBOR rate (what banks charge each other) and the ECB's benchmark interest rate, is rooted more in a lack of confidence, than a lack of sound economic fundamentals or a lack of resources.
A lack of liquidityAnd a lack of liquidity or 'panic' is something that central bankers can address. With the above in mind,
the U.S. Federal Reserve's plan, in consultation with the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada, to inject $40 billion via auctions into the financial system is appropriate and prudent. (Further, in addition to reciprocal currency arrangements, the companion central banks will take related actions, including the Bank of England's decision to accept a wider range of collateral on 3-month loans).
Continue reading Who's afraid of coordinated central banks?
Posted Nov 28th 2007 6:09PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Citigroup Inc. (C), Bank of America (BAC), , Housing, Federal Reserve
The ever-prescient
Financial Times columnist Martin Wolf, an economist, raises, and to some degree answers, a question that no-doubt has been on the minds of U.S. investors, readers, as well as Europeans: Why does banking generate such turmoil?
Or, as Wolf put it another way: why is banking an accident waiting to happen, with the crisis in securitized lending the latest example?
The answer - - or fault, to paraphrase
Shakespeare - - lies within ourselves, Wolf argues, due to the very things nations have established to protect depositors - - namely, depositors' insurance and government guarantees, which prompts banks to take high risks.
Continue reading A whiff of banking reform in the air
Posted Nov 21st 2007 6:27PM by Joseph Lazzaro (RSS feed)
Filed under: International markets, Forecasts, Other issues, China, Russia, Middle East, Canada, Eastern Europe, Federal Reserve
There's an old Wall Street adage that goes, "Sometimes the Street's chorus is a chorus of two."
And there's perhaps no better example of that than the current debate over the strength of the U.S. economy. Professionals in the
Concrete Canyon have been amassing on either side of two camps for months: "The U.S. economy is headed toward recession" or "The U.S. economy will continue to grow."
Still, as history demonstrates, and contrary to the current 'chorus' on Wall Street, sometimes there are more than two options. For example, what if the U.S. economy is headed toward a
growth recession? I.E. a protracted period of sub-trend GDP growth.
Continue reading Is the U.S. in a 'growth recession'?
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