Failed classical economics - Martin Wolf (FT.COM)

The failure to forecast the Global Financial Crisis, has been widely seen as a major failure of mainstream (Classical) economics. Martin Wolf examines the issues around this: The tests of this discipline are whether its adepts understand what might go wrong in the economy and how to put it right. When the financial crisis that hit in 2007 caught the profession almost completely unawares, it failed the first of these tests. It did better on the second. Nevertheless, it needs rebuilding. As David Vines and Samuel Wills explain in their excellent overview, the core macroeconomic model rested on two critical assumptions: the efficient markets hypothesis and rational expectations. Neither looks c

The US-China technology race - to determine global leadership

An excellent article in the AFR on 20/3/2018 summarises some of the key things But first an observation: This technology race feels similar to the arms race between USA and the Soviet Union in the 1980s which led to the downfall of the Soviet Union which basically when bust in pursuing this race. I am not predicting that the loser will go bust in this race, but the winner will hold the keys to dominance in a range of technologies which are likely to determine economic power and dominance over the next century. So the race is important to win, and China has a singular focus (and the resources) to win it. Here are some key quotes: The US and China are in a high-stakes arms race for technologic

Dangers in private debt bubble -

If you wish to understand the profound risks of private debt in the developed world (and in the Anglosphere in particular), I would recommend reading this excellent paper from the Institute of New Economic Thinking. Here are some excerpts: One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt—the combination of business debt and household debt. Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes. In the United States, total non-financial priva

Sources of rising bond yields

There are a range of sources of rising bond yields: Gradual "normalisation" after bond yields were suppressed by quantitative easing (and other central bank manipulation) and after a 5000 year low in interest rates. After a very long bull market for bonds in USA and Australia, commencing in 1982, US and Australian bond markets may be commencing a bear market. Rising inflation. After exporting deflation for the last 20 year, China is now starting to export inflation. Strong econ

USA's Achilles heel in trade war

Warwick McKibbin ( ) in today's AFR points out some home truths about Trump's proposed trade war: The current account of a country is, by definition, the difference between a country's national savings and national investment. A country that invests more than it saves has relatively high interest rates and rates of return which drag financial capital from overseas. This capital inflow appreciates the currency and reduces exports and raises imports. The trade deficit is the mirror of the capital inflow. Thus, the US current account deficit reflects the fact that the US government and private sector borrow to maintain investment

China and reappraisal of global capitalism required makes some very important points: For the West, the era in question started with the end of the Cold War, as old enemies became “emerging markets.” China had already started opening its markets to foreign investment since 1978 under Deng Xiaoping’s reforms. But only in the 1990s did the private sector take off there, and Western firms promptly rushed in to profit from the breakneck speed of Chinese economic growth. But this apolitical approach was premised on the assumption, inherited from the Cold War, that democracy and capitalism go hand in hand, and that the extension of free markets would bring global conv

Andy Xie - 2018 will be volatile because liquidity is not there

Andy Xie is former Morgan Stanley star chief Asia-Pacific economist - now independent. Very smart. Here are some of his wise words: Commenting on the bubble in the global financial markets, this year the market is going to be volatile as liquidity is not there. "West is becoming a destabilising force. It is an unfortunate reality we have to live with for long". According to Xie, the key for all developing economies in East Asia is to trade among themselves to become richer. "Business as usual approach will not work anymore. All economies will have to think differently and create their own roadmap for creating economies of scale and efficient as only this can lead to wealth creation as has be

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