Donald Trump has chosen a successor to Janet Yellen as the head of the Federal Reserve. Despite his qualifications, one can expect the same underlying structural pitfalls to continue eroding the monetary system.
Economists are beginning to figure out what logicians already know: the use of econometric models is based on the assumption that the future responds to the logic of the past, even though our changing world belies this assumption.
The advent of cryptocurrencies throughout cyberspace harks back to days when an array of private entities created their own money. All the more reason for states to regain control of monetary policy.
In recent years central banks have implemented policies with little oversight and without the necessary checks and balances. The social consequences will be very serious and have already manifested.
The Trump administration’s proposed tax breaks for businesses have been greeted with enthusiasm by the markets. However, they may turn out to have unforeseen effects on political decisions that go beyond the economy
Playing with interest rates is certainly one way of nudging an economy in a desired direction. But recent experience has made clear that the economic context is more important than previously suspected.
The United States and Europe seem to lack coordination in their monetary policies. Barring a concerted international effort, this absence of cooperation, combined with protectionist policies, could lead to a grave crisis.
The geopolitical and economic conditions in Europe make it clear that the EU needs to grow and coordinate its policies. But instead of doing so, many member states have ridden a wave of nationalism that could further hobble their economies.
Talk of either an imminent exit by one of the eurozone’s members, or an outright bifurcation of the common currency has many of its leaders concerned. But are they willing to use the tools at their disposal?
Rarely have economies been rescued by hope alone. Europe’s must come to terms with empirical realities that require it to either reform the currency or dismantle the eurozone as we know it.
The tremors felt in the world economy belie the recent optimism of the markets. Although a very modest growth continues, severe structural problems call for a radical overhaul of the monetary system and social organization.
The world’s monetary system requires a degree of independence for central banks that naturally entails a democratic deficit. But doubts about the need for such independence are making monetary policy prey to populism.
Europe has tried to repeat America’s success in getting
its economy back on track.
But unfortunately it has disregarded some fundamental structural changes that would bring monetary and financial policy in line with the real economy.
What Janet Yellen is selling as a new toolkit for the Federal Reserve can also be seen in light of the neoclassical economic assumptions that underlie it. Unfortunately those assumptions belie the real problem.
To anyone who has repeatedly called for a renegotiation of EU rules, Brexit was no surprise. The shock, however, could offer Europe a chance to set things straight and make a stronger, more realistic Union.
here are some fundamental issues affecting the world economy, which no one wants to look at because no one is prepared to fix. As a result every major summit seeks to work around the biggest problems with an array of compromises.
The European economy is faced with a rather unique global economic picture as it struggles with slow growth. Various approaches are vying with one another in an attempt to find a solution.
A global market requires global rules that are currently lacking. A meeting held in Britain, which is mulling an exit from the EU, may just help bring the UK back into a leading position in global monetary policy.
The production crisis is based on an incorrect setting of global competition, mainly centered on international trade rather than on domestic consumption. What’s needed is decision-making courage
The trend of quantitative easing has greatly impacted the world economy. New dynamics and pressures have had economists scrambling to come to grips with contrasting approaches to monetary policy.
The market may have found a precarious balance between the trends in financial and real wealth. But it might not last.
Monetary policy must regain its orthodox role of bringing finance growth back to the pace allowed by real economy growth.
Moves on the part of central banks have determined the direction of the economy in recent years. But leaving such decisions to institutions inclined to “massage” the rule of law may bode ill for democracy.
Beijing has been very careful over the years about not losing control over its currency. But as the economy stabilizes and China prepares to float its currency freely, the US dollar will no doubt be affected.
The United States has led a monetary system that needs to be adjusted. But it is ambivalent about the very structures that have sustained it thus far. The result is a precarious balance that does neither America nor the international system good.
The signs have been there for a while, now the stirrings of a perfect storm can be heard coming from China. All along, monetary policy has been feeding the gathering clouds.
Faced with the end of the illusion that the euro was irreversible, eurozone governments and Greece have come back from the brink. Europe is arguably stronger as a result, but the means by which it survived may bode ill for the EU down the road.
Europe is pumping money into an economic system that is structurally ill-equipped for it. Without an understanding of economic consequences or a will to find an alternative, such actions will lead to a wider wealth gap.
Easy money and government job creation projects have not managed to spur the economy as desired. And now the dollar is getting stronger. Will China’s new development bank set things straight?
The context in which the ECB pumps more euros into the system, should give a boost to stock prices. And while some exporting economies may benefit, other are looking at increased deficits.
While the eurozone has made a move to implement something resembling the quantitative easing that worked in the US, it has missed the chance of creating a double-barreled approach to growth creation.
Europe has consistently been tackling its crises with a series of stopgap measures. What is needed, at the least, is to overhaul the monetary structure in a way that necessary actions can be taken promptly and without subterfuge.
The new on-demand economy may be one of the keys to alleviating unemployment in Europe. But the EU is still fixated on the old economy.
A concerted effort to dissolve the digital divide between the generations will be crucial.
Quantitative easing on the part of the ECB should help stimulate growth in Europe. Unfortunately, it is by no means a cure-all, because if the process gets bogged down, its effects on the real economy may be negligible.
One reason why the US has begun to recover is that the Fed abandoned some orthodox methods of economic forecasting. Europe is still struggling with old methods that do not account for the financialization of the economy.
The functions of central banks have evolved over the past century to accommodate the complexity of the economic system. The ECB seems to resist certain functions that other central banks have embraced – to the detriment of the eurozone.
The nation-state in Europe is at risk. Moving forward in the EU project will not only require improving the economy, but managing national sovereignty so that community oversight can make the nation even stronger.
Although the international economy is still wholly dominated by the dollar, the future will no doubt see the balance altered by both the euro and the Chinese renminbi.
The ECB has taken measures to get the eurozone economy back on track. But it might not be enough, particularly because it cautiously sidesteps one of the pillars of economic growth: the building industry.
The euro is overvalued according to many economists. So what can the ECB do to bring the common currency to levels that could ensure growth without backfiring?
As the Chinese government sets the conditions for making its currency fully convertible, the rest of the world must come to grips with flaws in the monetary system that could undermine globalized economic interaction.
How did we get to where we are now? It’s hard to tell when economics and politics have taken on the traits of an increasingly elaborate scam, in which the impulse toward globalization conflicts with national interests.
As quantitative easing policies taper off, the developing countries have begun to experience decelerated growth. To avoid a new recession more international coordination of monetary policy is necessary.
It is easier for politicians to take credit for recovery, however feeble, than to push through painful reforms. This reluctance may ultimately undermine the recovery that is the cause for optimism.
A free trade area between North America and Europe is expected to be beneficial to both sides. Yet with the currency exchange rate regime in place now, both sides may be in for a rude awakening.
Some of us like to think of the market as a free animal spirit that bridles at any external control. But this is an illusion. The power of the state has always set the tone for the economy. What’s needed is wise management.
While competition can drive an economy, it can also lead to policies based on national egotism, thereby limiting the kind of cooperation necessary for a globally interdependent economic system to work most efficiently.
As the easy money days of the Fed’s quantitative easing programs taper off, the real economy will force the hand of politicians to reform the institutions, lest countries now in difficulty get even worse.
Changes in monetary policy have proved inadequate to the task of stabilizing the economy. But rather than reject those changes, central banks are choosing a path that could have implications even more dramatic than the crises they have contributed to thus far.
Central banks can influence markets by controlling expectations. This is exactly what Fed Chairman Ben Bernanke is doing. Will it be enough, however, to move the structural obstacles keeping the eurozone in recession?
The US and Japan have been printing money to jump-start their economies. So far, it’s been working. But the real fallout from such a heavy- handed monetary policy will be seen in Europe, where the ECB has more constraints.
As the BRICS gain economic clout, one would assume that political clout will follow. But in order to reform economic institutions these nations need
to overcome their own differences.
The days when central banks were independent of government may be numbered. In some cases these banks are the only institutions that can set the economy straight without getting stuck by democratic inertia.
Again there is the fear of an imminent currency war. Everyone insists that the value of money should be determined by the markets, but at the same time governments and central bankers do what they can to shift matters to their favor.
As the economic recovery struggles to gain momentum, economists have almost entirely disregarded the specter of inflation. Is this negligently wishful thinking or does it really not matter?
As long as the dollar rules, there will be an imbalance in the international monetary system. A convergence of the euro crisis and new Chinese leadership can provide the necessary impetus to mitigate the disequilibrium.
The marriage of money and growth is a difficult one. The world economy has been kept from chaos lately through unstable means: currency manipulation, which increases the danger of inflation. What’s needed is more coordinated approach.
Reserve currency disequilibria are straining whatever feeble growth there may be. So why isn’t a rebalancing at the top of politicians and economists’ agendas?
Some clever maneuvering at the ECB has managed to keep speculative attacks at bay – for the time being. Yet the underlying issues are sure to crop up again if they are not addressed.
Europe’s is a misunderstood currency. Created despite a lack of political integration, it is now the world’s problem. And the world economy hinges on the political will of Europe’s unwilling politicians.
A cloud of uncertainty hovers over Europe’s common currency. With a resilient exchange rate, considering the pressure, political actions may nevertheless come too late to thwart speculative attacks.
As representatives of the world’s biggest economies meet and propose noble paths toward sounder economic policies, the real way out of the crisis will hover quietly above the formalities and protocol: an overhaul of the monetary system.
Currency manipulation is one of the most effective tools for adjusting foreign balance deficit. But the fact that the world’s reserve currency is also that of a country with a massive deficit has many analysts sounding alarm bells.
At the peak of the crisis the ECB managed to sneak its own brand of Quantitative Easing through the back door to relieve pressure. Now the eurozone must find a delicate balance in its return to orthodoxy.
Recent agreements and maneuvers among the EU leadership have calmed the markets – for now. But the underlying problems still exist, and Europe seems to feel it might be better off just keeping quiet about them.
Despite the fact that talk of replacing the dollar as the international reserve currency is considered a non-starter in economic circles, some kind of currency reform is necessary and inevitable.
EU leaders are making bold statements regarding fiscal and political unity, as if there were no alternative to a recession. But an alternative does exist, and it may be up to the markets to force decisive action.
Now that markets are dictating political decisions, Europe is forced to make choices that fly in the face of its philosophical traditions.
As central banks debate the virtues and vices of quantitative easing and the potential for a return to stagflation, they are in a sense deciding our political future.
In the heat of so many economic wildfires, the problem of monetary policy has managed to keep a relatively low profile. And yet, this may be one aspect of the economy most in need of reform.
The eurozone’s sovereign debt problems are exacerbated by a reluctance to move ahead on a unified fiscal policy. But if the governments involved intend to break out of the dysfunction that markets have seized upon, they will need to give the ECB more power.
Sovereign debt, bailouts, freezing Libyan funds: these are all examples of how a seemingly arbitrary approach to the world’s financial wildfires risks undermining any hope of getting to the root of the problem.
Sooner or later, the EU will need to address the issue of a political union to buttress the existing monetary union. The problem is that the inevitable public wrangling over details may undermine the very union they are trying to fortify.
The outgoing ECB president has done well to stave off disaster in Europe. But there are still many glaring institutional pitfalls that promise to make his successor’s task a daunting one.
While the ECB’s decision to raise interest rates should have predictable results, there have been many surprises of late. Factors beyond central banks’ control underscore the need for political cooperation.
While improving the means for measuring a phenomenon is often useful, it won’t help fix the thing it is measuring. In fact, it might prove a convenient distraction to make up for what would otherwise be considered inaction.
While the US effectively prints more money and the Chinese shore up domestic demand, the eurozone countries keep close watch on the inflation that the ECB has kept at bay since the introduction of the common currency.
The global market contradicts the structure of the nation-state. More than a new economic agreement, we need a new political accord.