Monday , September 23 2019
Home / Tag Archives: International Macroeconomics: Exchange Rates, International Debt, etc.

Tag Archives: International Macroeconomics: Exchange Rates, International Debt, etc.

Language trumps money

The euro is used throughout most of Europe. Thus you’d naturally expect Europe’s financial center to be located in a country that uses the euro. But that’s not the case; the “Wall Street” of Europe is in “the City”, the term for London’s financial district. That’s as weird as if North America’s major financial center were located in Toronto. It seems like having a universally accepted language to do business deals (English) is more important than having a common...

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The laws of economics cannot be wished away

In areas such as rent control and minimum wage laws there’s an increasing tendency to ignore the basic laws of economics, and hope they somehow don’t apply to the policy being considered. President Trump provided another example in this recent tweet: There are multiple errors here.  The first sentence is incorrect; the yuan was much lower when I first visited Beijing in 1994.  The second sentence is also incorrect, for two different reasons.  Currency manipulation is...

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Peter Thiel’s pivot

Tyler Cowen linked to some discussion of a recent speech by Peter Thiel, a highly successful Silicon Valley entrepreneur. Thiel is known for holding somewhat libertarian views, but recently seems to be pivoting towards national conservatism.  The talk ranged over a wide variety of issues.  An attendee named Bonnie Kavoussi took notes: I took notes on my phone, so any mistakes are mine. These notes should be treated as paraphrases and not as direct quotes, since I was...

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The Trump administration’s advice to Malaysia

In a recent post I discussed John Cochrane’s reaction to the Treasury department’s criteria for “currency manipulation”. John’s post included a link to the report, which contains some quite odd recommendations that raise additional question marks. Consider the following: Malaysia’s external rebalancing in recent years is welcome, and the authorities should pursue appropriate policies to support a continuation of this trend, including by encouraging high-quality and...

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Poke out one of my eyes

The news is becoming increasing surreal. This morning I saw the following story in the Financial Times: The euro sank by about 0.5 per cent against the dollar, reaching a low of just under $1.12, while European equities rose – Germany’s Dax index was up by 2 per cent on the day. In response, Mr Trump suggested that Europe was engaging in currency manipulation. “Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar,...

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John Cochrane on currency manipulation in Germany and Italy

Several people directed me to a John Cochrane post that has an amusing critique of the US government’s recent attempt to label Germany and Italy as “currency manipulators”. The most obvious objection raised by Cochrane is that neither Germany nor Italy has a national currency to manipulate—both use the euro. I will end up showing that this US government initiative is every bit as absurd as John claims, but I will first try to explain the logic of the currency...

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More double standards

I’ve done a number of posts (here and at MoneyIllusion) pointing to the increasing tendency of the US to bully smaller countries. One of the worst aspects of these policies is the double standard that is applied. Simply put, the US does not adhere to the policies that we demand of other countries. We insist that other countries adhere to our foreign policy objectives, such as sanctions, but refuse to adhere to the policies of our friends and allies. The US punishes...

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The strange endgame of protectionism

When Steve Bannon was still advising President Trump, he advocated a traditional form of economic nationalism. The goal was to boost manufacturing in America and reduce the trade deficit. One traditional argument against US protectionism is that it would damage American farmers, an important export sector. In the past two years, the Trump administration has moved increasingly far from that vision, promoting policies tailor made to increase the trade deficit and...

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How much has Brexit uncertainty slowed growth?

While I did not think Brexit was a good idea, I also did not expect the vote to trigger a UK recession. Instead, I argued that it would slightly reduce the UK’s long run growth rate, and cited the steep fall in the pound as evidence for that claim. In my view, recessions in big diversified economies such as the UK are mostly caused by tight money, with supply shocks playing only a modest role. There have been occasional news stories about foreign investment in the UK...

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A Powerful Argument from Don Boudreaux

An old, standard argument against trade deficits is that they are financed by foreign capital inflows that represent debt to be reimbursed in the future. In this perspective, an American trade deficit gives the foreign owners of the incoming capital a claim to future American production. Don Boudreaux and other economists have argued that foreign capital inflows do not literally “finance” American imports. One reason is that foreign investment in America is mostly...

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