The euro and the promise to end monetary profligacy
As the European Central Bank winds down its quantitative easing program, none of its future policy options look especially promising for the euro. While investors would welcome a more neutral monetary stance, that could spur political tensions in the euro area that could roil financial markets. Meanwhile, regulation is on the rise and growth could suffer, with unpleasant consequences for the single currency.
The false end of quantitative easing
In June, the European Central Bank made the fateful announcement that it would phase out its bond-buying program – called quantitative easing, or QE – by the end of this year. But putting an end to net bond purchases is not the same thing as ending the ECB’s ultra-lax monetary policy. By leaving the door open to rolling over its massive balance sheet of bonds as they mature, policymakers could keep oxygenating the euro area’s economy for years to come.
Opinion: Italy at risk
Italy’s new left-right government is a political experiment that could turn out in one of two ways: either a disguised version of business as usual, or a complete disaster. Many observers assumed that Lega leader Matteo Salvini would manufacture the disaster on purpose to take Italy out of the euro. Now, it appears more likely that the financial crisis – if and when it comes – will occur by accident rather than design.
Trump’s trade war is poised for a Pyrrhic victory
The flip side of the Trump administration’s drive to reduce the U.S. foreign trade deficit is that it will leave the rest of the world with fewer dollars to finance its budget deficit. President Trump could cut spending drastically or persuade the Federal Reserve to buy more bonds, but neither seems likely. More probably, he will do nothing as domestic rates rise and the dollar strengthens – widening the trade deficit again.
Opinion: Conventional measures give false reassurance on global risk
Conventional measures could be the wrong ones to gauge the risk of a financial shock to the global economy. Imbalances created by cheap money are building up in the economy. A close look at market capitalization, share buybacks, and interest-rate spreads presents a troubling picture.
Italy’s 50-year bond: an ill omen?
What’s not to like about Italy’s first-ever 50-year bond? October’s brilliantly successful sale may set the template for other eurozone governments. But investors should take note that it was far from a vote of confidence in Europe’s financial and economic prospects.
Loose monetary policy could be on its way out
In March, the United States Federal Reserve kept its main interest rate on hold, while the European Central Bank cut its main interest rate to zero. The moves confirmed what investors already knew: the American and European economies still have plenty of weaknesses. But despite appearances, the Fed and the ECB are on track to end their expansionary monetary policie...
Argentina’s new government makes an ambitious start
President Mauricio Macri of Argentina, who was elected last October, has quickly set out to show how much his administration differs from that of his predecessor, Cristina Fernandez de Kirchner. Much of the attention has focused on its determination to end the country’s complex set of price controls, subsidies and exchange rate restrictions. But his most significan...
Japan’s closed door to immigrants heralds population decline
Japan faces a daunting demographic challenge. Both the general populace and the working-age population are graying and rapidly decreasing in size. In recent years, the number of deaths has outpaced the number of births by around 300,000 per year. If the country’s birth rate remains constant, this figure will continue to rise by tens of thousands annually. ...
Global trends: Europe’s weak spots ready to become new crises
Europe’s leaders have failed to solve the structural problems revealed by the crisis of 2008. Nor have they grappled with issues that have emerged in recent years. Examples include high public debt, the stock market bubble and distorted risk perceptions caused by the eurozone’s artificially low interest rates. For now, the situation has stabilized. Financial market...