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The Britham chronicles: the New Town story

Once upon a time there were six families who lived in neighbouring farms. Every now and then one of them would try to steal some of the land belonging to one of the other families: the other families would spring to the defence of the one who had lost the land, and there would be a noisy dispute and a bare-knuckle brawl between some of the menfolk, egged on by the rest. During these disputes the farms did not get tended, the cattle strayed, the crops were trampled and the chickens were eaten by foxes. Eventually, after several years the […]

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The gullible economist

I think John Cochrane has lost his marbles. Or maybe his dispute with Paul Krugman has blown his brains. Anyway, he has written one of the worst op-eds I have ever seen.  He even quotes George Osborne as an authority on (the problems with) Keynesian economics. You couldn’t make it up. Cullen fisked about half the article but gave up in disgust when he encountered this little gem: By Keynesian logic, fraud is good; thieves have notoriously high marginal propensities to consume. Noah, who clearly has a stronger stomach, read all of it, understood most of it, and summed it […]

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One Bank To Rule Them All

The ECB has released this letter from its former President, Jean-Claude Trichet, to the Spanish Prime Minister in August 2011. It is excruciating reading. The letter starts with a reminder about the Spanish government’s responsibilities: We recall that the Euro area Heads of State or Government summit of 21 July 2011 concluded that “all Euro countries solemnly affirm their inflexible commitment to honour fully their own individual sovereign signature…..” Well, ok, this letter is about the threat to the Euro caused by spiking Spanish bond yields and the fear of default and redenomination at that time, so it is probably […]

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Krugman, Bowman and the monetary financing of governments

Krugman says central banks can’t create inflation. When interest rates are at zero, expanding the monetary base makes no difference. This is, of course, anathema to dedicated believers in the omnipotence of central banks. But Krugman is in good company. I recently heard Richard Koo speak on lessons from Japan for the Eurozone. Koo questioned QE’s effectiveness when the private sector is refusing to take on more debt because it is determined to deleverage. Koo’s and Krugman’s scenarios are actually the same, though they attack the problem from different angles. In both cases, interest rates are zero, though Krugman explains […]

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The Goldman touch

In my previous post, I cast doubt on the viability of Juncker’s investment plan, pointing out that it involves no new money from either the EU or the EIB since it relies on a combination of non-sovereign guarantees and money diverted from other schemes, and questioning whether the private sector would be interested in investing in member state pet projects anyway. To put it bluntly, it appears to be a conjuring trick designed to give the impression that the European Commission is “doing something” about the appallingly low level of investment across the EU. I (somewhat impolitely) commented to a […]

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Juncker’s CDO

The new President of the European Commission has recently unveiled his second attempt at increasing European investment without raising public debt levels. His first attempt, which envisaged leveraging the ESM, was shot down by the Germans. This version leverages both the EIB and the EU’s own budget. By committing 16bn EUR from the EU’s budget and 5bn from the EIB, Juncker reckons that upwards of 315bn of new investment could flow into EU-wide projects, increasing jobs and improving infrastructure. It sounds wonderful, doesn’t it? But how would it work, exactly? Here is an explanation from the European Commission’s factsheet: The […]

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