Today, we bring you an interview with Edward Hugh, a macro economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows. Edward is based in Barcelona, and is currently engaged in research into the impact of aging, longevity, fertility and migration on economic growth. He is a regular contributor to a number of economics blogs, including India Economy Blog, A Fistful of Euros, Global Economy Matters and Demography Matters. [The interview will be presented in two parts, with the first part printed below].
I’d like to begin by asking if there is any significance to the title of your blog (”Fistful of Euros”), or rather, is it only intended to be playful?
Obviously the title is a reference to the Segio Leone film, but you could read other connotations into it if you want. I would say the idea was basically playful with a serious intent. Personally I agree with Ben Bernanke that the Euro is a “great experiment”, and you could see the blog, and the debates which surround it as one tiny part of that experiment. As they say in Spanish, the future’s not ours to see, que sera, sera. Certainly that “fistful of euros” has now been put firmly on the table, and as we are about to discuss, the consequences are far from clear.
Well, first of all, there is more than one thing happening here, so I would definitely agree from the outset, there are both cyclical and structural elements in play. Structurally, the architecture of Bretton Woods II is creaking round the edges, and in the longer run we are looking at a relative decline in the dollar, but as Keynes reminded us, in the long run we are all dead, while as I noted in the Afoe post, news of the early demise of the dollar is surely vastly overstated.
Put another way, while Bretton Woods II has surely seen its best days, till we have some idea what can replace it it is hard to see a major structural adjustment in the dollar. Europe’s economies are not strong enough for the Euro to simply step into the hole left by the dollar, the Chinese, as we know, are reluctant to see the dollar slide too far due to the losses they would take on dollar denominated instruments, while the Russians seem to constantly talk the USD down, while at the same time borrowing in that very same currency – so read this as you will. Personally, I cannot envisage a long term and durable alternative to the current set-up that doesn’t involve the Rupee and the Real, but these currencies are surely not ready for this kind of role at this point.
So we will stagger on.
On the cyclical side, what I am arguing is that for the time being the US has stepped in where Japan used to be, as one side of your carry pair of choice, since base money has been pumped up massively while there is little demand from consumers for further indebtedness, so the broader monetary aggregates haven’t risen in tandem, leaving large pools of liquidity which can simply leak out of the back door. That is, it may well be one of the perverse consequences of the Fed monetary easing policy that it finances consumption elsewhere – in Norway, or Australia, or South Africa, or Brazil, or India – but not directly inside the US.
This is something we saw happening during the last Japanese experiment in quantitative easing (from 2002 - 2006) and that it has the consequence, as it did for the Yen from 2005 to 2007, that the USD will have a trading parity which it would be hard to understand if this were not the case. I am also suggesting that this situation will unwind as and when the Federal Reserve start to seriously talk about withdrawing the emergency measures (both in terms of interest rates and the various forms of quantitative easing), but that this unwinding is unlikely to be extraordinarily violent, since the Japanese Yen can simply step in to plug the gap, as I am sure the Bank of Japan will not be able to raise interest rates anytime soon given the depth of the deflation problem they have. Indeed, investors will once more be able to borrow in Yen to invest in USD instruments, to the benefit of Japanese exports and the detriment of the US current account deficit, which is why I think we are in a finely balanced situation, with clear limits to movements in one direction or another.
Well, I would want to qualify this a little, becuase things are not that simple. In fact, as Claus Vistesen argues in this post, the ECB has rather “locked itself in” communicationally, and by talking up the eurozone economies they now have markets expecting clear exit road maps and even pricing in interest rate rises from the third quarter of next year. But if we look at the underlying weaknesses in some of the Eurozone economies – evidently Spain, but Italy is hardly likely to have a strong robust recovery, and the German economy needs exports and hence customers to really return to growth – it is hard to see monetary tightening being applied with any kind of vigour at the ECB, so they may move up somewhat – say to 2% – and then stop for some time.
I was also suggesting that in the short run they may do this to assist in the process of unwinding the global imbalances, since allowing the Fed to lead the world out of the monetary easing cycle would almost certainly provoke a rebound in USD, and problems for correcting the US current account deficit.
Really none of the developed economies (not even Norway) seem to be looking at the sort of really strong “V” shaped rebound some investors were anticipating, and it is more a question of who is weaker among of the weak. But if we look a little further ahead, at potential growth and inflation dynamics, then it is clear that the deflationary headwinds are stronger in Europe, while headline GDP growth may well turn out to be stronger in the US, and both these factors suggest that the Fed will at sometime be tightening faster than the ECB, in a repetition of what we saw from 2002 to 2005.
You have pointed out that fiscal problems are not unique to the US. While the UK and Japan are certainly in the same fiscal boat, there seem to be plenty of examples of economies that aren’t, or at least not to the same extent, such as the EU. Do you think, then, that the long-term prospects for the Euro (especially as a global reserve currency) are necessarily brighter than for the Dollar?
Well, actually I wouldn’t say the UK and Japan are in the same fiscal boat. Let me explain. The UK evidently has severe short term problems (as does the US) with its sovereign debt, due to the high cost of resolving the lossses produced by the current crisis. But Japan has still not resolved debt problems which were produced in the crisis of the late 1990s, and indeed both gross and net debt to GDP simply continue to rise there. So I would say – as long as they can weather the present storm – the outlook for US, UK and French sovereign debt is rather more positive than it is for Japan. Indeed in the longer term it is hard to see how Japan can resolve its problems without some kind of sovereign default. This is the problem with deflation, as nominal GDP goes down, debt to GDP simply rises and rises.
But the principal reason I am rather more positive on UK, US and French sovereign debt in the mid term is simply the underlying demographic dynamic. These countries have a lot more young people (proportionately) than the Germany’s, Japan’s and Italy’s of this world, and hence their elderly dependency ratios (which are the important thing when we come to talk about structural deficits into the future) will rise more slowly.
It is also important to realise that the EU – at this point at least – is not a single country in the way the US is, and indeed there is strong resistence among European citizens to the idea that it should be. So it is impossible to talk about the EU as if it were one country. That being said, the lastest forecast from the EU Commission suggests that average sovereign debt to GDP will breach the 100% threshold across the entire EU by 2014, so I would hardly call the situation promising. Basically some cases are much worse than others. In the East there are countries like Latvia and Hungary which are currently implementing IMF-lead structural transformation programmes, ut it is far from clear that these programmes will work, and sovereign debt to GDP has been rising sharply in both cases. In the South a similar problem exists, with Greek gross sovereign debt to GDP now expected by the Commission to hit 135% by 2011, and Italian debt set to increase significantly over the 110% mark. At the same time the future of government debt in Spain and Portugal is becoming increasingly uncertain. I would also point to the strong gamble Angela Merkel is making in Germany, and indeed ECB President Jean Claude Trichet singled the German case out during the last post rate-decision-meeting press conference for special mention in this regard. The future of German sovereign debt is far from clear, and markets certainly have not taken in this underlying reality.
So basically, and I think I have already explained my thinking on this in earlier questions, we have a structural difficulty, since I am sure the way out of Bretton Woods II will not be found by simply substituting the Euro for the USD. Europe is aging far more rapidly than the US, and the dependency ratio problems are consequently significantly greater.
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Guest post by Franck Silvestre
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Elance is another site I use to find freelancer, and you will get plenty of clients there.
It's not a forum, but a freelance site, and you will have to bid on offers to get the job. They have excellent tutorials explaining the whole process. When you start, you will offer your article writing service at a low introductory price. I'm talking about $0.01 per 100 words. That's $3 for a 300 word article.
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We are seeing an increasing uptick in America in regards to violent events. There are events going on abroad that are also equally scary. The government cant seem to protect us and always act after the fact.
The events at Fort Hood were very tragic, but could have been stopped quickly by a few civilians with concealed carry weapons. However, you cant carry concealed onto a military installation and so no one had a weapon to stop Major Hasan.
I am betting that after these tragic turn of events more people will be visiting their local gun stores and consider the value behind concealed carry weapons. Guns are scary to some people out there, but its even scarier when there is a lunatic opening fire in a public place and you are the one without a weapon.
I think many people who thought guns as weird or scary tools will be reconsidering their decision after the events at Fort Hood. Police departments will also be focusing on re-arming and further training themselves for such events.
The laws in some states might even get more lenient in regards to the concealed carry of weapons. The police clearly cannot stop these violent events.
ATK makes bullets, SWHC and RGR make weapons. I will be looking at these stocks for opportunities. You also have LMT which makes weapons systems for the United States.
One thing about living in a smaller building in DC is that you get to know your neighbors. Well, one of our neighbors has a boyfriend who is a long time smoker. We got to talking money and tobacco one evening while sharing drinks on our porch and specifically about how you can shave a few bucks off your expenses if you are a smoker.
So, here are eight ways to save money on cigarettes.
1) Quitting. If you stop smoking you’ll save a ton. On average, people who enjoy tobacco smoke about 10 cigarettes per day. This translates into roughly 3 and a half packs per week. At around 7 bucks a pack, you’re looking at roughly $100 a month. So if you quit the tobacco then you’d add a significant margin to your budget. Cost reasons aside, another good reason to quit is public opinion. Polite company views tobacco use as ill mannered and common. This means that smokers will have a harder time getting good jobs, romantic partners or advancing in their careers. In addition there are lots of health reason to quit, but this is well covered elsewhere.
2) Plan ahead. Buy cartons when they are on sale.
3) Switch to generic brands. High end premium brands like Camel or Marlboro cost more than generic or second tier tobacco products like Mustang or Quality light. Consider downgrading to save some money.
4) Ask for discounts. You might find that your vendor has cigarette packs that have been damaged or have brands that aren’t selling well. They might be willing to let you have this tobacco for a discount if you ask.
5) Look for specialty stores. Look on the internet for stores in your area that specialize in cigarettes (also known as cigarette stores or tobacco shops). These places often have better prices, are more tuned into promotional offers, and in addition they don’t look down on you for being a smoker.
6) Go online. There are several websites on-line that can provide you with discounted cigarettes. The only thing is that most of these places want to sell you smokes by the carton. That’s fine if you’re a long term smoker, but if you just want a pack or two this might not make sense for you. Also there are a couple of good websites that can hook you up with coupons for cigarettes. Try cigarettecoupons.org or marlboro.com.
7) Other ideas. This does not work for everyone, but you could consider visiting a local Indian reservation. Many reservations are off the beaten track, but you might consider going for a cigarette buying road trip. Beware, many people maintain that cigarettes sold on Native American reservations are exempt from Federal taxation, but the truth is its a legal grey area. So be careful if you are loading up on Native American tobacco, lest you run afoul of the tax man.
Happy Smoking!
Best,
James
looking like a zombie with the black circles under your eyes? If you are, you're not alone. Many others have caught on as well, and they spend countless hours posting to forums, commenting on politics, religion, business, senseless things, and even shopping.
