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Content alert


Volume 11 Number 2, 2010

World Economics: Content Alert – Volume 11 No 2

Tue 7/06/10

These papers are from the latest issue. Click the titles to go to the journal’s website for the full-text articles. At the website use Search or browse Previous issues to check your areas of interest.

Debt and Deleveraging
The global credit bubble and its economic consequences
Susan Lund and Charles Roxburgh
In this article, McKinsey Global Institute researchers assess the increases in debt and leverage in ten mature economies and four emerging economies breaking down that data by each countrys financial, household, non-financial business and government sectors. The authors then analyse the sustainability of current levels of leverage in those sectors and construct a heat map of deleveraging. The map shows which sectors in which economies are most likely to deleverage. Third, the authors analyse 45 episodes of deleveraging since 1930, focusing on the 32 episodes that occurred after a financial crisis. From these episodes, the authors draw insights into the macroeconomic channels through which a country can deleverage. Finally, they discuss the policy and business implications of the findings.

Clearing the Fog
How useful are short-term economic indicators?
Simon Hayes and James Ashley
Official statistical agencies produce a number of data series that are more timely and of higher frequency than the published estimates of GDP growth. There are also numerous private-sector measures and surveys that provide a running commentary on economic developments. In this article we assess the extent to which the major economic indicators in the UK, US and euro area can be used to reduce uncertainty about the prevailing pace of economic growth. We find that, whatever timely indicators are used, uncertainty about GDP growth in the current quarter and in the recent past remains high, but that the most consistent stand-alone indicator of contemporaneous activity is industrial production. However, the low share of industry in the economic output of industrialised economies means that sole reliance on IP as an indicator in predominantly services-based economies is unsatisfactory. We are, therefore, drawn towards the conclusion that more timely indicators of services activity both in the form of official data and business surveys would be helpful.

Greece and the State
Prometheus Bound?
Michael Massourakis
Pervasive state intervention in Greece has mired the economy with large-scale inefficiencies and an uneven playing field, protecting insiders and rent-seekers to the detriment of its underlying growth potential, with the political class at the same time failing miserably to address the aspirations of the people. Fiscal consolidation and structural reform, currently pursued under the EUIMF stabilisation programme, if vigorously implemented, are expected to strengthen the Greek economy and to contribute towards the withering away of the Greek state in its present form. The Greeks are resourceful people and will not capitulate in the face of a daunting adjustment, which may prove easier than generally expected if structural weaknesses are adequately and swiftly addressed. Greeces future lies with rebalancing the economy towards net exports, with tourism and real estate being the primary development motors.

Greek Economic Statistics: A Decade of Deceit
So how come the rating agencies missed it again?
Brian Sturgess
This paper looks at the recent problems in official Greek economic data on public finances, whose reliability has been impaired by inappropriate accounting methods, the application of poor statistical methods and deliberate misreporting. Data on deficits and debt have been misleading from before Greece’s Eurozone entry, but despite a regular supply of public information about the problems, the rating agencies did not respond by downgrading Greek public debt until it was too late. These agencies reacted to, rather than leading, market trends that were already under way. The issue casts doubt on the fitness for purpose of the European Statistical System where the powers of Eurostat, the statistics arm of the European Commission have been inadequate to effectively monitor the fiscal status of eurozone countries. These powers, at present limited by the principle of subsidiarity to administering a Code of Practice, must be strengthened closer to approximating a power of audit.

The Economic Crisis and the Commonwealth
A review with analysis and solutions
Michael Chibba
This paper reviews the nature of the economic crisis and discusses its impact on the Commonwealth. Further, it offers an analysis and suggestions on how Commonwealth nations can move forward to both tackle the impact of the crisis and prepare for the post-crisis period, through five key policy principles that can serve as a guide in the formulation and implementation of appropriate policies, strategies and programmes.

The International Financial Architecture
Yesterday, today and tomorrow
Onno de Beaufort Wijnholds
The global financial crisis requires a global solution. A deep-seated overhaul of the international financial system is needed, but could be frustrated by political wrangling, particularly in the United States, but also in the European Union. Moreover, international coordination is complicated; without it there will be no level playing field and the resulting distortions could have serious consequences. The international monetary system (IMS) has come out of the crisis relatively unscathed, but is vulnerable to large-scale attacks on major currencies. Global imbalances have been temporarily reduced, but continue to pose a challenge in coming years. In order to strengthen the IMS and to accommodate the desire for diversification of official reserves, the proposal for an SDR Substitution Account (SA) that would allow central banks to convert excess dollar holdings into SDRs should be revived and streamlined. Eliminating the present dollar overhang and avoiding its recurrence in the future would benefit all major players in the world economy. The problem of exchange rate risk run by an IMF-administered SA could be eased by ring-fencing part of the IMFs gold for that purpose. Ultimately, world reserves could consist of roughly one-third in dollars, euros and SDRs.

A Tale of Two Crises
Harold Lind
The paper argues that many erroneous conclusions derived from modelling are due to mistakes in logic rather than scientific methodology. The widely accepted models predicting the catastrophic consequences of carbon emissions, and suggesting how cuts by the developed world can prevent them, all ignore population growth and distribution, and such data are not used as independent variables in the global warming models. This casts doubt on the probability of the models, and even more on the suggested solutions, as an astonishingly high degree of accuracy in highly complex forecasts over a period of almost a century would be required, without which the extremely costly solutions would be either unnecessary or insufficient. Over a 30-year period, forecasts of population are likely to be much more accurate than those for climate. Within such a period, population in the worlds poorest countries will almost double, leading to virtually all the disasters that are predicted to arise from global warming some decades later. Since many measures taken to avoid putative global warming are likely to exacerbate the more rapidly approaching dangers of population growth, it would appear logical to give more consideration to assisting the poorer countries rather than impoverishing the rich.

Green Stimulus, Green Recovery and Global Imbalances
Edward B. Barbier
This paper assesses the extent to which G20 green stimulus initiatives enacted during the 20089 recession have instigated a global green recovery, and how further green recovery policy initiatives by the G20 relate to concerns about chronic fiscal deficits and global imbalances. Implementing further green measures will require G20 economies to commit to increased public investments, new pricing policies, improving regulations, more aid disbursements and other policy changes. Although there may be concern that these additional initiatives could worsen the chronic fiscal deficits and structural imbalances, if properly enacted, such a green economic recovery strategy should help alleviate, rather than worsen, unstably large fiscal deficits, long-term real interest rate rises and inflation, and global imbalances.

Vietnam: From Transitional State to Asian Tiger?
Issues of the Vietnamese economic transformation experience
F. Gerard Adams and Anh Le Tran
Putting aside the legacy of its unique history, Vietnam has achieved an excellent growth record. But it is still far behind the leading East Asian economies. We consider the Vietnamese growth strategy in light of the controversies about accumulation vs assimilation and non-intervention vs governing the market. We discuss the changes that are occurring as a result of the actions of the still large state-owned sector, and as a result of growing private domestic and FDI-led entrepreneurship. Policy options for directing economic development are today influenced by Vietnams participation in AFTA and WTO. Trade links with China, Japan and the US also influence the direction of Vietnamese development.

To the editors of World Economics
Tim Congdon

Keith Boyfield on Dambisa Moyo: Dead Aid
Keith Boyfield

John Williamson on Carol Graham: Happiness Around the World
John Williamson

George Soros Reflexivity and the Global Financial Crisis
Thomas D. Willett


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Content alert


Volume 11 Number 2, 2010

World Economics: Content Alert – Volume 11 No 2


World Economics (postmaster@world-economics-journal.com)

Tue 7/06/10


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