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Op-ed
Japan Should Rethink Its Stimulus
Adam S. Posen
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When a nation's public debt exceeds a certain limit, it is assumed that confidence collapses, interest rates rise, and the currency falls. Japan demonstrates a different reality for large countries with their own currency about the problems of excessive debt. The government has gotten away with a tripling of the country's debt in the last 20 years without overt crisis—but there have been persistent costs to economic vitality that have cumulated over time. The new Japanese prime minister, Shinzo Abe, should reconsider his proposed fiscal stimulus package in light of these costs, and rely instead on the monetary expansion he rightly advocates.
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Op-ed
Too Much Legitimacy Can Hurt Global Trade
Arvind Subramanian
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Over time the World Trade Organization (WTO) has become an institution where smaller and poorer countries have acquired a stake and a voice. This transformation may seem a welcome sign of legitimacy, but it has gone too far. For its future effectiveness, and indeed survival, the WTO needs to be de-democratized, with the large countries reasserting themselves. Otherwise, multilateral trade and the WTO face an existential threat because for the first time the largest traders are contemplating regional trade agreements amongst themselves. Trade will become more fragmented and friction-prone, and undermine the very system from which the smaller countries stand to benefit.
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Op-ed
Why Austerity Works and Stimulus Doesn't
Anders Åslund
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After five years of financial crisis, Northern European economies are sound, while Southern Europe is hurting because of half-hearted austerity or unsuccessful fiscal stimulus. The starkest contrast is between Latvia and Greece, two small countries hit the worst by the crisis that have pursued differing degrees and speed of austerity. Latvia's economy grew by 5.5 percent in 2011, and in 2012 it probably expanded by 5.3 percent, the highest growth in Europe, despite early aggressive fiscal austerity. Meanwhile, Greece will suffer from at least seven more meager years, when its GDP has already fallen by 18 percent. The lessons are clear.
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Op-ed
Ukraine's Monetary Policy Is Shockingly Incompetent
Anders Åslund
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The current policies of the National Bank of Ukraine (NBU) represent a low-water mark for an institution with an already poor track record. A central bank is supposed to pursue monetary policy with two primary goals: price stability and economic growth. There are additional subordinate aims, such as a sound financial system, the stability of the banking system, the convertibility of bank deposits and the currency, a predictable exchange rate, and the predominance of the domestic currency. Of all these objectives, the NBU has achieved one—low inflation—and it has been overdone at the expense of everything else. A devaluation looks close to inevitable within the next year, and the NBU policy is only likely to aggravate it.
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Working Paper 13-1
The Importance of Trade and Capital Imbalances in the
European Debt Crisis
[pdf]
Andrew Hughes Hallett and Juan Carlos Martinez Oliva
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The current debate on the European crisis has highlighted the role of fiscal imbalances in explaining the turmoil. This paper suggests that intra-European payments imbalances are the source of instability of the Economic and Monetary Union (EMU). Indeed, payment imbalances between the North and South have contributed to the accumulation of a large stock of foreign debt, while flows of foreign capital ceased to finance productive investments that might have contributed to debt repayments. Once the system is driven into disequilibrium by a real exchange rate misalignment, the longer the payments imbalance will persist and the harder the eventual adjustment will be. Capital reversals, by shifting portfolio balances, then lead the system toward instability, sovereign default, and the collapse of the exchange rate regime.
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Peterson Perspectives Interviews
Should the United Kingdom Leave the European Union?
Adam S. Posen argues that a British vote to opt out of the European Union would be a "lose-lose" for both sides of the English Channel.
A Trillion Dollar Platinum Solution to the Debt Ceiling?
Joseph E. Gagnon says the far-out idea of the US Treasury minting a $1 trillion platinum coin to avert a debt ceiling crisis is not as absurd as it seems.
Recent Blog Posts
PIIE Noted in the News and on the Web
Nightly Business Review
What Does Treasury Secretary Nominee Jacob Lew Bring to the Table?
Following the nomination of Jack Lew to be the next US Secretary of Treasury, Adam S. Posen tells Darren Gersh the next treasury secretary will have to cooperate with other countries also seeking to reign in budget deficits.
Bloomberg News
Posen Says Lew's Challenges Include Global Austerity
Adam S. Posen tells Bloomberg News the next US Secretary of Treasury will need to face international challenges, including how to deal with foreign countries' currency manipulation and the global effects of countries cutting their budgets.
The Washington Times
Too Much Belt-Tightening Risky for Global Economy
Adam S. Posen warns that for countries such as the United States and Germany, sudden austerity could do more harm than good, as international spillovers are quite large when major economies tighten monetary policy at the same time. Jacob Funk Kirkegaard adds that the recession in the euro area was the result of the member countries consolidating all at once.
America Abroad Radio
America and the European Union: A Vital Partnership
Adam S. Posen joins host Tess Vigeland and Charles Kupchan from the Council on Foreign Relations to discuss how the Obama Administration will look to strengthen America's relationship with Europe during the president's second term.
Thomson Reuters | TrustLaw
Call for Ethical Leadership to Stem Corruption, Share Global Wealth
Reuters' TrustLaw news service notes that the discussion at the PIIE ethics and globalization conference on increasing income disparity calls into question the sustainability of globalization and the ethical responsibilities of businesses.
The Kojo Nnamdi Show
North Korea and the Global Economy
Following a visit to North Korea by New Mexico Governor Bill Richardson and Google Executive Chairman Eric Schmidt, Marcus Noland and Kojo Nnamdi discuss business interests in North Korea and the North Korean economy.
Preview of Our Next Issue
Paper
Trends: North Korea
[pdf]
Stephan Haggard and Marcus Noland
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