Archive for February, 2012

Europe’s “Bankers First” Approach

Michael Stephens | February 7, 2012

“…while Europe’s leaders haven’t hit upon a way to forestall a years-long span of catastrophically high unemployment and falling living standards, they do appear to be really really really really committed to saving banks.”  That’s Slate‘s Matthew Yglesias, who notes that this (seemingly exclusive) focus among European elites on saving their banks likely ends up protecting the US economy from eurozone contagion more effectively than would policies focused on growth and easing the plight of those whose wellbeing depends on the “real” economy.

The reason is that, as Gennaro Zezza points out here, the US economy is not overly exposed to a slowdown in European growth; not overly exposed, that is, compared to the fallout from a European financial panic.  As Dimitri Papadimitriou and Randall Wray indicate, US finance is still entwined with the fate of European finance; at least in part due to the roughly $1.5 trillion invested in European banks by US money market mutual funds.

In other words, comparatively speaking, the US economy will not suffer much from European policy elites’ apparent relative disinterest toward the fate of their people, but may dodge a bullet if current efforts to save the European banking system work out.  (At least in the short run.  In the longer run, Ryan Avent is probably right to worry that this LTRO stuff may just amount to sweeping serious problems under the rug:  “…when failure is never allowed the system becomes more brittle and the cost of a blow-up, which probably isn’t avoidable for ever, rises.”)


Conference: Reclaiming the Keynesian Revolution

Michael Stephens | February 6, 2012

(click to enlarge)


How to Delay the Next Financial Meltdown

Michael Stephens | February 3, 2012

Dimitri Papadimitriou and Randall Wray deliver a second installment of their joint assessment of the risks that a renewed global financial crisis might be triggered by events in Europe or the United States.  In their latest one-pager they move past disputes over etiology and lay out their solutions for both sides of the pond:  addressing the basic flaws in the setup of the European Monetary Union (“the EMU is like a United States without a Treasury or a fully functioning Federal Reserve”) and outlining how to place the US financial system and “real” economy on more solid foundations.

Read the newest one-pager here.

Their first one-pager focused on the reasons it is unhelpful to label the turbulence in Europe a “sovereign debt crisis.”  This way of framing the situation obscures more than it enlightens.  To recap:  prior to the crisis only a couple of countries had debt ratios that significantly exceeded Maastricht limits.  For most, the economic crisis was the cause of rising public debt ratios, rather than the other way round.  What we really need to look at, Papadimitriou and Wray suggest, are private debt ratios and current account imbalances within the eurozone.  And as for current public insolvency concerns, this has far more to do with the flaws in the institutional setup of the European Monetary Union than the particular size of a country’s debt ratio:  countries that control their own currencies aren’t experiencing comparable difficulties.

(For a more detailed investigation, Papadimitriou and Wray will be releasing a new public policy brief:  “Fiddling in Euroland as the Global Meltdown Nears.”)


State Taxes Are Wildly Regressive

Michael Stephens |

Some indigestible food for thought:  there is not a single state in the Union—not one—in which the top 1% of income earners pay a higher rate of state taxes than the bottom 20%.  For the majority of states, it’s not even close:  the poorest 20% pay somewhere between double and six times the tax rate of the richest 1%.  In Florida, those who make the least pay 13.5% of their income in state taxes, while those who make the most pay 2.1%.

This comes to us from Mother Jones’ Kevin Drum, who dug into the comprehensive “Assets and Opportunity Scorecard” recently produced by the The Corporation for Enterprise Development.


Auerback on the Latest Eurodrama

Michael Stephens | February 1, 2012

Marshall Auerback appeared on the Business News Network to give his take on the latest developments in the eurozone crisis; specifically with respect to the ongoing negotiations over the proposed (now 70 percent) haircut on Greek debt.  Auerback also addressed the LTRO (noting the rather dramatic increase in the ECB’s balance sheet) and the credit default swaps on Greek debt (on this, see also Micah Hauptman’s take on the process for determining when these CDS payments are triggered:  “murky, unregulated, and replete with conflicts of interest“).

You can watch a clip of Auerback’s interview here.

(credit to Mitch Green at NEP)