House Price Rollercoaster
This is a terrific visualisation of what has happened to US house prices since the late nineteenth century - we ride the rollercoaster based on data from the Case Shiller index.
And if you want the latest Case Shiller data on US house prices - based on the 20 city survey, then click on the Timetric charts below .... hold onto your hats, the Florida property price data in particular looks pretty scary
read more...»Timetric: UK Consumption as a Share of GDP
There is much talk in macro-economic policy circles of “re-balancing the economy” as a prelude to sustaining economic growth in the future. One aspect of this is addressing the long-term increase in importance of household spending as a share of national income (GDP). As our Timetric chart shows, the proportion of GDP accounted for by consumer spending on goods and services has edged higher over the years from 58% in 1980 to nearly two thirds of GDP in the credit-fuelled spending boom of the last few years.
read more...»The Cost of Credit - Mining the Card Charges
Our good friends at Timetric are producing some superb stuff with economic data and here is another example. Policy interest rates are at historically low levels but the cost of borrowing for businesses and unsecured loans for personal customers continues to edge higher and is a vast multiple of the policy rate. This blog from Timetric offers timely background on the rising cost of credit. And it provides a connection to information failures in the consumer credit market.
US pay day loan firms set for rapid expansion in the UK
The financialisation of the British economy continues apace. This article in the Guardian reports that US pay day loan businesses (regulated loan sharks to you and me) are planning a rapid and sizeable entry into the UK consumer credit market. In part this might be because in the UK there is little or no effective regulation on what they can charge.
Cash-strapped families often denied credit by high street banks are vulnerable to the heavy marketing of these businesses - students will know of one of them Wonga the shirt sponsor for Blackpool FC. The typical pay day loan is around £75 to £750, which is deposited in their bank account in as little as 15 minutes, to be repaid in around two to four weeks but with interest rates that can easily reach 30% a month or higher.
The pay day loan market might be a good case study for students wanting to understand more about the demand for credit and discussions about whether there should be a maximum price or cap on the interest rates that can be charged.
David Smith on Shifting Sands in the Global Economy
David Smith from the Sunday Times was on fine form in his talk to the Global Economy Student Enrichment event at Fulham yesterday. I have some brief notes below on some of his key themes and the pdf version of his presentation can be downloaded from the link at the bottom of the blog
read more...»Brad Pitt and the Big Short
Fans of Brad Pitt may be interested to know that the Hollywood star is pretty much lined up to take a lead role in the film of The Big Short - the epic new book from Michael Lewis. The author let this slip in discussion at a packed LSE last week as he explored the charaacters of many of the lead figures in a story of epic financial returns from staggering regulatory failure.
read more...»Regulation and the banking industry: reflections from Davos
If, like my school, you haven’t entered students for Unit 3 in January but are teaching both A2 units side-by-side for June examination, you might be looking for examples of competition policy and regulation to offer your students in the coming weeks. The report of the Independent Commission on Banking and the focus on regulation at last week’s Davos meeting are very well timed; this report filed today by Tim Weber of the BBC gives a neat summary of the time leading up to Lehman’s collapse, and offers a rather chilling conclusion from informal dinner-table discussions with the world’s top bankers that it is unlikely that regulators can, in practice, untangle the systemic risks in the financial system that make it imperative for government’s to step in and support failing banks.
If you would like to follow this up as an example with students, you might try some of the following links. There are numerous articles assessing the report of the ICB - just a couple are given here.
read more...»Economics at the Movies - Margin Call
Now releasing in the UK and starring Kevin Spacey, Paul Bettany, Jeremy Irons and Demi Moore, Margin Call is presented as a thriller that revolves around the key people at a investment bank over a 24-hour period during the early stages of the financial crisis.
BBC Newsnight interview (Jan 2012)
read more...»Will we have to live with high unemployment?
Will many advanced economies have to live with a new semi-permanently higher level of unemployment as a consequence of the global financial crisis, economic slump and a period of fiscal austerity?
read more...»
Keynes spotted in London
Paul Mason the BBC’s Economics Editor manages this terrific end of scoop by spotting John Maynard Keynes near his old stomping ground in Bloomsbury - a quiet interview in a local pub provides some clues to Keynesian thinking on the recession!
An amusing introduction to the recession
Read on for a brilliant and amusing video explaining what a recession actually is…
read more...»Using Google Docs - The Irish Financial Crisis
My Year 13 students have worked on a collaborative piece this week on the Irish financial and economic crisis. We considered the background to the crisis, why the UK is helping with the bail out and some of the consequences for the future stability of the Euro. The final version of the Google Doc is available to download here.
read more...»iLand - Shareholders and Taxpayers feel the Pain
On a scale of 1 to Ireland, how broke are you? In February 2007 The Bank of Ireland had a market capitalisation of over sixty billion euro. Market cap is the market value of a company’s issued share capital, i.e. the number of shares multiplied by the current price of those shares on the stock market. Today that market cap has collapsed - and as of this morning - With a market cap of $1.4bln, the bookmaker Paddy Power is now Ireland’s largest financial stock!
Another perspective: Facebook’s latest stock market valuation is €105bn. Ireland’s annual GNP: €130bn.
And low-cost airline Ryanair’s market cap tonight is nearly three times that of the entire Irish banking system!
The destruction of shareholder value in the Irish banking system is immense - but the losses and debts of the banks have been socialised and are being borne by Irish taxpayers. The emergency budget will hit people tremendously hard - among the announcements:
* €200 per household property tax for Ireland
* VAT will rise twice to 23%
* A cut in the national minimum wage in Ireland - cut by one euro to 7.65 euros per hour
* Pay cuts in the private sector
* The introduction of domestic water charges by 2014.
Rumours that Steve Jobs is set to use some of Apple’s cash pile to purchase the country and re-brand it iLand appear to be a little wide of the mark!
read more...»
Will this be the end of the bluecoats?
Another ‘iconic’ British brand heads into administration
read more...»The Acid Burns Through - Requiem for Neo Liberalism
For Paul Mason, BBC Newsnight’s Economics Editor, there is a scene in the film Alien that provides a powerful allegory for the ways in which the global financial crisis has seeped through several floors of the economic system creating along the way severe tensions and challenges that threaten the whole process of globalisation. You can see this scene here. In it, Ash (Ian Holm) tries to sever the alien off Kane (John Hurt), but the blood that gushes out turns out to be acid which then burns a hole in the ship. As the acid works its way inexorably through several floors, the fear is that it will eventually reach the shell of the space capsule and endanger everyone within in.
read more...»Video resources on consumption and saving
I am teaching the determinants of consumption and saving with my AS Macro group and have been putting together a set of short video news reports on factors such as taxation, consumer confidence, house prices, expectations, interest rates and unemployment. My selection of video resources is provided below.
read more...»Two New Films on the Financial Crisis
The autumn of 2010 heralds the arrival of two new films focusing on the global economic crisis. Nouriel Roubini has seen Inside Job and claims on his twitter site that it is a must see film. The Flaw is also highly recommended by friends of mine who have seen an early release - and it has the bonus of including Dan Ariely and Robert Frank - two of my economics teaching heroes. So here are the two trailers ... and I will try to blog on this again if and when the films are available for viewing here in the UK. There is one showing at the RSA in London the week after next.
read more...»Attaching Blame for the Financial Crisis
Howard Davies spoke at the LSE this week on responsibility for the financial crisis - teaching colleagues may want to download and dip into the presentation that has kindly been made available here by the LSE.
IMF signs off on UK’s fiscal plans
The IMF signed off on George Osborne’s fiscal deficit plans today.
The Fund praised the government’s bold strategy to eliminate the deficit within five years. The deficit reduction plan “greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy,” the concluding statement of the mission said.
It welcomed the early action on the deficit and the weight given to spending cuts rather than tax increases.
Irish economy sinks deeper into recession
The latest growth figures for the ailing Irish economy make for sorry reading. National output continues to shrink and this is reducing the size of the tax base from which the government draws revenue to pay off the huge level of debt. This BBC news video provides a background on the debt-recession spiral.
read more...»
A2 Macro - Economic Growth Charts
We started our teaching this year by looking at issues related to measuring living standards and now we are moving onto aspects of the causes and consequences of economic growth.
I like to put growth into some kind of context by drawing on recent UK cyclical data and growth information for a range of other countries. I have attached a brief powerpoint of such charts with this blog which may be of some use for colleagues.
One of the interesting trends for many OECD countries is that estimated trend growth (the % change in potentail) GDP has fallen sharply in recent years. Indeed for Spain and Ireland, trend growth estimates have dropped into negative territory. Mo’s recent blog on hysteresis links in part to why this is happening.
Download the A2 Macro Growth Charts
Economic_Growth_Charts.pptx
Hysteresis in the US Economy
The idea of hysteresis from the current recession is well illustrated in this article.
Millions of Americans risk falling out of the job market forever, the Organisation for Economic Co-operation and Development said today, as it cautioned a full recovery will take years. This recession has left the US with a long-term unemployment rate - a measure of those without work for more than six months - of 4.5pc, almost double that seen in the downturns of the 1980s and 1990s… Read more here.
read more...»Currencies in the News - Two Videos
Movements in the external value of currencies have direct and indirect effects on plenty of macroeconomic variables such as inflation, exports, output, profits and - ultimately - jobs. This week we have seen the Japanese central bank intervening in the foreign exchange market in an attempt to drive the value of the Yen lower. Japan is struggling to sustain a recovery after the global financial crisis and a weaker currency is seen as a vital part of the attempt to prevent another draining bout of price deflation.
And the long-running dispute between the United States and China about the alleged under-valuation of the Yuan against the US dollar continues to rumble. This BBC news video takes a swing through New Jersey to find trade unions lobbying government for more action on the exchange rate issue.
New Research on Fiscal Multipliers
The size of the fiscal multiplier may be larger in recessions than in expansions according to new research published here. A useful article to use when teaching macro policy responses at A2 level. Hat tip to Kevin Hinde for first flagging this up.
Autumn leaves are falling for the global economy
The arrival of the Fall is often a time to take stock of where the global economy is heading and there have been several perceptive and fascinating blogs on this in recent days.
read more...»
Fears rise for a double dip over the pond
There are some very worrying signs for the United States today with the news that new home sales (for completed properties and those under construction) have dropped to to their lowest level for nearly 50 years. Dr Doom, Noruiel Roubini has tweeted that the risk of a double dip recession in advanced economies (comprising the USA, Japan, the Eurozone and the UK) has now risen to 40%.
The fall in new home sales is taken as a litmus test of weakening confidence and signs that the fiscal and monetary policy stimulus policies have started to run out of steam. Unemployment claims in the USA are up to 500K per month and a fresh descent into recession in the labouy-intensive US construction industry will give deeper deflationary pressure on the world’s largest economy. Since the start of the global financial crisis, US construction businesses have shed more than two million jobs.
In a related feature, Nouriel Roubini takes tea with the Economist and discusses some of the main systemic risks for the global economy.
Inequality and the risk of financial crisis
Are there causal links between the scale of income and wealth inequality and the risks of financial crisis and distress? This article from the New York Times reports on research from David A Moss at the Harvard Business School who continues to mine cross country data on inequalities to see if there are close correlations with banking crises in particular countries.
Might it be the case that persistent relative poverty among lower income groups was a factor driving the expansion of sub-prime lending and excessive borrowing on very expensive credit cards?
Or was the sub-prime debacle largely the result of inappropriate financial deregulation and policy interest rates being held close to zero for too long rather than a trend rise in inequality?
What of the incentives of people at the top of the income scale? Has the rising economic power and influence of the super rich played some role in creating the conditions for financial and macroeconomic instability.
Correlation does not necessarily imply causation as the article makes clear in an interview with Glenn Hubbard from the Columbia Business School.
The Stimulus Debate - Krugman versus Ferguson
If you are looking for an introduction to some of the key themes in the debate about how best macro policy should respond to the global financial crisis and the recession then this set of videos from Global Public Square could be pitch perfect. There are interviews with the Keynesian-leaning Paul Krugman and Niall Ferguson who buils the case for running small fiscal deficits.
Links to the videos are below
read more...»Credit squeeze - businesses rely more on factoring
A new report has found that the cost of borrowing money for small and medium size enterprises continues to rise as the economy struggles to sustain and meaningful recovery. Risk-averse banks have lifted borrowing interest rates and tightened the conditions on which loans are offered - a major bone of contention for businesses under threat of going under or perhaps looking for fresh funding to cover the cost of expansion.
Many are turning to factoring as an alternative to traditional loans and overdrafts. Under factoring a business chooses to pass on an existing invoice to a factoring company who pays a percentage of that invoice straightaway. The balance is received when an invoice is settled with the factoring company taking their own % cut and charging an administration / commission fee for handling a businesses’s credit management.
It is not cheap - but turning an invoice into cash immediately can be a lifeline. This BBC news report looks at the case of James Winnister who runs a security and fire installation business, and has to use factor invoicing to manage his cashflow.
Germany speeds ahead
After a terrible 2009 in which real GDP dropped by 4.9%, the German economy has posted the biggest increase in her quarterly GDP since West was unified with the East. German gross domestic product expanded by 2.2 per cent rate in the second quarter compared with the previous three months. German industry is riding on the back of a rebound in demand in the global economy (her manufacturing businesses are closely tied to swings in the world economic cycle) allied to the competitive boost of the recent depreciation of the euro against the US dollar.
Steve Evans reports on the surging German economy
read more...»
