Is 70% of the world economy in a liquidity trap?
Paul Krugman expands on the nature of the liquidity trap and why more of the world economy might be in this situation than is commonly supposed. His opening paragraph raises an interesting question for A2 economists - does a liquidity trap encourage protectionist policies and heighten the risks of a period of prolonged de-globalisation?
“Being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense.”
PIGS or BRICS - which is most important for UK exports this year?
The PIGS - Portugal, Italy, Greece and Spain - are in economic turmoil and likely to experience weak growth in the near term. A contrast to the BRICs - Brazil, Russia, India and China - three of whom are already seeing a ramping up of their growth rates as the world economic cycle turns. But which group is more important for the UK export sector? Chris Giles from the Financial Times has the answer here and his blog provides a useful evaluation point for AS and A2 macroeconomics students.
Wen turns the tables
Following on from last month’s article in EconoMAX that I wrote, China has insisted again today that the yuan is not undervalued - The Chinese premier turned the tables on the U.S and Europe today when it said that putting pressure on China to appreciate its currency was tantamount to protectionism!! Genius!
“What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.
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Economics Teaching Charts - UK Balance of Payments Data
Lots of colleagues cover BoP at this stage of the year – here is an updated chart set for the AS macro course.
Launch interactive Balance of Payments UK Charts
Download slide handouts (pdf) - one chart per A4 page
Inflationary pressures in China
This BBC news video provides an interesting window on the pressures for wages to rise in the booming city of Shanghai. The impressive rebound in Chinese economic growth is driven by the strength of the underlying growth forces in the economy together with the impact of the huge fiscal stimulus. But for many young professionals growth is causing the cost of living to surge - food and property prices are the main concerns. Inflation is a genuine risk for the Chinese economy - what might the Chinese authorities do about this?
read more...»Metal prices on the rise again
What do the following businesses have in common?
Anglo American
Antofagasta
BHP Billiton
Eurasian Natural Resources
Fresnillo
Kazakhmys
Lonmin
Randgold
Rio Tinto
Vedanta
Xstrata
AS Macro: Sterling and the UK Economy
The Bank of England estimates that the pound has depreciated by around 25pc since mid-2007. And in 2008-09, sterling registered an even larger depreciation against the dollar than its 1992 exit from the European Exchange Rate Mechanism. In trade-weighted terms, the decline was the biggest since figures were first calculated in the early 1980s.
The fall in the external value of the pound has many possible consequences for an open economy such as the UK. At AS level it is important to identify these effects and explain them using an AD-AS framework. Then support your answer with some good evaluation points and (where possible) supporting evidence.
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Assorted Links (24 Jan 2010) Prospects for the UK Economy
In the week ahead, official data is likely to herald an end to the recession purely in terms of quarterly changes in national output. But the macroeconomic situation remains highly uncertain with plenty of risks and potential pitfalls ahead. Here are five links on related issues:
1/ BBC news: Ernst and Young warns UK firms of ‘bumpy ride’
2/ Independent: Back from the brink? Green shoots of recovery
3/ Observer: UK exports ‘dropped by more during recession than in any other slump’
4/ Guardian: The recession should be over soon but happy days are a long way off
5/ The Scotsman: Why the Bank of England’s credibility is on the line
Chinese growth in words and pictures
Statistics about the speed of China’s development never cease to be amazing, no matter how many times you read them. Here is another one; in the dark days of 2009 the Chinese economy grew by yet another 8.7% (10.7% in the final quarter of the year) so that it is now set to overtake Japan, which probably shrank by 6% over the same period, to be the world’s second largest economy. And yet, according to Ma Jiantang, head of the National Bureau of Statistics, there are still 150 million people in China living on $1 a day and so poor according to the UN’s standard rating. This gives a remarkable contrast as the world’s second or third largest economy is also a developing nation with enormous conflicts and trade-offs in macroeconomic policy to resolve. Mr Ma also referred to the concerns about inflation in China - he said price rises were “mild and under control”, but over recent days the government has tried to limit the amount of loans made by the country’s banks in order to avoid a ‘domestic bubble’ of growth. This is the focus of the Times’ report, which highlights expectations that there may be a rise in interest rates in China in the next two months.
read more...»Assorted Links (19 Jan 2010) - Focus on the Chinese Economy
1/ Telegraph: Something has to stop the Orient express and its cargo of trade imbalances - Roger Bootle argues that China must do more to reduce the soaring trade imbalance between China and the rest of the world
2/ The Observer: Dark economic clouds on the horizon for China - Heather Stewart looks at the risks facing the Chinese economy in 2010
3/ The Times: After £800bn loans, China tells banks to focus on the real economy - Unprecedented lending growth risks causing a bubble economy and rampant inflation.
4/ The Guardian: Without Chinese economic reform, global recovery may be doomed - Larry Elliott argues that China needs to boost domestic consumption rather than relying on exports, or the world will be flooded with goods that nobody wants
5/ Independent: China ‘overtakes’ Germany to become largest exporter
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