Saturday, July 21, 2012


Una de las virtudes de los estadounidenses es "to speak the truth" públicamente en forma que a los europeos-no digamos a los españoles- nos resulta insólita.Así lo hace aquí Pettis en un comentario económico que trata a la vez la crisis española y europea y la situación china, utilizando la "inestabilidad de balance de Minksy" como hilo conductor.

El juicio europeo y español, que continua otros previos aquí reflejados, no puede ser más crítico ni negativo, considerando la realidad :

 Because yet another agreement for a temporary bailout of Spain will do little to address Spain’s real problems, which are its massively insolvent banks, its uncompetitive economy, and the fact that the country is caught in the downward spiral typical of debt crises in which every sector of the economy, not least its political elite, are acting in ways that systematically undermine growth and creditworthiness.  The continued deterioration in Spain and elsewhere is now part of a fairly mechanical process that operates under its own dynamic, and it will take a lot more than exhortations to reverse the process 

Unfortunately there isn’t much that can be done in a big enough or credible enough way to reverse the downward spiral, and this is why I don’t pay too much attention any more to the proposals and counterproposals that are on offer in Europe.  I think it is probably too late for that, but certainly by continuing to behave as if this is all about trust, or lack of trust (or, for the more conspiratorially minded, about underhanded actions by speculators hoping to bring the system down), policymakers are building in their own disappointment and extending the crisis.

At this point the only thing that can save the euro is a combination of moves in which the European banks are guaranteed by a credible institution and in which Germany takes steps to stimulate its economy quickly and dramatically.  Until Germany is willing to boost domestic spending enough to run a deficit that allows Spain to run a surplus, it is impossible for Spain to repay its debt. This is just basic balance-of-payments arithmetic.

 Given all the excitement over the speed of the deterioration in European markets, I suppose we are going to see urgent new measures announced and a temporary respite in the crisis, but ultimately I think this will be little more than a blip on the way to sovereign debt restructuring and the break-up of the euro.  Nothing has changed fundamentally in Europe in the past few weeks and there is no reason to assume that the crisis is on its way to being resolved.

 Any attempt to predict the likelihood and extent of a breakdown in an economic system – country, region, or company – that starts only from the asset/operational side of the economic entity (what Galbraith refers to above as real economic activity), without taking into account the feedback mechanisms inherent in the relationship between the asset and liability sides, is pretty useless.

What’s more, the recent history of disturbances in that economic entity tells us nothing about the future impact of similar disturbances – as long as the balance sheet structure is changing, and as Galbraith reminds us, the lack of instability during previous disturbances will itself change the structure of the balance sheet.  Stability is itself destabilizing, as Minsky warned us, because it changes the nature of the relationship between the two sides of the balance sheet.

 This is what I referred to as an “inverted” capital structure in my 2002 book, The Volatility Machine.  An inverted structure is the opposite of a hedged structure – when the asset/operational side of your balance sheet does well, your liability side also does well, but when the asset/operational side does badly, the liability side does too.

Inverted balance sheets exacerbate volatility – good times are automatically better than they otherwise would have been and bad times are automatically worse.  Countries (or companies) with inverted balance sheets are more volatile than countries with hedged balance sheets, and unless you can get all your speculative bets right, this higher volatility lowers growth over the long term. Inverted balance sheets, I argued in my book, are one of the key differences between countries that are able to recover successfully from crisis and countries that aren’t, and I would propose that this may be one of the differences between countries that can escape the middle income trap and countries that can’t.

Or to take two more obvious examples, first, asset based lending – for example against real estate – is also a source of balance sheet inversion.  When asset prices rise, the value of debt collateralizing the assets also rises, but when asset prices drop the debt becomes less credible and its implicit cost to the economy rises.  Second, borrowing short term, or borrowing in a foreign currency, has the same risk profile.  When the country is doing well, the real cost of short-term or foreign currency debt declines, only to surge when the economy gets into trouble.
Sometimes inverted capital structures are inevitable, but liability management consists, in my opinion, of identifying ways of eliminating inversion when you can and embedding as much hedged liability structures as you can, so as to make the overall economy less, not more, volatile.  In the case of China, stockpiling commodities is exactly the wrong thing to do – but of course it is hard to convince anyone that this is the case when we are in the “good” part of the volatility cycle.

EconoMonitor : EconoMonitor » The Unacceptable Behavior of the Market

Sunday, July 8, 2012


Con todas las crisis nacionales y europeas ganando en virulencia cada día, resulta necesario recordar algunas cuestiones esenciales y decisivas de la continuidad europea en riesgo:


Paul de Grauwe:

"The ESM has financial resources amounting to €500 billion. Compare this with the total government bonds outstanding of close to €2,000 billion in Italy and of about €800 billion in Spain and it is immediately evident that the ESM will be unable to stem a crisis involving one of these two countries, let alone the two countries together.
In fact it is worse. As soon as the ESM starts intervening, it will quickly destabilise the government bond markets in these two countries. The reason is the following.
Suppose a new movement of fear and panic, triggered for example by the deepening recession in Spain, pushes up the Spanish government bond rate again.
  • To stem the tide the ESM starts buying Spanish bonds. Suppose it buys €200 billion worth of Spanish bonds.
At the end of the operation it will be clear for everybody that the ESM has seen its resources decline from €500 billion to €300 billion. Less will be left over to face new crises.
  • Investors will start forecasting the moment when the ESM will run out of cash.
They will then do what one expects from clever people.
  • They will sell bonds now rather than later.
The reason is not difficult to see. Anticipating the moment the ESM runs out of cash forcing it to stop its intervention, they expect bond prices to crash. To prevent making large losses, they will have an incentive to bring their bond sales forward to the present rather than wait until the losses are incurred. Thus the interventions by the ESM will trigger crises rather than avoid them.
This feature is well-known from the literature on foreign exchange crises. The classic Krugman model, for example, has the same features (Krugman 1969, see also Obstfeld 1994). A central bank that pegs the exchange rate and has a finite stock of international reserves to defend its currency against speculative attacks faces the same problem. At some point, the stock of reserves is depleted and the central bank has to stop defending the currency. Speculators do not wait for that moment to happen. They set in motion their speculative sales of the currency much before the moment of depletion, triggering a self-fulfilling crisis.

Only the ECB can stabilise bond markets

The only way to stabilise the government bond markets is to involve the ECB, either indirectly by giving a banking license to the ESM so that it can draw on the resources of the ECB (see Gros and Mayer 2010), or by direct interventions by the ECB. But the European leaders were unable (unwilling) to take that necessary step to stabilise the Eurozone.
The ECB is the only institution that can prevent panic in the sovereign bond markets from pushing countries into a bad equilibrium, because as a money-creating institution it has an infinite capacity to buy government bonds. The fact that resources are infinite is key to be able to stabilise bond rates. It is the only way to gain credibility in the market.


The SMP is the wrong precedent

The ECB did buy government bond markets last year in the framework of its Securities Markets Programme (SMP). However it structured this programme in the worst possible way. By announcing it would be limited in size and time, it mimicked the fatal problem of an institution that has limited resources. No wonder that strategy did not work.
The only strategy that can work is the one that puts the fact that the ECB has unlimited resources at the core of that strategy. Thus, the ECB should announce a cap on the spreads of the Spanish and Italian government bonds, say of 300 basis points. Such an announcement is fully credible if the ECB is committed to use all its firepower, which is infinite, to achieve this target.
If the ECB achieves this credibility it creates an interesting investment opportunity for investors. The latter obtain a premium on their Spanish and Italian government bond holdings, while the ECB guarantees that there is a floor below which the bond prices will not fall. (The floor price is the counterpart of the interest rate cap). In addition, the 300 basis points acts as a penalty rate for the Spanish and Italian governments giving them incentives to reduce their debt levels.
The ECB is unwilling to stabilise financial markets this way. Many arguments have been given why the ECB should not be a lender of last resort in the government bond markets. Many of them are phony (see De Grauwe 2011, Wyplosz 2011). Some are serious like the moral hazard risk. The latter, however, should be taken care of by separate institutions aimed at controlling excessive government debts and deficits. These are in the process of being set up (European Semester, Fiscal Pact, automatic sanctions, etc.). This disciplining and sanctioning mechanism should then relieve the ECB of its fears of moral hazard (a fear it did not have when it provided €1,000 billion to banks at a low interest rate).


What should be done?

The correct business model for the ECB is one that has it pursuing financial stability as its primary objective (together with price stability), even if that leads to losses. There is no limit to the size of the losses a central bank can bear, except the one that is imposed by its commitment to maintain price stability. In the present situation the ECB is far from this limit (Buiter 2008).


"Putting the ECB in charge of banking supervision thus solves one problem. But it creates another one. Can one still hold national authorities responsible for saving banks which they no longer supervise?
This is not a new problem. The De Larosiere Report (2009), which became the basis for the creation of the European Banking Authority (EBA) and the Systemic Risk Board (ESRB), argued that the ECB should not be involved in ‘micro’ supervision mainly because banking rescue and resolution involves tax payer money, which they assumed had to be national.

First comes EZ bank regulation then comes EZ bank rescues
Banking regulation and restitution are difficult to separate – no wants to pay for things they cannot control. Economic (and political) logic thus requires that the Eurozone will soon need also a common bank rescue fund. 
Officially this is not fully acknowledged yet, except for a hint in the EZ summit statement of June 28/9 which says that once a system of supervision involving the ECB has been created it would become possible for the permanent rescue fund, the ESM, to inject capital into banks. 
This is how European integration often advances. An incomplete step in one area later requires further integration in related areas. In the past this method has worked well. The EU of today is a result of such a process.  But a financial crisis does not give policymakers the time they used to have to explain things to their electorate. The steps will have to follow each other much more quickly if the euro is to survive in its current form. 
Problems ahead
The worrying thing is that the terrain EZ leaders must cross is heavily mined. Europe does not have the luxury to construct its banking union from a stable situation. This new institution is being set up in the midst of a banking crisis.
There are clearly large losses that have to be realized and allocated.  
  • This means serious distributional conflicts both within and between member countries. 
The most difficult case is going to be Spain. The local savings banks are the weakest part of the Spanish banking system because they specialized in mortgages and lending to developers, i.e. the areas where very large losses are to be expected. A number of these were recently 'privatized', often in the context of mergers. These new institutions then had to raise capital in various forms (shares, preferred shares, subordinated debt).
Given that institutional and especially international investors were not willing to invest in these instruments (not surprising given that the state of the Spanish real estate market) the new capital was raised mainly from domestic investors, often the depositors themselves.
Who pays for past mistakes?
This leads to the first conflict: Who should bear the losses the (Spanish) investors or the Spanish government? 
As retail investors are also voters, the government (and the management of the cajas) have now incentives to pay back as quickly as possible all instruments that would otherwise be loss absorbing. This seems to be happening on a broad scale. It is thus possible that by the end of this year the weakest banks will have repaid all of their hybrid instruments at par or close to par.  At that point the loss absorption capacity of the Spanish banking sector will be much reduced. 
But this leads to the second distributional conflict: Will the European tax payers want to pay for past losses?  As the answer is presumably no, there is thus a danger that by the end of this year it will become impossible to inject European capital into Spanish banks unless either a number of banks have gone into informal insolvency (to bail in other creditors) or the Spanish government has put enough into the system to cover past losses (which it might not be able to do).  The road towards banking union is going to be difficult."


Han sido también diagnosticado y calculado con arreglo a lo anterior  por Edwin M. Truman:

" The European leaders this time have offered a more hopeful approach than in the past in both form and substance, but Europe could still be headed in the wrong direction unless the ECB builds an appropriate bridge on the structure of the decisions taken at the June summit and the political process implements those decisions comprehensively and expeditiously."


Ha sido concedido a Capital Economics (Roger Bootle) y considera los aspectos vinculados al fracaso de todos los intentos dirigidos a poner a la eurozona en una senda menos destructiva para los miembros más débiles que, en otro caso, se vean obligados a abandonarla.

BusisnessEurope, asociación empresarial europea, por el contrario, también ha formulado sus propuestas para evitar dicha ruptura.

Saturday, July 7, 2012


Hasta ahora los problemas de la zona euro eran los de los países del Sur con dificultades de deuda y crecimiento.El agravamiento puede incentivar también la consideración de la salida de los países "virtuosos" del Norte, con la intención de reducir los daños.Según parece y comenta Roubini aquí, Finlandia (Suecia y Dinamarca nunca estuvieron en la unión monetaria) esta considerando esta opción, lo que podría resultar un muy grave problema añadido.

Lamentablemente la metáfora de Roubini parece imponerse : "a slow motion train's wreck" ("el descarrilamiento a cámara lenta de una tren")

Some private unofficial estimates put the potential losses of Finland with continued EZ membership at between 10 and 15% of Finnish GDP.

Fourth, many social, business and political forces in Finland are skeptical of the euro and/or supportive of an exit. The most fervent euro-skeptic group is The Finns Party (formerly the “True Finns”). But even the broadly pro-euro National Coalition, the party of the current prime minister, contains opponents to the common currency, one of which is Finland’s President, Sauli Niinistö, who bemoans the fact that Finland bails out richer EZ members, yet is still pro-euro. Another party leader, Ben Zyskowicz, last week pointed out the EZ’s fundamental design flaws. For the time being, the forces formally supporting a “Fixit” are in the minority, but there is now significant internal debate on the pros and cons of membership. If Greece moves closer to exit and Italy and Spain end up on the verge of losing market access and requiring even more risky financial support from the EZ core, Finland may decide that the additional credit risk is not worth the benefit. Indeed, the country has already been the most vocal so far—in debates about the EFSF, the ESM and other aspects of the periphery bailouts—in requesting formal collateral or seniority for its contributions to the EZ periphery rescues.

For now, the ruling coalition is still firmly in support of EZ membership, but there are plenty in favor of an exit in the political opposition; even within the coalition, many are grumbling in private about the costs of EZ membership. A trigger to increase the chances of Fixit would be a decision by the EZ to increase the potential losses and credit risk of the core members—including Finland’s—via a fiscal and transfer union, debt mutualization and EZ-wide deposit insurance. At that point, the forces pushing for Fixit may get the upper hand.

EconoMonitor : Nouriel Roubini's Global EconoMonitor » Fix it or Fixit – Could Finland Be Next?

Sunday, July 1, 2012


El Trinunal Supremo de Estados Unidos decidió el 28 de Junio el caso sobre el "impuesto por no comprar aseguramiento médico", afirmando en parte la constitucionalidad de la ley del Congreso (impuesto) y rechazando en parte la misma (penalización a los Estados que no se adhirieran al programa de extensión de Medicaid).

La cuestión del Impuesto la resumíamos así en Marzo de 2010:

"Desde un punto de vista jurídico la principal cuestión que ha sido objeto de debate hasta la fecha es la de si la sanción o gravamen a pagar por la falta de cumplimiento del mandato individual de aseguramiento (695 dólares anuales) es un impuesto o multa no autorizado por la claúsula que autoriza a establecer impuestos al legislador federal para el “general welfare” o no autorizado por la “claúsula de comercio” que autoriza regulaciones dirigidas directa o indirectamente a regular el comercio interestatal, entendiendo por tal también los servicios.

Las opiniones favorables y contrarias sobre esta cuestión se han recogido por el
New York Times y por otras publicaciones, en especial por el debate entre Rivkin y Casey y Balkin. También por los economistas que se han pronunciado a favor y en contra de las nuevas medidas.

En general, el gravamen o sanción por la falta de aseguramiento pretende incentivar el aseguramiento por aquellos individuos que preferirían autoasegurarse por considerar que el coste de su riesgo futuro será inferior al pago acumulado de primas de aseguramiento. La norma por el contrario entiende que la ampliación del “pool” de riesgos y asegurados permitirá a los aseguradores privados una mejor gestión del riesgo y una disminución de los costes globales.

El aspecto teórico interesante es que si los individuos no pensaran que conocen sus probabilidades de enfermedad entonces tendría sentido establecer un “pool” de riesgos forzados puesto que el mismo constituiría par todos los asegurados una solución óptima de Pareto (ninguno perdería y la posición global mejoraría) Este es también el criterio de justicia de Rawls en el supuesto de un “velo de ignorancia” sobre las condiciones futuras. Por el contrario, si se considera que los individuos tienen razones para no asegurarse porque tienen información que les permite considerar que su riesgo futuro no exige el aseguramiento actual, entonces los obligados al aseguramiento estarían realizando una transferencia de renta propiamente impositiva en beneficio de quienes obtengan los fondos federales que derivan de la sanción y/o se beneficien de las subvenciones federales a los programas de salud.

La peculiaridad de la situación es que el impuesto o sanción se configuraría como un gravamen sobre la percepción del grado de salud del individuo y no sobre otras manifestaciones de su renta. En la propuesta del Congreso- no aprobada- el impuesto se configuraba como un impuesto sobre la renta del 2,5% con un techo de la “prima nacional promedio (de aseguramiento) para el ejercicio fiscal en curso”.

El Tribunal Supremo ha decidido en la forma indicada por 5-4, con el voto favorable y decisivo del Chief Justice Roberts, lo que ha sorprendido debido a la normal inclinación del Chief Justice con la minoría en esta Sentencia.

La decisión muy extensa plantea cuestiones interesantes por la naturaleza peculiar del "impuesto", que tampoco se admite constituya un impuesto directo (lo que habría obligado a distribuirlo entre la población de los Estados).

Estos son los resúmenes de la opinión de la mayoría y de la minoría:
Justice Roberts concluded:
The Affordable Care Act is constitutional in part and unconstitutional in part. The individual mandate cannot be upheld as an exercise of Congress’s power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress’s power to tax.
As for the Medicaid expansion, that portion of the Affordable Care Act violates the Constitution by threatening existing Medicaid funding. Congress has no authority to order the States to regulate according to its instructions. Congress may offer the States grants and require the States to comply with accompanying conditions, but the States must have a genuine choice whether to accept the offer.[45]
[ . . . ]
The Federal Government does not have the power to order people to buy health insurance. Section 5000A [of the Internal Revenue Code] would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.[46]

Justices Scalia, Kennedy, Thomas, and Alito signed a joint dissent in which they argued that the individual mandate was unconstitutional because it represented an attempt by Congress to regulate beyond its power under the Commerce Clause.[49] Further, they argued that reclassifying the Individual Mandate as a tax rather than a penalty in order to sustain its constitutionality was not to interpret the statute but to re-write it, which they deemed a troubling exercise of judicial power.[50]
There was speculation that the joint dissent was the original internal majority opinion, and that Chief Justice Roberts' vote changed some time between March and the public issuance of the decision.[51][52][53] Paul Campos, a professor of law at the University of Colorado at Boulder, for example, quotes the following passage from the joint dissent:[51]
Finally, we must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration.
Campos then concludes that: "The dissenters are saying that construing the mandate as a tax would require them to address a constitutional question that they don’t have to address. But the only reason the Court would not have to address this question is if the majority in fact refused to construe the mandate as a tax – which is exactly what the Court’s majority ended up doing.