Search

You searched for: Content Type Policy Brief Remove constraint Content Type: Policy Brief Publishing Institution American Enterprise Institute for Public Policy Research Remove constraint Publishing Institution: American Enterprise Institute for Public Policy Research Publication Year within 25 Years Remove constraint Publication Year: within 25 Years Topic International Trade and Finance Remove constraint Topic: International Trade and Finance
Number of results to display per page

Search Results

  • Author: John H. Makin
  • Publication Date: 07-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The bond “conundrum” that Alan Greenspan spoke of toward the end of his tenure at the Federal Reserve is disappearing. Chairman Greenspan was drawing attention to unusually low longterm interest rates worldwide on bonds.1 More recently, however, in less than a month interest rates on U.S. ten-year notes have risen by 60 basis points with no change in expected inflation. The shift is all the more unusual because of its abruptness and relative magnitude: in statistical terms, it is a rise of three standard deviations in “real” (inflation-adjusted) rates in a market that has been quiet over the past five years. Moreover, the few “surprise” moves since the tech-stock bubble burst in 2000 have mostly been in a downward direction.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: John H. Makin
  • Publication Date: 06-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: The American consumer is a very persistent spending machine. It is American consumption growth running at higher than 4 percent annualized— well above its long-term average—that has kept the economy comfortably out of recession for the past six months as the housing slowdown has subtracted more than a percentage point from growth. Even with a substantial additional drag on the U.S. economy from other areas—inventory liquidation, weakening net exports, and rapidly rising gasoline prices—the American consumer's spending surge has still been enough to keep GDP growth in positive territory.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States, America
  • Author: John H. Makin
  • Publication Date: 05-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Friday, April 13, the Wall Street Journal's lead story on the unlucky U.S. economy was “Economy Enemy No. 1: Soft Capital Spending.” The nation's leading business newspaper was acknowledging a six-month slowdown in capital spending that has, along with the drag from the housing sector, been lowering U.S. growth.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: United States
  • Author: Yegor Gaidar
  • Publication Date: 04-2007
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In the summer of 2002, after the Russian government introduced the flat income tax, completed fiscal reforms, created the Stabilization Fund, and introduced land reform in Russia, I had a premonition that the window of opportunity for further reforms would be closing for a number of years. I was correct in my prediction.
  • Topic: Economics, Energy Policy, International Trade and Finance
  • Political Geography: Russia, Europe, Asia, Soviet Union
  • Author: John H. Makin
  • Publication Date: 05-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. In their April 21 press release following their spring meeting in Washington, D.C., the G7 finance ministers and central bank governors added an important sentence to their usual bland statement that exchange rates should reflect economic fundamentals: Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur. The G7, significantly, also called for an increased role for the International Monetary Fund (IMF) to help countries, including those in the G7 but also China and others in emerging Asia, meet the macroeconomic and financial policy challenge of globalization. Specifically, the G7 supported the strengthening of IMF surveillance, including through increased emphasis on the consistency of exchange rate policies with domestic policies and a market-based international monetary system and on the spillover effects of domestic policies on other countries. The G7s endorsement of greater exchange-rate flexibility and of an enhanced IMF role in implementing it is important. The IMF, having been founded after World War II to maintain stable exchange rates among major economies, has become an advocate on behalf of the major economies of global exchange-rate flexibility. The lesson regarding the need for G7 currency flexibility was learned after Americas August 1971 abandonment of fixed exchange rates, which was followed by a decade of adjustments to higher oil prices that would have wreaked havoc under fixed exchange rates. The lesson for needed currency flexibility in emerging markets was learned after the disastrous attempt, fostered in part by the IMF, to impose fixed exchange rates during the Asian and Russian crises of 1997 and 1998, which prolonged and exacerbated the market gyrations caused by the crises. Sadly, China response to the G7-IMF call for greater currency flexibility has been both negative and misguided. China's foolishly insouciant attitude, captured in a comment by Zhou Xiao-chuan, governor of the Peoples Bank of China, carries with it serious risks both for China and for the world economy. Zhous remark was quoted on April 24 in the Wall Street Journal: [T]he speed of moving forward (on yuan appreciation) is OK. Its good for China and welcomed by many other countries. China's currency has appreciated only 1.2 percent since its initial 2.1 percent revaluation last July 21. That is less than OK. The total 3.3 percent revaluation against the dollar really represents no adjustment at all in view of the 1 to 2 percent inflation differential (lower in China) that has persisted between the United States and China over the past two years. If China had allowed prices to rise instead of mandating caps on prices of important commodities like gasoline, there would be less pressure for the yuan to rise in value. Both the intervention to cap the yuans appreciation and the capping of domestic prices are building up potentially disruptive inflation pressure inside China, as we shall see below. The most dangerous aspect of China's increased efforts to prevent yuan appreciation, as measured by accelerating reserve accumulation over the past year, is the rising pool of liquidity inside China that has resulted. The level of excess reserves in Chinese banks is now larger, relative to GDP, than the level of excess reserves built up in Japan from 2001 to 2005 during the years of a prolonged, desperate struggle against deflation. China's currency undervaluation, coupled with the massive liquidity buildup in its banking system, has resulted in excessive investment in China's state enterprises that have close traditional ties with the liquidity-sodden banks. The usual Chinese response to excess reserves has been to boost reserve requirements for its banks. But to absorb the huge pool of excess reserves now in place, reserve requirements would have to be boosted by 5 percentage points to 12.5 per-cent, going far beyond previous moves of 0.5 to 1 percentage point, and far beyond what China's shaky, insolvent banks could endure. When the Peoples Bank of China boosted its one-year benchmark lending rate on April 26 by 27 basis points (to 5.85 percent), it took a tiny step that will do little to tighten China's monetary stance.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States, China, Washington
  • Author: John H. Makin
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: Concerns over deflation have dominated monetary policy during the past several years in Japan, and also in the United States as recently as 2003. As a result, the Bank of Japan and the Federal Reserve have been highly accommodative. In Japan, this took the form of a zero interest rate. In the U.S. context, it was manifest in rates at well below normal yardsticks, such as nominal GDP growth that would call for U.S. policy interest rates close to 6 percent rather than at current levels below 5 percent. Unusually accommodative monetary policies and the substantial liquidity flows they have entailed have boosted asset values and compressed risk spreads. Consequently, demand growth has persisted at high levels for long enough to cause modestly higher inflation. The time has come for tighter monetary policy, and central banks in the United States, Europe, and Japan have all begun to apply it.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Japan, Europe, Israel, East Asia
  • Author: John H. Makin
  • Publication Date: 02-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In August 2000, with the Japanese growth rate holding above 2 percent, the Bank of Japan decided to initiate an end to the zero interest rate policy that it had initiated in March 1999. This step was taken despite the existence of modest deflation, indicated by readings of minus 0.2 to minus 0.5 percent on various measures of inflation. At that time, no central bank had thought seriously about deflation as a threat since the depression of the 1930s.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Japan, Israel, East Asia
  • Author: John H. Makin
  • Publication Date: 01-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On Tuesday, January 18, the yield on fifty-year inflation-protected U.K. government bonds (what the British call "indexed-linked gilts") dropped to 0.38 percent, about one-seventh the historical average of just over 2.6 percent for such debt instruments. Just a few months earlier, that yield had been over 1 percent, still extraordinarily low by historical standards, and especially low in an economy that has experienced fifty-three consecutive quarters of positive growth. A yield drop from 1 percent to 0.38 percent on a fifty-year bond corresponds to a 30 percent rise in its price over a period of just three months. That is an annual return of over 100 percent, much higher than the 13 percent annual increase in U.S. house prices at midyear and the 20 to 30 percent gains seen in the stock market before the March 2000 crash. The asset bubble has spread to long-term government bonds, especially those with inflation protection. What is going on here?
  • Topic: Economics, Government, International Trade and Finance
  • Political Geography: United States, United Kingdom, Europe
  • Author: Peter J. Wallison
  • Publication Date: 03-2006
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: In December, the London Stock Exchange celebrated a record year for foreign company new issues, with 129 new listings by companies from twenty-nine different countries. In contrast, the New York Stock Exchange registered a net gain of six foreign listings (a gain of nineteen and a loss of thirteen) in 2005, and NASDAQ gained a net of fourteen. According to a press report by the London Stock Exchange on its success, “about 38 per cent of the international companies surveyed said they had considered floating in the United States. Of those, 90 per cent said the onerous demands of the new Sarbanes-Oxley corporate governance law had made London listing more attractive.” By now, it is well-known what harm Sarbanes-Oxley has done to the attractiveness of the U.S. securities markets, but what is not well- known is that the lack of resources available to a relatively obscure accounting group—engaged in the development of a technical-sounding disclosure system called XBRL—may also threaten not only the current primacy of the U.S. financial markets, but also the future competitiveness of U.S. companies.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, New York, London
  • Author: John H. Makin
  • Publication Date: 12-2005
  • Content Type: Policy Brief
  • Institution: American Enterprise Institute for Public Policy Research
  • Abstract: On December 13 the Federal Reserve's Open Market Committee (FOMC) raised the federal funds rate, the principal tool for setting monetary policy, by 25 basis points to 4.25 percent. At the same time, the Federal Reserve Board of Governors greatly simplified what had been a tortured statement explaining the basis for their actions and the factors that will govern future actions. The statement was remarkably brief: Despite elevated energy prices and hurricanerelated disruptions, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures. The Committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives. (emphasis added).
  • Topic: Economics, Emerging Markets, Government, International Trade and Finance