Posts

Showing posts from June, 2014

More on Argentina and the Vulture Funds and the sanctity of contracts

So the Argentine government decided to negotiate with the Vulture Funds to avoid a default, which is eminent if no agreement is reached, well, basically today. This is not necessarily bad news, given the potential consequences of a default. It is also one of the frustrating results of the decision of the very Conservative (and pro-bussiness) Roberts Supreme Court. To preside over the negotiations Judge Griesa chose a Wall Street lawyer (who boasts in his CV to have sued Elliot Spitzer for exceeding his authority in investigating Wall Street fraudsters). Argentina is trying to pay today to the ones that renegotiated, but whether that will happen is still not clear (apparently without success).

Note that the consequences of the default could be dire indeed. It would put more pressure on the exchange rate, lead to further depreciation that would be both inflationary, and contractionary, since it would basically reduce real wages. The economy would be forced to continue to grow at very l…

Mark Weisbrot - Who Shot Argentina?

Image
By Mark Weisbrot
When Cristina Kirchner first ran for president of Argentina in 2007, she had a campaign commercial with adorable young children answering the question, “What is the IMF (International Monetary Fund)?” They offered cute little ridiculous answers like “The IMF is a place where there are many animals,” and the punch line from the narrator was: “We have succeeded in making it so that your children and grandchildren won’t know what the IMF is.” To this day, there is no love lost between the IMF and Argentina, since the fund presided over Argentina’s terrible economic collapse of 1998-2002, as well as numerous failed policies in the years prior. But when the U.S. Court of Appeals for the Second Circuit ruled in favor of vulture funds trying to collect the full value of Argentine debt that they had bought for 20 cents on the dollar, even the IMF was against the decision. Read rest here, and for another piece by Weisbrot, see here, and for posts on the issue by Matias, see h…

Jörg Bibow on Draghi's negative rate of interest

Image
Jörg Bibow's letter (subscription required) in the Financial Times argues that the negative deposit rate and other measures by Draghi's ECB will fail to increase inflation. In his words:
"The driving force behind the eurozone’s disinflation process is wage repression – exercised to a brutal degree across the currency union. In fact, wage repression – joined by fiscal austerity – is the eurozone’s official policy meant to resolve the euro crisis; even if it is euphemisms such as structural reform of labour markets and welfare systems that usually make the headlines instead." Very classical (as in the old classical political economy) diagnosis of the causes of inflation (and income distribution), and compatible with Keynesian interpretations of the causes of the Euro crisis. As I noted before, this New Keynesian nonsense that central banks can induce higher expectations of inflation and lead to increased consumption is dangerous, and has substituted the old and clear l…

ISLM, ISMP, DSGE and other models

Image
From the Google Ngram Viewer.

Note that even though the ISLM is from 1937 (and yes it is in the GT, and Keynes did endorse Hicks formalization, as discussed here, and here), it is only in the 1970s that the term takes off. The ISMP, which substitutes a monetary policy rule for the LM, and includes as a result endogenous money into mainstream models (note again endogenous money is not central for heterodox models, since orthodox ones can incorporate it, as discussed here) takes over in the 2000s, as does the Dynamic Stochastic General Equilibrium models, in which the IS with a multiplier is substituted by a Ramsey model. So, given the trends, you should miss the good old ISLM indeed.

On the blogs

Mark Weisbrot - The Debt Vultures' Fell Swoop

Image
By Mark Weisbrot
Last week, the United States Supreme Court decided not to review a ruling in the Second Circuit Court of Appeals whose effect is that Argentina must pay “holdout” creditors who refused to participate in debt restructuring agreements that Argentina reached with the majority of bondholders following the 2001 default on its sovereign debt. Argentina’s lawyers warned that the court’s decision created “a serious and imminent risk” that the country would again be forced to default. But the ruling also has profound and disturbing implications for the functioning of the international financial system, and even the United States would most likely be adversely affected. Parties as diverse as the International Monetary Fund and leading religious organizations wanted the Supreme Court to overturn the decision, and briefs supporting this position were filed by the governments of France, Brazil and Mexico, as well as by the Nobel Prize-winning economist Joseph E. Stiglitz. The I.M…

What is 'Dollar Hegemony'?

Image

What is the 'Classical Dichotomy'?

Image

Winter School on Advanced Topics in Heterodox Economics in Buenos Aires

Image
At the Universidad Nacional de San Martín. See the program here (taught in Spanish).

On the blogs

Supreme Court Sides with Vulture Funds in the case of Argentina

Very briefly, since I've to go teach (more later today this week). The Supreme Court has sided with the Vulture Funds and denied Argentina's appeal judge's Griesa's infamous decision requiring it to pay the last holders of bonds on which it had defaulted (almost 93% had already renegotiated, after Argentina's agreement with the Paris Club). The problems this will cause transcend Argentina, and are a blow for any debt renegotiation worldwide. Who will accept a renegotiation knowing that the Supreme Court can decide that some have to be paid according to the original agreements?

In the case of Argentina, the efforts to finalize the renegotiation with debtors, that culminated with the Paris Club agreement, and which intended to normalize the relation with international capital markets, and allow a reentry of the country into those markets on a more favorable footing are gone. A very likely outcome will be a technical default, that is, for lack of payment even though …

Employment is finally reaching the pre-crisis level

Image
The level of employment is finally after 5 years or so close to the pre-crisis levels. Note that unemployment is considerably down, from around 10 in mid-2009 to 6.3 last May according to the Bureau of Labor Statistics (BLS). The growth in employment has more or less kept pace with the growth of population, while the size of the labor force has been almost stagnant, as seen below.
In other words, what has been growing is the number of workers not in the labor force, which are not counted as unemployed. In other words, not a very good picture.

EPI | Over 1/4 of men 25-34 years old earned poverty-level wages in 2013

Image
By Elise Gould
In honor of Father’s Day, we looked at the wages of male workers at the prime age for raising young children. While women have always been more likely to earn poverty-level wages than men (wages less than what a full-time, year-round worker needs to sustain a family of four at the official poverty threshold), women have seen some improvement over the last three-and-a-half decades, as their rates of poverty-level wages have declined, especially among those 35 to 44 years old. On the other hand, men between 25 and 44 have seen precipitous increases in the share working at such low wages, with the share more than doubling between 1979 and 2013. This trend has been particularly stark among the younger age group. The figure below shows the share of male and female workers between 25 and 34 and between 35 and 44 years old who earn poverty-level wages. In 2013, that hourly wage was $11.49. Over one-fourth of men 25-34 years old earned poverty-level wages in 2013. The bottom l…

The Paris Club, Vulture Funds and global debt restructuring

Image
Argentina has finalized a deal with the Paris Club two weeks ago. And tomorrow, if I'm not wrong, the case against the Vulture Funds will be finally decided by the Supreme Court. On the first one, Argentina signed an agreement with the Paris Club that implies the country will pay around US$9.7 billions in the next 5 years.

There is an interesting twist in the agreement with the Paris Club. The agreement was reached without accepting an IMF program, which have traditionally been part of all such negotiations. The Club and the IMF used to be joined at the hip. Two Paris Club chairmen, Jacques de Larosière and Michel Camdessus, became later managing directors of the IMF. So in a sense, the idea was that austerity at home was essential for repayment abroad. Here it is important to note a traditional confusion in the conventional view about the role of austerity.

Note that fiscal austerity can only have an indirect impact on repayment of a debt in foreign currency. You don't need …