European Banks and Asia C.P. Chandrasekhar and Jayati Ghosh

European banks are being forced to take a haircut to deal with the region's crisis. Given their greater role in total international funding and the significant exposure of Asian financial systems to global capital, this raises concerns about the likely impact that the European banking crisis would have on Asia. European_Banks (Download the full text in PDF format) (This article was originally published in the Business Line, on November 14, 2011)

The Continent is Destroying the Weak to Protect the Strong. But Will That be Enough? James K. Galbraith

The eurozone crisis is a bank crisis posing as a series of national debt crises and complicated by reactionary economic ideas, a defective financial architecture and a toxic political environment, especially in Germany, in France, in Italy and in Greece. Like our own, the European banking crisis is the product of over-lending to weak borrowers, including for housing in Spain, commercial real estate in Ireland and the public sector (partly for infrastructure) in Greece. The European banks leveraged up to buy toxic American mortgages and when those collapsed they started dumping their weak sovereign bonds to buy strong ones, driving…

Monetary Policy and Central Banking after the Crisis: The implications of rethinking macroeconomic theory Thomas I. Palley

In this paper, the author presents an outsider reform program that focuses on central bank governance and independence; reshaping the economic philosophy of central banks to be more intellectually open-minded; major monetary policy reform that includes adoption of an inflation target equal to the minimum unemployment rate of inflation (MURI) and implementation of asset based reserve requirements; and regulatory reform that addresses problems of flawed incentives, excessive leverage, and maturity mismatch. imk (Download the full text in PDF format)

Shifting Havens for Capital C.P. Chandrasekhar

The US is by no means the world's most competitive or strongest economy, though the dollar remains its reserve currency. This intuitively contradictory feature in contemporary capitalism was seen as likely to sap the dollar's strength, even if there was no clear alternative to it as a reserve currency. The threat to the dollar intensified with the onset of the 2008 crisis and the Federal Reserve's response to that crisis in the form of an injection of huge volumes of cheap liquidity into the system. With the system awash with dollars, the currency was expected to slide. The evidence too…

Transatlantic Cooperation for Post-Crisis Financial Reform- To What End? Aldo Caldiari

During the 2008-09 financial crisis, the G20 began to meet at the “Heads of State” level to formulate and implement emergency policy responses. Since then, the US and the European Union have been overhauling their own financial regulatory frameworks in parallel processes as well as working on regulatory frameworks in the context of G20 meetings where representatives of the US and five European governments and the EU hold seats. This study examines the question: What are the key issues regarding financial regulation on which transatlantic cooperation (or lack of it) could have an impact? transatlantic_cooperation (Download the full text in…

Rethinking Investment Provisions in Free Trade Agreements Smitha Francis

Developing country governments are increasingly resorting to comprehensive trade agreements involving profound commitments in public policy, which have wide-ranging adverse consequences on food security, industrial development, financial stability, etc. This paper analyses investment disciplines in FTAs in order to come to an understanding of their overall impact on a developing country FTA partner’s policy space, and therefore, on its development prospects. It is argued that given the links between trade and investment commitments within and across different FTAs, South-South FTAs have become as problematic as North-South FTAs. Rethinking_Investment_Provisions  (Download the full text in PDF format)

Revisiting Capital Flows C.P. Chandrasekhar and Jayati Ghosh

A striking feature of the recent global financial crisis and its aftermath is the behaviour of private international capital flows, especially to emerging markets. Prior to the crisis, in the years after 2003, a number of analysts had noted that the world was witnessing a surge in capital flows to emerging markets. These flows, relative to GDP, were comparable in magnitude to levels recorded in the period immediately preceding the financial crisis in Southeast Asia in 1997. They were also focused on a few developing countries, which were facing difficulties managing these flows so as to stabilise exchange rates and…

Is the IMF Really Changing? Jayati Ghosh

For a while now, the IMF has been caught wrong-footed during almost every major global economic event. In the years just before the Great Recession of 2008, it was an international institution on life-support: ignored by most developing countries; derided for its failure to predict most crises and then for its counterproductive responses; even called to book by its own auditors for poor management of its own funds! It encouraged financial liberalisation that pushed many countries to crisis, and became famous for congratulating bubble economies for their healthy and sound financial management (Thailand in 1997; Argentina in 1999; most recently…

A New “Beijing Consensus”? C.P. Chandrasekhar

Nobel Laureate Joseph Stiglitz has written an article in the Financial Times dated April 1, 2011 arguing that a substantially enhanced issue of Special Drawing Rights (SDRs) by the IMF should be the first step in the reform of the international monetary system. The article is of special significance because it is based on a statement issued by 18 leading economists from across the globe calling themselves the Beijing Group, which includes nine known Chinese figures. Few would object to the idea that the IMF must further enhance the allocation of SDRs and alter its distribution to help countries deal…

Bailout Bonanza C.P. Chandrasekhar

Ordered by Congress on the basis of the Frank-Dodd financial reform bill, the United Sates Federal Reserve recently dumped on its website details of around 21,000 lending transactions it undertook to deal with the crisis that engulfed the financial system and threatened a collapse comparable with the Great Depression. Through multiple programmes referred to with confusing acronyms, the Fed clearly launched a massive bailout. Besides facilities that provided credit on an overnight basis, the Fed implemented programmes such as: (i) the mortgage-backed securities (MBS) programme under which MBS could be exchanged for cash; (ii) the term auction facility that provided…