What Recovery? The ECB and Unconventional Monetary Policy

By Ashesh Rambachan

The Economist reported last week,

“The recovery, though feeble, has nonetheless been sustained. Output rose by 0.3% (an annualised rate of 1.3%) in the second quarter of 2013, and although growth slowed to 0.1% in the third, it picked up to 0.2% in the fourth. More important, there are signs that the pace may be accelerating this year. Despite the crisis in Ukraine, euro-zone surveys of confidence and activity in the first three months of 2014 have been encouraging.”

Since when is .2% growth encouraging? How is 1.30% growth encouraging when unemployment across the Eurozone is 11.9%? (It’s much, much worse in member states such as Spain and Italy.) To make matters worse, inflation across Europe fell to 0.50% this last quarter. Newsflash: This is not a recovery and to make matters worse, there are concrete steps that can be taken to ameliorate the pain.

            Economists, such as Paul Krugman, have pointed out time and time again that, given the challenges facing European nations, higher inflation, even above 2%, is good. It reduces the real value of debt. It reduces operating costs for businesses relative to the rest of the world, increasing competitiveness. It also encourages individuals to spend as it creates a real cost to sitting on cash. Even though the European Central Bank has hit the dreaded zero-lower bound (in other words, interest rates can go no lower), it can still take steps to combat deflation, boost the monetary base and hopefully generate growth.

            Look at the Federal Reserve in the United States as an example. Since hitting the zero-lower bound in late 2008, the Federal Reserve has engaged in unconventional monetary policy, known as quantitative easing. While central banks conventionally target the interest rate on short-term government debt, they can also affect the interest rates on other financial instruments, such as long-term government debt, private securities or even stocks. Armed with the printing press, central banks have the power to engage in massive purchases of these unconventional assets, driving down their interest rates and shoving cash into the economy. The Federal Reserve Bank of San Francisco estimated the direct effect of these purchases in the United States. It estimated that these purchases of over $600 billion of long-term US government debt boosted GDP growth by between 0.10% to 0.50% annually. Not a lot to be sure, but 0.1%-0.5% is still significant.

            Sadly, no similar action appears to be on the horizon in the Eurozone. The head of the European Central Bank, Mario Draghi, after the most recent meeting of the ECB’s executive board, announced that while the Bank is considering unconventional action, it has decided to wait and see if prolonged low inflation continued. This is a mistake. Given the inability of European governments to increase spending or slash taxes (see: debt crisis), unconventional monetary policy represents a ready tool to generate much-needed growth and inflation. The longer the ECB waits, the more damage personal damage economic stagnation will reek across the Eurozone. 

Thai protests threaten economic progress in Southeast Asia and stability in the region

             Recent months have brought continuous political unrest in Thailand where anti-government protesters have taken to the streets to protest various acts of corruption.  The ruling party, headed by Prime Minister Yingluck Shinawatra, has come under much scrutiny for nepotism and the perceived mishandling of funds.  Accusations include movements to bring Shinawatra’s brother, former Prime Minister Thaksin Shinawatra, back to Thailand with impunity, despite being ousted in a 2006 coup for various counts of corruption.  A governmental decision to grant the brother amnesty highlights worries.  Citizens are concerned that the current government is acting with the same corrupt intentions as the last, and such suspicion has fueled the protests in recent weeks.

             Though protests have been largely peaceful in the past, violence has broken out among the current dissenters causing various domestic economic problems for the Southeast Asian nation.  Tourism, which comprises a significant portion of Thailand’s economy, has suffered from travel warnings issued in response to the turmoil.  In a recent example of the economic toll of the protests, stocks fell in January due to dissent specifically from rice farmers, whose promised rice subsidy is nowhere to be found; such economic shortcomings on the part of the Thai government has sparked a downturn in investor confidence in Thai markets.  Such negative economic activity may trigger a greater crisis in neighboring nations such as Cambodia, themselves no strangers to political difficulties. The clash turned deadly in Phnom Penh, Cambodia’s capital, on the third day of this year, where police killed at least three garment factory workers and injured at least a dozen more calling for higher wages.  

            Political dissent fueled by economic woes is a disturbing trend manifesting itself in multiple forms in Southeast Asia.  The region has recently been involved in a degree of economic optimism, especially as the Association of South East Asian Nations (ASEAN) has outlined a plan to sign a free trade agreement known as the Regional Comprehensive Economic Partnership (RCEP) in 2015, an agreement that would include economic powerhouses China and Japan.  However, such instability in countries facing political unrest will undoubtedly increase volatility and lower investor confidence, greatly reducing the optimism surrounding the ASEAN region in recent years.  Volatility in Southeast Asia follows closely possible economic stagnation in neighboring China, a trend with negative implications not only for the region, but also for the world at large.           

            In light of the problems facing many nations in the Southeast Asian region, the question arises: which came first, political or economic difficulties?  In general, it seems at this point that each is fueling the negative trend of the other.  In Thailand at least, economic improvements will hopefully lead to an improvement in the political climate.

 —Molly Reiner

Widespread Dangers of Iraqi Sectarianism

            The United States withdrew all military forces from Iraq in December 2011.  However, sectarian violence between the Shiites and Sunnis has only seemed to increase since U.S. disengagement there; deadly attacks killing dozens of people are commonplace today, two years after American troops left.  Such sectarian problems in Iraq, only one example of equally disturbing violence throughout the Middle East, should factor prominently in U.S. foreign policy decision-making, especially in the realm of maintaining security against budding terrorist cells throughout the region.  In light of the continued, heated civil unrest in Iraq, U.S. interest must not dwindle in the country that has received so much attention over the decade.  However, the U.S. must also carefully gauge its level and direction of involvement, in order to avoid falling into foreign policy traps of the past, including unwavering support for unpopular regimes, or inadvertently funding terrorist organizations.

            After the official American troop withdrawal in 2011, civil violence was widely under control; conflict escalated as a result of the independent rule of the newly installed Shiite-controlled government over a population with significant amounts of both Sunni and Shiite Muslims, though Shiites are the majority at 63%.  Political disputes directed at Shiite Prime Minister Nouri al-Maliki sparked the sectarian violence once again, led by popular Sunni unrest due to the perceived oppression of the Shiite government.  Sunnis especially were subjected to the “de-Baathification” and anti-terrorism laws that imprisoned (some say unjustly) many Sunnis in the few years following U.S. withdrawal.  Various clashes between the Iraqi security forces and the Sunni opposition comprised of unhappy civilians and members of the Islamic State of Iraq and the Levant (otherwise known as al-Qaeda in Iraq) have threatened to escalate into full-scale sectarian warfare.  As recently as January 15 of this year, multiple car bombs were detonated in the capital of Baghdad, killing 22 and injuring 74.  These staggering numbers are not even the complete casualty count for the fifteenth, as 61 total people, mostly Shiites, were killed in Baghdad and throughout the country.  The violence is centered in Shiite areas targeted by Sunni extremists, fueling general sectarian unrest in the surrounding area, especially in neighboring Syria.   

            The U.S. response to the sectarian struggle has been predictable, composed entirely of support for the Maliki government.  Maliki, of course, was brought to power as a result of the American invasion of Iraq in 2003 and the overthrow of the previous Baathist dictatorship run by Saddam Hussein.  The U.S. therefore has a distinct interest in supporting his hold on power.  Additionally, the Sunni opposition contains a significant Islamist and al-Qaeda faction, and the United States fully supports any efforts to eliminate the threat of terror spurting from the region. However, unconditional support for an unpopular regime should trigger alarm bells in the mind of an observer of the region with an understanding of recent historical events.  The most recent example of the failings of such a strategy is the fall of Hosni Mubarak, the Egyptian dictator that perpetuated the close alliance between Egypt and the United States following the 1979 Camp David Accords.  When the Egyptian population overthrew the dictatorship in 2011, and then again during the military coup of 2013, popular opinion was decidedly not in favor of the United States, as posters in the street featured negative slogans plastered over the faces of President Obama and Secretary Clinton.  The decision to support the government over the masses and vice versa is definitely not an easy one, as the tradeoff is between negative public opinion of the United States and growth and proliferation of terrorist activity.  Therefore, the decision to continue both diplomatic and economic support to the Maliki government will require a careful consideration of the ideologies of both the regime and the opposition. 

 —Molly Reiner

Protests in Thailand persist.
This photo documents the pro-government faction in an attempt to build a wall at the National Anti-Corruption Commission.
To read more, and to find the source of this photo, visit Reuters 

Protests in Thailand persist.

This photo documents the pro-government faction in an attempt to build a wall at the National Anti-Corruption Commission.

To read more, and to find the source of this photo, visit Reuters 

What’s going on in the Central African Republic? Here’s what you need to know.

Obama’s Trip to Israel

With much hurrah from the American and Israeli press, the White House announced earlier this month that President Obama will be traveling to Israel in March for the first time in his presidency. Administration officials are touting the trip as a resetting of the often tenuous relationship that has existed between Obama and Israeli Prime Minister Benjamin Netanyahu. With Obama recently inaugurated for his second term and Netanyahu in the process of putting together a new coalition after his country’s parliamentary elections, it seems like the perfect opportunity for Obama to reach out to his Israeli counterpart. Although Netanyahu’s party emerged weakened from the January 22nd elections, it still won enough seats to ensure another term for Netanyahu, meaning that the two leaders will need to deal with each other for years to come.

Israelis seem quite excited that Obama is visiting, hoping to reengage with the US presidential post that has often been at odds with Netanyahu’s right-wing agenda. Speaking on MSNBC this past week, the Israeli ambassador to the US, Michael Oren, said “Look, we’re delighted that he is coming… He’ll be received enthusiastically by the government of Israel, by the prime minister of Israel, by the people of Israel.” Although Obama traveled the Middle East during the 2008 campaign, he skipped over the country during his 2009 trip, choosing only to visit Egypt and Saudi Arabia. During the 2012 campaign, Mitt Romney often trotted out Obama’s omission of Israel from the itinerary as a proof of the Democrat’s lack of support for the Jewish State.

 Due to the trip’s emphasis on a strengthening the American-Israeli relationship, Obama’s Press Secretary Jay Carney has made a point of publicly minimizing the potential of discussions about the Israel-Palestinian conflict on the trip. “I’m sure that any time the president and prime minister have a discussion and certainly any time the president has a discussion with leaders of the Palestinian Authority, that those issues are raised,” Carney said recently. “But that is not the purpose of this visit.” Even if that is not the intention of the trip, Obama will be seeing Palestinian Authority President Mahmoud Abbas in Ramallah and Jordanian King Abdullah II in Amman after visiting Israel. Depending on how the trip goes, it will help determine the relationship between Washington and Jerusalem for the next four years.


-Oren Fliegelman

Originally Posted By huffingtonpost

huffingtonpost:

In addition to the ban, the Sunderbari village council in a Muslim-dominated area some 385 kilometers (239 miles) east of Patna, the capital of Bihar, has also imposed a fine of 10,000 rupees ($180) if a girl is caught using a mobile phone on the streets.Married women would have to pay 2,000 rupees ($36.60).
India’s Women Cell Phone Ban: Sunderbari Village Bars Mobile Use For Females

huffingtonpost:

In addition to the ban, the Sunderbari village council in a Muslim-dominated area some 385 kilometers (239 miles) east of Patna, the capital of Bihar, has also imposed a fine of 10,000 rupees ($180) if a girl is caught using a mobile phone on the streets.

Married women would have to pay 2,000 rupees ($36.60).

India’s Women Cell Phone Ban: Sunderbari Village Bars Mobile Use For Females

Originally Posted By pritheworld

pritheworld:

The Land of Tobacco

Smoking is the leading cause of death in China, and by 2050, the number of deaths from tobacco-related causes is expected to triple.

A Contrast in Constitution-Making: Egypt and Tunisia

Just as Egypt was grabbing international headlines for negotiating a ceasefire between Israel and Hamas last week, the most populous Arab country suddenly saw its own domestic scandal. Egypt’s new president, Muslim Brotherhood-backed Mohammed Morsi, issued a power-grabbing constitutional declaration that excluded his decisions from judicial oversight. In response, thousands of protesters took to the streets in Cairo, accusing Morsi of returning the presidency to a dictatorship.

To help calm the protests, the Constituent Assembly, the appointed body tasked with drafting the new constitution, hurriedly preparing its latest draft for a nation-wide referendum now scheduled for December 15. This rushed and confused process has only exacerbated the anger among citizens. The drama is only the latest back-and-forth in a constitutional drafting process gone wrong, as the country has been trying to find its way after the overthrow of President Hosni Mubarak in February 2011.

Read More

Originally Posted By globalpost

globalpost:




Typhoon Bopha has also destroyed homes and brought down powerlines.



At least 270 are dead following Typhoon Bopha’s landfall in the Phillipines Tuesday.According to the Telegraph, the storm has also destroyed homes and brought down power lines. 
Mindanao island was especially affected, with flash floods and landslides slamming a mining base and sweeping water and soil through an army post, according to Reuters.  A television reporter said she saw numerous dead bodies lined up near the base.
The Associated Press also reported that a Philippines governor said at least 43 villagers and soldiers had drowned when the typhoon dumped a torrent of water that rushed down a mountainside.
See more photos at GlobalPost

globalpost:

Typhoon Bopha has also destroyed homes and brought down powerlines.

At least 270 are dead following Typhoon Bopha’s landfall in the Phillipines Tuesday.According to the Telegraph, the storm has also destroyed homes and brought down power lines. 

Mindanao island was especially affected, with flash floods and landslides slamming a mining base and sweeping water and soil through an army post, according to Reuters.  A television reporter said she saw numerous dead bodies lined up near the base.

The Associated Press also reported that a Philippines governor said at least 43 villagers and soldiers had drowned when the typhoon dumped a torrent of water that rushed down a mountainside.

See more photos at GlobalPost

Originally Posted By nationalpost

nationalpost:

Merging Canada’s provinces: From Pacific Columbia to East SaskitobaLast week a group of Senators asked Atlantic Canadians to “think big” and consider a Maritime Union. Well, the Post’s Steve Murray thought even bigger.

nationalpost:

Merging Canada’s provinces: From Pacific Columbia to East Saskitoba
Last week a group of Senators asked Atlantic Canadians to “think big” and consider a Maritime Union. Well, the Post’s Steve Murray thought even bigger.

(via pritheworld)

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