Coppola Comment

Sectoral balances can tell us so much about what is going on in an economy. Especially when they are expressed as a time series, as in this remarkable chart from the ECB : Although it is a time series, this is not a rate-of-change chart. The y axis is in billions of Euros, not in percentage growth rates. But the chart nevertheless shows that Eurozone net saving has risen steadily since the financial crisis, except during the Eurozone crisis of 2011-12 when it dipped slightly. What do we mean by "net saving"? The legend appears to conflate saving with investment, and the brief explanation at the bottom of the chart doesn't really help. So here's some simple algebra to sort it out. In national accounting, "saving" is the excess of income over desired consumption. For the private sector, it looks like this: S p = Y - T - C where Y is the net income of the private sector from all sources, T is tax payments, and C is all other consumption. Thus, ...

Ah, those pesky words. They do not mean what we think they do. And sometimes we say one thing, but people think we mean another.  And so it is that David Glasner, in a beautifully crafted takedown of my previous post , has managed to miss my point entirely. I did, in fact, read carefully all of David's quotation from Ralph Hawtrey, though I did not quote all of it. Hawtrey's point is that what appeared to be destructive competitive devaluation as countries left the gold standard was in fact beneficial loosening of domestic monetary policy. His fishing fleet did indeed all come safely into harbour, eventually. This was also my point, and the reason why I highlighted Hawtrey's gold standard thinking. Hawtrey understood that in a gold standard system, loosening domestic monetary policy must involve deliberate devaluation versus gold. Indeed in any fixed currency peg system, monetary loosening requires explicit devaluation versus the commodity or foreign currency to whi...

" The euro area economy is gradually emerging from a deep and protracted downturn. However, despite improvements over the last year, real GDP is still below the level of the first quarter of 2008. The picture is more striking still if one looks at where nominal growth would be now if pre-crisis trends had been maintained." So said Peter Praet, Member of the Executive Board of the ECB, in a recent presentation to the FAROS Institutional Investors' Forum. He's not wrong. From his presentation, here is a chart showing the difference between current output, current (estimated) potential output and projected output prior to 2007: That is indeed a striking gap. It is reflected in this chart from Eurostat (August 2015): So, the fall in GDP growth between 2007 and 2015 has resulted in a rise in unemployment of nearly 4 percentage points. Currently, across the Euro area as a whole (population about 340m), adult unemployment stands at 11% and youth unemployment ...

The Group of 30 central bankers and economists has produced a new report, "Fundamentals of central banking: lessons from the crisis". It traces the history of central banking theory and practice, including the economic thought that underlies it. And it draws from it some important lessons about the causes of the 2008 crisis and the reasons for the very long, slow recovery. I've discussed the main themes of the report here (Forbes). But in this post, I want to focus on a particular piece of economic history. This chart leapt out at me from the report: Note that this chart starts only two years after the Weimar hyperinflation, hence Germany's elevated inflation rate at the start. This is important, as we shall see. What struck me is how similar the profiles of the two countries are during the Depression. Both experienced Fisherian debt deflation - annualised CPI fall at peak was 10% for both countries. And both had very high levels of unemployment. German unem...

In my last post , I pointed out that Greece's current depression is by no means the worst since World War II, as is often stated, and that the US's Great Depression was not the worst depression in history either. For reference, I'm putting up Tony Tassell's chart again. I'm frankly appalled by the comments on that post. The arguments used to justify the prevailing views amount to the following. 1. The other countries in the list aren't rich Western countries, so they don't count. Eh??? 2. Depression in a time of war isn't really depression. I doubt if the people of Syria would agree with this. However, in support of this point (and taking into account point 1), Christos Savva kindly provides this chart: What this chart shows us is that the two World Wars were bad for the GDP of Western countries, and REALLY bad for the GDP of the countries on the losing side. So if you want to avoid a really bad depression, make sure you always win w...

We're used to hearing that the current Greek depression is the longest and deepest since World War II, aren't we? And that the worst depression in history was the US's Great Depression? Via the FT's Tony Tassell comes this chart: Looks like the fall of the Iron Curtain, the collapse of the Soviet Union and the first Gulf War did far more damage. Not to mention the numerous wars and crises in Africa. The current Greek depression just about makes it on to the bottom of this chart, and the other recent EU disasters don't even figure.  I can't imagine what it is like to live through a GDP collapse of nearly 80%. But there are people alive today in Georgia and Iraq who remember that dreadful time all too well. And the appalling collapse suffered by Latvia in 1990-3 made their 2009 recession seem mild by comparison, even though it was the deepest of any country in the EU at that time.  Nor are these all depressions of the past. Halfway up this chart is Syri...