Coppola Comment

 The UK is running a trade surplus. No, really, I am not joking. This is from the ONS's latest trade statistics release : The UK total trade surplus, excluding non-monetary gold and other precious metals, increased £3.8 billion to £7.7 billion in the three months to August 2020, as exports grew by £21.4 billion and imports grew by a lesser £17.5 billion It's the first time the UK has run a trade surplus since the late 1990s:  And if you were thinking this was because of the lockdown, you would be wrong. The UK has been running a trade surplus since the beginning of 2020: Admittedly, the trade surplus widened under lockdown. But the UK economy reopened to some degree from June to August - and yet the trade surplus continues to widen. This is no doubt music to the ears of balance of payments obsessives. Could the UK at last be pivoting away from a consumption-led growth model to an export-led one?  At first sight, it appears so. Exports have increased more than imports. And...

The world is saving like crazy. Corporations are building up cash mountains that they can’t or won’t invest in expanding their businesses. Individuals are building up pensions and precautionary savings. Governments, especially in developing countries, are building up FX reserves. The “ savings glut ,” as former Fed chairman Ben Bernanke dubbed it, shows no signs of dissipating. It is sloshing around the world looking for a productive home. But there isn’t one - or at least, not one that offers the safety that fearful investors desperately crave. That, fundamentally, is what is driving down the returns on assets. It is also the primary cause of the wide US trade deficit. The President likes to think that the reason for the US’s persistent trade deficits is unfair trade practices and currency manipulation. And for some countries, these are undoubtedly contributing factors. But the biggest reason by far is the global dominance of the dollar, and above all, the pre-eminence of dollar...

This post first appeared on Pieria in November 2013.  Throughout history, humans have dreamed of plenty. They have longed for there to be abundant supplies not only of essentials, but of luxuries. The promise made to the Israelites wandering in the desert was that they would eventually come to a land “ flowing with milk and honey ”. And the vision of the New Jerusalem in Revelation is of riches beyond imagination . Recent forecasts of forthcoming abundance, too, have focused on the benefits. Imagine a world in which everything was so plentiful that not only the essentials of life but the luxuries, too, were free. There would be no need for money, because nothing could be bought or sold; and there would be no need to work, because there would be no need for income. And if everyone believed that such “superabundance” would last forever, then there would be no need to worry about the future – no need to save or prepare in anyway. There would be no point in deferring ...

This post was originally published on Pieria in December 2013. Since then, the idea that the long-term real equilibrium interest rate must be equal to or lower than the long-term sustainable growth rate has become much more mainstream. I am just amazed that anyone ever thought it could be otherwise. A long-term real interest rate persistently above the sustainable growth rate cannot possibly be an "equilibrium" rate. As I show in this piece, it can only be maintained through rising inequality. It is by definition ponzi and therefore unsustainable. Periodic financial crashes are inevitable in any system in which growth does not cover the interest on debt.  Three years ago, Nick Rowe produced this post describing a “weird world” – a world in which the equilibrium interest rate is at or below the long-term growth rate of the economy, rather than above it as we are used to. In such a world, bubbles are inevitably created as investors search for positive yield. This is al...

The present period of very low interest rates is widely assumed to be temporary, a consequence of the 2008 financial crisis and subsequent central bank action. Because of this, as the financial crisis fades into the mists of time, there is growing political pressure for "normalisation" of interest rates. Here, for example, is William Hague warning that central banks must start to raise rates or face losing their independence: The only way out is for the US Fed to summon the courage to lead the way to higher interest rates, and others to follow slowly but surely. If they fail to do so, the era of their much-vaunted independence will come, possibly quite dramatically, to its end. Hague gives ten reasons why low interest rates are a bad idea. His points can be summarised thus: the "reach for yield" by savers who want higher returns drives up the price of assets higher asset prices increase wealth inequality, fuelling popular anger pension funds are struggling, ...

Germany's Finance Minister Wolfgang Schaueble has long been critical of ECB monetary policy,. But now, as Reuters says,  the gloves are off . In a speech at a prizegiving for an ordoliberal economics foundation last Friday, Dr. Schaeuble effectively demanded that the ECB raise interest rates. The justification? Very low interest rates hurt Germany's savers, which are the bedrock of its economy. There is a political dimension to this. Dr. Schaueble's party, the CDU, is losing popularity and desperate for pensioner votes. Dr. Schauble even went so far as to blame ECB monetary policy for the rise of the right-wing eurosceptic AfD: "I said to Mario Draghi...be very proud: you can attribute 50% of the results of a party that seems to be new and successful in Germany to the design of this [monetary] policy," Mr. Schäuble said. This is outrageous. Dr. Schaueble is a politician, not a central banker. His attempt to influence the conduct of ECB monetary policy to ga...

I have been reading the Geneva 16 report , which came out yesterday. It's scary stuff. If you thought the world was reducing its debt pile - forget it: The debt is still growing, but the world's GDP growth is slowing. Indeed as aggregate debt figures are usually quoted versus GDP, the two are connected. The debt pile grows faster as growth slows, simply because the denominator is falling. The report looks at total debt/GDP - not just sovereign debt. This is refreshing: unrelenting media focus on sovereign debt as the principal problem misses the fact that in many countries the bigger burden is PRIVATE debt. However, it makes the figures even worse. Global debt, it seems, is a terrible problem. None of this will come as a surprise to anyone, except perhaps the news that the world as a whole is actually accumulating debt rather than deleveraging. The deleveraging efforts by developed countries are being more than offset by the increasing debt of emerging markets, particu...