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Boris Johnson won the Brexit campaign and a general election not because he knew how to govern, but because he knew how to entertain. If the present government fails, will the successor be a better government or a populist entertainment?  My bet is on the latter, with possibly devastating long-term results, as is now the case in the US. It may already be too late. But we should try to avert this outcome. Martin Wolf 17 February 2025 https://www.ft.com/content/698778ba-fc0a-422b-82ee-b5be22a4eee1 In defence of the state A complex society is best served by a competent, professional and neutral public service  In an important series of articles, Valuing the Deep State,  https://www.persuasion.community/p/valuing-the-deep-state-series Stanford’s Francis Fukuyama examines why the evisceration of the state will prove so destructive.  Fukuyama has devoted much of the past two decades to explaining that “a high-capacity, professional, and impersonal state is critical to the ...

  T his is how the S&P has fared relative to the combined  developed and emerging markets excluding the US since 1988 US stocks have dominated all others for the past 15 years.  Three powerful forces in the world of investment that you never want to bet against: Momentum, Mean Reversion,  and US Exceptionalism.   Heading into 2025, however, at least one will have to give.  A big majority believes there will be no reverting to the mean this time, and that the impressive momentum behind US dominance can go on and on. It’s surpassingly hard to disagree. But US outperformance hasn’t been eternal, and only dates back to the specific shock of the GFC, which knocked the stuffing out of the European corporate sector. The very plausible danger is that inflation turns out not to have been beaten, and the Trump 2.0 policies to stimulate growth also spur a resurgence in price rises John Authers Bloomberg 5 december 2024 https://www.bloomberg.com/opinion/articles/20...

Japan has had near-zero interest rates for three decades and its net public debt is 159 per cent of GDP. Just as is true of China’s policies now, this was the result of an underlying condition of “underconsumption”, or structurally deficient demand.  Given that condition, demand needs to be stoked. Huge property bubbles are a feature of such economies, not a bug, as is the desperate need to intervene manically when they burst. In both cases, monetary policy was loosened, credit exploded and a huge boom in real estate was unleashed, again in the 1980s in Japan and the 2010s in China.  The huge defect of the “let us have a real estate bubble” solution to excess savings is that its bursting leaves a residue of falling asset prices, unpayable debt, damaged finance and unhappy people.  Worse, it also leaves still weaker demand, as the impact of the collapse further undermines investment and so exacerbates excess savings. Without strong policy action, the latter is almost certa...

Over the past few weeks three experiences have helped clear my mind on this crisis. First, I reread Hyman Minsky’s masterpiece, Stabilizing an Unstable Economy. What went wrong? The short answer: Minsky was right.  A long period of rapid growth, low inflation, low interest rates and macroeconomic stability bred complacency and increased willingness to take risk. Is the worst now over? Certainly not Unwinding of excesses on such a scale involves four giant processes: the fall of inflated asset prices to a sustainable level; de-leveraging of the private sector; recognition of resulting financial sector losses; and recapitalisation of the financial system. Making all this worse will be the collapse in private sector demand, as credit shrinks and wealth falls. None of these processes is even close to completion. Some have barely begun. In particular, property prices are still falling, even in the US. Similarly, the adjustment in the real economy, particularly the inevitable rises in ho...

-0,14% i år Förra året minus 24,6 procent Englund: Börsen 2022 i Stockholm och New York (englundmacro.blogspot.com) Back  -  Next  -  Book Home  -  Climate Change The company, whose $187 billion of total liabilities  make it one of the world’s most indebted builders, must pay the coupon by the end of a 30-day grace period Oct. 17-18 or a default can be called. Bloomberg 18 October 2023 https://www.bloomberg.com/news/articles/2023-10-18/country-garden-on-verge-of-first-default-amid-silence-on-bond China The heat of 2023 -  We are living in an era of big challenges and an evident inability to meet them.   The time left is also ever shorter. Eenough has not been done to mitigate climate risks. Indeed, enough cannot be done without greatly enhancing the financing available to developing countries.  We simply must do better. Martin Wolf  FT 17 October 2023 How to finance a faster shift to a better world Men oktoberdagarna i Sverige blir ...

Mary Beard’s new book, Emperor of Rome, the story of the society that brought us not just Julius Caesar, the first “Caesar”, but also his great nephew Octavian, later Augustus, who turned Rome from a republic into an empire Ferdinand Mount  his book Big Caesars and Little Caesars; an author who once ran Margaret Thatcher’s Downing Street policy unit The two books are very different: Mount’s learned but also journalistic; Beard’s a beautifully written product of a lifetime of deep scholarly learning. The Roman empire survived in the west alone for some 500 years Martin Wolf  Financial Times 28 September 2023 https://www.ft.com/content/b869362f-952a-42cf-9d2b-f97300d235b7 Lisa Magnusson: De som säger att de tänker på romarriket ljuger Ju äldre jag blir, desto mer ödmjuk blir jag inför skillnaderna mellan män och kvinnor. Dessa skillnader till trots vet jag en sak, och det är att ingen – utom Ida Östenberg, professor i antikens kultur, och en handfull andra specialintressera...

 BIS has stressed the dangers of ultra-easy monetary policy, high debt and financial fragility.  Losses build up in institutions most exposed to property, interest rate and maturity risks. Over time, too, households are likely to suffer from higher borrowing costs. Banks whose equity prices are below book value will find it hard to raise more capital. The state of non-bank financial institutions is even less transparent. So, how did we get into this mess? BIS, “the extraordinary monetary and fiscal stimulus deployed during the pandemic, while justified at the time as an insurance policy, appears too large, too broad and too long-lasting”. I would agree on this.  Where I disagree with the BIS is over whether “low for long” could have been avoided. It depends, too, on whether societies long unused to inflation decide that bringing it back down is too painful, as happened in so many countries in the 1970s.  I remain unconvinced that the dominant aim of monetary policy s...

 Like it or not (I certainly do not) Why not just give up on the target and accept, say, 4 or 5 per cent inflation?  The answer is that if a country abandons its solemn promise to stabilise the value of the currency as soon as it becomes hard to deliver, other commitments must also be devalued. Martin Wolf FT 25 June 2023 https://www.ft.com/content/83026a79-2ac9-40e8-94e7-efee443e8d8d Powell Wins Over Bond Traders  Once aggressive bets for Fed rate cuts in 2023 are unwound Traders have scrapped once-aggressive wagers that the Federal Reserve chief would pivot to easing policy before the end of this year, reflecting deeply diminished expectations that the central bank’s rate hikes are poised to set off a sharp recession.  Bond yields have risen back toward levels seen before the panic sown by Silicon Valley Bank’s collapse.  Bloomberg 24 June 2023 https://www.dw.com/en/ecb-says-finishing-line-in-sight-on-inflation-interest/a-66025101

 FT 20 June 2023 Best summer books of 2023: Economics | Financial Times (ft.com) Best summer books of 2023: History Best summer books of 2023: History | Financial Times (ft.com)

 My father had been born in the Austro-Hungarian Empire in April 1910. Few could have then foreseen the catastrophes to befall Europe over the next 35 years.  This history is not irrelevant. It must serve as a warning. It has made me aware throughout my life that political mistakes can combine with economic disasters to unleash destruction upon societies believed civilised. I grew up during the cold war. The defence of liberal democracy was the political backdrop to my formative years. Now, however, the health of democracy is in question.  The most radical notion in democratic capitalism is that it seeks to separate political power from wealth. Capitalism is cosmopolitan, while democracy is tied to a territorial jurisdiction. Capitalism means one pound one vote, while democracy means one citizen one vote.  One danger, then, is that wealth buys power in the name of order, turning democracy into plutocracy. Another is that demagogues seize power in the name of the peop...

 The survival of a civilised society depends on moral restraint, particularly from its leading figures. In 1954, Joseph Nye Welch, chief counsel for the US army, responded to the red-baiting of Senator Joe McCarthy by asking “Have you no sense of decency, sir?”  Free societies will die if those with influence, wealth and power lack that virtue. Martin Wolf 2 May 2023 https://www.ft.com/content/85c9beac-ece2-4bbf-90b0-082b0ff55718 Martin Wolf “The Crisis of Democratic Capitalism” Årets viktigaste bok https://englundmacro.blogspot.com/2023/02/martin-wolf-crisis-of-democratic.html Heder, Sanning och Rätt http://www.internetional.se/hsr.htm

 Real interest rates fell for a generation, before reaching negative levels during the pandemic. Since then, they have recovered sharply. What happens now? In its latest World Economic Outlook, the IMF addresses this question by investigating the “natural rate of interest”, which is defined as “the real interest rate that neither stimulates nor contracts the economy”. That is also the rate at which one would expect inflation to remain stable (in the absence of shocks).  The natural rate is not directly observable. But it can be estimated.  Blanchard argues that real interest rates will remain below the real rate of economic growth, which is crucial for debt sustainability. Summers thinks they will be somewhat higher than the Fed’s estimate of a natural rate of 0.5 per cent. So, assume inflation will decline to 2-3 per cent. Assume, too, an equilibrium real rate of interest of 0-2 per cent.  Then nominal short rates would be 2-5 per cent and, given risk premiums, long...

 AI The Crisis of Democratic Capitalism by Martin Wolf is a book that examines the challenges and threats facing the liberal order that has shaped the world since the end of World War II.  Wolf argues that capitalism and democracy are interdependent and mutually reinforcing, but also fragile and prone to crises. He analyzes the causes and consequences of the financial crash of 2008, the rise of populism and authoritarianism, the erosion of trust and social cohesion, and the geopolitical tensions with China and Russia. He also offers some possible solutions and reforms to restore the balance and vitality of democratic capitalism, such as strengthening competition, regulation, taxation, public investment, social protection, and international cooperation. Englund Englund: Martin Wolf “The Crisis of Democratic Capitalism” Årets viktigaste bok (eng lundmacro.blogspot.com)

Liabilities to the public that are supposed to be perfectly liquid and redeemed at par (“money”) should be matched one-to-one with similar assets. This could be done by forcing intermediaries to hold reserves at the central bank or similarly liquid government liabilities. This is the famous “Chicago Plan”.  Martin Wolf FT 21 March 2023  The Answer To The Banking Problem: The Chicago Plan The banking system of the United States is in disarray right now and needs changing, but at the moment, its leaders seem to be confused as to where to go. Not only do the authorities need to be cognizant about the current financial crisis, but they need to be aware of how technology is changing the whole system. John M. Mason 21 March  2023 https://seekingalpha.com/article/4589122-the-answer-to-the-banking-problem-the-chicago-plan Chicago plan The Chicago plan was a monetary and banking reform program suggested in the wake of the Great Depression by a group of University of Chicago econom...

 The most searching of the three calls into question whether that future is compatible with capitalism as we have come to know it. Martin Wolf, The Crisis of Democratic Capitalism (Penguin Press, 2023) Francis Fukuyama, Liberalism and Its Discontents (Farrar, Straus and Giroux, 2022) Pranab Bardhan, A World of Insecurity: Democratic Disenchantment in Rich and Poor Countries (Harvard University Press, 2022) Marx himself wasn’t so sure that capitalism would end with the overthrow of the state, the dictatorship of the proletariat, or even armed struggle. As he saw it, “the abolition of capitalist property from within the bounds of capitalist production itself” was the obvious result of corporate capitalism, founded on the twin pillars of joint-stock companies and modern credit, both of which separated ownership and control of private property.  The situation confronting today’s intellectuals is, then, comparable to that which Madison faced in the spring of 1786 Martin Wolf, Franc...

While relatively unknown outside of Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. This is not a bank crisis yet. On Thursday, billionaire hedge fund manager Bill Ackman compared SVB to Bear Stearns, the first lender to collapse at the start of the 2007-2008 global financial crisis. “The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall,” Ackman wrote on Twitter. But most analysts say the implosion of SVB appears company-specific for now, wrote Julia Horowitz and Anna Cooban. https://edition.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways Fed bailout of Bear Stearns Remember Friday March 14 2008 It was the day the dream of global free-market capitalism died. Martin Wolf, Financial Times, March 26 2008 https://www.internetional.se/moralhazardwsjled0925.htm#march14

Martin Wolf has long been one of the wisest voices on global economic issues. He has rarely been called an optimist, yet he has never been as worried as he is today. Liberal democracy is in recession, and authoritarianism is on the rise. The ties that ought to bind open markets to free and fair elections are threatened, even in democracy’s heartlands, the United States and England. Around the world, powerful voices argue that capitalism is better without democracy; others argue that democracy is better without capitalism.  This book is a forceful rejoinder to both views. Even as it offers a deep, lucid assessment of why this marriage has grown so strained, it makes clear why a divorce of capitalism from democracy would be a calamity for the world. They need each other even if they find it hard to life together. https://www.penguinrandomhouse.com/books/554951/the-crisis-of-democratic-capitalism-by-martin-wolf/ Speakers: Martin Wolf, Diane Coyle and Jesse Norman MP LSE London School ...

  A dean of financial journalism, he has for decades been the chief economics commentator of the Financial Times . “The Crisis of Democratic Capitalism” draws on the wisdom accumulated over his distinguished career—and argues that most of the blame for the democratic recession belongs to a record of dismal economic performance.  The case he makes is authoritative and compelling. Yet in the end it is not fully convincing. Mr Wolf’s review of recent history will jolt even the well-informed.  Governments of all sorts have become less accountable to the public. The shock of the global financial crisis of 2007-09 turned the accumulating discontent into seething anger at governing elites and a loss of trust in the system.  It reassures readers that what has gone wrong is known, and all that is needed to repair the situation is a bit of competent technocracy. But desirable as comfort may be—and, for that matter, competent technocracy—it is hard to shake the feeling tha...

Does the dollar’s strength matter? Yes, it does, because, as a recent paper co-authored by Maurice Obstfeld, former chief economist of the IMF, notes, it tends to impose contractionary pressure on the world economy.  What can be done? Not that much. Martin Wolf FT 27 September 2022 https://www.ft.com/content/daf5c774-fb7f-4ef3-a4ba-c92e3b373066   Maurice Obstfeld Central banks are raising rates nearly everywhere, risking a global recession https://www.piie.com/research/piie-charts/central-banks-are-raising-rates-nearly-everywhere-risking-global-recession Bostadsobligationerna (5 år) steg till 3,91 https://englundmacro.blogspot.com/2022/09/bostadsobligationerna-5-ar-steg-till-391.html

 What is the future of globalisation? This is among the biggest questions of our time. Globalisation is not dying, it’s changing. Since the industrial revolution, we have, argues Richard Baldwin in his book The Great Convergence, seen three waves of opportunities to trade As Baldwin argues in The Globotics Upheaval, the potential for this sort of technology-enabled trade is huge.  It will also be highly disruptive: the white-collar workers who provide these services in high-income countries are an important part of the middle class. But it will be hard to protect them. Martin Wolf FT 13 September 2022 https://www.ft.com/content/f6fe91ab-39f9-44b0-bff6-505ff6c665a1