EconVue Spotlight

During the Obama Administration, there was a lot of talk about a pivot to Asia.  Some thought that it was President Obama’s biggest foreign policy mistake, others that it was a realistic bow to a new world order in which Middle Eastern oil mattered less and China had become the world’s second largest economy and military force.

Could it be that President Trump’s recent foreign policy initiatives are not really a departure, but a continuation of US policy moving away from Europe and North America?  And that this is not driven by personalities, but by realpolitik? The answer to this heretical question could be the subject of future doctoral theses, but new geopolitical models are of enormous importance to investors and companies today. The end of quantitative easing led by the US Federal Reserve adds another layer of uncertainty to the functioning of the global economy.

To help understand this new landscape, we have asked EconVue experts to respond to an article by senior MarketWatch editor Barbara Kollmeyer, who asks us to imagine a scenario in which Fed tightening leads to a much stronger dollar and a currency crisis elsewhere. She also writes that in spite of trade tensions, US equities could go higher due to a flight to quality away from a troubled Europe and debt-ridden emerging markets.  Responding to this panel are economist Robert Shapiro in Washington, Karim Pakravan in Chicago, and Robert Madsen in San Francisco.  If you’d like to ask our EconVue contributors questions or make a comment, all you need to do is become registered user-if you haven’t already.

RESEARCH BY ECONVUE EXPERTS

Panel: Does the End of Quantitative Easing Mean the Beginning of a US Equity Boom?
EconVue experts respond to an article by senior MarketWatch editor Barbara Kollmeyer.

There is No Economic Boom in Sight
Robert Shapiro 

President Trump, as usual, gave himself the credit for the latest jobs report, and while his policies had little to do with rising jobs, the numbers were certainly good. But he had nothing to say about the other two big economic reports issued last week on GDP and personal incomes. In a new essay today in The Hill, I explain his wholly uncharacteristic reticence. 

The Italian Job
Karim Pakravan 

The European Central Bank (ECB) will be at the center of market stabilization efforts.  One of the main impacts of the Italian crisis is likely to delay the end of quantitative easing, probably to mid-2019. The Fed is unlikely to respond to the issue unless it proves destabilizing to the global economy.

Pro-Market and Pro-Business: Not Always the Same, Particularly in Healthcare
David W. Johnson 

Market vs. Medicine’s core belief is that bottom-up, market-driven innovation will transform U.S. healthcare in the same way it has transformed other industries: by giving customers the services they want, need and desire, at competitive prices.

Unfortunately, “market” and “medicine” are often in conflict with one another. “Pro-market” forces seek to overturn entrenched and wasteful “pro-business” practices through level-field competition.

Mexico's Fight Against Transnational Organized Crime
R. Evan Ellis 

Based on my research on a series of interviews with Mexican security sector professionals and others in Mexico City and Washington DC in February 2018, examines the security challenges faced by Mexico, and the capabilities and key initiatives of its government in combatting the threat, with an emphasis on the Mexican Army, Navy, and Federal Police.  It ends with a series of concrete recommendations, emphasizing the importance of sustained, respectful cooperation with Mexico against the security challenges shared by our two nations and the broader region, particularly in this critical moment for the Mexican nation.

STORIES IN OUR SPOTLIGHT

U.S.

Democrats childishly resist Trump’s North Korea efforts
Nicholas Kristof 6/6/2018 New York Times

Shock! Horror! President Trump is actually doing something right. Sadly, Democrats in Congress are responding in a quite Trumpian way: They seem more concerned with undermining him than supporting a peace process with North Korea. 

Dollar crisis on the horizon
Joergen Oerstroem 6/6/2018 OMFIF

Only 1% of international trade is settled in the Chinese RMB which is still subject to capital controls. A eurocrisis is far more likely than a dollar crisis, and bitcoin is more likely to eclipse the USD than another sovereign currency.

Health reform after the 2016 election
6/5/2018 Watson Insitute of Brown University

Worth examining the future economic impact of these changes.

The Rise of Webcraft
Anne-Marie Slaughter 5/30/2018 Yale University Press Blog

Students steeped in networks will see policy and politics differently...They will quickly size up problems of too few connections or too many, of centralized, decentralized, and distributed structures.

Asia

Imagining a unified Korea
6/6/2018 Nikkei Asian Review

One Korea is a far bigger challenge than the reunification of Germany. East Germany was already industrialized, and both sides regularly communicated with each other. It could take decades, but one Korea could transform the region.

Russia’s role on North Korea: More important than you might think
Elizabeth C. Economy 6/7/2018 Council on Foreign Relations

People forget that Russia shares a border (11 miles) with NK, and that the Soviet Union was the main reason Korea was divided in the first place after WW2.

A 'new wave of defaults' by Chinese companies has come crashing down and could send ripples through its stock market
Gina Heeb 6/8/2018 Business Insider

China's turning down the money tap, and the effects are starting to be felt in the bond market.

S&P Global's Sheard says Kuroda has done everything right
5/29/2018 Bloomberg TV Interview with Paul Sheard

Government spending multipliers under the Zero Lower Bound: Evidence from Japan
Wataru Miyamoto, Thuy Lan Nguyen & Dmitriy Sergeyev 6/7/2018 American Economic Journal

We estimate that government spending shocks increase both private consumption and investment during the Zero Lower Bound period, but crowd them out in the normal period. Fiscal intervention more impactful during periods of ultra low interest rates in Japan.

Europe

S&P Global's Sheard says Euro Zone is a half-built house
5/23/2018 Bloomberg TV interview with Paul Sheard

Italy’s threat to the euro
4/9/2018 American Enterprise Institute Video

Worth watching now if you missed this April's AEI seminar.

Italy’s long, hot summer
Carmen M. Reinhart 5/31/2018 Project Syndicate

Carmen Reinhart asks, how will Italy's debt be resolved? "Unlike Greece (post-2010), where official creditors held the lion’s share of the debt stock, domestic residents hold most of Italy’s public debt."

Italeave: Mother of all financial crises
6/4/2018 Money & Banking

This analysis coupled with the news that the European Central Bank cut Italian bond purchases during last month’s election crisis is quite concerning, with more news coming this week.

Merkel’s comeuppance is Europe’s – and the world’s – misfortune
Yanis Varoufakis 5/29/2018 Project Syndicate

The view from Athens on the road to Rome via Berlin.

The first Swiss lesson for Brexit Britain: negotiations never end
Sam Lowe 5/31/2018 Prospect Magazine

The Swiss, are in Europe, but not the EU. Is their relationship to Brussels a model for London?

EU data privacy laws likely to create barriers to trade

Wilbur Ross 5/30/208 Financial Times 

Is the EU valuing privacy over the benefits of free and open global communications and public safety? Yes. GDPR is a regulatory hot mess with enormous costs and few benefits, affecting countries beyond its borders, disadvantaging its own citizens most of all.

FinTech

Mapping the Bitcoin investment theses
Pierre Rochard 6/8/2018 GitHub

This is a terrific analysis of the pros and cons of Bitcoin. We have crossed the rubicon, and entered a new era. Is it now more important for economists to understand technology than mathematics & statistics?

Chief scientist of Baidu (China's Google) blockchain releases X-Chain
6/3/2018 Weibo

Is China ex Bitmain back onboard crypto and blockchain? 

Rest of the World

Somalia: Currency reform assessment letter for the Central Bank of Somalia
5/11/2018 International Monetary Fund

One of the world's strangest monetary reforms is occurring right now inSomalia...@jp_koning. If you happen to have some counterfeit Somali shilling, the Central Bank will exchange it at face value.

Next year, people will spend more time online than they will watching TV.
Rani Molla 6/8/2018 Recode 

What’s interesting and kind of horrifying is that one didn’t replace the other—in total people spend about 8 hours a day, evenly divided between watching TV & being online.

Chicago

Chicago attracting more young, well-off residents
Greg Hinz 5/30/2018 Crain's Chicago Business

Finally some good news about Chicago demographics. We’re #2 after New York City.