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Risk, uncertainty, and political behavior

KNIGHTIAN uncertainty is the lack of any quantifiable knowledge usable for prediction about outcomes. It dates back to 1921 when Frank Knight distinguished between risk (measurable) and uncertainty (unquantifiable). Politics produces so much noise from time to time that calculating political risks becomes very difficult. The political process seems to be erratic, perhaps almost random....

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Credibility, quality and slow decay

CREDIBILITY loss is in fact an instantaneous event. The literature tells us that building it is a long and painful process, but losing it may happen just like that. Still, the credibility of monetary policy has eroded slowly. It accelerated in the last couple of years, but it took time to erode what was accumulated...

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Capitalism, debt and the rate of interest

INEQUALITY graphics are from the new book of Thomas Piketty, Capital and Ideology. Coupled with the new debt projections of the IMF it tells us a strange story. Over the last four decades, inequality – both income and wealth – increased dramatically although the changes differ across regions and countries. This much is well known....

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A clear and concise statement on the current situation

I WILL NOT be elliptic this time! Here are the facts: The economy will be out of steam in the long-run because it has exhausted drivers that shored up its growth potential in the 2010s. Hence, it took a long while not only to lose hard won credibility but also erode the material bases of...

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Real and nominal shocks–and the rate of interest

THERE is little debate that monetary contraction was a central cause of the Great Depression in the United States. The U.S. money supply declined 33% between the business cycle peak in August 1929 and the trough in March 1933. Financial panics were widespread, real interest rates rose sharply, and credit contracted greatly. The Federal Reserve’s...

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Populism and Unreason

LET US PUT things in a historical balance sheet. In 1979, when the world was hit by the second oil shock, pent up inflation was unleashed and reached double digits. Jimmy Carter appointed Paul Volcker to the Fed and Volcker immediately hiked the interest rate and curbed all monetary aggregates, M1, M2 and M3. By...

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From here to there

ACTUALLY, the unforgettable classic movie’s name was ‘From here to eternity’, but we can’t reach that far amid incredibly noisy signaling and suchlike. Not only is the surrounding politico-economic space at large noisy, i.e. Eastern Mediterranean, Libya, Greece, U.S. elections, etc., but also the monetary policy space itself is – or was – so until...

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Zero and infinity

THE tide turns again. The Fed has initiated a sea-change. This may have an impact similar to Bernanke’s May 22, 2013 speech that initiated the ‘taper tantrum’, only currently the direction of the change is opposite to that. Basically, and after Clarida’s vindication of Powell, the Fed managed to broker a carte blanche. The cheque...

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Black Sea puzzles

BEGINNING with the pamphleteers of the 16th century, several authors have pointed to the roots of Spanish economic woes and singled out the influx of Mexican and Peruvian precious metals, a phenomenon that is worth labelling Moctezuma’s curse. Moctezuma II – in some sources Montezuma II – was the Aztec emperor when conquistador Hernán Cortes...

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Dominant currency, foreign trade, and the exchange rate

THE LIRA has almost always been weak since 2013. Lira strength is but a remnant of the past. After the 2001 Crisis when the Dervis-IMF programme was in vogue, and the ‘savings glut’ flooded the globe with cheap dollars, the TRY gained strength. That was the episode between 2003 and 2008. Somehow people were called...