The Volatility Machine: Emerging Economies and the Threat of Financial Collapse
Abstract
This book presents a radically different argument for what has caused, and likely will continue to cause, the collapse of emerging market economies. Pettis combines the insights of economic history, economic theory, and finance theory into a comprehensive model for understanding sovereign liability management and the causes of financial crises. He examines recent financial crises in emerging market countries along with the history of international lending since the 1820s to argue that the process of international lending is driven primarily by external events and not by local politics and/or economic policies. He draws out the corporate finance implications of this approach to argue that most of the current analyses of the recent financial crises suffered by Latin America, Asia, and Russia have largely missed the point. He then develops a sovereign finance model, analogous to corporate finance, to understand the capital structure needs of emerging market countries. Using this model, he finally puts into perspective the recent crises, a new sovereign liability management theory, the implications of the model for sovereign debt restructurings, and the new financial architecture. Bridging the gap between finance specialists and traders, on the one hand, and economists and policy-makers on the other, The Volatility Machine is critical reading for anyone interested in where the international economy is going over the next several years.
... Debt trap (B1). The reinforcing loop has been created based on (Pettis, 2001) which claims the existence of "exchange rate crisis, precipitated by inflationary monetary policy," which is inevitable after the war. In this scientific work it is also stated that "dependency on primary export leads to overvaluation of national currency and will slow the economic growth." ...
... The consequences are a threat of the debt trap and decreasing of external borrowing to support the national economy. "The expected exchange rate (along with interest rate differentials) is a cause of capital movement" (Pettis, 2001). The negative side effect of primary export dependency in Ukraine has been aggravated by possible devaluation of the Ukrainian hryvnia in 2023 and the rise of global food price, accelerated by war in Ukraine. ...
... Financial sector and external debt (R2). According to (Pettis, 2001) the devaluation increases the costs of loan repayment which deteriorates the national economic position and investor confidence and deepens crisis, which may lead to a collapse of national currency with an effect of T-bills securities to the dollar values of UAH downgrading with a new round of national currency devaluation. There is a reinforcing loop of national currency devaluation, which makes the process of sovereign debt repayment more difficult. ...
The aim of the article is to examine the post-war national economy, notably overburdened with significant war expenditures and the effects of sovereign debt restructuring in a wartime period. The research uses system dynamics modelling methods, operates with S-shaped growth, overshoot and collapse dynamic patterns. The oscillation patterns of behaviour have been used to demonstrate the scenario options of possible external debt minimization.The dynamic hypothesis about non-linear behaviour of post-war debt trajectory has revealed the intrinsic growth rate in debt-dependent economy and the inflection point of no return to stable economic growth without radical decision of sovereign debt cancellation. The direct consequence of a negative solution for debt cancellation would be the unpredictable, even chaotic fluctuations of national economic growth rate. Baseline simulation to prove the results of research has been provided. The embedded “dependent-economy” type of macrostructure does not allow to overcome the critical debt overhang level and needs a new national model with appropriate policy to stabilize the economy. Performance of post-war debt repayment depends mostly on an innovative fund, which can be created by export abilities in the framework of post-war recovery plan. The results of the research may be applied by national authorities responsible for macroeconomic debt policy. The obtained results of the study allow us to draw a conclusion about the impossibility of developing the national economy within the framework of the existing economic structure of the developing country. The debt trap, which cannot be eliminated, does not allow to develop the national innovative economy and ensure economic growth and development. JEL classification: E37, F34, F35, G28, H63
... The goal when constructing a capital structure is to choose combinations of physical plant and financial contracts such that when revenue increases, costs increase and when revenue decreases, costs decrease. This reduces net income volatility and ensures that revenue exceeds expenditure under as many states of the world as possible (Pettis 2001). Companies give up on the possibility of big windfalls in exchange for safety from extreme downsides (Hull 2018). ...
... These include the mix of loans taken in domestic and foreign currencies, foreign currency swaps, and a variety of other measures. Even the prices of commodities that the country imports and exports are taken into account as quasi-assets and quasi-liabilities to be hedged (Pettis 2001). A correlated capital structure, where incomes and expenditures move together, protects the ability of the country to meet its import and foreign currency needs while providing a constant level of services and economic stabilization. ...
... When the economy crashes, their insolvency is not their fault. Given the highly procyclical nature of both their income and expenditure streams, they face an acute capital structure trap in an economic downturn (Pettis 2001). Given current institutional and legal strictures, the only agent capable of insuring states against this capital structure trap-capable of providing them with a correlated capital structure-is the federal government. ...
Arguments against providing fiscal aid to state governments usually rely on a simplistic moral hazard argument: supporting states through a cyclical downturn encourages them to overspend. This argument undergirds the policy recommendations made by the mainstream literature on Fiscal Federalism. I argue that these accounts are predicated on a misunderstanding of what it means to be an agent with respect to one’s budget over the business cycle. Basic corporate finance theory teaches us that in order to have control over the relative movement of income and expenditure in the current period, one must be able to design one’s own capital structure. US State governments are institutionally and constitutionally prevented from designing their own capital structures, and as such, cannot be judged to have budgetary agency across the business cycle. I show that the moral hazard problem presented in the fiscal finance literature is ill-posed, and obscures a second, more important problem of moral hazard. Namely, that politicians at the federal level reap the political rewards of pursuing austerity at the state level while remaining insulated from any political, economic, or social costs or responsibility. This second moral hazard problem admits of a simple solution: trigger-based fiscal aid to state governments.
... Rational investors, who seek new opportunities to earn profit, respond to the improved economic prospects in countries which up to that moment were excluded from major capital centres. In such a way, improved economic conditions precede investment inflows (Pettis 2001). On the other hand, according to this view, financial crises might emerge as the consequence of the sudden effect of an unanticipated exogenous shock, which implies that in the case of financial turbulence the problem is not rooted in systemic flaws in the functioning of free markets but in the lack of freedom for omniscient market forces. ...
... In sharp contrast to the mainstream model, Pettis (2001) holds that real-world experiences do not support the efficient market model and that there is little TWENTY YEARS ON: THE ASIAN FINANCIAL DEBACLE evidence that capital flows respond to the desired policy decisions in developing countries. On the contrary, what history has taught us is that movements of capital towards financial outlets are highly synchronized, although there is no evidence that different developing economies around the world push for market reforms simultaneously. ...
... Furthermore, the endogenous rise in market optimism might not be gradual but rather abrupt when triggered by some outside shock powerful enough to cause displacement of the system and consequently a dramatic change in profit horizons and agents' expectations. Such a shock might be the beginning or end of a war, an abundant or insufficient harvest, a revolutionary far-reaching invention (the railway, automobiles, radio, film, computers), a political event (Kindleberger and Aliber 2015) or, most frequently, an expansion of liquidity in major financial centres (Pettis 2001). An expansion of liquidity might take the form of an increase in traditional measures of money (as the result of a switch to an easy monetary policy) or of more complex changes in the financial structure induced by a change in the regulatory framework or the profit-seeking (lending and borrowing) activities of "merchants of debt" (Minsky 1986, p.279), i.e., financial mediators. ...
In this paper we shall sketch the anatomy of the Asian financial crisis which erupted twenty years ago. In order to answer the question of how and why this crisis developed and what went wrong in its aftermath we embrace the Financial Instability Hypothesis of the seminal post- Keynesian economist Hyman P. Minsky. The real causes of the Asian crisis were endogenously developed euphoric expectations that followed financial liberalisation and deregulation and propelled the creation of an inverted capital structure and financial fragility. After the initial crisis and subsequent abrupt reverse of investor's sentiments, the International Monetary Fund intervened and multiplied financial difficulties that strangled regional economies. Fortunately, gradually and in line with the Minskyan approach to financial crises, the International Monetary Fund learned from its Asian mistakes, and starting from the outbreak of the global financial crisis in 2008 and the succeeding financial crisis in Eastern Europe in 2009, dropped its opposition to capital controls and its support for austerity measures in crisis-hit emerging market economies.
... (Lardy, 62, 177) The separation of policy lending from other lending activities was a crucial step toward the presumed endgoal of the PBC, to strengthen the asset quality of SOBs so that they may be brought forward for future public offerings. (Roberts, 2004) In recent years, the PBC has used its substantial reserves to write off ¥644 billion of policy loans, while taking steps to isolate the incurrence of future policy lending failures to institutions directly under the control of the Ministry of Finance. (Lardy, 176-9) The presence of foreign banks in China is allowed only under very strict guidelines. ...
... One of the most impressive statistics often reported with regard to China's financial system is the exceptional level of savings remitted to the banks by households. According to the IMF: International financial Statistics (March 2004, 278), at the end of the first quarter of 2003, China's household savings deposits totaled ¥8,660.58 billion RMB, or between $1.0 and $1.33 trillion USD – increasing at an annual rate of nearly 16 percent since 1997. (IMF:IFS, 2004 Roberts, 2004) This statistic has often been used as a measure of financial health; however, China's high savings rate and the level of savings reflect a different picture – a shallow financial system, constrained to very few options of capital investment. ...
... According to the IMF: International financial Statistics (March 2004, 278), at the end of the first quarter of 2003, China's household savings deposits totaled ¥8,660.58 billion RMB, or between $1.0 and $1.33 trillion USD – increasing at an annual rate of nearly 16 percent since 1997. (IMF:IFS, 2004 Roberts, 2004) This statistic has often been used as a measure of financial health; however, China's high savings rate and the level of savings reflect a different picture – a shallow financial system, constrained to very few options of capital investment. (Aziz & Duenwald, 4) China's households are enjoying an annual increase in disposable income of 8.2 percent in urban areas and about 6.4 percent increase among rural households. ...
The purpose of this survey study has been to identify the primary elements of the financial sector reform (FSR) and their impact on the socioeconomic environment of China (Peoples Republic of China), and to assess the level of progress, risks, and problems stemming from the Chinas political economy. The research findings indicate that the level of the financial risks has greatly increased in recent years and that China is dealing with inherent financial concerns and potential financial crisis. Ironically, the growth of foreign direct investment has accelerated in Chinese ventures (Warner, 2004), in spite of the recent warnings by various sources such as Business Week (January 19 & May 3, 2004). Currently, the amount of foreign direct investment about $491 billion is flooding the foreign currency system and putting heavy pressure on the Yuan. This is because the investors usually rely heavily on the financial ratios i.e. profitability and growth, as the criteria for investment decisions. However, it would be a critical mistake to disregard the role of policy in risk analysis especially in a political economy such as China. This research study intends to establish an accurate barometer for the assessment of the risk factors within the financial sector and their impact on sectors reform.
... When the economy collapses, their bankruptcy is not their fault. Given the highly procyclical nature of both their income and expenditure streams, they face an acute capital structure trap in an economic downturn (Pettis, 2001). He further argues that the federal government is the only agent capable of providing them insurance against this capital structure trap and delivering them with an associated capital structure. ...
... This redounds on the tax available to the state government, which pushes a further round of cost-cutting. This process mimics Pettis's account of the capital structure trap, where traders are compelled into counterproductive, procyclical positions by virtue of their expenses rising at the same time as their incomes fall (Pettis, 2001). The only entity capable of providing a counterbalance that would halt this process is the federal government. ...
The moral hazard problem in government organizations is very recurrent due to weak compensation system (i.e., take-home salary) and non-existence of any additional premium (e.g., ownership of stocks) for public policy makers compared to their counterparts in private firms, which weakens the proprietorship of their organization. Since there is a principal-agent relationship between citizens and public policymakers, a loss in public goods and services to citizens signals a meaningful level of moral hazard problem in public policymakers as agents. The menace of moral hazard problem can be lessened through a proper Reward Punishment Approach (RPA). Under existing setup, a weak compensation system with severe punishment mechanics indicates flaws in PRA which needs improvement through reforms in its existing structure. This paper focuses on bringing the compensation system (i.e., take-home salary in terms of cash and a provision of additional premium) at par with market-based package along with various perquisites. The study expects a bare minimum financial implication which may be affordable for the government and decrease moral hazard problem, at least to some extent, leading to a better delivery of public goods and services for the citizens of the country.
... When the economy collapses, their bankruptcy is not their fault. Given the highly procyclical nature of both their income and expenditure streams, they face an acute capital structure trap in an economic downturn (Pettis 2001). He further argues that the only agent capable of providing them insurance against this capital structure trap-capable of delivering them with an associated capital structure-is the federal government. ...
... This redounds on the tax base available to the state government, which pushes a further round of costcutting. This process mimics Pettis's account of the capital structure trap, where traders are compelled into counterproductive, procyclical positions by virtue of their expenses rising at the same time as their incomes fall (Pettis, 2001). The only entity capable of providing a counterbalance that would halt this process is the federal government. ...
The moral hazard problem in government organizations is very recurrent due to weak compensation system (i.e., take-home salary) and non-existence of any additional premium (e.g., ownership of stocks) for public policy makers as compared to their counterpart in private firms, hence it weakens their proprietorship of their organization. Since there is a principal-agent relationship between citizens and public policy makers, therefore, a loss in public goods and services to citizens signals meaningful level of moral hazard problem in public policy makers being the agents. The menace of moral hazard problem can be, lessened through a proper Reward Punishment Approach (RPA). Under existing setup, a weak compensation system with severe punishment mechanics indicates flaws in PRA which needs improvement through reforms in its existing structure. This paper recommends, to bring the compensation system (i.e., take home salary in terms of cash & a provision of additional premium) at par with market-based package along with various perquisites. The study expects a bare minimum financial implication which may be affordable for the government and decrease in moral hazard problem at least to some extent, leading to a better delivery of public goods and services for the citizens of the country.
... Separately, Kondratieff (1935) analyzed commodity cycles early on, in his explanation of economic crises-this idea is developed in a more contemporary context in Bernard et al. (2014). Moreover, Pettis (2001) argues that the flow of international loans since the 1820s has been driven primarily by external events and not by domestic politics. In that analysis, the flows of capital between rich and poor countries are generally determined by domestic conditions in rich countries, rather than the quality of investment opportunities in poor ones. ...
... Such scenarios raise questions of debt sustainability and domestic macroeconomic development. The findings are in line with Pettis's (2001) argument that flows of capital between rich and poor countries are generally determined by domestic conditions in rich countries rather than the quality of investment opportunities in the developing world. ...
This study explores macroeconomic implications of the sovereign bond rush that has been taking place in sub-Saharan Africa since 2006. The focus is on the sub-Saharan sovereign bond yields as proxies for the region's ability to raise new funds on international markets. Despite the subcontinent's tour-de-force entrance to the international bond market, this paper reveals that recent (since early 2000s) borrowing in foreign currency is not without macroeconomic risk. Empirically this paper finds that sovereign bond yields are significantly influenced by global volatility, commodity prices and global liquidity—all factors that are out of the control of the sub-Saharan economies in question. These findings suggest that portfolio repositioning by institutional investors prompted by improved growth prospects and implicit monetary policy tightening in the advanced economies or heightened risk perceptions, are likely to result in increased borrowing costs for the sub-Saharan bond issuers and affect their ability to raise funds in international markets. Furthermore, a change in borrowing costs might lead to higher debt-service costs and policy uncertainty, which in turn could lead to suboptimal investment levels and, ultimately, hinder economic development.
... The notion of liquidity centres on the dynamic interplay between the processes of financial deregulation and innovation and subjective factors, such as confidence and expectations, which are not easily modelled or measured in a dynamic context. Still, it is notable that in the wake of the series of crises of the past decade, some strands of research in finance have identified the complex issue of liquidity as a key element of systemic risk in finance generally (Bies 2002;Bird and Milne 1999;Bisigano 1999;Velasco 1998, 1999;Goldfrain and Valdes 1997;Mishkin 1999;Pettis 2001Pettis , 2003Persaud 2002;Alexander et al. 2006). The discussion however, has been mostly confined to academic circles, and up until very recently5 no policy forum has addressed the problem comprehensively. ...
... The scarcity of IPE literature focused on liquidity-related issues reflects this assumption: while in the debates about the consequences of the Bretton Woods collapse some IPE scholars have raised concerns about international liquidity and liquidity provision (Kindleberger 1970;Cohen 1998), during the past two decades analyses of liquidity have come to be dominated by highly technical studies of financial risk originating in the field of mainstream finance and economics (e.g., Diamond and Dybvig 1983;Holmström and Tirole 1998;Diamond and Rajan 2005). It was in the wake of the crisis wave of the late 1990s that the role of liquidity -or more accurately, illiquidity -has re-emerged in the literature as a key factor of systemic fragility in national, regional and international financial systems (Bookstaber 2000;Velasco 1998, 1999;Dymski 2003;Kregel 2001;Mishkin 1999;Pettis 2001Pettis , 2003Nesvetailova 2006). In several cases -most scandalously, during the LTCM fiasco in 1998 and during the credit crisis of 2007-2008 -a liquidity crunch brought the international financial system to a brink of a systemic collapse. ...
This article identifies the phenomenon of liquidity illusion as the key element that has disguised the systemic fragilities which have precipitated the global credit crunch. At the core of phenomenon of liquidity illusion lies the spiral of private financial innovation and risk-trading processes underpinning it. The paper identifies three intertwined levels where liquidity illusions have led to systemic implosions: macroeconomic, market-centred, and international. Today's facets of liquidity illusion stem, just as Keynes observed some seventy years ago, from the trade-off between individual choices and perceptions of financial players, and aggregate outcomes of these actions in a wider context. The article analyses this trade-off in the context of the continuing global credit crisis.
... A financial sector crisis is typically defined as a situation in which a significant group of financial institutions have liabilities exceeding the market value of their assets, leading to bank runs and portfolio shifts, the collapse of some financial firms and government intervention. Additionally, a crisis is also characterised as a non-linear disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities (see alsoHahm and Mishkin, 2000;Pettis, 2001). ...
... As discussed in section 2, a financial crisis is generally defined as a situation in which a significant group of financial institutions have liabilities exceeding the market value of their assets, leading to runs and other portfolio shifts, the collapse of some financial firms and government intervention. Additionally, it is also characterised as a non-linear disruption to financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities (see alsoHahm and Mishkin, 2000;Pettis, 2001). The Korean case not only demonstrates all the aspects of a financial crisis under the first definition, but also fulfils the criteria posited by the latter definition (see alsoShin and Hahn, 1998). ...
The main question of the study is: how can be the vulnerability of emerging economies to different types of crises reduced or, once a crisis occurs, how can its negative impacts at least be minimized? Major methodological approaches adopted in the analysis are case studies and comparisons of cases. Theory based conclusions/recommendations are derived. Ways of crisis monitoring and risk assessment are presented. Such systems enable better crisis management decision making.
... Schwartz (2019) has advanced an important critique of what he terms the NBSA, including (though writing in another context) the work of Michael Pettis (2001). Again, NBSA accounting identities models argue that capital inflows from surplus economies are said to stimulate the generation of worthless financial assets -which, in turn, distort national economies through financialisation and currency appreciation. ...
The re-emergence of conflict at the apex of the global political economy between the United States and China makes it imperative to establish analytical connections between geopolitics and national political-economic development trajectories. However, just as realist international relations conceals ‘domestic’ causes of international conflict, most comparative capitalisms (CC) research has systematically underplayed the role of geopolitics and the global political economy as forces structuring and driving national economies. Furthermore, both IR and CC analyses misleadingly treat states as analogous and independent ‘units’, rather than relationally constituted and internally heterogenous political forms whose existence and reproduction requires explanation. As such, CC fails to examine either the geopolitical preconditions for, constitution of, or the geopolitical outcomes of growth models. This article presents an uneven and combined development (U&CD) account of the connections between global order, geopolitical economy and Chinese capitalism, showing how – rather than an alien infiltrator – Chinese state capitalism is both a product, and increasingly a transmitter, of the dynamics of competitive capital accumulation operating in the global political economy. In this way, I contribute to the development of heterodox CC literature by advancing i) a conception of capitalism as a geopolitical-economic system, (ii) an example of how national cases can be treated as dialectically related to and sites for the emergence of the global geopolitical economy, and (iii) a concise application of this method to the case of Sino-US relations.
... These exercises could help identify some essential missing channels which prevent the model from reflecting the stylized fact of interest rate hikes and international instability (Pettis 2001;Arestis 2002). This scenario is marked by the color gray, as seen in the legend of figure 4. ...
Underdevelopment often is conceived as being reproduced domestically. This thesis emphasizes the international forces that enable the persistence of underdevelopment. The first part of this thesis lays out a liquidity approach to underdevelopment which suggests that failure to create capacity arises from the asymmetries of international financial relationships. The second part of this thesis investigates a specific financial asymmetry, the currency hierarchy. We point out that the uncovered interest rate parity and the divergence from it are necessary conditions for the emergence of the currency hierarchy. Using ratios from the balance sheet of the currency issuer, we propose a quantification of the currency hierarchy. A weak currency must resort to three mechanisms; changes in interest rates, exchange rates, and accumulation of international reserves to improve balance sheet structure. We employ these relationships to formulate two novel financial post-Keynesian behavioral equations; an international reserves function and a domestic interest rate function. These equations are simulated in a stock-flow consistent model. We simulate the transmission of international shocks and domestic fiscal expansion. The key findings are (1) the intensity of economic activity in the emerging economy is reliant on the level of economic activity (and policy) in the developed economy and (2) any attempts to stimulate the emerging economy through government spending benefit primarily the developed economy while harming the emerging economy’s private sector, assuming free capital and goods mobility. This in turn does not allow an income-effect (tax revenue) to reduce government debt in the emerging economy. Simulations show import controls to be a solution. We suggest the need for international cohesion between emerging economies to create a more conducive international financial and trade system, halting the reproduction of underdevelopment.
... Changes in the foreign interest rate are usually in response to domestic economic activity and inflation targeting. Changes in global liquidity preference depend on several factors outside the power or actions of the domestic economy (Pettis 2001;Rey 2015). ...
Underdevelopment is often conceived as being reproduced domestically. This paper emphasizes the international forces that enable the persistence of underdevelopment. We first explore how the currency hierarchy imposes a dependency relation between developed and underdeveloped economies. We improvise and quantify the currency hierarchy using ratios from the consolidated sovereign balance sheet. Using the improvisation of the currency hierarchy, we identify that a weak currency must compensate its position by resorting to three mechanisms: changes in interest rates, changes in exchange rates, and accumulation of international reserves to improve balance sheet structure. We employ these relationships to formulate two novel, financial post-Keynesian behavioral equations: an international reserves function and a domestic interest rate function. These equations are simulated in a stock-flow consistent model. We simulate the transmission of international shocks and domestic fiscal expansion. The key findings are (1) that the intensity of economic activity in the emerging economy is reliant on the level of economic activity (and policy) i n the developed economy and (2) that any attempts to stimulate—through government spending—the emerging economy benefit primarily the developed economy while harming the emerging economy’s private sector, assuming free capital and goods mobility. This indicates the existence of a balance-of-payment constrained expansion originating from the demand for international reserves as a margin of safety. Simulations show import controls to be a solution. We find government spending complemented by import substitution to be the most appropriate response to a crisis of international origin and suggest the need for international cohesion between emerging economies to create a more conducive international financial and trade system, halting the reproduction of underdevelopment.
... Important structural reforms move the banking sector forward, to the market-based systems within the transition from socialism to capitalism and democracy. So, the process began with an environment transformation into a market economy, with prices liberalization, with building the private sector (many state-owned enterprises having been privatized) and also the necessary institutions to support a market economy (Pettis, 2001). But many state-owned enterprises only gave the illusion that were able to survive, due to the fact that their arrears were reduced with 1% from the GDP by the end of 2014, while the Romanian state-owned enterprises sector became profitable only after several years of loss producing, as stated in International Monetary Fund Country Reports (2015). ...
Despite the recent flurry of scientific interest in the Dark Triad – narcissism, psychopathy, and Machiavellianism – the research has been mostly descriptive in nature. Relatively ignored by researchers, darker personality variables may prove valuable in understanding counterproductive work behaviors. In the present study, we attempt to integrate the Dark Triad personality traits into organizational life by correlating them with the level of counterproductive work behavior and with work locus of control. Although those three facets have different origins, the personalities described as dark personalities share a number of features. In different degrees, all of them entail a socially malevolent character with behavior tendencies toward self-promotion, emotional coldness, duplicity, and aggressiveness. A narcissistic person is described in terms of a high vanity, constantly seeking for attention and admiration, with a sense of superiority or authority. Most often he or she manifests
manipulative and exhibitionist behaviors. Machiavellianism is a tendency to be cynical, pragmatic, emotionally detached in interpersonal relations but, at the same time a good organizer and having long-term strategically thinking. Psychopathy presents as cardinal features: impulsiveness, emotional detachment, manipulative antisocial behavior. The recently published meta-analysis by O'Boyle, Forsyth, Banks and McDaniel (2011),
showed that counterproductive behavior in the workplace is associated with all three facets of the dark triad. In the current study 122 participants (36 males and 86 females) were invited to fill in the following measures: Work Locus of Control Scale (Spector, 1988), MACH IV (Christie & Geis, 1970), Narcissistic Personality Inventory (Raskin & Hall, 1979), Self-Report Psychopathy scale – version III (Paulhus, Neumann, & Hare, in press) and
Counterproductive Work Behavior Checklist (Spector & Fox, 2002). Results did not showed positive correlations between Machiavellianism and counterproductive work behaviour, or between narcissism and counterproductive work behaviour. Nevertheless, one strong positive correlation was found between psychopathy and counterproductive work behaviour (r= .438, p<.01), mirroring Patrick’s results (2007, as cited in Paulhus and Williams, 2002). Regarding the work locus of control, it was identified a positive significant correlation with
Machiavellianism (r= .204, p<.05), meaning that the higher the score on work locus of control – internal, the higher the tendency to act in a machiavellic way.
... Source: IMF; EIU Country 8 This section is derived and based upon the following works: Ngian (2000), Pempel (1999), Pettis (2001), Radelet et al. (1998), Stiglitz (1996), and Tiwari (2003). In turn, as credit dried up, the wheels of the economy unhinged. ...
The fundamental message of this paper is simple and fourfold. The world has endured many economic - financial frenzies, panics, and crises that, at first glance, appear to be remarkable and special, but upon closer examination, mirror each other in several ways. Typically, these historical economic crises are resultant of excessive debt, contain a trigger event that creates a "crisis in confidence", suffer a boom bust cycle with significantly enhanced financial and economic volatilities, and generate a boom bust cycle that leads to major contagion effects across the financial and real sectors and spreads internationally. Our analysis as a case study examines and demonstrates that the Great Financial Crisis of 2007-2008 exhibits extraordinary causal features and similarities with the Long Depression of 1873.
... However, for the post-1980 period,Efremidze et al. (2017) find that only approximately half of the capital flow reversals, and associated "sudden stops," were preceded by surges in inflows. See also,Pettis (2001),Reinhart, Rogoff and Srivastava (2003), Rogoff (2005, 2009) andSturzenegger and Zettelmeyer (2006) for extensive analysis of the multiple waves of capital flows to Latin America that ended in defaults. For earlier work similarly identifying wave patterns in data on default, seeSmith (1920) and the discussion in. ...
A key feature of the full sovereign default record from 1294-2008 is that serial default is far rarer than the much-ballyhooed 1980s experience suggests. The only mass default in Europe’s long record, dating back to 1294, occurs during the Napoleonic Wars (1800-1815). The majority of the serial defaults occurred only after 1975, primarily in Africa, Asia, and Latin America, and were heavily concentrated in the 1980s. These countries’ multiple defaults, in common with some earlier default waves in Latin America, reflect the experiences of newer nation states. These defaults also occurred in conjunction with the inherent vulnerability of countries on the periphery to events in the much longer-established major financial centers. This was quite distinct from the earlier defaults seen in Europe and largely represent an aberration when taken in context of the overall historical record both before and after.
... Following the quadrupling of oil prices in 1973, oil-exporting countries needed investment opportunities (Pettis, 2001). As the developed world experienced slow growth, commercial banks came under pressure from heavy-equipment suppliers and construction firms to provide loans to developing countries (Klein, 1990). ...
This article explores the factors causing the current poor performance of most government irrigation schemes in sub-Saharan Africa. The literature review finds that the poor performance is not primarily caused by socioeconomic and biophysical conditions inherent to sub-Saharan Africa. African farmers have adapted to diverse biophysical conditions and expanded or contracted their area under agricultural water management in response to market signals. Rather, this poor performance is predominantly linked to the production systems introduced during colonialism and developments since independence, such as agricultural policies restraining rural economic development, unsuitable irrigation technologies and agricultural practices, and international lending practices and trade arrangements.
... Following the quadrupling of oil prices in 1973, oil-exporting countries needed investment opportunities (Pettis, 2001). As the developed world experienced slow growth, commercial banks came under pressure from heavy-equipment suppliers and construction firms to provide loans to developing countries (Klein, 1990). ...
Agricultural production in sub-Saharan Africa has, in recent times, remained lower than the rest of the world. Many attribute this to factors inherent to Africa and its people, such as climate, soil quality, slavery and disease. This article traces the role of agriculture through history and argues that these are not the main reasons. Before the arrival of European traders, complex agricultural systems existed, which supported food security, manufacturing and trade. External interference manipulated these systems in pursuit of export crops. Independence has not fundamentally changed this; resource and wealth extraction continue to inhibit economic development for Africans in Africa.
... Section 2.1 identified a few potential extensions of the basic model developed here, but further extensions that incorporate international variables are possible. For example, many studies have identified liquidity conditions in the world's core economies as an important determinant of monetary conditions in emerging market economies (Pettis 2001;Fratzscher 2012;Bruno and Shin 2014;Rey 2015). The implication from this body of research is that when monetary conditions in the core tighten, the probability of crises in interdependent emerging market economies increases. ...
This study develops and tests a formal model that shows why central banks protected from direct government borrowing supply a larger financial safety net for commercial banks during a crisis. This result is derived from a novel model of central bank independence grounded in the rules governing access to the central bank’s balance sheet, rather than in the politics of inflation. Subsequent analysis shows that this result is mediated by the degree of leverage in the banking system, but only in democracies where government borrowing restrictions are credible. Supporting quantitative evidence comes from an event study on a large sample of emerging market banking crises between 1980-2009.
... average value of food production (AVFP) has experienced a "saw teeth" evolution amid a general upward trend from a minimum of 330 between 1990 and 1992, a local top of 362 between 1995 and 1997, and a return to the initial situation in the period between 1998-2000, in the course of the manifestation of the effects of the structural crisis of the national economy overlapped with the global depression induced by the Asian financial crisis (Granger, Huangb and Yang, 2000;Muchhala, 2007;Noland et al., 1998;Pempel, 1999;Pettis, 2001;Riès, 2000), followed by a rally of ...
Food safety represents a current topic, with significant implications and diverse approaches
within the specialized literature. In the context of globalization and integration of
agricultural markets, the necessity of guaranteeing food safety is imperative for the
functionality of contemporary agricultural systems. The radical transformation of the
national agricultural systems as a result of the influences imposed by the convergence with
the requirements and directions of the European agricultural model entails a significant
change for the markets of agri-food products, affecting the food trade, its structure and,
implicitly, food safety. In this context, the main objective of the present paper is to examine
food safety in Romania using an econometric approach to the phenomenon. Nine
fundamental variables are considered, for which the causal relationship between food safety
and the exogenous variables taken into analysis is tested. The time frame for data
availability for all the variables is 1990-2011. The obtained results highlight the
transformations of paradigm of the national agricultural model from the perspective of the
dimensions regarding food safety, confirming results from previous studies.
... (Leung, Hui, & Fong, 2015) When the crisis emerges, these low credit companies with large outstanding USD denominated bonds are expected to be hit hard as de-pegging will not only hit their balance sheets but also worsen their financing situations due to their inverted capital structures. (Pettis, 2001) Also compared with the U.S. bond market, the Hong Kong bond market is narrow and the spreads quoted are quite wide which also facilitates an attack by short sellers. (Latter, 2008) The development of the bond market is also limited by the government's capacity to support the HKD as corporate bond issuers might be unable to tolerate swings in short-term rates. ...
Hong Kong (HK) adopted the Linked Exchange Rate (LER) system in 1983, and it has been operating successfully for more than three decades. However, the maintenance costs for the LER system have grown exorbitantly and could outpace the costs of an exit, especially under the combined influence of a slow-down of the Chinese economy and a possible interest rate hike in the U.S. The HK government currently holds much more foreign reserves than it did preceding the 1997 Asian Financial Crisis. The HK government is also facing political unrest and growing anger of low income residents towards wealth inequality. This opposition could eventually force the HK government to abandon the Currency Board System. At present, the cost of exiting the LER system is small thanks to a strong HKD sustained by large capital inflows from mainland China. However, the time frame for such a low-cost exit is short.In our view, the HK government is likely to maintain the current system, even at high social and economic costs, in the expectation that changing external factors, such as the rebound of the Chinese economy, will relieve the de-pegging pressure. In this report, we explore several approaches to gauge the timing and risks of a de-pegging of the HKD and the collapse of the Chinese housing bubble. At the same time, we analyze the potential impact of a de-pegging on HK’s local companies and the most vulnerable parts of the system.
... See MichaelPettis, 2001, andPadma Desai (2003). ...
Diversity, or variety, is the essence of economic life in the sense of underlying choice; economic calculation gives numerical substance to how people make choices in their daily endeavours, either as consumers or entrepreneurs. How does variety/diversity takes shape in the realm of institutions and policy making? Is the range of choices open-ended? The last couple of decades has revealed an overwhelming offensive of the neo-liberal paradigm interms of defining “best practices”. Even language was shaped accordingly with market reforms being seen in a quasi-single theoretical and policy framework. Are we heading towards increasing uniformity with regard to institutional and policy set ups, worldwide? An affirmative answer would underline the successful market based transformation of a series of command economies. Some convergence between institutional patterns in the USA and theEU economies might be alluded to in the same vein A supportive argument for this line of reasoning could be that what matters for individual achievement, in the end, are equal opportunities. But this argument can be turned around when debating the merits of various institutional set ups in terms of creating fair chances for people. A sceptical answer would highlight the mounting challenges which confront societies, whether rich and poor, and the international community in general –in spite of the high hopes of not long ago. The demise of the “New Economy”, the series of corporate scandals in wealthy economies and the subsequent recourse to new regulatory legislation, recurrent financial and currency crises throughout the world, and the controversies surrounding the activity of IFIs, should compel “ideologues”, of all sorts, to be more humble in their prescriptions. This essay argues that there is substantial scope for institutional and policy diversity to operate as a means to foster economic development; that there might be a paradigmatic cycle in the dynamic of economic policies.
... According to recent estimates by Reinhart and Rogoff (2009), this threshold -considered to be around 85-90 per cent of GDP -may already have been reached by some advanced G20 economies following the current recession, although increases in long-term interest rates have so far remained limited (see next section). In addition, in less advanced economies with smaller domestic capital markets and larger need for external financial investment for their public bonds, risk premia could go up and the maturity of new bond issues could shorten, making financing the budget deficit more expensive and more risky, and with consequences also for financing conditions in the private sector (Pettis, 2001). However, a recent study has questioned both the association of debt and growth and the threshold limits (Irons and Bivens, 2010). ...
Economic recovery from the crisis triggered by the collapse of Lehman Brothers in 2008 remains both weak and uneven across countries. The result is persistently high unemployment in some countries, and growing job precariousness almost everywhere. In the countries where the crisis originated, the financial system remains dysfunctional, thereby affecting enterprise investment and further delaying a job recovery.
This report shows that a sustainable, job-rich recovery is possible – provided that the factors that led to the crisis are tackled.
... The last major recession occurred in the early 2000's and was felt in Western countries affecting the European Union mostly during 2000 and 2001 and the USA mostly during 2002 and 2003. Meanwhile, Russia's economy began to recover and Japan's 1990s recession continued (see also Kilgour 1999, Pettis 2001& Tiwari 2003. ...
... Recently, the high susceptibility to external shocks of Latin American countries-and other developing and in transition countries-has derived in a series of financial crises which can be interpreted according to the 'volatility machine' point of view. (Pettis, 2001) For instance, the currency devaluations that set off the Tequila crisis had not been unexpected, but the virulence of the subsequent market break and the frightening logic with which one market in Mexico after another collapsed were much more than mere changes in fundamentals; the same logic applies to the case of Asian crises. ...
В статье анализируются национальный резервный капитал и модернизация. В развитии модернизации правительство должно полагаться на государственную власть, чтобы создать справедливые условия для развития рынка. Модернизация в современной истории человечества представляет собой поэтапный процесс, в ходе которого капитал и риск одновременно концентрируются в городах, а также периодически возникают кризисы.
The article analyzes the national reserve capital and modernization. In the development of modernization, the government must rely on state power to create fair conditions for the development of the market. Modernization in the modern history of mankind is a step-by-step process, during which capital and risk are simultaneously concentrated in cities, as well as crises periodically arise.
The 1990s saw art exhibitions and biennials staged in East and Southeast Asia and Australia representing a contemporary rather than traditional Asia. These events were supported by region-wide fora on Asian contemporary art that promoted the discursive and imaginative capacity to curate such an Asia. The Japan Foundation Asia Center contributed to this capacity building via what could be called cultural infrastructural networks – their symposia on Asian contemporary art from 1994 to 2008. The concern was to increase a regional representational capacity based on sound art-critical and historical approaches and to ascertain the contemporaneity of present artistic practice. An emphasis on present-day art established a relational approach to temporality in which the recognition that contemporary artistic formations occupied a coeval time zone with contemporary western art in turn implied increased equality with the western metropole. However, the capacity to exhibit the regional contemporary of an Asia that has economically arrived did not overcome the apprehension of older modernizing ideologies linked with fraught ideas of Asia that had led to the Pacific War. Nevertheless, a multicultural Asia – the aspirational conjuncture of diverse regional locales with still disparate development levels and temporalities to produce a fictional totalized present – was projected in exhibitions that strove to rise above inter-Asian national clashes. These may have been performative projections of the contemporary, but such possibilities were not available during Asia’s colonial period.
Thematically, the article contributes and aims to advance current debates on the political economy of global finance and international financial crisis, drawing in on the academic legacy of Hyman Minsky and his contemporary followers. Methodologically, it advances Minskyan financial instability hypothesis to the analysis of the increased fragility in global financial capitalism and specifically, of the financial crises of the late 1990s-early 2000s. Grounded in Keynesian tradition of political economy, Minsky's analysis of financial instability and crises - features endemic in capitalism - is enlightening not only for those interested in the economic history of the 20th century. His methodological insights and political conclusions provide a fertile ground for elaboration in the context of recurrent financial crises and the present-day nature of financial capitalism. This essay reveals major sources of in-built systemic fragility of financial structures in capitalist economies generally, and in the Russian case in particular.
Borçlanma eşiği dış borç stoku/GSMH oranındaki artışın ekonomik büyümeye zarar vermeye başladığı dönüm noktasını ifade etmektedir. Diğer bir deyişle kişi başına düşen GSMH ile dış borç stoku arasında ters U şeklinde bir ilişki söz konusu olabilmektedir. Ülkeler düşük dış borç oranlarında borçlanmalarını arttırarak ekonomik gelişime katkı
sağlayabilmektedirler. Bu durum belirli bir noktaya kadar sürmektedir. Eşik değerinden sonra ise dış borç yükü ekonomiye zarar vermeye başlamakta, bu nedenle ekonomik gelişim ve dış borç/GSMH oranı arasında negatif bir ilişki söz konusu olmaktadır. Ters U-şeklindeki bu durum teoride borç Laffer eğrisi olarak nitelendirilmektedir. Bu çalışma Türkiye’de borç Laffer eğrisinin geçerliliğini analiz etmektedir.
Dış borç düzeyinin eşik değerden yüksek olması, yatırımları caydırma, verimliliği düşürme gibi nedenlerle ekonomik büyümeyi olumsuz etkilemektedir. Diğer yandan ülkelerdeki politik, ekonomik ve mali yapıya göre söz konusu eşik değerin boyutu değişmekte ve ülkeye özgü bir hal almaktadır. Bu nedenle genel geçer bir eşik değer bulunmamaktadır. Bu durum dış borç-ekonomik büyüme ilişkisinde dış borçların ekonomik büyümeyi negatif etkilemeye başladığı eşik değerin ülke özelinde belirlenmesini gerekli kılmaktadır. Bu açıdan borç Laffer eğrisi eşik değerinin Türkiye için belirlenmesi, hangi düzeyde borçlanmanın Türkiye ekonomisine zarar vereceği hakkında önemli ipuçları içermektedir. Bu ipuçlarına göre ise politika yapıcılar ülke borçlanma düzeyini etkin noktada tutabileceklerdir.
Does the ever-increasing stock of cross-border asset holdings pose a threat to macro-economic stability and to US geo-economic power? Recent analyses suggest that exchange rate changes might drive massive changes in net asset positions that in turn create equally large wealth effects. These wealth effects might compromise US macro-economic policy. In contrast, this manuscript argues that these fears are misplaced. Income flows are the dog that wags the asset tail. Those income flows in turn derive from differences in national growth rates and in the ability of firms to capture profit from global value chains. Expectations around these flows validate asset values. Attention should therefore focus on the source of flows and control over flows, particularly profits, rather than on asset stocks, which are a dependent variable. Although wealth effects driven by exchange rate changes are large, other routine changes in flows and expectations have similar or larger effects on the stock of wealth.
How does dollar centrality persist in the face of continuous US current account deficits and a steadily worsening net international investment position? Two mechanisms create a structural basis for dollar centrality, explaining how dollars enter global credit markets and why surplus countries continue to hold dollar-denominated assets. First, institutional structures deriving from late development suppress domestic demand in major current account surplus countries, making them reliant on external demand for growth. Local banks recycle those dollars into the global economy, creating huge dollar liabilities and assets on their balance sheets. This locks them into continued use of the dollar and reliance on the US Federal Reserve during crises. Second, US firms participating in the global unbundling of production have constructed commodity chains in which they capture disproportionate shares of global profits through their control over Intellectual property. These profits sustain valuations and thus the attractiveness of dollar-denominated assets. Routinization in use of the dollar and compliance with Trade-Related Aspects of Intellectual Property Rights (TRIPS) and US controlled commodity chains creates infrastructural power in Michael Mann’s sense. This routinization sustains US geo-economic power in the face of persistent current account deficits and growing net international debt relative to US gross domestic product.
We exploit a new annual historical data set for ten South American countries from 1960 to 2008 for insight into long-run economic growth within a two-equation framework. A system of two panel data models is estimated by generalized least squares, which is a method used to control for unobserved country-specific effects, accounting for within-panel serial autocorrelation, as well as heteroskedasticity and cross-sectional correlation between panels. Growth is found to be driven by capital formation, foreign investment and human capital, as well as by sectoral exports (manufacturing and other services). Trade openness is positively correlated with foreign investment, indicating that relatively closed countries stand to benefit most from opening up their economies. The evidence shows that macroeconomic disturbances still have a significant detrimental effect on long-run growth in developing countries. Finally, in view of the scope of our analysis, we divide the sample in two sub-periods 1960–1982 and 1983–2008. The results highlight our previous findings and reveal a convergence process within the region. Our approach here is decidedly empirical, taking advantage of a broad new historical data set especially for the developing countries in the region.
Finansal krizler tüm ekonomilerde tarih boyunca kendini göstermiş ya da kaygısını çoğu zaman hissettirmiştir. Ortaya çıkan finansal krizlerin nedenlerine bugün baktığımızda; bir diğerine benzer seyirler izlediklerini ve gene benzer faktörlerin etkisiyle ortaya çıktıklarını görebiliyoruz. Birçok alanda olduğu gibi finansal krizlerde de tarih tekerrür ediyor. Tekerrür ediyor çünkü finansal faaliyetlerin merkezinde insan unsuru var ve zaman zaman çılgınlaşan kimi zaman panikleyen insan; dün de bugün de yatırımcı rolünde benzer davranışlar sergiliyor. Bir diğer ifadeyle yatırımcı davranışları dün de bugün de birbirine benziyor. Bu çalışmada finansal krizler tarihi boyutuyla ele alınmış, tarihte şişirilen finansal balonlar ve ardından panikleyen yatırımcıların davranışları sonucu yaşanan buhranlar işlenmiştir.
When recognition of independence lay tantalizingly out of reach, officials of the first Colombian republic devoted funds and expertise toward hiring French-trained naturalists for an expedition. These officials' plan to gain diplomatic recognition of Colombia through European scientific patronage networks initially seemed poised to work. As promises of Colombian platinum piqued British moneylenders' interest, French mapmakers etched the naturalists' early findings onto copperplates. But both the expedition and the Colombian republic emerged amid the transatlantic geopolitical changes and local economic and political crises of the 1820s. The illness and death of key actors compounded these uncertainties. Drawing on published and manuscript correspondence, memoirs, and the naturalists' findings, in addition to a close reading of changes made to French-printed maps, this essay explores the entangled fates of the expedition and the Colombian republic to reveal the materiality and spatiality of natural history knowledge production and the praxis of geopolitics.
Sumner’s (2016) article in Foreign Affairs reasserts the potential of monetary policy to influence economic conditions – following years of suboptimal growth in the US and elsewhere and an unraveling of consensus about central bank practice. This review provides theoretical and economic history context. From the 1960s onward, consideration of money quantity variables was prominent in monetary policy discussion. By the 1990s, central bankers had transferred focus to interest rate or inflation targeting, and sometimes to a combination of the two. Central bankers have proved effective at meeting, or approaching, inflation objectives – and doing so helps to stabilize market expectations for what the future price level will be. Sumner argues that if central bankers can stabilize inflation expectations, then they could also meet nominal GDP (NGDP) targets – and thereby stabilize expectations regarding future growth, unemployment, and interest rates. Also, NGDP targeting is counter-cyclical in its essence.
The depth and length of the Great Recession were largely a result of contractionary monetary conditions from the third quarter of 2008 onward. But financial crises, including in that of 2007-2008 in the US, can trigger or contribute to downturns. NGDP trends are not a good predictor of such crises, which often have origins in compromised capital structure. A further limitation is that NGDP targeting emphasizes internal balance (domestic prices and employment) almost to the exclusion of external stability as an aim of monetary policy. Even if the primary goal remains internal balance, data from foreign exchange markets and from non-domestic price changes provide important information about the stance of monetary policy.
This collection empirically and conceptually advances our understanding of the intricacies of emerging markets’ financial and macroeconomic development in the post-2008 crisis context. Covering a vast geography and a broad range of economic viewpoints, this study serves as an informed guide in the unchartered waters of fundamental uncertainty as it has been redefined in the post-crisis period. Contributors to the collection go beyond risks-opportunities analyses, looking deeper into the nuanced interpretations of data and economic categories as interplay of developing world characteristics in the context of redefined fundamental uncertainty. Those concerns relate to the issues of small country finance, the industrialization of the developing world, the role of commodity cycles in the global economy, sovereign debt, speculative financial flows and currency pressures, and connections between financial markets and real markets. Compact and comprehensive, this collection offers unique perspectives into contemporary issues of financial deepening and real macroeconomic development in small developing economies that rarely surface in the larger policy and development debates.
With current flows of private finance reaching out the developing areas, our analysis would remain incomplete in the absence of a close look at their impact on development. The pattern of financial flows to these countries was drastically changed by the early 1970s, as concessional loans from official sources started tapering off and were substituted by flows of bank credit from private sources. Unlike the official loans which used to be distributed relatively evenly across countries, the flow of private credit was directed primarily to a handful of middle-income countries in Asia and Latin America. As we have pointed out in Chapter 2, by the early 1970s, international banks in the West were already facing a dampened credit demand in home countries. Flushed with liquidity which augmented further with large OPEC deposits from the oil-rich Arab countries, banks in the West thus had to seek out borrowers from outside, if they were to remain in business. The middle-income developing countries, in turn, used the opportunity to avail of the credit which was cheap in terms of the low or even negative real interest rates at which these were offered. While these borrowings were mostly publicly guaranteed, the proceeds often added to private wealth, contributing little, if at all, towards national benefit in terms of growth and employment in these countries.
The chapter analyzes the changing nature of capital flows to sub-Saharan Africa and related opportunities and risks given the characteristics of the sub-Saharan economies and the global environment in which they find themselves. The subcontinent has received unprecedented financial flows over the past decade, but some country groups are more exposed to these flows than others. A common trend for all countries in the region is that private capital inflows are becoming more important relative to public inflows. While new and growing capital flows offer increasing opportunities to finance economic development, the globally integrated sub-Saharan economies’ reliance on high concentrations of commodity exports puts them in a vulnerable position.
This paper is structured into four different parts. In the first part the authors analyze the origins of banking and debt crisis in the EU. The state and the evolution of the EU banking sector before the crisis and in its immediate aftermath is analyzed in detail in order to dispel the myth of the existence of an exclusively debt-induced crisis. This part also introduces the notion of financialization into the analysis. The second part analyzes the crisis-related dynamics by using endogenous monetary theory and makes particular use of balance-sheet recession as a concept. The third part introduces political consequences of the banking and debt crisis in the EU by focusing on the political crisis of legitimacy and its impact upon the EU integration process. In order to deal with this topic the authors borrow several concepts from critical international political economy such as transnational elite, knowledge production, and hegemony. We posit a close link between actions of the European transnational elite, crisis origins, and their ramifications. The fourth part focuses on the two most-discussed policy solutions in tackling the crisis: the banking and the fiscal union as well as their feasibility. Additionally, it lays out some fundamental trillemas for creating a viable way out of the crisis which are unfortunately often neglected in public debate. The main argument refers to the growing impact of financialization in the EU and its detrimental effect on the potential for integrated, stable, and prosperous EU economies. The authors explain the changing social, political, and economic landscape and evaluate the main challenges and obstacles to economic and political governance in the EU. The paper is concluded with some heterodox policy recommendations for overcoming them.
JEL classification: B52, E51, E52, F34, F50, G01, G20, P48
This paper assesses the current strength of balance sheets of the corporate and household sectors that together account, through private investment and consumption, for over 70 percent of the Thai economy. On the basis of the available data, it seeks to answer three questions. First, have the balance sheet conditions of corporations and households recovered fully from the crisis? Second, what are the risks associated with these sectoral balance sheets that should be monitored closely as the economy recovers? Third, how should such risks be managed and monetary policy conducted in order to facilitate medium-term sustainable growth? This paper also analyzes the important role of the financial sector in intermediating resources between corporations and households, and highlights the importance of good governance and financial market development in sustaining the economic recovery.
Conventionally, Southern debt crises are thought to be isolated policy problems that take place from time to time. This article extends the leadership-long cycle approach to international political economy to explain the recurrence of Southern debt crises. The focus is on global debt crises that affect many Southern countries at the same time, as opposed to localized crises that affect a single country or few countries. The unit of analysis is subsystemic, where countries are classified as belonging to the South (less developed) or the North (developed). Within this context, Southern debt problems are part of a structural process associated with long waves of global economic growth and technological innovation. Radical innovation in the North discontinuously stimulates growth in the North. Northern prosperity increases the demand for Southern exports. To meet the increased demand, the South borrows from the North but is then unable to meet interest payments when Northern economic growth and Northern demand for Southern commodities decay. Three other forces of significance are the levels of systemic leadership, Northern conflict, and the inherent inertia of Southern debt problems. Testing this argument with annual data from 1870 to 1989 on the proportion of Southern countries in the international system that experience debt crises, it is found that Southern debt crises, systematically and significantly, are less likely in the presence of strong systemic political-economic leadership and world economic growth, and are more likely in the presence of Northern conflict and past Southern debt crises.
Over the past two decades, the collapse of the financial systems in many developing nations, the bankruptcies in the Anglo-Saxon corporate sectors and a threat of more sovereign defaults on behalf of emerging markets suggest that the current wave of global financial fragility and recession rivals that of the Great Depression of the 1930s. Among elements that account for the crisis-prone nature of global capitalism are the political discipline of neoliberalism; debt-driven expansion of the privatized financial markets; and the profound disarticulation of the financial and real economies. Contrary to mainstream readings of financial crises, today's financial upheavals are rooted in the debtladen regime of neoliberal finance. Today's debt-driven capitalism is both unstable and limited in its developmental possibilities. Nevertheless, a paradigmatic shift in the transnational political consensus can prevent a global repetition of the 1930s.
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