VICE on HBO looks at factors that led to the 2008 financial crisis and the efforts made by then-Treasury Secretary Henry Paulson, Federal Reserve Bank of New York President Timothy Geithner, and Federal Reserve Chair Ben Bernanke to save the United States from an economic collapse. The feature-length documentary explores the challenges these men faced, as well as the consequences of their decisions.
What Will Cause the Next Recession? A Look at the 3 Most Likely Possibilities
The expansion is nine years old. An ill-timed end of fiscal stimulus, a corporate debt bubble and the trade war are the things that could most easily end it.
But at the same time, mainstream macroeconomic models have the economic lift from tax cuts fading sometime between 2020 and 2022. That means the Fed could be raising interest rates to slow the economy just as tax policy is also working to slow the economy.
Both affect the economy with unpredictable lags, so it could prove hard for the Fed to set policies that can prevent both overheating in 2019 and 2020 and a downturn in 2021 and 2022.
.. Ben Bernanke put it more colorfully at a conference in June. The stimulative benefit of the tax cut “is going to hit the economy in a big way this year and the next year,” he said. “And then in 2020, Wile E. Coyote is going to go off the cliff.”
.. Corporations have loaded up on debt over the last decade, spurred by low interest rates and the opportunity to increase returns for shareholders.
.. The rise in debt loads overseas, especially in emerging markets, is even greater
.. Essentially, businesses have been in a sweet spot for years, in which profits have gradually risen while interest rates have stayed low by historical measures. If either of those trends were to change, many companies with higher debt burdens might struggle to pay their bills and be at risk of bankruptcy.
.. The 2020 train wreck narrative could intersect with the corporate debt boom. If inflation were to get out of control and the Fed raised interest rates sharply, companies that can handle their debt payments at today’s low interest rates might become more strained. Moreover, with federal deficits on track to rise in the years ahead, the federal government’s borrowing needs could crowd out private borrowing, which would result in higher interest rates and even more challenges for indebted companies
On the Power of Being Awful
the administration’s tax “plan” offers less detail than most supermarket receipts
.. The funny thing about that confidence surge, however, was that it was very much along partisan lines — a sharp decline among Democrats, but a huge rise among Republicans. This raises the obvious question: Were those reporting a huge increase in optimism really feeling that much better about their economic prospects, or were they simply using the survey as an opportunity to affirm the rightness of their vote?
.. almost nobody ever admits being wrong about anything
.. when Bloomberg surveyed a group of economists who had predicted that Ben Bernanke’s policies would cause runaway inflation, they literally couldn’t find a single person willing to admit, after years of low inflation, having been mistaken.
.. most voters probably got the message that the political/media establishment considered Trump ignorant and temperamentally unqualified to be president. So the Trump vote had a strong element of: “Ha! You elites think you’re so smart? We’ll show you!”
.. What will Trump’s Katrina moment look like? Will it be the collapse of health insurance due to administration sabotage? A recession this White House has no idea how to handle? A natural disaster or public health crisis? One way or another, it’s coming.
China’s trilemma — and a possible solution
China faces the classic policy trilemma of international economics, that a country cannot simultaneously have more than two of the following three: (1) a fixed exchange rate; (2) independent monetary policy; and (3) free international capital flows.
.. An economy that is growing more slowly, and in which monetary easing is the principal macroeconomic response, is not an economy that offers high returns to domestic savers. Consequently, Chinese households and firms who are able to do so are spurning yuan-denominated investments and looking abroad for higher returns. However, increased private capital outflows also constitute a flight from the yuan toward the dollar and other currencies; that, in turn, puts downward pressure on China’s exchange rate.
.. Chinese reserves have fallen over $700 billion over the past year and a half. With more than $3 trillion in reserves yet remainin
.. a big yuan devaluation would likely be deflationary for the rest of the world. (Indeed, fairly or not, a devaluing China could face accusations of waging a “currency war,” that is, weakening its currency to “steal” exports and aggregate demand from other countries.)
.. A second possibility for China would be to stop or reverse the process of liberalizing capital flows, making it more difficult for Chinese households and businesses to invest outside the country.
.. It would sacrifice some of the progress that China has made in opening up its financial system—which is itself a prerequisite for achieving China’s goal of making the renminbi an international reserve currency. Moreover, the horse may be out of the proverbial barn, in that the effectiveness of new capital controls in China would be uncertain.
.. the lack of a strong social safety net—the fact that Chinese citizens are mostly on their own when it comes to covering costs of health care, education, and retirement—is an important motivation for China’s extraordinarily high household saving rate.
.. Fiscal policies aimed at increasing income security, such as strengthening the pension system, would help to promote consumer confidence and consumer spending.
.. Unlike monetary easing, which works by lowering domestic interest rates, fiscal policy can support aggregate demand and near-term growth without creating an incentive for capital to flow out of the country. At the same time, killing two birds with one stone, a targeted fiscal approach would also serve the goals of reform and rebalancing the economy in the longer term