Analysis

Economic War and the Commodity Shock

In the early weeks following Russia’s invasion of Ukraine, a conversation between journalist Javier Blas and historian Nicholas Mulder on the collision of their areas of expertise—commodity markets and sanctions—in the fallout of the war. Under discussion, the reconfiguration of power in Europe, the and the competition between weapons and the “economic weapon.”

Austerity and Renewables

After weeks of rising domestic pressure, a spiraling economic crisis, and the swift loss of crucial military support, Pakistan’s Prime Minister Imran Khan was removed from office last weekend following a vote of no confidence. The political turmoil is the latest in a worrisome series of events in the country—the price of food has risen sharply in recent months, along with gas and other essentials. And Pakistan’s rupee plummeted against the dollar, raising concern that higher bills for basic imports may deplete its dollar reserves.

A New Public Housing Model

In 2006, the government of Ethiopia embarked on a mission to construct half a million condominium apartments over a twenty-year period in its capital of Addis Ababa—a city of only five million. Now, sixteen years later, the initiative has transformed the city’s housing infrastructure, economy, and urban character. Built upon a unique and complex history of state land ownership, this massive housing initiative has transformed the way of life for a historically rural, agriculture-driven nation. The Integrated Housing and Development Program (IHDP) and the Grand Addis Housing Authority facilitate homeownership for a broad base of local residents by allocating subsidized condos via randomized lottery. The government is responding to the need for affordable urban housing by directly building, financing, and administering sales of condos.

Bargaining Chip?

For the global hegemon, pulling the trigger on crisis management seems to consist primarily of posting PDFs to government websites. During the March 2020 financial panic, as the coronavirus first spread throughout the Global North, the Federal Reserve feverishly published term sheets for lending facilities meant to generate dollar liquidity, and the gears of the financial system moved in response. Since February 22 of this year, when Russian troops invaded Ukraine, the Office of Foreign Assets Control (OFAC)—the Treasury Department section in charge of sanctions—has published announcements meant to drain liquidity from the Russian economy.

Acute Dollar Dominance

In early 2020, the “dash for cash” in the US Treasury market prompted the Fed to relaunch its dollar swap lines, which it eventually did in mid-March of that year. In the aftermath of the 2008 Global Financial Crisis (GFC), the New York Fed had established permanent arrangements to supply dollars to five key foreign central banks. But as the emerging pandemic rattled global financial markets, dollar swaps were temporarily extended to nine more foreign central banks. Less privileged foreign central banks not extended such swap lines were instead given access to the Fed’s brand-new Foreign and International Monetary Authorities (FIMA) repurchase agreement facility (FIMA Repo Facility), which allowed them to exchange their US Treasury securities for dollars as an alternative to dumping the securities for cash in the open market.

Controlled Prices

In the decades after the Civil War, Andrew Carnegie captured the American steel industry by pushing down prices. So effective was the Scottish-born telegraph operator at reducing costs, breaking cartels, and driving competition into bankruptcy during the downturns of the 1880s and 1890s, that J.P. Morgan bought out the 66-year-old Carnegie to protect the profitability of his holdings and stabilize the nation’s industrial life. When Morgan incorporated U.S. Steel in 1901, the unprecedented combine controlled two-thirds of the nation’s steelmaking capacity. For the next six decades, the company set the price of steel in the American market, anchoring industry prices by cutting last in recessions and raising last in expansions.

Stop, wait, go

The new coalition government in Germany, led by Social Democrat Olaf Scholz, is the first time that the SDP, the Greens, and the Liberals have joined together in a single government. The cooperation agreement, published on November 24, was the result of months of multi-level deliberations between the representatives of the three parties. In 178 pages, the text summarizes the key issues that will occupy the government over the next four years, including the response to the pandemic, foreign policy, and regulation of important issues such as the increase of the minimum wage and the legal framework for gender identity. The coalition partners have declared that they have “Lust auf Neues”, i.e. desire for something new. Despite these statements, the agreement contains two components which indicate a return to the status quo. 

Homeownership & the Student Debt Crisis

The benefits of owning a home in the United States cannot be overstated. The housing market in the United States both reflects and causes widening cleavages in American society; owning a home is a functional prerequisite for financial security. The Federal Reserve’s latest Survey of Consumer Finances finds a massive wealth disparity based on housing status: in 2019, homeowners had a median net worth of $255,000, while renters or others had a median net worth of merely $6,300.

Death or glory?

In October 2019, a proposed thirty peso hike in public transport fares triggered protests in Santiago that spread to other major cities across the country, denouncing the country’s economic infrastructure with the slogan, “It’s not thirty pesos, it’s thirty years.” Chileans took to the streets to protest political corruption, the rising cost of living, the privatization and commodification of education, health and pension systems; and the privatization of natural resources like copper and water. While Pinochet’s dictatorship ended thirty years ago, its constitution still governs the country. A resurgent feminist movement and the reignition of the historical struggle between the Indigenous Mapuche and the state also contributed to this wave of unrest.

Trade and Growth

According to a survey on free trade from the University of Chicago, economists overwhelmingly agree that free trade’s net effects are good. A recent article by several  IMF economists affirms that, “perhaps more than on any other issue, there is agreement among economists that international trade should be free.”

The Wall Street Consensus at COP26

Wednesday, November 3, was private finance day at COP26. For those who follow central banks closely, the event was a chance to gauge whether their recent turn to climate-conscious policy making would translate into ambitious decarbonization announcements. After all, private finance is essential to the survival and profitability of the fossil-dependent economy—it creates dirty credit at prices that ignore climate effects. Such a pervasive market failure, central bankers now routinely argue, is significant enough to generate financial stability risks and to justify new climate policies within independence-centered mandates.    

Growth Towns

The ongoing crisis for Chinese property developer Evergrande has made the giant company the focal point of global concern. Creditors, investors, contractors, customers, and employees of Evergrande within and outside China have watched anxiously to see whether the Chinese government would decide that Evergrande was too big to fail. If Evergrande were to collapse, the repercussions for both the financial system and construction supply chains are impossible to predict. Reportedly, the central government in Beijing has issued a warning to local governments to brace for the possible social and political fallout. 

Negotiations

The new German government will be called upon, at a highly critical time for the global and European economy, to draw up a new economic and political strategy not only for Germany but also for the EU/Eurozone. The outcome will be the result of formal negotiations between the Social Democratic Party (SPD), the Green Party, and the liberal Free Democratic Party (FDP). But there’s one more partner who, though less widely discussed, will be crucial to the negotiations: the Federation of German Industries (BDI).

Manufacturing Stagnation

$5.3 trillion of US federal government stimulus and relief spending have returned the economy to its pre-Covid growth trajectory. But that growth trajectory was hardly robust—either before or after the 2008 financial crisis. Nor was the slow decay of GDP growth rates unique to America. In the aggregate, the seven largest rich economies—the G7, composed of the US, Japan, Germany, France, Britain, Italy and Canada—saw growth in real per capita gross domestic product (GDP) slip by more than half from the 1980s to the 2010s.

The Diverging Gap

On June 11, leaders at the G7 summit signed the Build Back Better World (B3W) Partnership, an agreement which commits signatories to meet the infrastructure needs of low- and middle-income countries. The deal is an explicit response to China’s Belt and Road Initiative (BRI), which, since 2013, has gained the support of more than 60 countries and dedicated over $500 billion of funding to thousands of projects.

Uneven Channels

This year’s Conference of the Parties (COP), opening October 31, is hosted by the United Kingdom, whose agenda-setting privilege as host has made private finance a central focus of the 2021 meeting. The UK ambition to center the City of London as a hub for a growing green finance industry dates back to at least 2010, when the “Capital Markets Climate Initiative”

Gas and Labor

The United Kingdom is in the midst of a protracted crisis in the supply of petrol. In the face of a plummeting sterling and severe disruptions to essential public services, military tanker drivers have been deployed to transport fuel to the country’s 8,380 petrol stations.

How Schools Lie

No matter how talented, hard working, and committed a student is, if financing falls through, the dream of obtaining higher education can be dashed. But much of the financial data that prospective students receive is misleading. In the cost information offered to prospective students, higher ed institutions consistently underestimate the non-tuition costs of attending college, and overestimate the amount of incoming aid from grants and scholarships.

Legitimacy Gap

We live in the age of the central bank. The financial crisis of 2008 and the COVID-19 crash of 2020 have made visible the central role of the US Federal Reserve and its overseas counterparts in the international financial system.

Built Trades

As the American economy reopened in the first half of 2021, reports of a “labor shortage” spread throughout US industries. But there was one sector where employer panic about hiring was old news: the massive and decentralized US construction industry.