The next recession

Michael Roberts Blog

Back last summer, there was growing concern that the world economy, already making the weakest recovery from the deepest slump in production and investment since 1945, was slowing down.

Indeed, it now seemed that the ugly thought of another recession, as economists call a contraction in production, incomes and spending, was a serious possibility within a few years or less.  The IMF raised the probability of recession in the so-called ‘emerging economies’ of Latin America, ex-China Asia and the rest of the world to near 50%.

recession probability

The slowdown in emerging economies has been led by the significant slowdown in China’s powerhouse economy, from double-digit real GDP growth just a few years ago to less than 7% now on the official figures (many ‘experts’ reckon real GDP growth is much lower than that). As China slowed, its inexorable demand for energy and other raw materials and other export goods from elsewhere…

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The U.S. Dollar: The Modern Day Bancor

EMerging Equity

By Eugen von Böhm-Bawerk

Dollar2 - Flickr - Tilley441According to Belgian-American economist, Robert Triffin the country whose currency have become the global reserve currency must be willing to supply enough liquidity to satisfy global needs. This obviously raises an interesting question for the Federal Reserve with regard to their monetary policy execution. On one hand, they need to consider the best course of action for the domestic economy, while on the other also take into account effects on global financial markets and corresponding capital flows.

The Federal Reserve Act of 1913 and its many amendments have obviously been interpreted by Congress to apply only to the domestic US economy. Specifically, the Federal Reserve’s statutory objective, as outlined in the Humphrey-Hawkins Full Employment Act of 1978, is to maintain long-run growth- and price stability, which will foster full employment. Note that there is absolutely nothing in the act about creating stable funding conditions for the estimated…

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