Most European countries have embarked on a range of austerity measures designed to reduce their budget deficits. Why have austerity measures been pursued with great vigour in Europe? What is impact of austerity measures on economic activity? Why Austerity? Pressure from Bond Markets. Investors have become nervous about holding debt in several Euro-zone countries. This …
Readers Question: There just seems to be many paradoxical actions taking place in markets and economies at the moment. How do we explain? Paradoxes of UK economy Low interest rates have not increased spending / economic growth Despite recession, inflation has been above target. Despite recession and depreciation of Pound, current account deficit increased in …
What are the Global Imbalances? US ran a large and persistent current account deficit (imports higher than exports) of up to 6.5% of GDP in 2006 Diagram of Current Account Surplus / Deficit in US and rest of world source: (1) 2. China ran a large current account surplus, accumulated foreign reserves, kept Yuan undervalued …
Readers Question: Economics is a social science, it contains graphs, diagrams and statistics to make strong evaluations and at university level it also often seems to have a strong Maths content which allows for even stronger analysis, calculation of events and evidence of theories. So how is it possible that often economic events such as …
Quantitative easing aims to stimulate the economy and reduce gilt yields. A consequence of this is that lower bond yields lead to lower income for savers. This particularly affects pensioners who rely on income from savings to provide for their retirement. Since QE was implemented in March 2009, the income paid by pension annuities has …
Danny Blanchflower, a former member of the Bank of England, writes a critical piece on the Bank of England’s forecasting record in the Independent. “The second chart gives cause for concern because for the umpteenth time the MPC is forecasting rapid recovery, which is extremely unlikely to happen, and it seems that little has been …
Readers Question: Do the US have to depend on others to buy their bonds? The US doesn’t have to rely on other countries to buy their bonds. If there is sufficient domestic demand for buying US bonds, there is no need to rely on foreign investors. However, at the moment, about 30% of US bonds …
Readers Question: How is it possible for countries with massive debt to have a strong currency, e.g Japan and the US? Sometimes countries can have large debts that are sustainable. In the case of Japan and the US, the general consensus is that there is a very low risk of default. US debt is very …