Spanish Mess

Paul Krugman has written a nice summary of how Spain has reached its current (poor) economic situation.

http://krugman.blogs.nytimes.com/2010/02/09/anatomy-of-a-euromess/

The comparison with Germany is also nice. We can definitely see all the rent income earned by Germans who invested in Spanish real estate. I bet that if we look at the UK we might see the same thing.

I wonder what will happen with the deficit as this rental income (due to smaller demand for real estate) goes down.

Paul Krugman on Crises

For my (few) non-academic readers, every January Econ and Finance academics get together for the AEA/AFA meetings, the most important conference we have. (Off-topic: for anecdotes on how cheap economists are during these meetings, check this WSJ article)

This year they took place in Atlanta, where I heard was freezing relative to the nice weather in San Francisco last year. On top of presenting papers, interviewing job market candidates and going out for dinners with old friends, people also get to attend panels and luncheons with speeches by top people.

I just read Paul Krugman's summary of his Nobel luncheon speech on financial crises. It's a very good piece looking the effects of the current financial crisis relative to previous currency crisis.

Every time I think about currency crises, I think about Mark Twain's quote:  "History does not repeat itself, but it often rhymes."

Weak Dollar

At the beginning of each class of my first-year course this year we spend about 15 minutes discussing the major events in the Financial Times.

One of the "big stories" in recent weeks has been the weakening of the dollar relative to major currencies and, not surprisingly, it prompted many questions about the underlying reasons for it.

In class we discussed many things::

1.  Recent decreases in risk aversion reversed the "flight to quality" seen during the peak of the crisis.
2.  Bad monetary and fiscal policy by the Fed and the US Treasury relative to other countries (aka higher inflation).
3.  Sovereign governments diversifying their reserves to securities in other currencies.
   

The last time I was a serious student of macroeconomics was almost 10 years ago. Paul Krugman comes up with a sensible argument, but a smart guy like Barry Eichengreen (link here) is not so sure about the death of the dollar.