Spain’s Recession Deepens

Spain’s economy is now most evidently, and totally and completely officially, in its first recession since 1993. The final confirmation of this came yesterday when the Bank of Spain released its quarterly report on the Spanish economy. According to the bank, gross domestic product fell by 1.1% in the final quarter of 2008 (over the previous quarter), following a 0.2% decline in the third quarter. GDP fell year on year by 0.8%.

Messing around with credit

Each time Ben comes out to speak these days I open my drawer to reach for a glass of scotch. Not that I keep a bottle of scotch in my drawer… I’m just saying… that’s what I’d do if I had one.

So here is what gets me flustered.. Credit markets are broke, so the guy sets up all these liquidity facilities—the TAF, TSLF, PDCF or (my favorite acronym) the ABCPMMMF . Great! I mean, slow, piecemeal, reactive but still.. At least banks now have access to all the dollars they need to finance their day-to-day business, including (you would think) lending to the private sector.

Why this crisis could have been worse

When the history of the impact of this global financial crisis on emerging markets is written, two questions that will have to be answered are whether residents in emerging market countries behaved differently from non-residents and indeed differently from the way they behaved in the earlier emerging market crises of the 1990s; and if so, why?

Micro vs Macro

It’s been a bit of a weird month, hasn’t it?

For Macro Man, the last couple of weeks have really dragged by (including the always-crushing error of mistaking Wednesday for Thursday)….and yet he is shocked that we’re at the end of January already. Talk of loving risk and a the five-day rule seem like a long, long time ago.

Such is the difference between micro and macro….quite often, when focusing on the one, it’s easy to lose sight of the other. Macro Man, as the name implies, typically focuses more on the macro side of the equation; as the saying goes, the name does exactly what it says on the tin.

The Global Crisis Debate

Vox EU is conducting a Global Crisis Debate:

The Global Crisis Debate: is partnering with the UK government to collect the views of economists from around the world on what we should do to fix the global economy. The analysis and proposals that appear on Vox’s “Global Crisis Debate” page will feed directly into the UK’s preparation for the summit of world leaders in London in April. This debate will be featured on the UK government’s own web site,

Read Dean, Areddy and Ng on the management of China’s reserves during the crisis

Dean, Areddy and Ng key their story off Wen’s criticism of US economic management. But it is really much more about the political fallout inside China from China’s losses on investments that they considered safe.

The story breaks a lot of new ground. It highlights how China’s losses on Reserve Primary, Lehman, Morgan Stanley and WaMu influenced China’s decision-making It also confirms that China was very very nervous about its Agency exposure.

Global Economic Outlook (Senate Testimony)

My written testimony, submitted to the Senate Budget Committee for today’s hearing is here (in pdf) and after the jump as a post.  This is essentially our new Baseline Scenario, although we’ll likely make a few small changes before putting it out as that.You can watch the hearing here.  I was struck by how many questions were about what can be done for US housing.  The Senators expressed frustration that substantial further amounts are likely needed to shore up the banking system, yet little has been done for the underlying issues in housing.  They are also quite dubious of any bank recapitalization/clean-up scheme that leaves existing management in place.Several expressed a preference for tackling the fiscal stimulus, bank restructuring, and housing refinance together, to get a better handle on what we can and cannot afford.  Personally, I think that’s a sensible approach – as long as we move forward quickly on all three fronts.

What Does “Private” Mean?

Yesterday, Tim Geithner told reporters, “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.” On its face, I think most Americans would agree that a private banking sector is better than just having one big government bank. But “private” can still mean a lot of different things. For starters, here are three: (a) day-to-day operations are managed by ordinary corporate managers who are paid to maximize profits, rather than by government bureaucrats; (b) those profits flow to private shareholders, rather than the government; (c) the overall flow of credit in the economy is determined by private market forces, rather than the government.

Mexico—Economic Activity Plunged in November

INEGI reported that economic activity (IGAE) shrunk by 2.7% y/y in November (4.1% y/y in Nov 07 and 0.3% y/y 3MMA), thus, bringing economic growth to a sluggish performance of 1.5% YTD (3.2% YTD in 11M07).  The result was worse than our expectation (-2.1% y/y) and that of the consensus (Bloomberg -1.5% y/y).

The stimulus is a fiscal straitjacket

The US debate over the fiscal stimulus is remarkable in its neglect of the medium term – that is, the budgetary challenges over a period of five to 10 years. Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package.

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