Archive for March, 2005
Today I was the guest blogger for the “Online Wall Street Journal” blog debate with David Altig (a sharp economist from the Cleveland Fed) on the following topic:
Does Overseas Appetite for Bonds Put the U.S. Economy at Risk? In other terms, should U.S. and global investors be concerned about the concentration of U.S. government bonds in the hands of foreign central banks and the possibility that a move to diversify such foreign reserves could affect U.S. markets and lead to a disorderly adjustment of the US current account imbalance?
It was an occasion for fleshing out in blog debate format my views (presented in my work with Brad Setser) on the risks of a hard landing for the U.S. and global economy given the large global imbalances.
My colleague Brad Setser summarized real well our first impressions of China; we will write soon a longer trip report/paper. Let me elaborate now briefly on a few points.
While the political leadership is saying – at least officially – (and Roach has confirmed their alleged views) that a cooling off of the economy is occurring and that the restrictions imposed in 2004 are working, the reality is quite different; most Chinese economists and policy officials one step below the top political leadership are expressing some serious concerns with the imbalances in the economy.
Last January, on the eve of the launch of Argentina’s debt restructuring proposal, many market participants, pundits and commentators predicted that the offer would fail as a large 70% haircut would be unacceptable to most creditors; this, in spite of the fact that the market prices of Argentina’s defaulted debt had been hovering around 30 cents on the dollar for quite a while in 2003-2004, suggesting that this was the true equilibrium value of such debt.
At that time I predicted in a blog item I wrote on January 11th that a rational analysis of the facts would lead to the conclusion that the debt deal would instead be successful with about 75 to 80% of creditors accepting the offer. While the official figures will be out later today Thursday, most media and market reports now suggest that the deal will indeed be successful with a participation rate of about 70 to 80%. [Post-scriptum: as officially announced by Argentina on Thursday evening, the participation rate was 76%]