David Cottle asks "Are These Havens Really the Safest Places to Go"?

David Cottle in the Wall Street Journal looks at the so-called safe havens of the bond markets (i.e.US, Swiss, Japanese and German bonds) and wonders why in times of downturn these bonds are perceived as being less risky despite their connection to the global downturn (Germany's funding of it's Eurozone partners bailouts) or their own endogenous problems ( US debt, Japan's stagnant economy).

Cottle highlights a report by UBS which concludes that, to some extent at least, this may be investors from these safe havens coming home to roost by investing back in domestic bonds after having invested abroad during times of global growth.

Article here.

Brady Bonds to the rescue ?

Alright, everybody come back out from behind their couches. Morgan Kelly's buggered off for another four months so we can all get back to reading less scary and more constructive  opinion pieces. Like this one by Barry Eichengreen.

The Berkley professor discusses using a system of financial instruments and regulations similar to the Brady Bonds of the 1980s to deal with Greece and the increasing likelihood that it is facing default. Eichengreen cites a plan devised by two veterans of the Brady Bonds: Gary Evans and  Peter Allen. He also points out that another veteran of the Brady Bonds was a certain Mr. Trichet...

Mohamed A. El-Erian: How Risky is the Global Economy?

Rather than just stretching his arms as wide as possible and saying "about this much" Mohamed A. El-Erian discusses four potential risks that the weakened global economy still faces. These are:

• The world as a whole has yet to deal fully with the economic consequences of unrest in the Middle East and the tragedies in Japan.
• The debt crisis in the EU's periphery.
• Housing in the US is weakening again.
• The increasingly visible fiscal predicament in the US: having used fiscal spending aggressively to avoid a depression, the US must now commit to a credible medium-term path of fiscal consolidation

It is not a pessimistic or alarmist view and makes for interesting reading. It would however have been helpful for El-Erian to include his opinions on what could be done to counter these risks.

This Project Syndicate article is taken from a lecture Mr. El-Erian gave at Princeton.

Wall Street Journal's Top 25 Economics Blogs

Hi apologies on my absence from the blogosphere.

As I'm sure you were all freaking out over my disappearance, I vow to make sure that you guys won't ever be left staring blankly at The False Economist homepage, refreshing it every fifteen seconds for days on end again.

So please enjoy a veritable cornucopia of other economics blogs as rated by Wall Street Journal.

List available here.

World Bank Report : Conflict, Security and Development

A report out today by the World Bank has urged a rethink on what aid spending should target. According to the report, there should be more focus on the justice system, policing and ensuring political stability, rather than on  health and education.

Is this a new take on "trickle-down" economics ? Or is it reasonable to suggest that money spent on developing health and education systems in failed or failing states is a waste of money ?

Report is available here.

BBC background article available here.

Patrick Honohan Suggests GNP-Linked Bonds

Governor of the Central Bank, Patrick Honohan, has proposed a new risk-sharing idea to deal with Ireland's seemingly unsustainable debt repayments. To put it very simply: when Ireland's GNP increases it should pay more and when the country's growth falls it should pay less back.

Apart from being a good idea, although one that will require many conditions and qualifiers to have a chance of being even reviewed by Ireland's partners, it also highlights Ireland's need to find a way to manage its huge debts.

FT article by Honohan here.

Wall Street Journal  article disccuses it here.

Wayne Rooney curses at cameras AND explains the Ricardian/Malthusian theory of rent economic rents

In the Financial Times, British economist John Kay dicusses that age-old question asked by people who don't "get" sport: Why do modern footballers get paid so much compared to their predecessors ?

In answering he applies the concept of economic rent* to the problem. This issue was  first discussed 250 years ago by James Anderson, a Scottish farmer and economist who put forward his ideas about economic rent in An Enquiry into the Nature of the Corn Laws in 1777. He stated that "it is not the rent of the land that determines the price of its produce, but it is the price of that produce which determines the rent of the land". Seemingly a paradox exists, but, Kay explains, Anderson found that:

"The demand for corn determined how much land had to be cultivated: the worst land that needed to be brought into production to satisfy that demand would earn only the cost of production, and better land would earn rents that measured the value of their superiority. Who benefited from these earnings was a political issue" 

These ideas would go on to form the Malthusian/Ricardian theory of rent although it is believed that Ricardo and others were not aware of Anderson's theories.

So why does Rooney earn relatively more than the great Stan Matthews ? Basically as demand for footballers increase, lower quality footballers are brought in, squads expanded, youth players paid more etc., to meet the demands of the public. The superior footballers (Rooney and to a lesser extent, Titus Bramble) will be able to dictate higher relative wages, although the extent of these is down to the negotiating skills of their agents.

At least, that's my understanding of it....

The other major reason is of course the huge increases in profits generated by clubs compared to the 1950s and the obvious impact this will have on the players.

Kay's article is available here.
Background to the Ricardian/ Malthusian theory of rent available here.
 

* = The excess payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply.