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41. Myths about Budget Deficits

Author:
John H. Makin
Publication Date:
02-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
February always brings with it the president's proposals for taxing and spending in the coming fiscal year. The president's budget proposals are accompanied by congressional and administration estimates of the path deficits and government debt are expected to take in coming years. Last year, those projections, especially a three-year string of actual and projected deficits over a trillion dollars from 2009 through 2011, excited widespread comment and handwringing about runaway deficits and their allegedly damaging effects in the form of lower growth, higher inflation, and higher interest rates.
Topic:
Debt, Economics, Political Economy, and Politics
Political Geography:
United States

42. Managing Credit Booms and Busts: A Pigouvian Taxation Approach

Author:
Olivier Jeanne and Anton Korinek
Publication Date:
09-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model with reference to (1) the US small and medium-sized enterprise sector and (2) the household sector and find the optimal tax to be countercy - clical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.
Topic:
Debt, Economics, Global Recession, and Financial Crisis
Political Geography:
United States

43. Why Fiscal Stimulus Is Unlikely to Work

Author:
Kevin A. Hassett
Publication Date:
03-2009
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
This paper reviews the empirical literature on countercyclical policy. It finds that three types of countercyclical policies have been studied in the literature: built in stabilizers, temporary policy changes, and more permanent policy changes. The literature is decidedly mixed on the effectiveness of temporary changes, but more hopeful concerning the other two.
Topic:
Debt, Economics, Markets, and Political Economy
Political Geography:
United States

44. The Crisis and Fix Cycle

Author:
John H. Makin
Publication Date:
02-2009
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The global financial and economic crisis that emerged in August 2007 has entered a dismaying fourth phase. The January 17–18, 2009, weekend edition of the Financial Times, which has been a major chronicler of the crisis and its many aspects, laid out a frightening timeline of an accelerating and intensifying oscillatory cycle of crisis and failed policy response that started just fifteen months ago. Each phase begins with a shock and ends with a seemingly decisive policy measure meant to contain or “fix” the crisis. Each phase is shorter than the previous one and culminates in a much larger policy response. Throughout the crisis, the losses of financial institutions have steadily grown at an accelerating pace as the underlying conditions in the financial sector and, since September 2008, in the underlying global economy deteriorate more rapidly. Such a disturbing pattern must be truncated by a large, coordinated global policy response to arrest the accelerating erosion of the market capitalization of multinational banks and insurance companies that has resulted.
Topic:
Debt, Economics, Markets, and Political Economy
Political Geography:
United States

45. US Interests and the International Monetary Fund

Author:
C. Randall Henning
Publication Date:
06-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The United States Congress is now considering whether to raise US commitments to the International Monetary Fund (IMF). A positive decision would ratify President Obama's pledge in early April, taken with the other leaders of the G-20, to bolster the IMF as part of their cooperative response to the global economic crisis. The package of measures advanced by the G-20 leaders would triple the resources available to the Fund to $750 billion and would greatly reinforce its role in the international financial system. However, the IMF remains a controversial institution and congressional support cannot be taken for granted.
Topic:
Debt, Monetary Policy, and Financial Crisis
Political Geography:
United States

46. The Future of Foreign Assistance Amid Global Economic and Financial Crisis

Author:
Laurie A. Garrett
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Though the United States of America faces its toughest budgetary and economic challenges since the Great Depression, it cannot afford to eliminate, or even reduce, its foreign assistance spending. For clear reasons of political influence, national security, global stability, and humanitarian concern the United States must, at a minimum, stay the course in its commitments to global health and development, as well as basic humanitarian relief. The Bush administration sought not only to increase some aspects of foreign assistance, targeting key countries (Iraq and Afghanistan) and specific health targets, such as the President's Emergency Plan for AIDS Relief and the President's Malaria Initiative, but also executed an array of programmatic and structural changes in U.S. aid efforts. By 2008, it was obvious to most participants and observers that too many agencies were engaged in foreign assistance, and that programs lacked coherence and strategy. Well before the financial crisis of fall 20 08, there was a strong bipartisan call for foreign assistance reform, allowing greater efficiency and credibility to U.S. efforts, enhancing engagement in multilateral institutions and programs, and improving institutional relations between U.S. agencies and their partners, including nongovernmental organizations (NGOs), recipient governments, corporate and business sector stakeholders, faith-based organizations (FBOs), academic-based implementers and researchers, foundations and private donors, United Nations (UN) agencies, and other donor nations.
Topic:
Foreign Policy, Debt, Development, Economics, Health, and United Nations
Political Geography:
United States

47. China's $1.7 Trillion Bet: China's External Portfolio and Dollar Reserves

Author:
Brad W. Setser and Arpana Pandey
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
China reported $1.95 trillion in foreign exchange reserves at the end of 2008. This is by far the largest stockpile of foreign exchange in the world: China holds roughly two times more reserves than Japan, and four times more than either Russia or Saudi Arabia. Moreover, China's true foreign port- folio exceeds its disclosed foreign exchange reserves. At the end of December, the State Administration of Foreign Exchange (SAFE)—part of the People's Bank of China (PBoC) managed close to $2.1 trillion: $1.95 trillion in formal reserves and between $108 and $158 billion in “other foreign assets.” China's state banks and the China Investment Corporation (CIC), China's sovereign wealth fund, together manage another $250 billion or so. This puts China's total holdings of foreign assets at over $2.3 trillion. That is over 50 percent of China's gross domestic product (GDP), or roughly $2,000 per Chinese inhabitant.
Topic:
International Relations, Debt, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
Russia, United States, China, Israel, Asia, and Saudi Arabia

48. A Global Education Fund: Toward a True Global Compact on Universal Education

Author:
Gene B. Sperling
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
One of the most compelling—yet most unrealized—global development challenges is ensuring that all children can pursue their right to a quality basic education. Seventy-two million young children around the world will not attend primary school this year, and, if we include those adolescents who could be enrolled in secondary school, the number of out-of-school children rises to over 300 million. To some degree, global awareness of both the silent crisis of education in developing nations and the individual and societal benefits of moving toward a quality education for all children has grown over the last decade. In recent years, more policymakers and foundations have gained greater knowledge of the high economic, health, and social returns of educating girls, while foreign policy specialists increasingly recognize a connection between educational opportunities and encouraging young people to resist opting for more destructive or violent futures. A new global effort on education—the Education for All Fast Track Initiative (FTI)—has been started, and increased civil society advocacy for schooling opportunities for girls and boys, as well as those affected by HIV/AIDS, conflict, disability, and child labor, have all raised the profile of education among the broader public.
Topic:
Debt, Education, Globalization, Health, and Poverty
Political Geography:
United States

49. Why are US home foreclosures so high?

Publication Date:
06-2009
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
US mortgage foreclosures have risen to extraordinary heights in recent months, with the scale of the distress in the US mortgage market much greater than in the UK. Key factors behind this divergent performance include laxer underwriting standards in the US and the widespread existence of 'non-recourse' loans. The latter allow borrowers in negative equity to walk away from their mortgage debt and sap the incentive to remain current on 'underwater' loans. As a result, steep house price falls can generate a sharp rise in foreclosures even without high interest rates or unemployment. In the UK, by contrast, there are strong incentives for home owners to remain in their properties, even when in negative equity.As a result, the escalation from arrears to foreclosure in the UK is much more limited. This may head off very abrupt prices falls but could also mean a more drawn out process of adjustment in the housing market.
Topic:
Debt, Economics, Markets, and Financial Crisis
Political Geography:
United States

50. Bad Debts: Assessing China's Financial Influence in Great Power Politics

Author:
Daniel W. Drezner
Publication Date:
10-2009
Content Type:
Journal Article
Journal:
International Security
Institution:
Belfer Center for Science and International Affairs, Harvard University
Abstract:
China has challenged the United States on multiple policy fronts since the beginning of 2009. On the security dimension, Chinese ships have engaged in multiple skirmishes with U.S. surveillance vessels in an effort to hinder American efforts to collect naval intelligence. China has also pressed the United States on the economic policy front. Prime Minister Wen Jiabao told reporters that he was concerned about China's investments in the United States: “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” The head of the People's Bank of China, Zhou Xiaochuan, followed up with a white paper suggesting a shift away from the dollar as the world's reserve currency. China's government has issued repeated calls for a greater voice in the International Monetary Fund (IMF) and World Bank. To bolster this call, Beijing helped to organize a summit of the leaders of Brazil, Russia, India, and China (BRIC) to better articulate this message.
Topic:
Security, Debt, Government, and Intelligence
Political Geography:
Russia, United States, China, India, and Brazil