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251. Financial Crisis and Public Policy

Author:
Jagadeesh Gokhale
Publication Date:
03-2009
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This Policy Analysis explains the antecedents of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve's actions to prop up the financial sector. It argues that recovery from the financial crisis is likely to be slow with or without the government's bailout actions. An oil price spike and a wealth shock in housing initiated the financial crisis. Declines in stock values are intensifying that shock, threatening to deepen the current recession as U.S. consumers and investors cut their expenditures. An offsetting wealth injection from additional risk-bearing investors could initiate a quicker recovery. Thus, supporters of government intervention justify the bailout's debt-financed fund injections—in essence, they want to compel future taxpayers to join the group of today's risk bearing investors.
Topic:
Economics, Globalization, International Trade and Finance, and Markets
Political Geography:
United States

252. The Transatlantic Economy 2009

Author:
Daniel S. Hamilton and Joseph P. Quinlan
Publication Date:
01-2009
Content Type:
Working Paper
Institution:
Center for Transatlantic Relations
Abstract:
After a five-year boom in prosperity, the transatlantic economy has fallen into what could be perhaps its deepest recession since World War II. Although the U.S. was the epicenter of the financial crisis, many European banks have exposure to U.S. subprime loans and embraced the risky lending practices of their American counterparts. The financial crisis and attendant recession underscore the deep integration of the transatlantic economy. Notions of “decoupling” are mistaken and are likely to lead to serious policy errors. Never before have Europeans and Americans had a greater stake in each other's economic success. Each has a substantial interest in the other's ability to weather current difficulties and to emerge in sound shape from the crisis.
Topic:
International Relations, Economics, Globalization, International Political Economy, and International Trade and Finance
Political Geography:
United States and Europe

253. The Outlook for Tokyo: New Opportunities or Long-term Decline for Japan's Financial Sector?

Author:
Vanessa Rossi
Publication Date:
03-2009
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
Japan's economy has suffered exceptional damage because of its high level of exposure to the massive downturn in world trade and investment, notably impacting on demand for cars, consumer electronics and investment equipment. The depth of Japan's recession looks set to be far worse than that of the US and the EU. However, the recession has also radically reshaped the global financial environment in ways that suggest unexpected opportunities for Japanese financial institutions and markets. This report reviews the outlook for Tokyo as a financial centre and the role of Japan's financial sector in the light of domestic targets as well as international trends and competition.
Topic:
Globalization, International Trade and Finance, and Markets
Political Geography:
United States, Japan, Europe, Israel, Asia, and Tokyo

254. Policy Liberalization and US Merchandise Trade Growth, 1980-2006

Author:
Matthew Adler and Gary Clyde Hufbauer
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper draws on historical and contemporary data on tariffs, nontariff barriers, and transportation costs (for the United States and its major trading partners) to estimate the role of policy liberalization in US merchandise trade growth over the period 1980 to 2006. Both partial equilibrium analysis and computable general equilibrium analysis are used to make the estimates. Both methods indicate that roughly 25 percent of US trade growth since 1980 can be attributed to policy liberalization. Policy liberalization plays a larger role in US export growth (35 to 40 percent) than US import growth (25 percent). According to these estimates, policy liberalization accounts for almost all US merchandise growth in excess of growth that can be explained by expanding GDP in the United States and abroad.
Topic:
International Political Economy and International Trade and Finance
Political Geography:
United States

255. The National Interest and the Law of the Sea

Author:
Scott G. Borgerson
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
The 1982 Convention on the Law of the Sea—the instrument that created the overarching governance framework for nearly three-quarters of the earth's surface and what lies above and beneath it—has been signed and ratified by 156 countries and the European Community, but not by the United States. The Law of the Sea Convention, with annexes (hereafter in this report referred to as the “convention”), and the 1994 agreement on its implementation have been in force for more than a decade, but while the United States treats most parts of the convention as customary international law, it remains among only a handful of countries—and one of an even smaller number with coastlines, including Syria, North Korea, and Iran—to have signed but not yet acceded to the treaty.
Topic:
Economics, Globalization, International Law, International Trade and Finance, International Affairs, and Maritime Commerce
Political Geography:
United States, North Korea, and Syria

256. The G20 Meetings: No Common Framework, No Consensus

Author:
Michael Pettis
Publication Date:
05-2009
Content Type:
Policy Brief
Institution:
Carnegie Endowment for International Peace
Abstract:
Participants in the recently completed G20 meeting in London agreed on a number of measures, some substantial and some merely symbolic, but they sidestepped the real issues dividing the major economic powers and, in so doing, failed to address the root causes of the global trade and investment imbalances. This was almost inevitable. China, Europe, and the United States have incompatible conceptual frameworks for understanding the causes of the global financial crisis; furthermore, their conflicting domestic political constraints make agreement on solutions hard to reach. Europeans believe that the root cause of the crisis was excessively deregulated financial systems, and they are skeptical about U.S. and Chinese calls for fiscal expansion, worrying that excessive spending would prolong the imbalances and make the ultimate adjustment more difficult. China also believes that the roots of the crisis lie within the structure of the global financial system, although Beijing insists that it was mainly the reserve status of the U.S. dollar that permitted imbalances to develop to unsustainable levels. China is particularly vulnerable to trade protection and seeks to maintain open markets for its continued export of domestic overcapacity. Like the United States, it is pushing for more aggressive, globally coordinated fiscal expansion. However, because of rigidities in its financial system and development model, its fiscal response to the crisis may exacerbate the difficult global adjustment and may, ironically, increase the chances of trade friction. In a time of contracting demand, the United States controls two-thirds of the most valuable resource in the world: net demand. Consequently, it is U.S. policies that will determine the pace and direction of the global recovery, along with the institutional framework that will govern trade and investment relationships for decades to come. The crisis puts the United States more firmly at the center of the emerging world order than ever. So far, the United States has not understood the need to consider the global outcomes of its recovery policies. Until the major powers can reach consensus about the roots of the imbalance and cooperate on policies to promote recovery, it is likely that the world economy will get worse before it gets better. The United States will drive the recovery process, but in order to do so effectively it will need to recognize its position of strength and negotiate the appropriate agreements with other major powers, especially China, on the pace and nature of the adjustment.
Topic:
Economics, Globalization, International Trade and Finance, and Monetary Policy
Political Geography:
United States, China, Europe, and London

257. The Alien Tort Statute of 1789: Time for a Fresh Look

Author:
Gary Clyde Hufbauer
Publication Date:
05-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In 2007 the Second Circuit Court of Appeals held that US companies that had done business with apartheid South Africa could be found liable for monetary damages under the Alien Tort Statute (ATS) of 1789 (Khulumani v. Barclay Nat. Bank Ltd., 504 F.3d 254 [2d Cir. 2007]). Liability arises, the Second Circuit declared, from their possible connections with human rights violations committed by South Africa during the apartheid era. Firms named in the suit include Bank of America, IBM, Coca-Cola, and General Motors. The governments of the United Kingdom, Germany, and Switzerland all opposed the lawsuit, as did the government of South Africa, which argued that the suit ran counter to its policy of reconciliation. The Bush administration also opposed the suit, but the Second Circuit rejected the argument that the cases could be dismissed for foreign policy reasons.
Topic:
Apartheid, Human Rights, International Law, and International Trade and Finance
Political Geography:
Africa, United States, United Kingdom, America, South Africa, and Germany

258. US Taxation of Multinational Corporations: What Makes Sense, What Doesn't

Author:
Gary Clyde Hufbauer and Jisun Kim
Publication Date:
03-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
As the administration and Congress catch their breath from rescuing the economy, their thoughts are quickly turning to other issues—including the structure of the US tax system. Everyone agrees that the US tax system inflicts enormous complexity on the American public. But reform is never easy. Who pays the tax burden ranks among the most contentious issues that Congress has historically faced, and this time around will be no different.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States

259. China's $1.5 Trillion Bet: Understanding China's External Portfolio

Author:
Brad W. Setser and Arpana Pandey
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
This paper was originally published in January 2009. The May update incorporates quarter one 2009 data on China's foreign reserves, the Treasury International Capital (TIC) capital flows data for December, January, and February, and the results of the June 2008 survey of foreign portfolio investment in the United States. The June 2008 survey indicated that China bought fewer Treasury bonds and more equities than the authors estimated in the January paper.
Topic:
Economics, International Political Economy, and International Trade and Finance
Political Geography:
United States and China

260. Wall Street/Main Street: The Challenge of Building Financial Security in the Obama Era

Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Aspen Institute
Abstract:
The last 18 months have dealt a devastating blow to Americans' sense of financial security. Few have been untouched by the financial crisis. For many, wealth accumulated over years of saving and investing has disappeared almost overnight. For many more, the economic crisis has imperiled their jobs, their ability to provide for their families, and their optimism about the future.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States and America