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Business Day
Euro Minister’s Trip to Athens, the Fed’s Policy Statement, and a $392 Billion Plan
Europe’s economic affairs commissioner is to visit Athens, the Federal Reserve will hold its final meeting of the year, and European leaders will gather in Brussels for a summit.Putin on the Fritz
It’s impressive just how quickly and convincingly the wheels have been coming off
the Russian economy. Obviously the plunge in oil prices is the big
driver, but the ruble has actually fallen more than Brent — oil is down
40 percent since the start of the year, but the ruble is down by half.
What’s going on? Well,
it turns out that Putin managed to get himself into a confrontation
with the West over Ukraine just as the bottom dropped out of his
country’s main export, so that a financing shock was added to the terms
of trade shock. But it’s also true that drastic effects of terms of
trade shocks are a fairly common phenomenon in developing countries
where the private sector has substantial foreign-currency debt: the
initial effect of a drop in export prices is a fall in the currency,
this creates balance sheet problems for private debtors whose debts
suddenly grow in domestic value, this further weakens the economy and
undermines confidence, and so on.
The central bank may
(or may not, as seems to be true in Russia right now) be able to limit
the currency plunge by raising interest rates (now above 13 percent on
Russian 10-years), but only at the cost of deepening the recession. Eichengreen et al
(pdf), in a good discussion of all this in the Latin American context,
give the example of Chile, which was hit very hard by falling copper
prices at the end of the 1990s despite a much more favorable
institutional setup than Russia right now — and, of course, without
having de facto invaded a neighboring country.
I have no idea what
this implies for either Russian politics or geopolitics. But talk of a
new cold war, comparisons between Putin’s Russia and the USSR, look a
bit silly now, don’t they?"
World
Sensing a Deal on Sanctions, Iran Is Bullish
Confidence is building in Iran’s business circles, with executives in the major export industries preparing for what they see as prosperous days ahead.
N.Y. / Region
Long Island Could Lead in New York’s Gambling Plans With New Sites
Nassau and Suffolk Counties are planning to open electronic slot machine parlors years before proposed casino resorts could open north and west of New York City.
The Upshot
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