Economics Roundup

We all know that we live in unusual times. But are there any insights that can be gained by viewing current events through the lens of recent research in economics? As it turns out, there are a lot.

• The Baltic Dry Index is in free fall. Bad sign for the global economy, right? Wrong! As highlighted by the Wall Street Journal, carrier capacity is rising big time as ships ordered in advance of the 2008 crisis are just now being delivered.
• In Michael Pettis’s new article, “China’s Rebalancing,” he once again delivers remarkable insight into inner workings of the “Chinese economic miracle.” By studying the investment-driven growth model that China uses and comparing it to the wide variety of countries that have also used that model, Pettis draws some disturbing conclusions about China’s prospects. Moreover, the imbalances in China’s economy are still growing, setting up it for an ever-greater correction.
• Still think the zero interest rate policy can stimulate the credit markets? Bill Gross doesn’t think so. Check out his “Life — and Death Proposition,” in which he suggests we are witnessing the birth of deleveraging and the death of abundance.
• In the “Impact of Capital Controls on Cross-Border Fixed Income Investments,” author Tina Vandersteel, CFA, argues that investors can anticipate various policy responses that countries use to control unwanted capital inflows or outflows. She illustrates that in the aftermath of the 2008 crisis the use of such macro prudential policies has escalated significantly.

For more news and trends, visit the Economics Community of Practice.