The End of Foreign Capital Flows in Emerging Markets?

Emerging economies are entering into an economic and political paradigm where instating capital controls on foreign investment increasingly seems like a viable option. The economic aspect of this probable outcome relates to a trilemma found in international finance called the ‘Impossible Trinity’. Formally known as the “Mundell-Fleming model”, the impossible trinity frames a choice between three financial policy goals: 1) domestic monetary autonomy, 2) free-flowing foreign capital flows, and 3) a stable exchange rate. Only two of these three goals can be pursued at any given time. The third policy…

Sovereign Debt and the Euro-zone.

In the Spring of 2010, governments around Europe began announcing and preparing fiscal austerity measures to address budget and structural deficits. These plans for austerity measures owe their prompt formulation to the Greek debt crisis, and the threat it presented to the stability and viability of the Eurozone as an economic union. Greece itself announced austerity measures as a condition to receive a ‘bailout’ y the European Union and the IMF. The funds provided by the EU came primarily from France and Germany. However, as market and media attention underscored,…

The Dubious Politics of a Saudi Arms Deal

The Obama administration is seeking to sell Saudi Arabia advanced aircraft worth up to $60 billion, in what Pentagon officials say would be the largest-ever single foreign arms deal. According to the terms of the deal, the Saudis will receive as many as 84 new F-15 fighter jets and three types of helicopters: 70 Apaches, 72 Black Hawks and 36 Little Birds. Let’s review what is offensive to the victims of the 9-11 attacks and what isn’t. When totally innocent moderate Muslim-Americans like Imam Rauf and his wife Daisy Khan…

China’s Devaluation of the Yuan: A Global Economic Imbalance

Unless you have been living under a rock for the past few years, you probably already know that The People’s Republic of China is growing in both power and influence. In the second quarter, China overtook Japan as the second largest economy. This lead is likely permanent as China is growing at a much faster rate than Japan, about 10% annually. The importance of the U.S.-China economic relationship has never been so clear. With a population of over 1.3 billion, China is the fastest-growing major overseas market for the United…

Barriers to Renewable Energy Investment

What exactly does green energy mean? To me it’s a possible career path.  To Europe its a way of life and to the United States it is a touchy subject that has been a point of contention for decades.  The most pertinent question however, is what does green energy mean to Corporate America? Harnessing important natural resources like wind requires a substantial amount of capital.  Renewable energy companies hoping to invest in wind and solar power technology seek private capital needed to embarce these innovative sources of energy. The alternative…

A New Defense of Fiscal Policy

Two important causes of the recent financial crisis were the increasing amount of debt assumed by consumers and the excessive leverage of banks and other financial institutions.  During the decade before the crisis, rates were low, credit was easy, and expectations about the future state of the economy were positive, in large part because of rising real estate values.  Gradually, consumers took on more and more debt.  Between 2000 and 2008, household debt rose from 96% of US personal income to 128%. At some point, and for reasons unknown, there…