The recent release of a revised set of GDP statistics by Britain’s Office for National Statistics showed that growth had not quite, as previously thought, been negative for two consecutive quarters in the winter of 2011-12. The point, as it was reported, was that a UK recession (a second dip after the Great Recession of 2008-09) was now erased from the history books — and that the Conservative government would take a bit of satisfaction from this fact. But it should not.
“Does Debt Matter?” is the question posed by The International Economy to 20 commentators:
“The recent scrutiny of the popularized version of the Rogoff-Reinhart thesis (that growth plummets when debt exceeds 90 percent of GDP) makes clear there are no simple formulas for determining the risks in the level of a nation’s debt. …Can a realistic guide be fashioned for determining whether a nation’s debt has reached a danger zone? Or are countries from here on expected to pursue fiscal reforms only if and when a crisis sets in?”
The value of the yen has fallen sharply since November, owing to the monetary component of Japan’s efforts to jump-start its economy (“Abenomics”). Thus the issue of currency wars is expected to feature on the agenda at the G-8’s upcoming summit in Enniskillen, UK, June 17-18.
The phrase “currency wars” is catchy. But does it have genuine analytical content? It is another way of saying “competitive devaluation.” To use the language of IMF Article IV(1) iii, it is what happens when countries are “manipulating exchange rates…to gain an unfair competitive advantage over other members…” To use the language of the 1930s, this manipulation would be a kind of beggar-thy-neighbor policy, with each country seeking to shift net exports toward its own goods at the expense of its neighbors.