Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
September 17, 2013

"Washington's premier think tank on the global economy"
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  Live Webcast
Foreign Direct Investment: Its Impact on US Jobs, Research, and
Economic Growth
Thursday, September 19, 2013
10:00 a.m.–2:00 p.m. (EDT)
  The Peterson Institute will webcast the rollout of its two latest studies on the impact of inward and outward foreign direct investment (FDI) on the US economy on Thursday, September 19. This event is the culmination of important twin research projects on FDI by Gary Clyde Hufbauer, Theodore Moran, and Lindsay Oldenski. Their work analyzes and addresses the effect of overseas investment by US firms on US jobs and research and development, as well as the incentives created by the US tax code for corporate offshoring decisions, and the cost-benefit and national security analyses of foreign investment (including Chinese) in the United States.

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>> More information

  Policy Brief 13-21
Lehman Died, Bagehot Lives: Why Did the Fed and Treasury Let a Major Wall Street Bank Fail?

William R. Cline and Joseph E. Gagnon
  William R. Cline Joseph E. Gagnon Five years after the Federal Reserve and Treasury allowed the investment bank Lehman Brothers to fail, while rescuing Bear Stearns, Fannie Mae, Freddie Mac, and AIG, their actions (or inaction) remain a focus of debate. Cline and Gagnon present evidence that federal officials, at least in hindsight, appear to have followed the dictum of Walter Bagehot that lending should be granted only to solvent entities. Lehman was insolvent—probably deeply so—whereas the other institutions arguably were solvent. The other institutions had abundant collateral to pledge, whereas what little collateral Lehman had to pledge was of questionable quality and scattered across many affiliated entities. While the Fed and Treasury had a sound reason to let Lehman fail, the shock to financial markets that ensued from its collapse sent the financial crisis into a new, more acute phase and may have contributed to the severity of the Great Recession. Therefore the lesson from Lehman is not only that Bagehot-type lender-of-last-resort action is as important as ever but also that it is critical to ensure an orderly resolution for a systemically important financial institution going bankrupt.

>> Read full policy brief [pdf]

  Congressional Testimony
What Have We Learned from 100 Years of Federal Reserve History?

Joseph E. Gagnon
  Joseph E. Gagnon In its first 100 years, the US Federal Reserve has performed at least as well as could have been expected given our limited understanding of how the economy operates, the Fed's institutional structure, and the political environment. In the future the Fed needs freedom to do its job. It should explain its actions to the public contemporaneously and be held accountable for any failure to achieve its objectives that could reasonably have been prevented. Joseph E. Gagnon testifies that his biggest worry is that the Fed faces more restrictions on its powers than other major central banks, potentially limiting its ability to achieve its objectives.

>> Read full congressional testimony [pdf]

Economic Reforms in the Euro Area: Fiscal and Macro-structural Challenges

Jacob Funk Kirkegaard
  Jacob Funk Kirkegaard The euro area has moved from a successful stabilization of its crisis to the challenge of fighting chronic stagnation. Its agenda must now include financial sector reforms and the planned balance-sheet assessment and stress tests for banks, with the goal of reviving the banking system as an engine of economic growth. This paper advocates a concentration on structural reform issues, including banking sector reforms, while leaving budgetary surveillance to EU procedures that are dedicated to that issue. It also offers several proposals to enhance the role of the Euro Group president in promoting country specific recommendations.

>> Read full paper [pdf]

Rebuilding the Indian State

Devesh Kapur and Arvind Subramanian
Op-ed in the Business Standard, New Delhi
  Arvind Subramanian After more than two decades of reform, little effort has gone into addressing the quality of India's government structures. Tens of millions of young people will soon join India's workforce with aspirations that their parents could not have dreamed about. In addition, rapid economic growth is imposing severe resource constraints on land, energy, and water. India must gain better expertise in government agencies, strengthen the office of the block development officer, and insulate the police and bureaucracy from the vise-like grip of politicians. Rebuilding the Indian state on a firmer foundation will be the key element in determining India's future.

>> Read full op-ed

Push for Customs Union Turns Friends to Foes

Anders Åslund
Published in the Moscow Times
  Anders Aslund Russia is pushing its plan to build a political Eurasian Union of former Soviet states. But it is digging itself ever deeper into a neo-imperialist hole, presumably to appeal to nationalist sentiments at home, by attempting to expand this entity of unwilling allies. This costs Russia large amounts of money, harms its economy, and alienates the country from the rest of the world. Russia's immediate aim is to hinder Ukraine, Moldova, and Georgia from signing free trade agreements with the European Union at its summit on the Eastern Partnership in Vilnius in late November. The Kremlin is using threats and sanctions rather than trying to attract anybody.

>> Read full op-ed

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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Summers Drops Out and the Bond Market Cheers

Germany's Sleepy but Significant Election

Euro Area Can Make Progress—Even Without an Unlimited Fiscal Backstop

The Global Financial Safety Net Needs Better Tools to Cope with Future Crises

A Policy Agenda for India
  China's Local Government Debt: Saving for a Rainy Day

Rebalancing China's Railway Sector

Measuring Excess Credit Growth in China

Ignore the Noise: Why Chinese Household Consumption is Still Too Low

China Rebalancing Update—Q2 2013
  Yongbyon Restart

Breaking Bad: Lankov and Kim on North Korean Meth

Detained Americans: Not-So-Innocents Abroad

Through a Lens, Darkly

Slave to the Blog (STTB): Sanctions Roundup

PIIE Noted in the News and on the Web

Bloomberg TV
Posen on China, US Economies, Fed
While at the World Economic Forum, Adam S. Posen joins Bloomberg's Susan Li to discuss the Chinese and US economies and Federal Reserve policy.

WBUR's On Point
Modern India: Big Growth, Big Problems
Arvind Subramanian joins Adam Roberts from the Economist, Anand Giridharadas from the New York Times, and WBUR's Tom Ashbrook for an hour-long discussion on India's economic growing pains.

NHK World
Insights into the Fed
Joseph E. Gagnon discusses the upcoming Federal Open Market Committee meeting and how the option of tapering quantitative easing is impacting emerging market economies.

Preview of Our Next Issue

Policy Brief 13-22
Ukraine's Choice: European Association Agreement or Eurasian Union?
Anders Åslund

How Emerging Markets Can Get Their Mojo Back
Robert B. Zoellick

Are Emerging Economies Entering a Lost Decade?
Anders Åslund

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