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Mon 5 Dec 2016 / Asia Pacific,North America

Heading for trade war with China

America’s habitual excess of spending over saving is financed through credits from the rest of the world. Donald Trump is promising policies that will increase the trade deficit still further. When that happens, Trump will blame China, which accounts for 48% of the US trade deficit. A trade war with the world’s second biggest economy appears increasingly likely. The spat over Trump’s Friday phone call with Taiwan President Tsai Ing-wen, breaking decades of diplomatic protocol, offers an uncomfortable foretaste of more squalls ahead.

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Fri 9 Dec 2016 / Asia Pacific

Korean hope may triumph over adversity

The impeachment of President Park Geun-hye is unlikely to bring a quick end to the South Korean drama which has unfolded over the last six weeks. But, if a resolution is found, the short-term political turmoil may be a blessing in disguise. Park’s embroilment in a scandal involving her ‘shaman’ Choi Soon-sil released pent-up anger built up over years of disillusionment with the administration. The focus of the unhappiness was on Park’s failure to tackle the often uneasy relationship between the government and big businesses.

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Fri 23 Dec 2016 / Latin America Caribbean

Solving Caracas currency chaos

Venezuela is embroiled in history’s 57th hyperinflation crisis - on top of the existing problems of economic mismanagement, corruption, and incompetence. President Maduro and the central bank hope that, by printing higher-denomination banknotes, they can skirt around the problem. That is a brainless undertaking. The only solutions for ending relatively painlessly Venezuela’s inflation episode, fanciful as they may be, are to either dump the bolivar and replace it with the dollar, or make the bolivar a clone of the dollar.

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Mon 12 Dec 2016 / Europe

Time for a debate on EU budget policies

A serious problem is starting to stir in the heart of Europe. European Union funding for enterprises, designed to improve innovative capacity, is proving increasingly counterproductive. The scale of EU-driven private investments is still relatively low. However, these flows of funds have risen greatly in recent years, and can now make a real economic difference. EU funds being channelled into central European enterprises are beginning to have consequences at the macroeconomic level, creating new challenges for central bankers.

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Mon 12 Dec 2016 / Asia Pacific,North America

Trump should get facts right on China

Larger-than-life figures like Donald Trump are an important part of the international landscape. There are several similar personalities in Asia with whom the president-elect should develop a degree of fellow feeling. However, Trump should not blatantly disregard reality. There are basic facts about China’s trade balance with the rest of the world and the level of the renminbi that he should consider before issuing more diatribes on the subject.

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Thu 15 Dec 2016 / North America

Fed hike signals monetary inflection point

The Federal Reserve’s widely expected decision to increase the federal funds rate by 25 basis points yesterday marks an important step into what OMFIF has called a ‘point of inflection’ from monetary to fiscal policy. Resuming a tightening path, the Fed joins other central banks in scaling back the loose monetary measures adopted after the Great Recession. The Bank of Japan’s decision to refrain from a rate cut and introduce yield curve controls in asset purchases in September illustrates a shift to a more flexible approach.

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Tue 6 Dec 2016 / North America,Europe

Trump's European baptism of fire

Italy is a large economy of systemic importance. Its poor fundamentals make it ill-prepared to weather prolonged political instability. Italy's economic well-being is essential for the euro's long-term survival, but it is too big for Europe to save in the event of a full-blown crisis. Donald Trump looks likely to face a European baptism of fire. He should tone down his rhetoric and provide leadership that might limit the fallout. If he does not do so, markets in the US and Europe should brace themselves for a very rough ride.

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Thu 1 Dec 2016 / Asia Pacific

Japan must reinvent itself once more

Japan’s package of economic measures through the 'three arrows' of Abenomics – monetary expansion, fiscal expansion, and significant structural reforms – has been wrongheaded in both conception and execution. The policies assume an unrealistic degree of understanding and control of the economy. The unintended consequence may be an eventual restructuring of Japanese sovereign debt or its rapid reduction in real terms through very high inflation. Either would pose a threat to international financial stability.

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Tue 13 Dec 2016 / Asia Pacific

Asian central banks under strain

Central banks in Asia are under significant strain. The November election of Donald Trump and expectations the Federal Reserve will raise interest rates have generated significant outflows from Asian markets. In the five weeks since 8 November, the ringgit has fallen by 5.3%, the yen by 9.4%, and the renminbi by 1.8% against the dollar. Geopolitical volatility is widespread. However, improved policy frameworks help central banks surmount volatility - and foreign exchange reserves are much stronger than 20 years ago.

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Tue 20 Dec 2016 / Europe

Time-constrained animation in Rome

The unexpectedly large rejection of constitutional reform proposals in the 4 December referendum adds further to Italian uncertainties. Attention has now shifted to the contested electoral law, which was not formally included in the referendum but contributed significantly to strengthening the No vote. The government of new Prime Minister Paolo Gentiloni is caught in the middle of several conflicting parties and agendas. The coming months will see an onslaught by Beppe Grillo, leader of the Five Star Movement, and his allies.

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