Latest news with #OlivierBlanchard
New York Times
6 days ago
- Business
- New York Times
Investors See Few Alternatives to U.S. Treasuries. Could Europe Make One?
For decades, U.S. Treasuries have been at the pinnacle of the global financial system, with investors, governments and central banks steadily acquiring the dollar-denominated debt with the expectation that the U.S. government will never default. Now the chaotic rollout of President Trump's economic policies and threat to the Federal Reserve's independence have provoked questions about the stability of American assets. But investors who want to shift out of Treasuries and dollars face a wasteland of viable alternatives. Even with the recent uptick in uncertainty caused by Mr. Trump's policies, few countries have anywhere near the economic, political and legal stability of the United States. The European Union, which as a bloc comes close to America in size and wealth, has a fragmented financial market, with each of its 27 countries selling bonds separately. Enter 'Eurobonds,' a new type of European financial asset proposed by Olivier Blanchard, a former chief economist at the International Monetary Fund who is now a professor at the Massachusetts Institute of Technology, and Ángel Ubide, the head of economic research for global fixed income and macro at Citadel. The prospect of debt issued by the European Union has been floated in some form for more than a decade, but faced heavy resistance, particularly from countries with strict limits of debt, like Germany. Some of the hurdles were overcome in 2020 when the bloc announced a plan to issue up to 750 billion euros in joint debt to help fund the recovery from the Covid pandemic. But that was a short-term plan. Mr. Blanchard and Mr. Ubide's proposal is to regularly issue debt, building a liquid pool of assets, and strengthen Europe's financial infrastructure. And it's gaining traction: The chief economist of the European Central Bank recently discussed its merits. Want all of The Times? Subscribe.
New York Times
09-07-2025
- Business
- New York Times
Biden's Chief Economist: The Chart That Convinced Me Our Debt Is a Serious Problem
Budget hawks have fretted for decades about America's deficits and debt, repeatedly advising our government to embrace greater fiscal austerity. And for just as long, budget doves — myself included — fought this narrative, repeatedly arguing that austerity often does more harm to our economy than good. No longer. I, like many other longtime doves, am joining the hawks, because our nation's budget math just got a lot more dangerous. If we continue to ignore the unforgiving trajectory we are on, we are inviting a debt shock, a kind of crisis that periodically hobbles lower-income and developing countries. If our government is forced to address spiraling debt either by quickly and aggressively cutting spending or by raising taxes, it would seriously damage the economy and lower the living standards of everyday people. The sooner we take action, the better chance we have to avoid this fate. The sustainability of our nation's debt is determined by three variables: the size of our annual deficits, the rate of interest on the debt, and how fast the economy is growing. As shown by Olivier Blanchard, one of the most influential thinkers in this area, a government can sustain modest budget deficits so long as its economy is growing faster than the interest rate on its debt. It's similar to what happens when college-bound students take on loans to pay for their education. So long as they haven't borrowed too much, and their income after graduation is rising faster than their student loan bills, they can make their monthly payments without breaking a sweat. Conversely, though, if they borrowed to the hilt — and if their student loan debt starts growing faster than their income — they can quickly get in trouble. And that's where our country is right now. Warning sign The risk of economic damage jumps when the interest rate on the national debt exceeds the growth rate of the economy. Growth rate 3% 2% Interest rate 1% 0% –1% –2% 2000 2020 2005 2010 2015 2025 1995 Source: Update of Blanchard's Figure 3.3 from his book "Fiscal Policy Under Low Interest Rates" Note: Adjusted for inflation. Warning sign The risk of economic damage jumps when the interest rate on the national debt exceeds the growth rate of the economy. 3% Growth rate 2% 1% Interest rate 0% -1% -2% 1995 2020 2025 2000 2005 2010 2015 Source: Update of Blanchard's Figure 3.3 from his book "Fiscal Policy Under Low Interest Rates" Note: Adjusted for inflation. Want all of The Times? Subscribe.
The Hindu
11-06-2025
- Business
- The Hindu
Why has net FDI inflow plummeted? Data
The RBI Bulletin (May 2025) provides foreign direct investment (FDI) figures for the fiscal year 2024-25. Two contrasting narratives have emerged from it. Focusing on the headline number, government sources and many media outlets have reported that India received an unprecedented $81 billion of gross inflows. Looking closer at the same data, others have highlighted the plummeting of net FDI at $353 million. The government and economists monitor these flows as a barometer of the investment climate. In principle, FDI inflows enhance fixed investments to expand production capacity and bring in newer technologies and global best practices. The reality, however, could be different. So, what do the contrasting numbers reveal? To interpret the economic significance of the figures, it is necessary to relate them to the country's GDP. The gross foreign inflow-to-GDP ratio steadily declined from 3.1% in 2020-21 to 2.1% in 2024-25. However, the decline was slightly steeper in net FDI, from 1.6% of GDP to zero in the same period, highlighting the divergence between the two flows. The graph also shows a steadily rising outward FDI (OFDI) and 'repatriation and disinvestment' (disinvestment, for short) to account for the difference between the two figures (Chart 1). Outward FDI refers to Indian companies investing abroad to expand their market and acquire technologies to enhance their domestic capabilities. However, OFDI also includes financial flows to many known tax havens, such as Singapore and Mauritius, which are also the top sources of India's inward FDI. Many have questioned whether such a symmetric inflow and outflow of foreign capital to tax havens represents correlated movements of 'hot money' entering and exiting the country at will. Such flows may hardly expand domestic investment but may allow for global capital tax arbitrage. In a research paper titled 'What Does Measured FDI Actually Measure?' (October 2016), Olivier Blanchard and Julien Acalin showed that inward and outward FDI flows across emerging market economies are highly correlated, responding to the U.S. policy rate. Large financial conglomerates move liquid capital across the world to take advantage of variations in tax laws, a practice known as 'treaty shopping'. The study found that India ranked sixth in descending order among 25 emerging market economies in terms of this correlation while China ranked 25th. The study's sharp conclusions seem instructive: '...'measured' FDI gross flows are quite different from true flows and may reflect flows through, rather than to, the country, with stops due in part to (legal) tax optimisation. This must be a warning to both researchers and policymakers.' In other words, such flows represent the movement of global capital through India to take advantage of tax concessions, and there is a need to assess the value of these flows. The rising disinvestment is due to the type of FDI India is attracting. The share of private equity (PE) and venture capital (VC) in FDI inflows, commonly referred to as 'alternative investment funds', has increased steadily. By definition, these funds acquire existing firms, factories, and brands, known as brownfield FDI. PE/VC investments have a 3-5-year horizon, and they are made primarily in services such as fintech, retail, healthcare, real estate, banking, and insurance. For instance, Blackstone is investing in Care Hospitals, and ChrysCapital is investing in Lenskart . Such funds are loosely regulated entities that, almost by definition, sell (or liquidate) their holdings ('positions') during the stock market booms – to deliver the best returns for their global investors. It is quite plausible that PE/VC funds selling their holdings during the stock boom boosted disinvestment in FY25. An estimate of the share of PE/VC funds in FDI inflow shows a steady rise during the last decade, from 12.2% in 2009-10 to over 75.9% in 2020-21 (Chart 2) ('Reversing India's Industrial Decline,' EPW, March 15, 2025). In contrast, a declining share of FDI is invested in greenfield projects, contributing modestly to capital formation. Despite much hand-wringing, it is essential to appreciate that FDI inflows are a modest and declining share of gross fixed capital formation (GFCF). The gross inflows peaked at 7.5% of GFCF in FY21 in the past decade at current prices, declining precipitously thereafter (Chart 3). The same applies to the net FDI-to-GDP ratio. Net FDI (and gross FDI), relative to GDP, has declined steadily since FY21. This, in contrast to many policymakers' optimistic claims, is a matter of concern. Declining interest in India among foreign investors is in line with tepid domestic corporate investment. However, it is worth noting that FDI inflow has been modest, ranging between 1% and 3% of GDP and 1% and 7% of GFCF since FY14. There are, however, more serious concerns about the composition and utilisation of FDI. The majority of it consists of alternative investment funds, which hardly contribute to enhancing long-term capital formation, technology acquisition, and augmenting India's potential output. The rising share of outward FDI suggests that India may be used as a conduit for tax arbitrage by international capital. If these concerns are valid, there may be a need to reform foreign capital regulations to serve domestic interests and improve domestic capabilities to overcome industrial and technological challenges. R. Nagaraj is with the Centre for Liberal Education, IIT Bombay
Yahoo
30-05-2025
- Business
- Yahoo
Peterson Institute's Blanchard Discusses Trade
Olivier Blanchard, Senior Fellow at Peterson Institute, discusses latest developments on the trade tariff. He speaks with David Ingles from the sidelines of the "UBS Asian Investment Conference" in Hong Kong. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
29-05-2025
- Business
- Bloomberg
Peterson Institute's Blanchard Discusses Trade
Olivier Blanchard, Senior Fellow at Peterson Institute, discusses latest developments on the trade tariff. He speaks with David Ingles from the sidelines of the 'UBS Asian Investment Conference' in Hong Kong. (Source: Bloomberg)
