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Jeffrey Frankel’s Blog

The VIX is too low!

September 30, 2017 —   During most of this year, the VIX — the Volatility Index on The Chicago Board Options Exchange — has been at the lowest levels of the last ten years.  It recently dipped below 9, even lower than March 2007, just before the sub-prime mortgage crisis. It looks as though, once again, investors do not sufficiently appreciate how risky the world is today. Known colloquially as the “fear index,” the VIX measures financial markets’ sensitivity to uncertainty, in the form...

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Explaining Dodd-Frank

Nine years ago this month, the US sub-prime mortgage crisis morphed into a severe global financial crisis.  Many Americans across the political spectrum angrily demanded financial reform, by which they meant a tightening of financial regulation.  Indeed, important reforms were subsequently enacted, in particular the 2010 Dodd-Frank bill. Today, those reforms are increasingly under assault.  Most recently, the Trump Administration is proposing a roll-back of regulation of banks as well as...

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The Signal/Noise Ratio in US North Korea Policy

Americans have under-estimated the nuclear threat from North Korea and misunderstood what policies would reduce it.  At the same time they have over-estimated the importance of bilateral trade deficits with China and misunderstood what policies would reduce them.  Now these two different issues intersect. My preceding post discussed the Chinese trade aspect of the problem.  Here I review the geo-politics and history of the North Korea nuclear problem. US policy has been to demand that...

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Deal-maker Trump Can’t Deal

(August 27, 2017) — Donald Trump has threatened new trade barriers against China while simultaneously depending on Beijing’s help to rein in North Korea’s alarming nuclear weapons program.   These two aspects of US policy toward China are at odds. It feels inappropriate to write a column that treats the two issues on a par.  To state the obvious, the stakes are vastly higher in a potential US-North Korean military conflict, especially when it comes to the real danger that nuclear weapons...

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Why Republicans Can’t Reform Health Care

July 26, 2017 —    Why do Republican politicians seem unable to come together on a bill to “repeal and replace” the 2010 Affordable Care Act, also known as Obamacare?  After all, they have spent 7 years with that as their single-minded goal, they campaigned on it in the 2016 presidential election, and they now control all branches of government. It is tempting to blame lack of experience and competence on the part of the president.  But that doesn’t explain why the Republican congress...

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The Sugar Swamp

(June 25, 2017) As the US, Mexico and Canada get ready to begin talks on the re-negotiation of NAFTA – possibly as early as August – governments are giving a lot of attention to one particular product:  sugar.   The outcome will predictably be a sweet deal for the US sugar industry, quite the opposite of Trump promises to “drain the swamp” of disproportionate influence in Washington by special interests. It’s an old story, in the US as in other industrialized countries.  The politically...

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The Case against Subsidizing Housing Debt

SINGAPORE — At the end of the first quarter, according to the Federal Reserve Bank of New York, American consumer debt for the first time exceeded its previous peak (in dollars).  That peak was in the 3rd quarter of 2008, just as the global financial crisis hit.  Although car loans and student debt have been rising especially rapidly, housing debt remains more than 2/3 of the total ($8.6 trillion out of $12.7 trillion). As a share of income, household debt is nothing like the threat to...

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How to Re-Negotiate NAFTA

The Trump Administration says it is sticking with its core campaign promise to renegotiate NAFTA, which remains unpopular with many Americans even though economists think it has been beneficial. The President said again on April 20 that he will invoke the procedures for renegotiating the trade agreement soon (within “the next two weeks”). After that comes a 90-day consultation period with Congress before actual talks begin. It is worth asking how it could be done right. Of course Mr....

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Mnuchin and Manipulation of Money

US Treasury Secretary Steven Mnuchin already finds himself hemmed in on all sides. Domestic constraints come from the promises that he and President Trump have made and the laws of arithmetic.    How, for example, is he ever going to be able to reconcile the specific tax proposals that candidate Trump campaigned on with the promise of the “Mnuchin rule” that taxes won’t be cut for the rich?  That is even harder than the traditional conundrum that faces Republican Treasury Secretaries:...

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Let the US Fiduciary Rule Go Ahead

The quantity of financial regulation is not quite as important as the quality.  One must get the details right.  The case of the US “fiduciary rule” strongly suggests that President Trump will not get the details right. Could Dodd-Frank be improved? Earlier this month, amid the flurry of tweets and other executive orders, the new occupant of the White House issued an executive order directing a comprehensive rethinking of the Dodd-Frank financial reform of 2010. One can imagine various...

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