A tale of two divergences

Joshua Aizenman, Michael M Hutchison, Yothin Jinjarak, 8 September 2011Bond markets provide sleepless nights for even the most powerful of political leaders. This column estimates the pricing of sovereign risk for over 60 countries during the last five years. It finds that fiscal space and other macroeconomic factors are important determinants of market prices of sovereign risk. But when looking at the Eurozone crisis, it finds that the market is excessively pessimistic.

Calafia Beach Pundit submits: Long-time readers know that I assign great importance to swap spreads. They have been excellent, forward-looking indicators of important financial and economic fundamentals.

Kevin Drum: Why Global Recovery Has Been So Slow: In previous recessions, government expenditures in advanced economies continued to rise during the recovery period, helping to bootstrap a return to growth. This time, spending spiked up during the recession itself, but since then it's fallen…. Why? Probably because advanced countries entered the Great Recession with higher debt ratios than in the past….

Two economics professors analyzed the political contributions and stock holdings of U.S. mutual fund and hedge fund managers and found that the ones that contribute blue tend to underweight companies that are considered socially irresponsible.

Alberto Alesina, 30 November 2012Should debt-ridden and economically struggling Western governments be doing everything possible to reduce their deficits? Should we cut spending or hike taxes to reduce our debt-to-GDP ratios? This column argues that the answer is obvious: the cheapest, most effective and confidence-inspiring route is to cut spending.

Mark O'Byrne submits: Gold: Gold finished at its highest level since early December and had its fourth consecutive day of gains Wednesday as a debt ratings downgrade for Spain and surging credit spreads created new fears of the eurozone sovereign debt crisis spreading and financial contagion. Gold for June delivery gained $9.60/oz, or 0.8%, to $1,171.80 an ounce on the Comex division of the New York Mercantile Exchange.