Opinion

Anatole Kaletsky

World War One: First war was impossible, then inevitable

Anatole Kaletsky
Jun 27, 2014 06:00 UTC

British troops advance during the battle of the Somme in this 1916 handout picture

Why does the assassination of Archduke Franz Ferdinand — the event that lit the fuse of World War One 100 years ago Saturday — still resonate so powerfully? Virtually nobody believes World War Three will be triggered by recent the military conflicts in Ukraine, Iraq or the China seas, yet many factors today mirror those that led to the catastrophe in Sarajevo on June 28, 1914.

The pace of globalization was almost as dramatic and confusing in 1914 as it is today. Fear of random terrorism was also widespread — the black-hatted anarchist clutching a fizzing bomb was a cartoon cliché then just as the Islamic jihadist is today. Yet the crucial parallel may be the complacent certainty that economic interdependence and prosperity had made war inconceivable — at least in Europe.

An undated archive picture shows German soldiers offering to surrender to French troops, seen from a listening post in a trench at Massiges, northeastern FranceA 1910 best-selling book, The Great Illusion, used economic arguments to demonstrate that territorial conquest had become unprofitable, and therefore global capitalism had removed the risk of major wars. This view, broadly analogous to the modern factoid that there has never been a war between two countries with a MacDonald’s outlet, became so well established that, less than a year before the Great War broke out, the Economist reassured its readers with an editorial titled “War Becomes Impossible in Civilized World.”

“The powerful bonds of commercial interest between ourselves and Germany,” the Economist insisted, “have been immensely strengthened in recent years … removing Germany from the list of our possible foes.”

The real “Great Illusion,” of course, turned out to be the idea that economic self-interest made wars obsolete. Yet a variant of this naïve materialism has returned. It underlies, for example, the Western foreign policy that presents economic sanctions on Russia or Iran as a substitute for political compromise or military intervention.

Yellen’s remarkably unremarkable news conference – and why it’s a good thing

Anatole Kaletsky
Jun 19, 2014 20:03 UTC

Yellen holds a news conference following two-day Federal Open Market Committee meeting at the Federal Reserve in WashingtonJohn Maynard Keynes famously said that his highest ambition was to make economic policy as boring as dentistry. In this respect, as in so many others, Federal Reserve Chair Janet Yellen is proving to be a loyal Keynesian.

Yellen’s second news conference as Fed chair conveyed no new information about the timing of future interest rate moves. She gave no hints about an “exit strategy” for the Fed to return the $3 trillion of bonds it has acquired to the private sector. She told us nothing about the Fed’s expectations on inflation, employment and economic growth — not even about the board’s views on financial volatility, regulation, asset prices or bank credit policies.

Yellen refused even to repeat, or repeal, her earlier answer to a question about the meaning of the “considerable period” she expected between the end of tapering and the first rate hike. At her first news conference, Yellen responded to a similar question by blurting out “six months.” This caused an eruption of volatility in financial markets — that lasted about five minutes.

Should Brazilians cheer if they lose the World Cup?

Anatole Kaletsky
Jun 13, 2014 19:22 UTC

Brazil's President Rousseff attends a meeting of the Brazilian Forum on Climate Change in Brasilia

As the World Cup kicks off in Sao Paolo this week, the home team is the runaway favorite, with a 45 percent chance of winning the tournament, according to Nate Silver on FiveThirtyEight and 48.5 percent probability according to the statistical boffins at Goldman Sachs. But apart from the bookmakers — who stand to lose a fortune if Brazil wins, since they are offering odds of around 3 to 1, instead of the 1 to 1 suggested by Silver’s and Goldman’s calculations — another, more surprising, group is secretly rooting against the favorite: Brazil’s own financial and business community, along with much of the country’s middle class.

That, at least, was my strong impression after two weeks visiting companies and financial institutions in Brazil. This unusual reversal of national spirit does not represent a breakdown of patriotism. Rather the opposite.

Brazil’s next presidential election is in October, and virtually everyone in business and finance believes that President Dilma Rousseff, the incumbent, must be defeated to save the economy. Whenever a new opinion poll shows a narrowing lead for Dilma (as Brazilians invariably call her), share prices jump. Yet still she remains well ahead of both her opponents.

Now may not be the time to buy bonds

Anatole Kaletsky
Jun 6, 2014 18:35 UTC

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Why are interest rates so low? And how long will they stay that way?

Now that the European Central Bank has passed another historic milestone by imposing negative interest rates on a major part of the world economy, there is one explanation of the unprecedented collapse of interest that everyone can agree on. Central banks can set money market interest rates as low or as high as they please just by giving commercial banks whatever amount of excess credit is needed to keep these rates at the chosen level.

Since early 2009, central bankers all over the world have decided, rightly or wrongly, that interest rates should be lower than ever before in history. Moreover, these policymakers made it clear that they will continue to squeeze interest rates down to near-zero, or even negative, levels until next year and perhaps beyond.

But this obvious answer to the interest rate conundrum only begs a more interesting question: What accounts for the rock-bottom levels not only of the overnight interest rates that central banks set directly, but also the long-term rates that depend on the willingness of pension funds, insurers and private investors to tie up their savings for 10 years or more in government bonds?

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