Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Agree
Confidence level:
Confident
Comment:
The rise in equity prices is almost entirely due to loose monetary policy through low interest rates and QE. The irony is that the financial crisis was caused by the failure of asset prices to correctly price risk. Monetary policy since then still prevents risk from being correctly priced. As a result, the risk is being borne by banks, asset holders and the tax payer.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Agree
Confidence level:
Not confident
Comment:
Household debt has increased and savings ratios have fallen which has largely reversed what was observed immediately after the financial crisis. One reason is cheap money (see next question); another is the working of life-cycle effects through consumption smoothing as a result of the prolonged recessionary effects of the financial crisis. In addition, low bond yields caused by quantitative easing has seen rising equity prices due to portfolio substitution. As QE is unwound and interest rates are increased, equity prices could fall thereby generating increased financial risks. Increased interest rates could also cause the bankruptcy of zombie companies which are currently kept alive by cheap credit. Another risk to the world economy is the heavy indebtedness of China.

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
Benefits for Germany and economies like Germany's but huge costs for Greece, Ireland, Italy, Spain and Portugal. Due to these disparities the euro is not fit for purpose and is probably not sustainable unless all economies become like Germany. This is why it makes sense for Juncker to try to impose German rules on all countries. This is the crucial point of Juncker's speech, not the euro. It also presages political integration in order that countries have a say in setting up and monitoring the rules. The euro is the tail wagging the dog - as intended by the architects of the EU. Ultimately it is all or nothing. So Juncker is correct.

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Answer:
Strongly disagree
Confidence level:
Extremely confident
Comment:
Membership of the euro has proved disastrous for Greece, Ireland, Italy, Portugal and Spain as it has given them the wrong monetary policy and through persistently higher inflation and negative real interest rates caused a huge loss of competitiveness and fuelled over-borrowing and excessive indebtedness. Only if a country has an economic performance like Germany's can it flourish in the euro system

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Agree
Confidence level:
Confident
Comment:
My explanation has been given in my answer to the first question.

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