Kellogg Community College will save thousands of dollars per year being more energy efficient thanks to a student-led project replacing outdated lighting in the College library with new LED bulbs. The project, led by officers from KCC’s Alpha Nu Eta… Continue Reading →
Kellogg Community College is proud to announce the Spring 2013 inductees into the college’s local Alpha Nu Eta chapter of the Phi Theta Kappa Honor Society. The 106 students were formally inducted into the honor society in a ceremony held… Continue Reading →
At 3:05 p.m. Eastern Daylight Time on September 26, 2011, the Moderate Resolution Imaging Spectroradiometer (MODIS) on NASA’s Aqua satellite observed a mid-latitude cyclone over the midwestern United States. The center of the storm appeared immediately west of Lake Michigan.
The Capital Weather Gang at The Washington Post reported that the storm was at its most mature stage on September 26. Sporting a comma shape spanning hundreds of kilometers, the storm was comprised of a combination of warm, moist air (clouds) and cold, dry air (cloud-free areas).
Mid-latitude cyclones drive most of the stormy weather in the continental United States. Development of these cyclones often involves a warm front from the south meeting a cold front from the north. In the Northern Hemisphere, cyclones move in a counterclockwise direction. (In the Southern Hemisphere, cyclones are clockwise.) The bands of cold and warm air wrap around a center of low pressure, and air rising near the center spurs the development clouds and precipitation.
Justin Berk, a meteorologist based in Baltimore, explains that in this region, “cold air eventually wins out and wraps completely around a storm. This is called a ‘cold core’ storm and has cut itself off from the main flow of the jet stream.” This, says Berk, is why the September 26 storm appears stalled near Chicago.
An animation of the storm from the Geostationary Operational Environmental Satellites (GOES) shows the storm’s progress from September 25 to September 27.
Samenow, J. (2011, September 27). An immaculate mid-latitude cyclone and its decay. Capital Weather Gang. The Washington Post. Accessed September 27, 2011.
The latest economic data suggest that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Bros. in 2008. The risks of an economic and financial crisis even worse than the previous one—now involving not just the private sector, but also near-insolvent governments—are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown?
First, we must accept that austerity measures, necessary to avoid a fiscal train wreck, have recessionary effects on output. So, if countries in the Eurozone’s periphery such as Greece or Portugal are forced to undertake fiscal austerity, countries able to provide short-term stimulus should do so and postpone their own austerity efforts. These countries include the United States, the United Kingdom, Germany, the core of the Eurozone, and Japan. Infrastructure banks that finance needed public infrastructure should be created as well.
Second, while monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures.
Third, to restore credit growth, Eurozone banks and banking systems that are undercapitalized should be strengthened with public financing in a European Union-wide program. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. Also, since the U.S. and EU financial systems remain unlikely to provide credit to small and medium-size enterprises, direct government provision of credit to solvent but illiquid SMEs is essential.
Today, Spain and Italy are at risk of losing market access. Official resources need to be tripled— through a larger European Financial Stability Facility, Eurobonds, or massive ECB action—to avoid a disastrous run on these sovereigns.
Sixth, even if Greece and other peripheral Eurozone countries are given significant debt relief, economic growth will not resume until competitiveness is restored. And, without a rapid return to growth, more defaults—and social turmoil—cannot be avoided.
There are three options for restoring competitiveness within the Eurozone, all requiring a real depreciation—and none of which is viable:
A sharp weakening of the euro toward parity with the U.S. dollar, which is unlikely, as the United States is weak, too.
A rapid reduction in unit labor costs, via acceleration of structural reform and productivity growth relative to wage growth, is also unlikely, as that process took 15 years to restore competitiveness to Germany.
A five-year cumulative 30 percent deflation in prices and wages—in Greece, for example—which would mean five years of deepening and socially unacceptable depression. Even if feasible, this amount of deflation would exacerbate insolvency, given a 30 percent increase in the real value of debt.
Because these options cannot work, the sole alternative is an exit from the Eurozone by Greece and some other current members. Only a return to a national currency—and a sharp depreciation of that currency—can restore competitiveness and growth.
Leaving the common currency would, of course, threaten collateral damage for the exiting country and raise the risk of contagion for other weak Eurozone members. The balance-sheet effects on euro debts caused by the depreciation of the new national currency would thus have to be handled through an orderly and negotiated conversion of euro liabilities into the new national currencies. Appropriate use of official resources, including for recapitalization of Eurozone banks, would be needed to limit collateral damage and contagion.
Seventh, the reasons for advanced economies’ high unemployment and anemic growth are structural, including the rise of competitive emerging markets. The appropriate response to such massive changes is not protectionism. Instead, the advanced economies need a medium-term plan to restore competitiveness and jobs via massive new investments in high-quality education, job training and human-capital improvements, infrastructure, and alternative/renewable energy. Only such a program can provide workers in advanced economies with the tools needed to compete globally.
Eighth, emerging-market economies have more policy tools left than advanced economies do, and they should ease monetary and fiscal policy. The International Monetary Fund and the World Bank can serve as lender of last resort to emerging markets at risk of losing market access, conditional on appropriate policy reforms. And countries like China that rely excessively on net exports for growth should accelerate reforms, including more rapid currency appreciation, in order to boost domestic demand and consumption.
The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into the Great Depression II, especially if the Eurozone crisis becomes disorderly and leads to a global financial meltdown. Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II. The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.