The Political Economist

This is becoming a sort of a post-Christmas tradition on the blog - each year in the weak after Christmas I offer a wrap up of the year by evaluating my last year's predictions . Once again, I have to say, it was a good year in terms of what I got right (I managed to even beat my own predictions from 2014 : 85% compared to last year's 75%), but there were a few events that went under my radar (the Greece situation triggered by Syriza's victory, and the refugee crisis).  The title of last year's predictions was: "2015: Back to Realpolitik and back to growth" . My main prediction was that most economies in the West would return to having steady rates of economic growth (which came true), and that debates over the economy will be overshadowed by the return of realpolitik and muscle-flexing between Russia and the West. I've also stated that "low oil prices will be the key in prompting a stronger recovery", which they were, and I managed to exclu...

It has happened. The Fed has raised short-term interest rates for the first time since the start of the financial crisis in 2008. And immediately they've doubled it! The rate went up from 0.25% to 0.5%, with a pledge to be gradually increased further in the years to come. In Janet Yellen's own words: "This marks and end to an extraordinary seven year period."  Source:  The Economist An increase of interest rates in theory implies several things. Central banks increase interest rates when they want to curb the expansion of the economy, or in other words to prevent its overheating. A quarter of a basis point increase hardly means the US economy is overheating, but in the wake of the liquidity trap during the crisis and the recovery, and particularly Fed's  September 2012 announcement  that it will purchase mortgage securities as long as it takes until the labor market "improves", this move is viewed as a careful and gradual "return to normal...

Over the past month we witnessed two major political changes in the South American continent. Venezuela and Argentina have ousted their long-lasting socialist parties and have turned center-right. The scope of this change is even greater considering the fact that two dominant Latin American political economy ideologies were punished at the polls: Chavism and Kirchnerism . However, to be honest, the defining figures behind these political and economic ideologies weren't themselves punished by the voters. Chavez died, his successor Maduro still remains in power, but it was the Socialist party that lost the parliamentary elections (by a landslide), while Cristina Kirchner had to step down after serving two consecutive terms in office - it was her chosen successor that lost the November Presidential run-off. The Venezuelan elections can still however result in a blow to Maduro since the opposition gained a two-third majority in Parliament , meaning they can change the constitution...