Involving: capital controls in a country without its own currency, the upside of contagion, and the economics of gay marriage.

Good morning

The headlines:

  1. Cypriot Capital Controls.

    Link: the case for contained quantitative easing.

    Capital controls on a country that doesn’t have its own currency… I’m not sure why there’s such a big debate – Zimbabwe has capital controls over the US dollars that it uses. And exchange control, for that matter.

    But Cyprus is quite unique in some ways – having been a haven for foreign capital, all that money is now sitting there. Frozen. And it will leave the minute those capital controls are lifted – which would have a devastating impact on the financial soundness of Cyprus’ “recapitalised” banks. And, more to the point, the money lent by the EU will leave the EU.

    Frankly though, in Keynesian terms, I think that there is an opportunity here.

    The issue with quantitative easing is twofold: higher inflation and a weakened currency*. But in Cyprus, there is the option to quantitatively ease without too high a penalty – because the money will almost immediately leave the Eurozone once the capital controls are lifted. The exchange rate may weaken – making Europe more competitive. But because the extra money will return to Russia/wherever, the inflationary impact will be significantly dampened. And in all likelihood, inflation would only be impacted by the higher cost of goods imported from outside the Eurozone (now more expensive as a result of the weakened exchange rate).

    On the other hand, of course, there could be contagion.

    But glass half-full and all that.

    *those are practically the same thing: being the value of the currency relative to what you can buy with it (either goods, or other currencies).  

  2. Gay Marriage.

    Link: the business case?

    The US Supreme Court is currently reviewing California’s Prop 8 case, being one of two cases that it is hearing this week that revolve around the constitutionality of gay marriage bans.

    In the article linked above, there is a long list of big businesses that have come out in support of gay marriage. Which does seem a little opportunistic – now that the American moral opinion tide is turning, no business wants to be on the losing side of public debate.

    Putting the religion aside (which we should – we’re talking about legal recognition, not religious recognition), there is an economic side to this story. On the one hand, it’s about entitlement to federal benefits and tax exemptions for inter-spousal transfers. On the other hand, the gay community may choose to invest differently (ie. more) if those specific incentives were applied to them equally. Here’s an article link: the economics of gay marriage.

    According to the generally cited statistic, we’re talking about 10% of the American population here. And to put that into perspective: only 12.6% of Americans are african-american. These are significant economic forces we’re talking about. And there is a significant economic cost involved.

    It’s just a thought.

That’s all for now.

Have a good day.