Recommended Weekend Reads

May 31 - June 2, 2024

Here are our recommended reads from reports and articles we read in the last week.  In this issue, we have a new suggestion: Twitter accounts we follow and find interesting, informative, and fun.   We hope you find all of this useful and that you have a relaxing weekend.   And let us know if you or someone you know wants to be added to our distribution list. 

Geoeconomics

• Why is the U.S. GDP recovering faster than other advanced economies?  FEDS Notes/May 17, 2024

  In this note, we investigate possible drivers explaining the stark difference in economic performance between the U.S. and AFEs over the past few years, considering both cyclical factors, such as fiscal and monetary policies, as well more structural factors, such as labor market flexibility and business dynamism. We also recognize the role of large shocks that particularly affected certain regions such as the economic shocks resulting from Russia's invasion of Ukraine that had an outsized effect in Europe. Although a precise quantification of each channel is left for future research, we argue that structural factors play a role in the way different economies responded to cyclical policies.3 In addition, we caution against interpreting recent productivity developments as only reflecting permanent shifts across economies.

• The Rise of Mesoeconomics   William Janeway/Project Syndicate

  The digitalization of economic life and real-world data has opened up new possibilities for the study of the economic networks, regions, and sectors that ultimately determine how economic policies play out in the real world. Such modes of thinking will be crucial for economic policymaking in a new age of geopolitical risk.

• Instruments of economic security  Bruegel

  Geopolitical and economic developments, including Russia’s invasion of Ukraine and trade disruptions during the COVID-19 pandemic, have raised concerns about the European Union’s exposure to hostile countries. The challenge of improving European economic security (which we narrowly treat here as exposure to foreign trade or production shocks) has grown in importance, with various relevant policy measures introduced at the EU level.  Focusing in particular on the threat posed by economic coercion, this paper begins by assessing the nature of this threat before outlining two lessons that can be drawn from two recent instances of this coercion in action: China’s actions against Lithuania and Australia, respectively.

•  Commercial Real Estate in Focus   Federal Reserve Bank of St. Louis

  Commercial real estate (CRE) is navigating several challenges, ranging from a looming maturity wall requiring much of the sector to refinance at higher interest rates (commonly referred to as “repricing risk”) to a deterioration in overall market fundamentals, including moderating net operating income (NOI), rising vacancies and declining valuations. This is particularly true for office properties, which face additional headwinds from an increase in hybrid and remote work and troubled downtowns. This blog post provides an overview of the size and structure of the U.S. CRE market, the cyclical headwinds resulting from higher interest rates, and the softening of market fundamentals.  As U.S. banks hold roughly half of all CRE debt, risks related to this sector remain a challenge for the banking system. Particularly among banks with high CRE concentrations, there is the potential for liquidity concerns and capital deterioration if and when losses materialize.

Ukraine War/Russia

• Russia is using the Soviet playbook in the Global South to challenge the West – and it is working  Chatham House

  Russia has been courting the states of the Global South to circumvent Western sanctions and avoid international isolation – with notable success. In February 2024, Moscow hosted the first ‘For the Freedom of Nations’ forum with 400 delegates from 60 countries, aiming to rally the countries of the Global South against ‘Western neo-colonialism’.  In its war on Ukraine, Moscow has turned the Global South into both an instrument and a theatre of geopolitical competition, capitalizing on long-held grievances of colonialism and power imbalance. Much like its Soviet predecessor, Russia uses ‘anti-imperialism’ as its main propaganda theme and as an ideological basis for its global engagement. It has effectively leveraged legacies such as memories of Soviet support for decolonization and traditions of non-alignment, bringing deep-seated resentment against the West to the fore. 

• The End of the Near Abroad   Carnegie Endowment for International Peace

  Putin’s war on Ukraine marks the end of the near abroad—the idea that Russia enjoys a special status in much of the post-Soviet space. But while Russia’s neighbors are seeking greater independence, they are not necessarily turning West.  Are these states a new buffer between NATO and Russia?  Or a threat to Russia in and of themselves?

• The Memo-Affair: Plan, Bluff, or Accident? Russia’s “Project” on Altering Maritime Borders in the Baltic Sea   Wilson Center

  On the evening of Tuesday, May 21, 2024, Russian media reported on a short technical document posted online by the Russian Defence Ministry (MOD) regarding a maritime border project in the Baltic Sea. In the memo, the Ministry was seeking approval for its proposal on a “draft list of geographical coordinates” that would help recalculate “baselines measuring the width of Russia’s territorial sea, mainland coastline and Baltic Sea islands.”  By establishing “a missing straight baseline system,” the “maritime border” of the Russian Federation would, according to the document, ultimately be altered. This redrawing of the boundary, pertaining specifically to the Kaliningrad region (near Baltiysk and Zelenograd) and the eastern Gulf of Finland (around several islands that the Finnish government ceded to the USSR in 1940), would allow Russia to “use these waters as internal.”  To the governments of Finland and Lithuania, this news came as a complete surprise.

• Action Plan 3.0: Strengthening Sanctions Against the Russian Federation Working Group Paper #19 of the International Working Group on Russian Sanctions

  Significant sanctions have already been imposed on Russia, for which the sanctions coalition should be applauded. Sanctions have had a major impact on the Russian economy and have constrained Russia’s military and financial capabilities. In particular, the international sanctions coalition –around 50 countries – has substantially reduced Russian export markets and revenues. In addition, the Kremlin’s inability to access roughly $300 billion in central bank reserves has dramatically limited its policy maneuvers. But more efforts are needed.  The Working Group, made up of independent experts from many countries, proposes the following in their latest report: Confiscate frozen Russian assets abroad, impose new sanctions on Russian exports (gas, nitrogen fertilizers, metals), impose import tariffs on all remaining Russian exports, strengthen technology bans, tighten financial sanctions, impose more sanctions on Russian companies, impose more personal sanctions, prevent lawyers from enabling sanctions evasion, designate Russia as a sponsor of terrorism, stop Western companies from doing business with Russia, strengthen enforcement of existing sanctions, and expand secondary sanctions on other countries that do business with Russia.

 Taiwan 

• Beware forecasts of doom for Taiwan under Lai   Ryan Hass/Brookings Institution

  Newly inaugurated Taiwanese President Ching Te (“William”) Lai. Lai famously once referred to himself as a “pragmatic worker for Taiwan independence.” Considering Beijing has threatened to go to war to prevent Taiwan's independence, the thinking goes that Lai’s recent inauguration could spell impending trouble. Such analysis is easy to write and almost certainly wrong. Lai is not a wild-eyed zealot with a one-track-minded focus on Taiwan's independence. He is a professional politician who has organized his career around becoming Taiwan’s president. Now that he has ascended to Taiwan’s top elected position, he will want to win reelection. To do so, he almost certainly will need to tack to the center of Taiwan’s political spectrum rather than cater to the wishes of a small minority of Taiwan voters who favor throwing caution to the wind in service of Taiwan's independence or unification. Indeed, less than 6 percent of Taiwan’s voters support “the immediate pursuit of independence from, or unification with, the People’s Republic of China.”

 Recommendations from the Twitterverse 

We are starting something new with this issue: We will periodically offer recommended Twitter accounts we find particularly informative and useful.  We hope you find them useful, too.

• Robin Brooks/Brookings Institution (@robin-j-brooks)

  Brooks is the former Chief FX Strategist at Goldman Sachs and the Chief Economist at the Institute for International Finance. He is now a Senior Fellow at the Brookings Institution. His voluminous stream of great charts and graphs revealing the massive back-door trade avenues employed by Russia to evade sanctions is jaw-dropping.  But he covers a host of other well-researched global economic issues, as well.

•  Ryan Berg/Center for Strategic and International Studies (@ryanbergPhD)

  I will say it right up front: Ryan is a good friend.  But he’s also hands-down the best observer/academic I know of all things Latin America, and his Twitter site is the “one-stop shopping” place to go to stay up to date on the region.  As the Director of the Americas Program at CSIS, he somehow devours the many diverse political, economic, social, and business streams running through the region and is able to synthesize is quickly and right on target. He’s also the leading expert on China’s growing investment entanglements in the region. 

• Milei Explains (@Milei_Explains)

  I’m not sure who produces this twitter page, but I find it quite fun and informative as Argentine President Javier Milei fights to transform the economic mess that Argentina is in today.  The site explains: “Milei in English. translates [Argentine President Javier] Milei for friends. No politics. 100% Economics.  Not affiliated with Javier Milei.”