Syllabus (Final Version, with student-created assignments), 2 May 2013

Advanced Global Financial Markets (GBUS 8491) Instructor: Frank Warnock

Schedule: 2:45-4:10pm, last 15 days* of the Second Year Calendar (April 15 - May 3 2013)

Advanced Global Financial Markets is an extension of the content of the Global Financial Markets (GFM), a

prerequisite that can be taken either as a FY Elective or as a Q1 SY Elective.

As with GFM, the course is forward-looking, with students discussing real-time issues concerning the world’s

currency, bond, gold and oil markets, as well as having an opportunity to analyze in depth the current “big issues”

in international financial markets. The course, appropriate for students who want to solidify their economics-

based understanding of global financial markets at an advanced practitioner level, will consist primarily of

student-led discussions and presentations, as well as a number of short (one-page) papers aimed to help students

solidify their understanding in a concise, compelling way. There will be no final exam.

Prerequisite: GBUS 7602 Global Financial Markets, either as FY Elective or Q1 SY Elective.

Academic objectives

To provide students with a forum in which to solidify their understanding of global financial markets

(from an economics perspective).

To debate the impact of major themes in international finance on global financial markets. These themes

will change from year to year, but in 2013 likely include global imbalances, debt and deficits, quantitative

easing, fiat money and gold, and the eurozone’s existential crisis, among others. EACH YEAR, a few

months prior to the course ENROLLED STUDENTS WILL BE INVITED TO HELP SHAPE THE

COURSE AGENDA BY SUGGESTING THEMES.

To sharpen expertise in applying the tools of economics to global financial markets.

Advanced GFM builds on the learning from GEM’s FY elective Global Financial Markets, a course that helps

many Darden students attain an in-depth understanding of global financial markets from an economics

perspective. Advanced GFM assumes knowledge of all material covered in GFM, and provides students with the

opportunity to bring together knowledge acquired in their summer internships and through their second year

courses to form a sharper understanding of major themes in global financial markets. The course’s main aim is

simple: To guide students to use the skills they have obtained at Darden and in their careers to assess some of the

most pressing issues in international financial markets.

Relative to the prerequisite GFM course, Advanced GFM will rely not on cases but rather on students'

presentation and assessment of primary information. In that sense it can be seen as blowing out GFM's country

presentations into a full course (on many topics, though). One difference: In Advanced GFM the instructor will

work with groups in their search for appropriate information, material, etc.

* We will not meet on Fridays. The three Friday classes are rescheduled as mandatory group meetings with Warnock.

Syllabus (Final Version, with student-created assignments), 2 May 2013

Topics: To determine topics for the April 2013 version of Advanced GFM, enrolled students were polled in

February. Based on those responses, the following topics will be covered.

Monetary policy (4 classes)

Fed Policy and Distortions, or the unintended consequences of the Fed’s policy. Could include the impact

on other asset classes (including commodities) of prolonged loose monetary policy and zero nominal

interest rates. Impact of Fed’s asset purchases.

Hayek v. Keynes, Gold Standard, future of the dollar as the world’s reserve currency. Given debt

issues and extremely accommodative monetary policy, there has been much discussion about a possible

return to the gold standard. Some of this is related to a debate by Hayek and Keynes (and their disciples).

In this session we will learn more about a gold standard economic system. This also relates to discussions

about the future of the dollar as the world’s reserve currency – and the implications that the budget deficit

and the debt ceiling negotiations have on it.

Fed Policy going forward. The Fed’s toolkit has been greatly expanded over the past 5 years. Some

prominent economists are now endorsing NGDP targeting. This session would include Fed’s exit strategy,

NGDP targeting (what are its advantages and disadvantages?), among other topics.

Currency wars (with a particular focus on Brazil)

Country Assessments (4 classes)

We can think about country assessments with respect to specific issues (some listed below) but also more

broadly. For example, if you were tasked with getting up to speed on a country in 24 hours, how would you

do it?

Japan. Its debt bubble. What catalysts might trigger a collapse? Are there parallels to other sovereign debt

crises? What is the impact on financial markets? Should also include the role of demographics in asset

price cycles.

China. Its financial system, including the idea that China does not allow a bank to fail, seems to have

different ways of controlling the money supply than other governments, capital flows are managed, and

the fact that there are two systems in place – one in Hong Kong and one in the rest of the country. Also,

China is transitioning from export-led growth to internally generated growth (is it?). What does all this

mean for China’s future growth? Should also include role of demographics in asset price cycles.

Argentina. The country is in economic disarray with exorbitant inflation and capital controls (among other

issues). Many are extremely disappointed with President Christina Kirchner. Note too the recent freezing

of prices: http://www.forbes.com/sites/paulroderickgregory/2013/02/04/no-one-ever-learns-the-argentine-

price-freeze/

Australia

Other Topics (4 classes)

Leverage and the Business Cycle. How does the leverage cycle explain fluctuations in the economy? See

work of John Geanakoplos, among others. Include, US Finances – How do we fix the problem? Do we

even need to fix it? Do we go the way of Greece, or do we simply keep raising the debt ceiling in

perpetuity?

Lending Booms and Bubbles – How to predict the next bubble (is it in education?). A look at historical real

estate bubbles and the resulting hits to the economy. Could fold in analysis of the role of credit rating

agencies in sovereign debt crisis (are the agencies predictive or too reactive, do downgrades unnecessarily

send countries into a tailspin, etc).

Shadow banking system. What is it, how does it work, how do we think about it? Is there an easier way of

conceptualizing it than this extremely detailed diagram? http://seekingalpha.com/article/238140-how-big-

is-the-shadow-banking-system.

The Euro crisis - Are we out of the woods?

Syllabus (Final Version, with student-created assignments), 2 May 2013

Issues that we’ll address in multiple classes (but not in a standalone class):

-- Connections between the economy and the stock market.

-- Link between inflation and social unrest (in particular food inflation during the Arab Spring). This will

come up with Argentina, China, Lending Booms.

-- Role of demographics in asset price cycles. This could tie into Japan’s aging/no growth population or

china’s one child policy and the potential for population decline. From the US perspective as the baby

boomers shift from acquiring assets to selling assets what impact will that have or are markets global/deep

enough not to be affected significantly by this switch.

-- Oil/Nat Gas/Coal commodity prices and global and regional supply/demand differentials. Perhaps not the

reg’l differences, but otherwise will get into unintended consequences of Fed policies, currency wars,

China, Australia, others.

An issue that I care about, but am having a tough time folding in:

Africa. Will it ever become a driver of the world economy? (Yes, I know that Africa isn’t a country…)

The Structure of the Course

12 groups of five. 12 scheduled topics, for each topic two groups will present. Thus 24 presentations. I will

randomly assign groups and topics. Each group should present twice, so groups will be of roughly 5 people.

Two groups per topic. I will assign one group to take one side of the issue, the other to take the other side

(so we get complete coverage).

Pre-Session Meeting with me. Each group must (i) choose material for the session and (ii) meet with me the

week before the scheduled class to discuss their choices of material.

Prior to each Class Meeting. Materials for each session will be posted on Canvas sometime during the week

prior to the session. All class members are expected to prepare for the session by reading the posted material

(and anything else they’d like to look at).

Class Meetings. Each group gets 15 minutes to present. Other 55 minutes is for general class discussion.

Groups will stay up front – they are the experts! – but we will all chip in. Objective is that we all get up to

speed on the topic.

At the End of Each Week. At the end of each week you must submit one written page per topic (except if

your group presented on that topic). Use this as an opportunity to get your thoughts organized and down on

paper.

Course Grade

Class engagement (50%): This comes from both your participation on days when others are presenting as well as

your presentations.

A series of one-page papers (50%). There are two components to this:

(i) the one-page (per topic) papers described above. 10 pages total (12 topics, but two you presented).

(ii) for topics you present on, your pre-session meeting with me counts as the one-page paper

At the end of the term, everyone will submit anonymous ratings of the members in their group; I’ll factor these in

as well.

There will be no final exam.

Syllabus (Final Version, with student-created assignments), 2 May 2013

Class-by-Class Agenda

Class 1 (April 15): Fed Policy Going Forward

Group 1: US economy will continue to disappoint, and the Fed’s toolkit will yet again expand, perhaps

moving toward NGDP targeting.

Group 2: Fed’s toolkit will remain more or less as is, and as the economy gets through this rough spot it will

naturally pare back the extraordinary stimulus that has been in place for a few years now.

Both groups will need to touch on the Fed’s exit strategy, NGDP targeting (what are its advantages and

disadvantages?), among other topics.

Class 2 (April 16): Fed Policy and Distortions

Group 3: The unintended consequences of the Fed’s policy – eg, the impact on other asset classes

(including commodities) of prolonged loose monetary policy and zero nominal interest rates, the distortionary

effect of the Fed’s asset purchases, others – are putting the US and global economies in a precarious spot. This

will end badly.

Group 4: The unintended consequences of the Fed’s policy are actually all part of the plan, and things will

work out just fine.

Class 3 (April 17): The Euro crisis

Group 5: The eurozone will implode and take the rest of the world down with it.

Group 6: The current pains are necessary. Remain calm. All is well.

Class 4 (April 18): Country Assessment: Japan

Group 7: Make the Kyle Bass case.

Group 8: Kuroda’s new QE policy is exactly what will bring this great, wealthy country out of its

decades-long doldrums.

Both groups must address its debt bubble (what catalysts might trigger a collapse, are there parallels to

other sovereign debt crises, what is the likely impact on financial markets?). Should also touch on the role of

demographics in asset price cycles.

Class 5 (April 22): Currency Wars (with a particular focus on Brazil)

Group 9: Currency wars are a major problem in the world economy.

Group 10: Currency wars are benign.

Guest Practitioner Participant: Jeremy Fand (Alkemy Capital)

Class 6 (April 23): Hayek v. Keynes, Gold Standard, Future of USD as World’s Reserve Currency

Group 11: Policymakers in major economies have proven incapable of guiding the world economy. We

need Hayek’s views, not Keynes’ and a return to the gold standard (and the end of the USD as the world’s reserve

currency).

Group 12: All is well. Full steam ahead.

Both groups: Given debt issues and extremely accommodative monetary policy, there has been much

discussion about a possible return to the gold standard. Some of this is related to a debate by Hayek and Keynes

(and their disciples). In this session we will learn more about how a new gold standard will operate. Of course,

this also relates to discussions about the future of the dollar as the world’s reserve currency, and the implications

that the budget deficit and the debt ceiling negotiations have on it.

Guest Practitioner Participant: Marc Chandler (Brown Brothers Harriman)

Syllabus (Final Version, with student-created assignments), 2 May 2013

Class 7 (April 24): Lending Booms and Bubbles Group 2: The next bubble is in X and its bursting will propel us (and the world) into depression. We

should proactively prevent bubbles from occurring.

Group 1: Bubbles are inherently unpredictable. We should keep an eye on them, but do nothing

proactively, and just be ready to mop up afterwards.

Both Groups: How to predict the next bubble. Look at historical real estate bubbles and the resulting hits

to the economy. Could fold in analysis of the role of credit rating agencies in sovereign debt crisis (are the

agencies predictive or too reactive, do downgrades unnecessarily send countries into a tailspin, etc).

Class 8 (April 25): China Group 4: China is going to implode and drag the rest of the world down with it.

Group 3: China is the main driver of growth in the world, and despite challenges it will continue to be so.

Guest Faculty Participant: Dennis Tao Yang

Things one or both groups will want to ponder: China’s financial system, including the idea that China does

not allow a bank to fail, seems to have different ways of controlling the money supply than other

governments, capital flows are managed, and the fact that there are two systems in place – one in Hong

Kong and one in the rest of the country. Also, China is transitioning from export-led growth to internally

generated growth (is it?). What does all this mean for China’s future growth? Should also include role of

demographics in asset price cycles.

Class 9 (April 29) Leverage and the Business Cycle, US Finances.

Group 6: The leverage cycle will end in tears, and US finances are awful.

Group 5: Leverage increase, leverage decreases…this is all normal. And US finances will improve naturally.

Both Groups: How does the leverage cycle explain fluctuations in the economy? See work of John

Geanakoplos, among others. On US Finances – How do we fix the problem? Do we even need to fix it?

Do we go the way of Greece, or do we simply keep raising the debt ceiling in perpetuity?

Class 10 (April 30) Shadow Banking System

Group 8: The shadow banking system is scary and will lead to the end of the world.

Group 7: The shadow banking system is benign, necessary, and we should be thankful it exists.

Both Groups: What is the shadow banking system, how does it work, how do we think about it? Is there

an easier way of conceptualizing it than this extremely detailed diagram? http://seekingalpha.com/article/238140-

how-big-is-the-shadow-banking-system.

Class 11 (May 1) Country Assessments

We’ll do two country assessments in Class 11—Argentina and Australia—with each getting 45 minutes. We can

think about country assessments with respect to specific issues (some listed below) but also more broadly. For

example, if you were tasked with getting up to speed on a country in 24 hours, how would you do it?

Group 10: Argentina is sliding into the abyss. Run.

Group 9: Argentina provides some of the best opportunities going forward.

We know news has been grim. The country is in economic disarray with exorbitant inflation and capital

controls (among other issues). Many are extremely disappointed with President Christina Kirchner. Note

too the recent freezing of prices: http://www.forbes.com/sites/paulroderickgregory/2013/02/04/no-one-

ever-learns-the-argentine-price-freeze/

Group 12: Australia is one big bubble that will pop as China slows.

Group 11: Australia is exciting. Great prospects.

Class 12 (May 2) TBD

Warnock provides the material.

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM1 (April 15, 2013) Topic: Fed Policy Going Forward

Marching Orders:

Group 1: US economy will continue to disappoint, and the Fed’s toolkit will yet again expand, perhaps

moving toward NGDP targeting.

Group 2: Fed’s toolkit will remain more or less as is, and as the economy gets through this rough spot it

will naturally pare back the extraordinary stimulus that has been in place for a few years now.

Both groups will need to touch on the Fed’s exit strategy, NGDP targeting (what are its advantages and

disadvantages?), among other topics.

Discussion questions:

When should the Fed end its asset purchases? When should it begin to exit its positions?

What are the risks of the Fed continuing QE for a prolonged period?

What could be the key drivers of economic recovery in the next couple of years?

All students must inform themselves on current Fed policy and the FOMC's views. To do that, get up to

speed on materials from the March 2013 FOMC meeting. This includes statement, minutes, projections, press

conference transcript. See http://www.federalreserve.gov/monetarypolicy/fomcpresconf20130320.htm

Required Readings:

Argument that accommodative monetary policy is working and will continue -

http://www.economist.com/node/21558596

What is NGDP - http://www.washingtonpost.com/blogs/wonkblog/post/ngdp-targeting-the-hot-new-monetary-

craze-that-just-might-end-the-downturn/2011/10/20/gIQA4Kxh0L_blog.html

Six years of low interest rates in search of some growth (http://www.economist.com/news/briefing/21575773-

central-banks-have-cushioned-developed-worlds-economy-difficult-period-they-have-yet?frsc=dg|c)

Suggested (ie not required but recommended) Readings:

Review of QE and exit strategy of Fed - http://research.stlouisfed.org/publications/review/10/11/Blinder.pdf

Economists Cite Spring Swoon but See Growth Gains Ahead

(http://online.wsj.com/article/SB10001424127887324010704578416621303431866.html)

U.S. Employment Situation Report for March (http://www.bloomberg.com/news/2013-04-05/u-s-employment-

situation-report-for-march-text-.html)

Bernanke Elaborates on Exit Strategy (http://blogs.wsj.com/economics/2013/02/27/bernanke-elaborates-on-exit-

strategy/)

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM2 (April 16, 2013) Topic: Fed Policy and Distortions

Marching Orders:

Group 3: The unintended consequences of the Fed’s policy – eg, the impact on other asset classes

(including commodities) of prolonged loose monetary policy and zero nominal interest rates, the

distortionary effect of the Fed’s asset purchases, others – are putting the US and global economies in a

precarious spot. This will end badly.

Group 4: The unintended consequences of the Fed’s policy are actually all part of the plan, and things will

work out just fine.

Discussion questions:

Is the Fed’s program of large-scale asset purchases artificially inflating US equity and home prices? What will

happen to these prices when the program is scaled back or stopped?

How is Fed policy affecting saving and investment?

Are the unintended consequences of the Fed’s loose monetary policy and zero nominal interest rates—as

distortionary effects of the Fed’s asset purchases—putting the US and global economies in a precarious spot or

are they all just a part of the plan?

What asset classes are or would be particularly useful indicators in assessing the distortionary nature of the Fed’s

policies?

Are the assumed distortionary effects actually occurring?

Required Readings:

Ultra Easy Monetary Policy and the Law of Unintended Consequences (a long paper; decide how much you want

to read)

Bernanke Speech "Monetary Policy and the Global Economy"

Will U.S. Quantitative Easing End Badly? - http://taiberkosmala.com/wp-content/uploads/2013/01/Smith-Breeden-

Associates-Will-US-QE-End-Badly-Feb-2013.pdf

Monetary Policy Unintended Consequences -http://www.economist.com/blogs/freeexchange/2012/11/monetary-

policy-unintended-consequences

Economist Article, “A World of Cheap Money” ( Economic policy_ A world of cheap money _ The Economist.pdf

)

Suggested (ie not required but recommended) Readings:

Large-Scale Asset Purchases (speech by Jeremy Stein, Fed. Governor)

Home Prices Increasing -http://www.forbes.com/sites/afontevecchia/2013/03/26/home-prices-growing-faster-than-

in-the-build-up-to-the-housing-bubble-case-shiller/

Commentary on “Will U.S. Quantitative Easing End Badly?” -http://www.marketwatch.com/story/contemplating-

the-end-of-quantitative-easing-smith-breeden-director-of-research-greg-brown-sees-possible-bad-ending-for-

bond-markets-2013-02-21

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM3 (April 17, 2013) Topic: Eurozone Crisis

Marching Orders:

Group 5: The eurozone will implode and take the rest of the world down with it.

Group 6: The current pains are necessary. Remain calm. All is well.

Required:

http://www.forbes.com/sites/timworstall/2012/05/09/its-not-that-the-euro-will-fail-its-that-it-should-fail/

http://www.theatlantic.com/business/archive/2013/03/why-the-euro-is-doomed-in-4-steps/274470/

General information on the economic forecast and economic policies in the EU (article is pretty neutral; trade-

offs between positives and negatives)http://www.ecb.int/press/pressconf/2013/html/is130307.en.html

Mario Draghi’s slide show on data showing relative improvements in country deficits and bond

yields. http://www.ecb.int/press/key/date/2013/html/sp130315.en.pdf?62b5351e6a6a3f7571c479bc5436f91a

Paper discusses the importance of a single banking system/regulator (goes in support of the article required

above)http://www.imf.org/external/pubs/ft/sdn/2013/sdn1301.pdf (pretty lengthy article)

Interview with Mundell challenging assumptions behind Europe as an Optimal Currency

Area: http://opinion.financialpost.com/2012/06/08/robert-mundell-euro-is-here-to-stay/

Recommended:

http://www.pimco.com/EN/Insights/Pages/The-ECB-Is-Too-Tight-Absolutely-and-Relatively.aspx

http://online.wsj.com/article/SB10001424127887323701904578275451288397018.html?KEYWORDS=euro+

crisis

Article about the process and status of a banking union:

http://www.ecb.int/press/key/date/2013/html/sp130311.en.html

Krugman article critically reviewing Europe as Optimal Currency Area:

http://krugman.blogs.nytimes.com/2012/06/24/revenge-of-the-optimum-currency-area/

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM4 (April 18, 2013) Topic: Japan

Marching Orders:

Group 7: Make the Kyle Bass case.

Group 8: Kuroda’s new QE policy is exactly what will bring this great, wealthy country out of its

decades-long doldrums.

Both groups must address its debt bubble (what catalysts might trigger a collapse, are there

parallels to other sovereign debt crises, what is the likely impact on financial markets?). Should

also touch on the role of demographics in asset price cycles.

Discussion Questions:

1. Will Kuroda’s policy lead to demand pull or cost push inflation?

2. What can Japan do to address its aging demographics and the hollowing out of its manufacturing economy?

Required:

1. “A cunning plan” http://www.economist.com/blogs/buttonwood/2013/04/japan

2. “Cloud, or silver linings?” http://www.economist.com/node/9539825

3. Japan's Choice Will Weaken Yen But Fail Economically - WSJ.PDF

4. BOJ Press Release on QE Policy:http://www.boj.or.jp/en/announcements/release_2013/k130404a.pdf

5. http://www.bloomberg.com/news/2013-03-29/kuroda-says-no-bubble-as-10-year-yield-nears-0-5-japan-

credit.html

6. http://www.reuters.com/article/2013/04/10/us-japan-economy-consumer-spending-idUSBRE93915E20130410

Recommended:

Kyle Bass Predictions: http://www.businessinsider.com/kyle-bass-sees-signs-of-japan-blowup-2013-4

http://tesi.eprints.luiss.it/8653/1/schmidt-tesi-2012.pdf (pages 37-43)

Japan’s unfinished policy revolution: http://www.ft.com/intl/cms/s/0/2d7cc812-a079-11e2-88b6-

00144feabdc0.html#axzz2Q5Y40WRm

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM5 (April 22, 2013) Topic: Currency Wars (with a focus on Brazil)

Marching Orders: Group 9: Currency wars are a major problem in the world economy.

Group 10: Currency wars are benign.

Guest Practitioner Participant: Jeremy Fand (Alkemy Capital)

Required by Group 9:

http://www.brookings.edu/research/opinions/2013/04/10-currency-policy-abenomics-

mistral?rssid=global+financial+crisis

http://www.bloomberg.com/news/2013-03-04/currency-war-turns-stimulus-war-as-brazil-surrenders.html

http://www.bcb.gov.br/pec/appron/apres/FINAL%202013%2004%2002%20LAPDS%20REV%20Remarks%20Pet

ersen%20IIE%20%282%29.pdf

Required by Group 10:

1. FT article on recent Brazilian difficulties attracting FDI

2. NY times review of recent “Currency Wars”

3. Itau article on Chile discussing possible explanations of Chile’s ability to maintain high growth, high capital

flow, but low inflation – as a comparison case to Brazil

4. Bernanke Speech (already provided for class 2)

http://www.federalreserve.gov/newsevents/speech/bernanke20130325a.htm

Optional (from the two groups):

1. Report on Doing Business in Brazil

2. Report on Doing Business in Chile

3. Economist article validating “Phoney Currency Wars”

4. http://www.bcb.gov.br/pec/wps/ingl/wps292.pdf (fairly long/technical)

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM6 (April 23, 2013) Topic: Keynes v. Hayek, Gold Standard

Marching Orders:

Group 11: Policymakers in major economies have proven incapable of guiding the world

economy. We need Hayek’s views, not Keynes’ and a return to the gold standard (and the

end of the USD as the world’s reserve currency).

Group 12: All is well. Full steam ahead.

Both groups: Given debt issues and extremely accommodative monetary policy, there has

been much discussion about a possible return to the gold standard. Some of this is related to

a debate by Hayek and Keynes (and their disciples). In this session we will learn more about

how a new gold standard will operate. Of course, this also relates to discussions about the

future of the dollar as the world’s reserve currency, and the implications that the budget

deficit and the debt ceiling negotiations have on it.

Required Materials for this session are two pieces--one historical, the other more forward looking--

that should give you a sense of the Gold Standard:

http://www.fas.org/sgp/crs/misc/R41887.pdf (from Congressional Research Service, a brief history of the

Gold Standard in the US; brings you through 1973)

http://www.bis.org/publ/bppdf/bispap65d_rh.pdf, (a short 11-page piece in which researchers from the Dutch

central bank and U. of Amsterdam lay out some of the issues "This paper investigates side-effects of current

crisis policies from the perspective of the classic debate between Keynes and Hayek")

The teams would also like you to look at some shorter, more current pieces that take a particular

side. Let's call these Recommended Readings:

www.forbes.com/sites/nathanlewis/2013/03/14/if-alan-greenspan-wants-to-end-the-fed-times-must-be-

changing/

http://americanprinciplesproject.org/gold-standard/2013/national-interest-how-to-go-gold/

http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-

idea-in-2-charts/261552/

http://smallbusiness.chron.com/five-positive-results-keynesian-economics-3901.html

http://www.cnbc.com/id/40088925/Roubini_Here_s_Why_a_Gold_Standard_Won_t_Work

And for those who'd like more:

http://www.reuters.com/subjects/keynes-hayek (an 82-minute video)

http://www.auburn.edu/~garriro/macro.htm

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM7 (April 24, 2013) Topic: Bubbles

Marching Orders:

Group 2: The next bubble is in X and its bursting will propel us (and the world) into depression.

We should proactively prevent bubbles from occurring.

Group 1: Bubbles are inherently unpredictable. We should keep an eye on them, but do nothing

proactively, and just be ready to mop up afterwards.

Both Groups: How to predict the next bubble. Look at historical real estate bubbles and the

resulting hits to the economy. Could fold in analysis of the role of credit rating agencies in

sovereign debt crisis (are the agencies predictive or too reactive, do downgrades unnecessarily

send countries into a tailspin, etc).

Discussion Questions

Are asset bubbles worth preventing?

Are asset bubbles predictable?

Can asset bubbles be prevented?

Required Reading

A piece in International Finance by Adam Posen on why central banks shouldn't burst bubbles:

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-2362.2006.00028.x/full

ETF Bubble Trouble? [read highlighted section on predictability of bubbles]

China’s Push to Cool Down Housing Raises Questions (http://dealbook.nytimes.com/2013/03/04/chinas-push-to-

cool-down-housing-raises-questions/)

60 Minutes segment on Chinese real estate (http://www.youtube.com/watch?v=KjOuDmy1ybE

)

Suggested Reading

A piece by former Fed Governor Mishkin on "lean vs clean"

http://www.rba.gov.au/publications/bulletin/2011/jun/pdf/bu-0611-8.pdf

http://www.economist.com/blogs/analects/2012/08/chinese-property

http://www.bloomberg.com/news/2013-04-15/china-s-cities-drag-feet-on-home-price-curbs-mortgages.html

http://online.wsj.com/article/SB10001424127887324073504578112763722389812.html

http://www.businessinsider.com/chinese-hard-landing-2012-9?op=1#ixzz2Qrgx9ViZ

Macroprudential Regulation - BIS - CGFS38.pdf

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM8 (April 25, 2013) Topic: China

Marching Orders:

Group 4: China is going to implode and drag the rest of the world down with it.

Group 3: China is the main driver of growth in the world, and despite challenges it will continue to be so.

Things one or both groups will want to ponder: China’s financial system, including the idea that China

does not allow a bank to fail, seems to have different ways of controlling the money supply than other

governments, capital flows are managed, and the fact that there are two systems in place – one in Hong

Kong and one in the rest of the country. Also, China is transitioning from export-led growth to internally

generated growth (is it?). What does all this mean for China’s future growth? Should also include role of

demographics in asset price cycles.

Guest Faculty Participant: Dennis Tao Yang

Questions

Long Term (Group 3 – China will be the major source of Growth) Which countries will take over as the major

sources of global growth?

Short Term (Group 4 – China will implode) What short-term triggers exist that could potentially lead to negative

consequences in China’s long-term growth trajectory? And, how will the effects of these triggers flow through the

economy? Think about the recent leadership change in China. How will Xi Jinping’s transition to power affect/not

affect China’s path?

Readings

Required – all of these are VERY short!!! (so say the groups)

China 2030 World Bank Executive Summary

China Unlocks the right Growth

Chinese Housing Bubble -http://dealbook.nytimes.com/2013/03/04/chinas-push-to-cool-down-housing-raises-

questions/

Chinese Banking Changes Needed - http://blogs.ft.com/beyond-brics/2013/01/08/hello-2013-michael-pettis-

chinese-banking-in-2013/#axzz2RF52p7rJ

Optional

Industrial Sector vs. Service Sector -http://www.economist.com/news/finance-and-economics/21572236-services-

are-poised-become-countrys-biggest-sector-served-china

Balance of Trade - http://www.reuters.com/article/2013/02/08/us-china-economy-idUSBRE91702T20130208

Oil Requirements -http://online.wsj.com/article/SB10001424127887323646604578400410832143602.html

The Economist – China’s Future Rising Power Anxious State

https://www.ecb.int/pub/pdf/scpops/ecbocp142.pdf

http://www.economist.com/node/18866989

Full World Bank China 2030 Report – very long, but excellent reference -

http://www.worldbank.org/content/dam/Worldbank/document/China-2030-complete.pdf

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM9 (April 29, 2013) Topic: Leverage and the Business Cycle Marching Orders:

Group 6: The leverage cycle will end in tears, and US finances are awful.

Group 5: Leverage increase, leverage decreases…this is all normal. And US finances will improve naturally.

Both Groups: How does the leverage cycle explain fluctuations in the economy? See work of John Geanakoplos,

among others. On US Finances – How do we fix the problem? Do we even need to fix it? Do we go the way of

Greece, or do we simply keep raising the debt ceiling in perpetuity?

Required

o Geanakoplos article : "Solving the Present Crisis and Managing the Leverage Cycle"

o PBS piece: "Why Paul Krugman, Others Think Reinhart and Rogoff Are Wrong About Debt"

(http://www.pbs.org/newshour/businessdesk/2013/04/paul-krugman-v-reinhart-and-ro.html)

o Presentation on the Budget Outlook by Doug Elmendorf (head of

CBO) http://www.cbo.gov/sites/default/files/cbofiles/attachments/Presentation_NABE-3-4-13.pdf

Recommended

o FRB Cleveland Commentary: "Is US Federal Debt Too

Large?" http://www.clevelandfed.org/research/commentary/2010/2010-10.cfm

o Krugman op-ed: "Noboby Understands Debt" http://www.nytimes.com/2012/01/02/opinion/krugman-

nobody-understands-debt.html?_r=0

o Time piece: "The US in Not Drowning in Debt" http://business.time.com/2011/07/15/the-u-s-is-not-

drowning-in-debt/

o Congressional Research Services piece: "The Sustainability of the Federal Budget Deficit: Market

Confidence and Economic Effects" http://www.fas.org/sgp/crs/misc/R40770.pdf

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM10 (April 30, 2013) Topic: Shadow Banking Marching Orders:

Group 8: The shadow banking system is scary and will lead to the end of the world. Group 7: The shadow

banking system is benign, necessary, and we should be thankful it exists. Both Groups: What is the shadow

banking system, how does it work, how do we think about it? Is there an easier way of conceptualizing it than this

extremely detailed diagram? http://seekingalpha.com/article/238140-how-big-is-the-shadow-banking-system.

The groups have decided to structure their presentations as follows:

First 1/3 will be an overview of shadow banking.

Then the benefits of shadow banking for financial system/global economy will be discussed.

The final part will be on risks/cons of shadow banking for financial system/global economy.

A Concise Set of Readings:

Dallas Fed Reserve's Primer on Shadow Banking. Focus on Part I

of http://www.dallasfed.org/assets/documents/research/staff/staff1203.pdf

Business Week article: http://www.businessweek.com/news/2013-01-23/dimon-backs-shadow-banking-as-

necessary-service-providers

Brookings Report on Shadow Banking: Focus on pgs 269-276

of http://www.brookings.edu/~/media/projects/bpea/fall%202010/2010b_bpea_gorton.pdf

Questions to consider:

1. What is shadow banking?

2. What are the benefits shadow banking provides for both the financial system and the worldwide economy?

3. What are the downsides of shadow banking with regards to the financial system and worldwide economy?

4. Should shadow banking be eliminated or simply face greater regulation moving forward? If so, what are the

implications for the global economy?

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM11 (May 1, 2013) Topic: Country Assessments: Australia and Argentina Marching Orders: Group 12: Australia is one big bubble that will pop as China slows. Group 11: AU is exciting. Great prospects. Group 10: Argentina is sliding into the abyss. Run. Group 9: Argentina provides some of the best opportunities going forward. We know news has been grim. The country is in economic disarray with exorbitant inflation and capital controls (among other issues). Many are extremely disappointed with the president. Note too the recent freezing of prices:http://www.forbes.com/sites/paulroderickgregory/2013/02/04/no-one-ever-learns-the-argentine-price-freeze/ We’ll do two country assessments in Class 11—Australia first and then Argentina—with each getting 45 minutes. We can think about country assessments with respect to specific issues (some listed below) but also more broadly. For example, if you were tasked with getting up to speed on a country in 24 hours, how would you do it? All groups thought carefully about this point – how to get up to speed quickly – so treat the below as resources. Lots of stuff, so pick and choose what you want to look at now. Save the rest for this summer. AUSTRALIA

1. Chart Pack from Reserve Bank of Australia: Available at http://www.rba.gov.au/chart-pack/ and updated monthly. According to RBA: “The sets of graphs below summarize macroeconomic and financial market trends in Australia and provide some information about developments for our main trading partners. They are updated monthly. While the Reserve Bank of Australia does not make available the source data for the Chart Pack graphs, extensive statistical data are available on our website.”

2. CIA Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/as.html - the CIA Factbook is a good reference on overall country development ranging from history to economy.

3. OECD statistics: http://www.oecd-ilibrary.org/economics/country-statistical-profile-australia_20752288-table-aus - this table includes data for Australia on economy, education, energy, environment, foreign aid, health, information and communication, labor, migration, R&D, trade and society. The table is part of the key tables collection on country statistical profiles.

4. Doing Business In report: http://www.doingbusiness.org/data/exploreeconomies/australia/ This page summarizes Doing Business 2013 data for Australia. The first table lists the overall "Ease of Doing Business" rank (out of 185 economies) and the rankings by each topic. It also lists the economy's distance to frontier (DTF) measure. The rest of the tables summarize the key indicators for each topic and benchmark against regional and high-income economy (OECD) averages.

5. Trading data snapshots: http://www.tradingeconomics.com/australia/indicators - another good quick source for getting data on national statistics of the different countries including stock market performance, GDP, Labor, Prices (CPI, GDP deflator, export and import prices), monetary base, trade, government (Debt-to-GDP, budget data, spending data, credit rating), business (housing, industrial production, bankruptcies, capacity utilization), and consumer.

6. IMF Paper – Article IV Consultation: http://www.imf.org/external/np/sec/pn/2012/pn12127.htm. Concise overview on the web page, and detailed staff report at http://www.imf.org/external/pubs/ft/scr/2012/cr12305.pdf. The staff report’s November 2012 TOC includes the following chapters: Recent economic developments, outlook and risks, near-term challenge: keeping the economy on an even keel; Medium term fiscal policy, safeguarding financial sector stability, assessing external stability, facilitating structural change, staff appraisal. Note in general about Article IVs: “Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On

Syllabus (Final Version, with student-created assignments), 2 May 2013

return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:http://www.imf.org/external/np/sec/misc/qualifiers.htm.”

7. OECD report (Executive Summary only, pages 11-14): Attached – this is the annual report that traditionally OECD issues on the countries it covers.

8. Outlook report on Australian economy: http://www.russell.com/AU/_pdfs/market-reports/global-market-outlook/R_EVE_GlobalOutlook_Summary_V1F_WEB_1212.pdf – a short but to the point description on the headwinds the Australian economy faces going forward.

ARGENTINA 1) CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html

a. The CIA World Factbook is a good way to get up to speed with a general overview of Argentina. The site is updated weekly with facts and figures on the economy, government, energy, communications, transportation, military, and transnational issues. Additionally, it provides a general introduction and geographic frame of reference.

2) OECD Country Statistics: http://www.oecd-ilibrary.org/statistics/argentina a. The Organisation for Economic Cooperation and Development (OECD)Country Statistics site is a

good location to find any and every statistic on data for each country, ranging from economic to demographic and trade. There isn’t any set frequency, but pieces are published fairly periodically and consist of books, papers and statistics on countries around the world.

3) World Bank Country Data: http://data.worldbank.org/country/argentina a. The World Bank’s Data on Argentina site provides an overview of World Development Indicators

in the country, Projects & Operations, Finances, Surveys, and statistics related to Climate Change. The World Bank states that it “recognizes that transparency and accountability are essential to the development process and central to achieving the Bank’s mission to alleviate poverty. The Bank’s commitment to openness is also driven by a desire to foster public ownership, partnership and participation in development from a wide range of stakeholders.” The site is meant to give an idea of how the country stands in regards to these issues.

4) Banco Central de la Republica Argentina (Central Bank of Argentina): http://www.bcra.gov.ar/index_i.htm

a. The Central Bank of Argentina’s website provides the official monetary data for Argentina. The site appears to release data monthly on economic statistics. While the data is “official” per Argentine officials, there tends to be a discrepancy on such facts as inflation and there are differences in the stated exchange rate and that of the one on the black market.

5) International Monetary Fund (IMF): http://www.imf.org/external/country/arg/ a. Due to a dispute between the IMF and Argentina on the credibility of its published data,

information on Argentina is limited. However, the website is still a good resource for information about the Latin American region in general. Specifically, the World Economic Outlook (published periodically) provides an outlook on the Latin American region, including Argentina. In addition, the International Monetary Finance Committee provides periodic update on the region as well

Syllabus (Final Version, with student-created assignments), 2 May 2013

Course: Advanced Global Financial Markets Class# (Date): AdvGFM12 (May 2, 2013) Topic: Q&A with Warnock Marching Orders: Read the following BCA reports and be prepared to discuss whatever you’d like. “US Manufacturing Renaissance: Don’t Hold Your Breath” (opportunity to discuss energy and how it is or isn’t

transforming the US economy) “Unwinding Global Imbalances: A Progress Report” (update on many things we discussed this term: deleveraging

cycle, global imbalances, bubbles/overshooting) “Competitive Devaluation: Winners and Losers” ((update on many things we discussed this term: Japan, China,

Eurozone) April 2013 Geopolitical Strategy (Europe, Middle East, Washington; Politicization of Monetary Policy)