Law of easy money

A 300-year-old example of quantitative easing

“IF FIVE hundred millions of paper had been of such advantage, five hundred millions additional would be of still greater advantage.” So Charles Mackay, author of Extraordinary Popular Delusions and the Madness of Crowds, described the “quantitative easing” tactics of the French regent and his economic adviser, John Law, at the time of the Mississippi bubble in the early 18th century. The Mississippi scheme was a precursor of modern attempts to reflate the economy with unorthodox monetary policies. It is hard not to be struck by parallels with recent events.

Law was a brilliant mathematician who used his understanding of probability to help his gambling habit. Escaping from his native Scotland after killing a rival in a duel, he made friends with the Duke of Orleans, the regent of the young king Louis XV.

The finances of the French government were in a terrible mess. Louis XIV had spent much of his long reign fighting expensive wars. Tax collection was in the hands of various agents, who were more concerned with enriching themselves than the state. Not only was the monarchy struggling to pay the interest on its debt, there was also a credit crunch in the form of a shortage of the gold and silver coins needed to fund economic activity.
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An astonishing rebound

Asia’s emerging economies are leading the way out of recession; now they must make their recovery last

IT NEVER pays to underestimate the bounciness of Asia’s emerging economies. After the region’s financial crisis of 1997-98, and again after the dotcom bust in 2001, outsiders predicted a lengthy period on the floor—only for the tigers to spring back rapidly. Earlier this year it was argued that such export-dependent economies could not revive until customers in the rich world did. The West still looks weak, with many economies contracting in the second quarter, and even if America begins to grow in the second half of this year, consumer spending looks sickly. Yet Asian economies, increasingly decoupled from Western shopping habits, are growing fast.
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France, Germany Fend Off Recession

Fresh signs of a nascent economic recovery came from hard-hit Europe on Thursday, with Germany and France unexpectedly becoming the first major industrialized nations to officially pull out of the global recession.

Though their recoveries were modest by virtually any standard and may yet stall in the months ahead, the surprising bounce back to growth in Europe’s largest economies comes on the heels of steadily rising economic optimism across the globe.
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France and Germany return to growth

FRANKFURT, Germany — Germany and France on Thursday delivered a boost to hopes that the eurozone is clawing its way back from recession as the region’s largest members said their economies grew in the second quarter after shrinking for a year.

Robust consumer and public spending – buoyed by large government stimulus programmes – helped both economies grow 0.3 percent in April, May and June, according to data released by both countries’ statistical offices.

The trends surprised economists, who had been expecting both economies to contract again — by 0.3 percent – after German gross domestic product plummeted 3.5 percent and French GDP shrank by 1.3 percent in the first quarter.
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