A Remarkable Financial Moment [feedly]

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A Remarkable Financial Moment
// Economist's View

Larry Summers:

A Remarkable Financial Moment: The US 10 and 30 year interest rates today reached all time low levels of 1.32 percent and 2.10 percent. Record low 10 year interest rate were also registered in Germany, France, Switzerland and Australia. Notably Swiss 50 year interest rates are now for the first time negative. Rates out 15 years are negative in Germany and 9 years in France. ...

Remarkably the market does not now expect a full Fed tightening until early 2019. This is despite all the Fed speeches expressing optimism about the economy and a desire to normalize interest rates.

I believe that these developments all reflect a growing awareness of the importance of the secular stagnation risks that I have highlighted over the last several years. ...

Unfortunately markets have been much more aggressive in responding to events than policymakers. ... Having the right world view is essential if there is to be a chance of making the right decisions. Here are the necessary adjustments.

First..., neutral real interest rates are likely close to zero going forward. ...

Second, as counterintuitive as it is to central bankers who came of age when the inflation of the 1970s defined the central banking challenge, our problem today is insufficient inflation. ...

Third, in a world where interest rates over horizons of more than a generation are far lower than even pessimistic projections of growth, traditional thinking about debt sustainability needs to be discarded. ...Brad Delong and I set out in 2012 for expansionary fiscal policy to pay for itself are much more easily satisfied today than they were at that time.

Fourth, the traditional suite of structural policies to promote flexibility are not especially likely to be successful in the current environment... Indeed in the presence of chronic excess supply structural reform has the risk of spurring disinflation rather than the contributing to a necessary increase in inflation. There is in fact a case for strengthening entitlement benefits so as to promote current demand. ...

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Why Clinton’s New Tuition-Free Higher Ed Plan Matters [feedly]

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Why Clinton's New Tuition-Free Higher Ed Plan Matters
// Crooked Timber

The Clinton campaign made a major announcement today:

Democratic presidential candidate Hillary Clinton will pursue a debt-free college for all policy, including a proposal to eliminate the cost of college tuition for a significant portion of the public.

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Clinton's new proposals move her beyond previous statements that she would try to make college "as debt-free as possible" and toward making "debt-free college available to all."

Clinton is adding three features to her plan for higher education policy, called the "New College Compact." They include eliminating tuition at in-state public universities for families making under $125,000 by 2021 and restoring year-round Pell Grant funding so students can take summer classes to finish school quicker.

The plan isn't great. I think means-testing higher ed makes about as much sense as means-testing Social Security or elementary school (though, alas, we still do that in this country through local funding and property taxes). I would have preferred free higher ed for everyone.

That said, and assuming Clinton can get this plan through (a big assumption), this is still a big step forward. For three reasons.

First, lots of men and women—students and their families—will get this benefit, not in a far-off time, but soon. And make no mistake: whether you're going to CUNY, where annual tuition is a little over $6000, or Berkeley or Michigan, where in-state tuition is about $13,000, this will come as welcome relief to a lot of people.

Second, and more important for the long term, I've been saying forever that the biggest challenge facing contemporary liberalism is that, from the point of view of the average taxpayer, it has so little to offer. Imagine you're someone who lives in a house with the median household income of about $54,000 per year. You pay your taxes, but what do you concretely get for the taxes? Sure, I can point to the roads (which are often falling apart) or the schools (which are often not so good), or, down the line, to Social Security or Medicare (which, we're often told, aren't in great shape either, and in the case of Social Security, certainly can't fund a retirement). But it's hard to make the case to your average man or woman that taxes fund things that help you concretely and directly. Particularly when, at least going back to Mondale, the only message we've heard from Democrats on taxes is either: a) we'll cut them; or b) we'll increase them in order to cut the deficit and pay off the debt.

Way beyond anything between Clinton v. Sanders, this plan by Clinton is something that can, potentially, change the way people think about their taxes and what the state can do for them. It's a step toward a political and ideological realignment.

That said, there's this, too:

The new plan, announced by [Clinton's] campaign Wednesday, incorporates a major plank of Sen. Bernie Sanders' (I-Vt.) platform and is a direct result of the private meeting Clinton had with the Vermont senator in June, the campaign said.

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Clinton's embrace of one of the most popular parts of Sanders' platform comes as she is trying to get his core supporters — including many young people worried about college debt — to enthusiastically support her candidacy in November.

Sanders gained huge support among young voters by pushing for tuition-free public colleges nationwide, and Clinton now says she would do that for families making less than $125,000.

Which brings me to my third reason.

At moments like this, you really need to get beyond the personal politics a lot of DC and media people want to make all politics into. Despite the fact that they accuse Bernie supporters of being a cult, of worshipping an ancient socialist patriarch, they're the ones who often think of these electoral campaigns completely in terms of personality, of who's winning and who's losing. To my mind, this announcement today goes way beyond the Clinton/Sanders horserace or the Clinton/Trump race. If there is anyone to be celebrated here, it's the millions of people—particularly young people—who pushed so hard during this campaign, and who have been slowly changing American politics outside the electoral realm.

One of the biggest challenges facing democracy—as opposed to liberalism—and democratic ways of thinking and doing things, is the sense, among a lot of citizens, that political action, whether in the electoral realm or the streets, doesn't matter. That sense is not delusion; there's a lot of evidence to suggest that on some fundamentals, it doesn't matter, at least not yet. But you don't change that common sense by repeating it over and over to people. Sometimes, we on the left do that. We forget that when we do, we're not telling the average citizen anything she doesn't already know. We're merely repeating what she does know. And reinforcing her sense that there's really no point in even trying to do anything, whether at the voting booth or in the streets.

It's way too soon to say what I'm about to say, but I'll say it anyway: If this plan of Clinton's does come to pass—again, a big if—it could help, ever so slightly (I stress that ever so slightly), change our sense, if we claim this victory as our own (not as a beneficent handout of an elite neoliberal politician but as a response to real pressure from citizens, particularly younger citizens who have been active in so many social movements these last few years), it could help change our sense of where power lies. It could help more people see what the good activist and the smart organizer already sees: that if we could just possibly get our shit together, we might, sometimes, find power elsewhere. Not power in the abstract, but power to change the concrete terms and conditions of our daily lives.

So here's my new (really, hardly new at all, and actually not mine) political slogan, as we enter a season of (I hope) increasing, if ultimately finite, concessions from the neoliberal state: Take this, demand more, seize all.

Update (6:45 pm)

A hepful Vox piece reports on three other elements of the Clinton college plan that we should not be thrilled about.

What you need to remember—and I had forgotten—is that today's plan builds off the previous plans Clinton has announced. Those plans featured three elements, which, according to this article, will remain in play and will apply to the tuition-free plan:

First, the funding for the tuition-free plan will follow the Obamacare Medicaid expansion model, which—thanks to the Supreme Court—states can refuse to participate in. That's exactly what happened with Republican states. So even within the less than $125k range, this isn't guaranteed to be a universal benefit.

Second, students have to work ten hours a week to get the benefit. That seems like a huge boondoggle of free labor either to the university (which might wind up firing workers) or to local employers (which could do the same). Not to mention that the whole point of taxpayer-financed benefits like this is that you deserve them as a right of citizenship—and pay for them as a taxpayer—and not because you're earning them as a worker.

John Protevi pointed out to me that in her famous Daily News interview, Clinton gave us a sense of what she had in mind:

Okay, so you've got the states, you've got the institutions and you've got the families, and then students who want to take advantage of debt-free tuition have to agree to work 10 hours a week. It's work-study at the college or university, because a couple of public institutions — Arizona State University being a prime example — have lowered their costs by using students for a lot of the work. Yes, it's free. It's in effect in exchange for lower tuition. So I want that to be part of the deal.

And here is a nice primer on what that Arizona State program looks like in practice:

Education at Work (EAW) begins expansion outside Cincinnati, where it was founded, at Arizona State University in an innovative three-way partnership with worldwide online payments system company PayPal. Students working at the non-profit contact center will have the opportunity to earn up to $6,000 a year in GPA-based tax-free tuition assistance in addition to an hourly wage. The students will work as part-time employees in a fast-paced, collaborative contact center environment responding to social media and email inquiries.

Go PayPal!

Third, colleges and universities have to "work to lower the cost of actually providing the education — by, for instance, experimenting with technology to lower the cost of administration." A link in the piece takes us to an article that elaborates thus:

It's not yet clear what colleges would be required to do about costs in order to participate in the grants, but the adviser mentioned keeping spending on administration in check and using technology to lower the cost of education — for example, making it easier for some students to fulfill some requirements online. (Sebastian Thrun, the founder of Udacity, a provider of free online courses, was one of the advisers on Clinton's plan, according to the campaign.)

The neoliberal state giveth. And the neoliberal taketh—and taketh.

 

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Ohio the Latest State Proposing Barriers in Medicaid [feedly]

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Ohio the Latest State Proposing Barriers in Medicaid
// Center on Budget: Comprehensive News Feed

Ohio's request to the federal government to change how most adult Medicaid beneficiaries get their health coverage would — as the state admits — cause hundreds of thousands of people to lose that coverage.  Similar to proposals in Kentucky and Arizona, the

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JOseph Stiglitz: From Brexit to the Future [feedly]

From Brexit to the Future

Joseph Stiglitz

https://www.project-syndicate.org/commentary/brexit-future-of-advanced-economies-by-joseph-e--stiglitz-2016-07

NEW YORK – Digesting the full implications of the United Kingdom's "Brexit" referendum will take Britain, Europe, and the world a long time. The most profound consequences will, of course, depend on the European Union's response to the UK's withdrawal. Most people initially assumed that the EU would not "cut off its nose to spite its face": after all, an amicable divorce seems to be in everyone's interest. But the divorce – as many do – could become messy.

The benefits of trade and economic integration between the UK and EU are mutual, and if the EU took seriously its belief that closer economic integration is better, its leaders would seek to ensure the closest ties possible under the circumstances. But Jean-Claude Juncker, the architect of Luxembourg's massive corporate tax avoidance schemes and now President of the European Commission, is taking a hard line: "Out means out," he says.


That kneejerk reaction is perhaps understandable, given that Juncker may be remembered as the person who presided over the EU's initial stage of dissolution. He argues that, to deter other countries from leaving, the EU must be uncompromising, offering the UK little more than what it is guaranteed under World Trade Organization agreements.

In other words, Europe is not to be held together by its benefits, which far exceed the costs. Economic prosperity, the sense of solidarity, and the pride of being a European are not enough, according to Juncker. No, Europe is to be held together by threats, intimidation, and fear.

That position ignores a lesson seen in both the Brexit vote and America's Republican Party primary: large portions of the population have not been doing well. The neoliberal agenda of the last four decades may have been good for the top 1%, but not for the rest. I had long predicted that this stagnation would eventually have political consequences. That day is now upon us.

On both sides of the Atlantic, citizens are seizing upon trade agreements as a source of their woes. While this is an over-simplification, it is understandable. Today's trade agreements are negotiated in secret, with corporate interests well represented, but ordinary citizens or workers completely shut out. Not surprisingly, the results have been one-sided: workers' bargaining position has been weakened further, compounding the effects of legislation undermining unions and employees' rights.

While trade agreements played a role in creating this inequality, much else contributed to tilting the political balance toward capital. Intellectual property rules, for example, have increased pharmaceutical companies' power to raise prices. But any increase in corporations' market power is de facto a lowering of real wages – an increase in the inequality that has become a hallmark of most advanced countries today.

Across many sectors, industrial concentration is increasing – and so is market power. The effects of stagnant and declining real wages have combined with those of austerity, threatening cutbacks in public services upon which so many middle- and low-income workers depend.

The resulting economic uncertainty for workers, when combined with migration, created a toxic brew. Many refugees are victims of war and oppression to which the West contributed. Providing help is a moral responsibility of all, but especially of the ex-colonial powers.

And yet, while many might deny it, an increase in the supply of low-skill labor leads – so long as there are normal downward-sloping demand curves – to lower equilibrium wages. And when wages can't or won't be lowered, unemployment increases. This is of most concern in countries where economic mismanagement has already led to a high level of overall unemployment. Europe, especially the eurozone, has been badly mismanaged in recent decades, to the point that its average unemployment is in double digits.

Free migration within Europe means that countries that have done a better job at reducing unemployment will predictably end up with more than their fair share of refugees. Workers in these countries bear the cost in depressed wages and higher unemployment, while employers benefit from cheaper labor. The burden of refugees, no surprise, falls on those least able to bear it.

Of course, there is much talk about the net benefits of inward migration. For a country providing a low level of guaranteed benefits – social protection, education, health care, and so forth – to all citizens, that may be the case. But for countries that provide a decent social safety net, the opposite is true.

The result of all this downward pressure on wages and cutbacks in public services has been the evisceration of the middle class, with similar consequences on both sides of the Atlantic. Middle- and working-class households haven't received the benefits of economic growth. They understand that banks had caused the 2008 crisis; but then they saw billions going to save the banks, and trivial amounts to save their homes and jobs. With median real (inflation-adjusted) income for a full-time male worker in the US lower than it was four decades ago, an angry electorate should come as no surprise.

Politicians who promised change, moreover, didn't deliver what was expected. Ordinary citizens knew that the system was unfair, but they came to see it as even more rigged than they had imagined, losing what little trust they had left in establishment politicians' capacity or will to correct it. That, too, is understandable: the new politicians shared the outlook of those who had promised that globalization would benefit all.

But voting in anger does not solve problems, and it may bring about a political and economic situation that is even worse. The same is true of responding to a vote in anger.


There are alternatives to the current neoliberal arrangements that can create shared prosperity, just as there are alternatives – like US President Barack Obama's proposed Transatlantic Trade and Investment Partnership deal with the EU – that would cause much more harm. The challenge today is to learn from the past, in order to embrace the former and avert the latter.Letting bygones be bygones is a basic principle in economics. On both sides of the English Channel, politics should now be directed at understanding how, in a democracy, the political establishment could have done so little to address the concerns of so many citizens. Every EU government must now regard improving ordinary citizens' wellbeing as its primary goal. More neoliberal ideology won't help. And we should stop confusing ends with means: for example, free trade, if well managed, might bring greater shared prosperity; but if it is not well managed, it will lower the living standards of many – possibly a majority – of citizens.
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U.S. Democracy Stuck in an ''Inequality Trap'' [feedly]

U.S. Democracy Stuck in an ''Inequality Trap''

By Kavya Vaghul

http://economistsview.typepad.com/economistsview/2016/07/us-democracy-stuck-in-an-inequality-trap.html

Economic inequality in the United States appears to be trapped in a vicious cycle, as shown by several new working papers published today by the Washington Center for Equitable Growth alongside other recent research. Non-white, lower-income Americans are far less likely to vote than wealthier white citizens, and much of this participation gap is due to discriminatory practices at the ballot box. As a result, the political interests of lower-income minorities are not well-represented, and these interests are vastly different than those of their voting counterparts. This in turn means that policy decisions are made that exacerbate economic inequality and the inequalities that limit citizens' voices in the first place.

To figure out how to break this cycle, social scientists need to understand what is happening at various points along the political continuum. So, let's first examine new and existing research on the vote.

Voting inequalities are entrenched in existing inequalities

The disgraceful history of voter disenfranchisement is no secret. For more than a century, African Americans (and other marginalized groups) were restricted or evendisqualified from voting. Today these practices are formally outlawed, yet we still see patterns in voter turnout that indicate that voting discrimination is alive and well. When looking across race and ethnicity, for example, data demonstrates that non-voters are predominantly African American, Hispanic, Asian, and other ethnic minorities. Non-voters also tend to be younger, less educated, and less affluent than their voting counterparts.

These trends are, in part, related to deep-seated institutional marginalization through practices including ballot access restriction—long lines, voter identification laws, andchanges to polling sites—and voting dilution. But individual behaviors may play an important a role in generating voter turnout disparities, too. Recent research shows that attitudes toward civic engagement may be developed long before a citizen reaches voting age.

According to a new working paper by Sarah Bruch from the University of Iowa and Joe Soss from the University of Minnesota, enduring negative peer-to-peer relationships and authoritative interactions between 7th through 12th grades lowers the odds of civic engagement and electoral participation later in life, and also reduces future trust in government. Non-white students are disproportionately more likely than others to endure these negative interactions, suggesting that school environments may not only add to existing social inequalities but also contribute to inequalities in civic engagement and democratic participation.

Without a vote, the voice of diversity goes unheard

The absence of equal political participation translates into unequal policy voice. If wealthier white citizens had similar policy preferences to their lower-income, minority counterparts, then the participation gap would not necessarily be so troubling. Yet evidence suggests that voters' policy preferences in the United States continue to vary sharply by race and income in ways that imply that a functional democracy needs to give equal voice to these various groups in order to be truly representative.

Just how different are these preferences? A recent report from Demos unpacks how net support for policy changes based on a variety of demographic characteristics. Using 2012 election data from the American National Election Study, Demos finds large discrepancies between the public opinions of white voters and non-white non-voters and between rich voters and poor non-voters. White voters supported more spending on the poor by a margin of 5 percentage points, for example, while non-white non-voters and poor non-voters supported these same measures by a margin of 50 percentage points. On the question about whether the government should reduce inequality, there were diametric oppositions between the two groups, respectively.

Perhaps unsurprisingly, the policy preferences of non-white, lower-income non-voters—economic policies that address on poverty and inequality—are already seldom the focus of congressional attention. Analyzing mentions of terms such as economic growth, inflation, poverty, inequality, deficit, and unemployment in the Congressional Record between 1995 and 2012, researchers Peter Enns at Cornell University, Nathan Kelly and Jana Morgan at the University of Tennessee, and Christopher Witko at the University of South Carolina find in their new working paper that Congress prioritizes the interests of the upper-class largely because they dole out political resources in the form of the all-important political campaign contributions necessary for re-election.

The four political scientists note that economic inequality increased during the period of their study while over the same time period congressional "nonresponse" to inequality or redistribution also increased. In fact, the term inequality was mentioned only 80 times in a year at its highest point compared to 30,000 mentions of "deficit," an issue the authors note is of much greater concern to the wealthy than to the working-class.

Without a voice represented through the vote, the likelihood that issues of economic inequality are elevated in this skewed congressional climate is slim.

When the voice goes unheard, the policies that could change that go unheard, too

With Congress evidently uninterested in issues of economic inequality, it should come as no shock that the actual policies that have a tangible impact on minority and low-income voters struggle to pass. Take the minimum wage. William Franko of Auburn University and his co-authors Kelly and Witko find that changes in election rules at the state level, particularly those that limit the voice of already-marginalized voters, are associated with economic inequality. Specifically, the researchers observe that high levels of class-biases in voting make states less likely to pass minimum wage increases, and as these class-skews in voter turnout grow, states become less prone to pursuing other policies that could reduce inequality.

The same pattern is apparent when it comes to the issue of taxes. Christopher Faricy of Syracuse University finds in his new working paper that increases in public conservatism—ideologies that often don't represent the voice of minorities—correlates with a reduction in tax progressivity. In other words, there are lower levels of social spending and lower taxes on the rich.

Without policies such as the minimum wage or progressive taxation put into practice, the tools we have to combat the economic inequalities that disproportionately burden minorities and other vulnerable groups are limited.

How do we break the inequality trap?

These recent findings suggest that inequalities seem to beget inequality writ large. As University of Oregon economist and Equitable Growth grantee John Voorheis, along with Princeton University's Nolan McCarty and Georgetown University's Boris Shor, show in their paper, increasing income inequality in the United States is associated with even more political polarization and gridlock, which, in turn, makes addressing inequality through public policy more challenging, too. As Faricy puts it, we're witnessing an "inequality trap."

So, how do we break the cycle and escape the trap? That's a complicated question with an even more complex answer.

Expanding the franchise might be a good step. Through measures such as automatic registration, weekend voting, voting by post, reduced I.D. requirements, increased language accessibility at polling sites, and same-day registration, we can reduce the barriers to accessing the polls. Early interventions programs in schools may also play a role in changing the culture around disparate civic participation. But an equally important step, as Nick Carnes of Duke University points out in his new working paper, is reducing political gatekeeper biases and recruiting more working-class and minority candidates to be on the ballot in the first place.

In conjunction, all these efforts may work to ensure more people can voice their vote and vote their voice for the people and policies that help promote equity.

 

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Dean Baker: Bill Gates to Fund Huge XPrize to End Austerity in Europe

Bill Gates to Fund Huge XPrize to End Austerity in Europe

 Dean Baker

Truthout, July 4, 2016

See article on original site

Unfortunately, that's not true. After all, we don't expect our multi-billionaire types to be that innovative. But if Gates really did want to help the world, it's hard to envision a better use of $1 billion or so of his money than to post this sort of prize, especially at a time when needless austerity is threatening the survival of the European Union.

In case folks haven't been following it, the basic story is that the insistence on balanced budgets or low deficits in Europe is costing the continent over $1 trillion a year in lost output (over $2,000 per person). Rather than spending money on improving infrastructure, education, health care and expanding the use of clean energy, the eurozone countries have been cutting back spending with the idea of getting their budgets closer to balance and lowering their debt-to-GDP ratios. These policies have also prevented millions of people across the continent from getting jobs.

The pain being experienced by workers across Europe is undoubtedly a factor in their hostility to immigrants and their turn to right-wing populist politicians. The deterioration of public services, like national health care systems due to needless budget cuts, has played an important role in this backlash as well. It is easy for right-wing politicians to blame immigrants for the deterioration in these services, even if the real problem is that said politicians' governments have reduced spending levels. After all, none of the mainstream politicians are making this point.

The austerity is altogether unnecessary because the evidence indicates that European governments could easily increase spending without hitting any constraints. The European governments are in the same situation as Bill Gates when he goes out to dinner: He can safely order anything on the menu without worrying about how he will pay the check. Similarly, in the current economy, European governments can increase spending to meet important needs and employ workers.

There are several measures that tell us European governments are not up against any real constraints. The most basic indication of a government running up against the limit of its ability to borrow is that it faces high interest rates on its long-term debt. The interest rate on government debt is currently extremely low across Europe.

The interest rate on 10-year treasury bonds issued by the French government is just 0.2 percent. The interest rate on Italian bonds is 1.1 percent. The interest rate on German bonds is -0.1 percent. That's right; you have to pay the German government money if you want to lend to them for 10 years. By comparison, in the United States in the late 1990s, when the country was running budget surpluses, the interest rate on 10-year treasury bonds was in the 5-6 percent range.

The other major factor to assess whether a country is running up against limits is its inflation rate. If an economy is overheating due to excessive government spending or any other cause, we would expect to see the inflation rate rising. We see the exact opposite across Europe, with the inflation rate remaining stubbornly close to zero in spite of the efforts of the European Central Bank to raise it towards its 2.0 percent target.

So if there are many great things that can be done with more government spending -- in addition to putting people to work, and low interest rates are an indication that the financial markets are begging governments to borrow money -- and low inflation means the economy doesn't face any constraints, what's the problem? Here's where Bill Gates' XPrize comes in.

The problem is that many people in leadership positions, especially those from Germany, cling to folk wisdom handed down to them from their parents or grandparents. They are told the story of the hyperinflation in Weimar Germany in 1920s. These leaders seem to hold the view that if we relax budget restrictions, even in a period of economic weakness like the present, we will soon be again confronting Weimar-type hyperinflation.

Of course, there is no logic to this position. There are many instances of governments boosting demand with deficit spending. Outbreaks of hyperinflation, especially in wealthy countries, are extremely rare. It would take a long period of reckless spending to push inflation to the point where it poses a serious problem for the European economy.

But even though there is no logic to this German view, it continues to be the basis for economic policy in the eurozone. The XPrize should go to whoever can find a way to explain real world economics to the Germans and their allies so that the eurozone can adopt policies that will get them to full employment and address unmet needs.

Such a change in economic policy would have had enormously beneficial consequences for humankind. In the wake of the Brexit vote, we may need an XPrize winner to keep the European Union alive., 

John Case

Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

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Brexit’s Threat to Global Growth [feedly]

Brexit's Threat to Global Growth
http://blogs.cfr.org/kahn/2016/06/28/brexits-threat-to-global-growth/

Thursday's Brexit vote wasn't a "Lehman moment", as some have feared. Instead, it was a growth moment. And that may be the greater threat. If policymakers respond effectively, the benefits could be substantial: a stronger global economy, and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion.

In the immediate aftermath of Thursday's vote, there were significant concerns that Brexit would generate a market reaction similar to what we saw following the fall of Lehman Brothers in August 2008. Market moves in the immediate aftermath of the vote wiped around $3 trillion off of global equity markets, mostly in the industrial world. Indeed, foreign exchange markets (and some equity markets) saw larger moves than after Lehman's collapse, before finding a degree of stability today. Yet, by all accounts, markets moved smoothly and cleared, there were few reports of payment and settlement issues, and little evidence of financial distress affecting counterparties. No doubt, news may emerge in coming days of large loses taken by some over-leveraged investors, and periods of intense volatility are more likely than not. So we should see today's bounce as a temporary calm, not the end of the storm. But, if we define a Lehman moment as a comprehensive breakdown in trust in markets, a collapse in creditworthiness and confidence that cascades through financial markets as we saw in 2008, then Brexit is a crisis averted.

Central banks deserve a great deal of credit on this score.  According to reports, the major central banks, led by the Bank of England, had been war-gaming a Brexit vote for several weeks, talking to market participants, and stress testing banks and markets. BoE head Mark Carney had his version of 'whatever it takes' remarks early on Friday, and provided ample liquidity to markets (in both pounds and sterling).  The Federal Reserve, European Central Bank, and other central banks made statements of support.

The broader concern for markets, and for policymakers, is growth. For the United Kingdom, which before the vote was expected to grow on the order of 2 percent, the shock will be severe, perhaps on the order of 2-3 percent over the next 18 months. Some market analysts are predicting an outright recession given the substantial political and economic uncertainty that has been created and its likely effect on investment and consumer demand. The exchange rate depreciation will over time provide a powerful offsetting boost, as will expected rate cuts from the Bank of England, but will take time to be felt. First and foremost, this is a UK shock.

The more difficult question is the extent of contagion to the rest of the world. The sharp rise in the yen has intensified concerns about Japanese growth, and put pressure both on the Bank of Japan and the government to introduce additional stimulative measures. But looking beyond the immediate cyclical considerations, Europe poses the more significant concern, given the weak state of the region's economy (and a population increasingly frustrated with their economic prospects). As in the United Kingdom, uncertainty about post-Brexit relations is likely to weigh powerfully on investment. Relatedly, it is not surprising that European bank stocks fell sharply after the vote, given a continental banking system struggling with the legacy of the crisis and weak profitability.  Lower interest rates will not help on that latter score.  The ECB can ensure adequate liquidity to troubled banks, but can't make them lend. If Europe wants above-trend growth in this environment, fiscal policy will need to do more. My colleague Sebastian Mallaby has asensible set of recommendations, starting with a German tax cut, but his proposals seem politically quite challenging. Failure to act may not lead to an immediate economic crisis, but a weaker European economy makes the politics of preserving the European Union all the more treacherous.

The dog that hasn't yet barked is the emerging markets, which have held up well in recent days.  In part, this reflects that commodity prices and Chinese growth, the two most important drivers of EM prospects, have strengthened in recent months and, at least compared to the start of the year, there was a buffer to absorb this most recent shock.  Also, many emerging market investors pulled back on risk before the vote.  Tax measures in some countries (e.g., South Korea and Indonesia) have boosted confidence. Perhaps most importantly, the decline in interest rates in the United States, and the associated decline in expectations that the Federal Reserve would hike rates, matters a great deal for these markets. Still, if doubts about any of these supports were to arise, particularly Chinese growth, then a European regional shock could become global quickly.

Finally, in the United States, most analysts (and the market more generally) now expect the Fed to delay a tightening till the end of the year, if not cut interest rates. The prospect of a significant strengthening of the dollar will cause a drag on growth, but given normal lags the brunt of any dollar move will not be felt on the economy till 2017. Unfortunately, the political consequences of a dollar spike on the election campaign is far more uncertain, and potentially more immediate. Those who believe that the populist anger we saw in the UK will be mirrored in the U.S. elections will see opportunity here.  This may be the most worrisome source of contagion from Brexit.

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