JPMorgan Solves 7 Big Puzzles About The Global Economy

europe puzzle france

Photo: AP/Daniel Olchoa de Olza

JPMorgan’s Jan Loeys and others are out with a cool note looking at “seven puzzles” regarding the global economy.In each case, they lay out a question, and then give their best stab at an answer.

Here’s our condenses/summarized version of each one:

  • Why haven’t Greece or Germany left the Euro yet? Basically, the monetary union was always the first step to full-on political union. Leaving the Euro would be a return to the dark days of a divided Europe.
  • Why has the Euro currency not collapsed? The region has no external trade deficit, and funding concerns have led to Euro trade repatriations.
  • Why are high-grade corporate credit spreads still so high? They’re being distorted a bit by financials, which are now permanently seen as riskier in the post-Lehman world.
  • Why do investors love yieldless Treasuries? Basically, there’s still a big appetite for risk-less appetites. Also: Financial repression.
  • Why is there no deflation, given large global output gaps? The output gaps may be overstated. Central banks are doing a good job keeping inflation expectations high.
  • Why have commodity prices soared despite the mediocre post-crisis recovery? Because commodity project financing evaporated during the crisis, output has been constrained.
  • Why do Japanese corporates keep buying Japanese Government Bonds, despite sky high government debt? Domestic financial repression, as well as high real yields, given ongoing deflation.

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