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- Health care bill: check. For some, it is a landmark in reform that aims to provide to millions of Americas health coverage of the kind the rest of the rich world takes for granted; for others, it is “one of the most offensive pieces of social engineering legislation in the history of the United States.” Potato, potahto.

- Last week, political uncertainty grew in Latvia after a member of the ruling coalition pulled out of government. This leaves the current government in a minority position while it attempts to impose reform measures to comply with EU/IMF assistance. The good news: the IMF says it intends to carry on working with the current government and talks are set to begin for another party to join the government, returning it to majority status. Given the small Baltic country's serious economic woes (and the fact that 90% of their debt is denominated in foreign currency), maintaining EU/IMF assistance is going to be essential in containing the damage.

- Facing rising inflation, India is beginning to raise rates again. The markets dropped a bit, perhaps surprised at timing but not the outcome of the decision. Update: FT Alphaville ponders whether this is a "dry run" for China's expected monetary tightening (but concludes probably not).

- According to El Nacional, purchasing power in Chavez' Venezuela has fallen 162%. That's a lot. Some perspective: "So if, pre-Chavez, you could buy 100 potatoes, you can now only afford 62 anti-potatoes."
Wait, disregard: "Math" suggests that it has only fallen by 22%.

- China's looming property bubble: the opening anecdote about a cabbie-turned-real estate broker reminds me of a few of the stories we heard out of Thailand before their economy bottomed out in 1997. It is only an anecdote, but there are worrying numbers to back it up. China's careful tighting of banks' reserve requirements and mortgage regulations since the beginning of the year also suggest they're paying very close attention - investors seem to think more monetary tightening is on the way.

As a side note, you can be sure that China's decisions regarding the valuation of its currency will have everything to do with their delicate internal economic balancing act, and very little to do with all the noise foreign governments are making.

- The End of An Era: Dani Rodrik believes that the IMF's February policy note - which acknowledged the occasional usefulness of capital controls - signals a huge shift in global economic orthodoxy. I'm not so sure it's as momentous as that, and it's unfortunate that Dani-boy is plugging a re-hash of the Tobin Tax. But I like Dani's suggestion that the IMF, now liberated from denial, can explore more closely when and how capital controls might prove useful.

This is important, because most capital controls aren't usually very good at doing their job. They are certainly no substitute for strong economic policymaking. But sometimes strong policy is not enough: for countries that are currently importing inflation from the low-interest rate economies (see Brazil, and Taiwan, and Scandinavia, and... and...) controls might be required to help slow the capital inflows before they become de-stabilizing. Brazil, for example, has already moved in this direction.

- Reinforcing pre-conceived notions alert!: higher cigarette prices in developing countries will probably reduce smoking. This abstract amuses me both for its inpenetrable language and in the number of times it uses the word "estimate." What is probably absent from this paper is any recognition of the underlying psychological appeal of smoking or the black-market side effects of raising prices on smokes. But hey, they're just economists right?

- Alternative health-care bills (The Onion).

The FT's profile this weekend of Jim O'Neill, the Goldman Sachs economist who coined the now ubiquitous acronym 'BRICS,' got me thinking about one of my main objectives for IPE Journal: a dedicated focus on the 'rise of the rest.' In looking back over the history of my posts, I realized that the financial crisis, perhaps inevitably, distracted me from this emphasis as my coverage became far more US-centric than I anticipated or desired. That is partly a reflection of the US' role in the crisis and the overwhelming media coverage of the US financial sector over the past year, partly my own engrained anglo-saxon bias in choice of literature and media outlets, and partly a recognition that the majority of our readers are in fact based in North America.

But the pace with which countries like China, Brazil and Indonesia have emerged from the Great Recession has crystalized the importance of the emerging economies to not just my own worldview, but I suspect those of our readers as well. So the following links represent a shift back to the emerging markets and issues that are likely to play a defining role in the years ahead. That is not to say my coverage of US banks or Gordon Brown will cease entirely, but expect a much smaller role for Lord Mandy in the months ahead. This is, after all, a blog on International Political Economy. But I do love Mandelson.

-Via Free Exchange, The Economist looks at a McKinsey study on deleveraging that partly demonstrates why the big emerging markets have emerged far quicker from the crisis than the major economies (Russia aside). If you follow the links to the actual article, I found it interesting that when viewed through the prism of crises, countries like the US and Spain currently look a lot like emerging markets have historically in the aftermath of such episodes.

-China finally takes its foot off the gas by raising reserve requirements on lenders and reimposing a sales tax on certain home sales, fearing that the economy is overheating (asset bubbles and inflation). Conventional wisdom six months ago held that China was likely to allow a gradual depreciation of the renminbi to export its way out of the economic slowdown. Six months later, is a gradual appreciation more likely in 2010?

-A constitutional crisis looms in Nigeria, threatening a recovery in oil output and social/political stability.

-Chile continues the resurgence of the right in the Americas. With Venezuela plunging quite literally into darkness and (hyper)inflation, the 'Bolivarian Revolution' that swept the region looks less-than-promising ten years on.

-Finally, and contrary to the first link, the future may be bright for the emerging economies, but are investors touched by a bit of irrational enthusiasm at the moment?

Venezuela has taken the "war on inflation" to a new level (via DeLong):

"Hugo Chávez, Venezuela’s president, on Sunday threatened to deploy troops and expropriate businesses that increase their prices following a steep devaluation of the currency on Friday.... Go ahead and speculate if you want, but we will take your business away and give it to the workers, to the people,” he said, stating there was no reason for businesses to raise prices."

Hmm, expropriation by the government for the good of the people.... Maintaining that level of doublespeak must be exhausting. More likely, this money will be used by the government to pay back foreign creditors.

I gather that Venezuela's currency had been overvalued for quite some time, so this is a good news for Venezuela's revenues from oil exports, on which it relies for about 30% of GDP. That very same GDP contracted by about 3% last year.

Unfortunately for regular Venezuelans, this means that their personal savings have been devalued along with the currency, and those lovely imported DVD players are going to be more expensive. But that's okay! because you can't use a DVD player if you don't have any electricity!

US President Obama will reportedly nominate Fed chief Bernanke to a second term this week, ending intense speculation over the reappointment.

Bernanke still has to gain the approval of a not-so-friendly Congress, but after the obligatory grandstanding that will undoubtedly come.

This is the right choice in my opinion; I've often expressed here my admiration for the Fed's response to the crisis. But Bernanke's second term will be anything but a victory lap following his central role in preventing another depression. The challenges he will face in unwinding the Fed's extraordinary response to the crisis, exercising some measure of systemic oversight, and defending monetary policy autonomy may be no less difficult than the challenges his first term brought.

No explanation needed:

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Really, Faber? "Close" to Zimbabwe's gains? Really?

Now that the Bank of England has followed the Fed and embarked on "quantitative easing", readers may be asking themselves: what exactly does that mean?

Via FT Alphaville, the Telegraph provides a handy overview in "Printing money: an easy guide to quantitative easing."

UPDATE: The FT had a handy graphic/demonstration as well last month. You can find it here.

Does it matter if an already worthless currency is abandoned?

In August we pointed out that summertime worries over inflation were probably overstated. Since then, a collapse in commodity markets and consumer spending has vindicated this view - so much so that the new worry is deflation. Deflation is by most accounts worse than inflation because of the difficulty in reversing the trend. First, a backgrounder:

Deflation is "A general decline in prices, often caused by a reduction in the supply of money or credit.... Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, [central banks] can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation."

The trouble is, central banks have been attempting to increase the money supply by lowering interest rates with less-than-stellar success. Besides, there are inherent limits to monetary policy - limits which seem to be approaching quickly.

So what to do? John Kemp argues forcefully that the best way to deal with deflation is to stop trying to fix it. Que? Based on his reading of previous depressions, deflation is the symptom of a severe decline in the business cycle, not the cause. The full article is very interesting (so is this one), but the conclusion reads as follows:

Rather than worrying about a modest decline in the price level, policy needs to focus on guaranteeing households and businesses against the worst aspects of the downturn to minimize the decline in spending and investment. Policies that create demand and jobs, while limiting foreclosures and bankruptcies, rather than fight the deflation chimera or worry about falling asset values are now the urgent priority.

That means fiscal stimulus! But rather than rely upon the government for everything, Dr. Boli recommends that consumers also do their part (via Megan McArdle):