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The Dow Jones and FTSE 100 reached record levels on Friday. The Dow Jones is just shy of 20,000 - see FT video below. At the start of each year, pundits  offer up their predictions for the year ahead. The consensus view seems to be that the US and UK markets are probably overvalued and that by the start of 2018, the Dow and FTSE will be at +/- 5%. from their current levels. However, we have no idea what 2017 is going to bring! Two things will have a major bearing on stock markets in 2017 - politics (Trump, Russia, euro, the French election, Turkey etc) and central bank decisions regarding interest rates. It might be a bumpy year for markets.

2016 has been a year of surprises. Who could have predicted the events which happened over the course of the year! In terms of the economic and financial system, here is my top 10 major events. Many of them are related and some are less serious than others! 1. The election of Donald Trump 2. Brexit 3. The strong US dollar 4. The Italian banking woes 5. The European Commission's Apple tax ruling 6. The Celtic Tiger on Angel Dust - the 26% growth in Ireland's GDP ! 7. The Bank of England reducing interest rates to 0.25% 8. Economists being dismissed in a post-truth and anti-expert world 9. 720% inflation in Venezuela 10. Demonetisation of 500 and 1,000 rupee notes in India No doubt many will disagree with this list, and I possibly have forgotten some other key events, but these 10 grabbed my attention. Anyhow, I wish all my blog readers a merry Christmas and every blessing for 2017! Below is my favourite Christmas economics song - Deck the Halls with Macro Follies.

Economics played a major role in the victory of Donald Trump. Rising income and wealth inequality has meant that median incomes in real terms in the U.S. have been stagnant for four decades and those in the middle income deciles of the income distribution have been squeezed. The causes of this inequality have been blamed on global trade agreements, immigration, and off-shoring.  There has also been a hollowing out effect due to technological change – routine jobs such as bank clerks have been computerised – which has had a negative effect on middle class wages. Trump’s constituency is largely comprised of this squeezed middle. The big question about Trump’s economic policy is whether he will stay true to his constituency. If he does, we can expect the rolling back of trade deals, the introduction of tariffs, trade wars with China, and limits on immigration. However, before the world loses sleep over this, we need to remember that Trump is a businessman and his outlandish suggestion...

History plays a very important role in society. It connects us to our ancestors and where we have come from. History also plays a very important role in helping us navigate the present and future. History helps us understand economics, national  politics, and geopolitics. Political and business leaders need a thorough and rounded education in history. But it appears that they are not getting it. Niall  Ferguson in the provocative video below explains why this is the case. In effect, he claims that university history departments are in the process of making themselves irrelevant because political, social and economic history are being squeezed out of the curriculum by anachronistic and politically correct history courses.      

Election day has thankfully arrived and the months of hot air will hopefully come to an end. The U.S. Presidential race has been one of the most divisive and vitriolic campaigns  ever. The rise of Trump has been very interesting to say the least. Here is a populist from outside the political establishment, who has a large following among those left behind by globalisation and deindustrialisation. The political elite in the UK underestimated the strength of feeling among those left behind by globalisation and we got Brexit. We should not underestimate Trump and the constituency he represents. Trump's personality flaws should be enough to mean that he should  have no chance of winning, but such is the strength of anti-globalisation sentiment in the US that Trump, with his policies on immigration, trade and the Wall, will garner a substantial share of votes. Even if Hillary Clinton wins, the U.S. needs to implement policies that alleviate the pain felt by those left behind by glo...

Along with Christopher Coyle and Gareth Campbell , I've recently had a paper published in the Journal of Financial Stability entitled This Time is Different: Causes and Consequences of British Banking Instability over the Long Run . In this paper, we use bank share prices to measure British banking stability over two centuries. We find that over the long run interest rates, inflation, lending growth and equity prices are leading indicators of instability and that there is a long-run relationship between UK bank instability and the credit-risk premium. This paper is an extension of my Banking in Crisis book, where I look at the institutional and political causes of banking instability rather than their macroeconomic causes and consequences.

My former PhD student Will Quinn has a new QUCEH working paper entitled Squeezing the Bears: Cornering Risk and Limits on Arbitrage during the British Bicycle Mania . In this paper, Will argues that the risk of being cornered effectively resulted in constraints on short selling during during the British Bicycle Mania of the mid-1890s. These constraints on short selling made it very difficult for traders to correct overvalued shares in bicycle companies. Will's paper is one of the first to look at constraints on short selling during historical financial bubbles.