Prieur’s readings

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This post provides links to some thought-provoking articles I have read over the past few days that you may also find of interest.

• Paul McCulley (Pimco – Global Central Bank Focus): The shadow banking system and Hyman Minsky’s economic journey, May 2009.
As we look for answers about the current financial crisis, it’s clear that creative financing played a massive role in propelling the global financial system to hazy new heights – before leading the way into the depths of a systemic crisis. But how did financing get so creative? It didn’t happen within the confines of a regulated banking system, which submits to strict regulatory requirements in exchange for the safety of government backstopping. Instead, financing got so creative through the rise of a “shadow banking system,” which operated legally, yet almost completely outside the realm of bank regulation. The rise of this system drove one of the biggest lending booms in history, and collapsed into one of the most crushing financial crises we’ve ever seen.

• John Taylor (Financial Times): Exploding debt threatens America, May 26, 2009.
Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. The good news is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.

• Nouriel Roubini (Forbes): Ten risks to global growth, May 28, 2009.
An analysis of medium-term economic prospects.

• Andrew Marshall (Global Research): The Bilderberg Plan for 2009 – remaking the global political economy, May 26, 2009.

• Mike Allen & Eamon Javers (Politico): Timothy Geithner gains new strength, May 26, 2009.
After his hellish opening weeks, Treasury Secretary Timothy Geithner started inviting White House economic officials across the street to his conference room for hours-long working dinners that have helped get – and keep – the whole team on the same page.

• Martin Feldstein (Project Syndicate): Has the US recovery begun?, May 28, 2009.
Although the American economy is continuing to decline, it is no longer falling as fast as it was at the beginning of the year or in the weeks after the collapse of Lehman Brothers in September 2008. In that sense, it is reasonable to say that the worst of the downturn is now probably behind us.

• Ambrose Evans-Pritchard (Telegraph): Gold bugs at last have their perfect trinity, May 23, 2009.
China has doubled its bullion reserves and left us in no doubt that it will spend more of its $40 billion monthly surplus on hard assets rather than the toxic paper of Western democracies.

• Steve LeVine  (Business Week): China’s Yuan – a the next reserve currency? May 26, 2009.
Skeptics have dismissed Beijing’s talk of de-emphasizing the US dollar, but China is making moves that could soon lead to a convertible yuan.

• Ambrose Evans-Pritchard (Telegraph): China warns Federal Reserve over “printing money”, May 27, 2009.
China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed’s direct purchase of US Treasury bonds.

• Andy Xie (Caijing.com): Efficiency’s urgent cry for attention, May 25, 2009.
China’s economy has squeezed a lot of growth out of liquidity, exports and new infrastructure. It’s time to embrace efficiency.

• Economist: Beware the Beijing model, May 26, 2009.
Talk of a new, Chinese model of capitalism merits skepticism.

• Martin Wolf (Financial Times): Feeble domestic demand is a chronic European ailment, May 25, 2009.
Recovery in Europe is likely to be slow and painful. One reason is that Germany, the EU’s biggest economy, is heavily dependent on foreign spending. A fall in net exports will account for three-fifths of its 5.4 per cent economic shrinkage this year.

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1 comment to Prieur’s readings

  • Simon

    I found Ambrose Evans-Pritchard’s article very interesting. Paul Krugman is listed as an inflation bear. I am not sure where I lie in the inflation deflation spectrum. Recently I have become more of an inflation bull. But I also fully appreciate the deflation risk that lurks within our still highly leveraged world. Not all parts of the world are highly leveraged mind you. China is not that leveraged. Japan isn’t (I mean privately here). India probably isn’t and these are places where a lot of people live and are experiencing improved lifestyles. Japan’s deflation was very much confined to Japan.

    I’m interested in how precious metals will continue to perform and I think that a transition away from the $US as the worlds leading currency may be good for gold.

    The key points in favor of gold are

    Uncertainty about currency and solvency of banks

    Lack of a stable alternative to the $US

    High levels of savings in countries like China India Japan and the Gulf states. These countries have a tradition of gold ownership and may be happy to hold non-physical gold assets.

    I mean if you are fortunate enough to have cash what to do with it? Holding physical gold is an armageddon play which is not to say we won’t get there one day. But in the mean time with such uncertainty and a massive inverted head and shoulders on the weekly chart why not have gold shares or notes?

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