Prieur’s readings (July 13, 2009)

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This post provides links to a number of interesting articles I have read over the past few days (while touring through Switzerland) that you may also enjoy.

• Samuel Brittan (Financial Times): A new guide for the perplexed, July 10, 2009.
Attempts to make sense of the financial crisis often lead to even more confusion, writes Samuel Brittan. Here is an attempt to outline the main issues.

• Beat Balzli and Michaela Schiessl (Spiegel): Global banking economist warned of coming crisis, July 8, 2009.
William White predicted the approaching financial crisis years before 2007’s subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy.

• Janet Morrissey (Time): Advice from an economist who saw 1929, July 9, 2009.
The Obama Administration should stop bailing out corporate disasters and abandon plans to move health care onto the backs of taxpayers. Tough talk from Anna Schwartz, a financial sage who has seen it all, having lived through the crash of 1929 and co-authored with Nobel laureate Milton Friedman the highly acclaimed financial bible A Monetary History of the United States (Princeton University Press, 1963).

• John Hussman (Hussman Funds): High loan-to-value + trigger event (unemployment) = default, July 12, 2009.
In normal downturns, unemployment does trigger a certain amount of loan losses, but the general tendency is for unemployment to behave as a lagging indicator. In the current cycle, high debt-to-income and loan-to-value ratios create a situation where unemployment can easily be the trigger event for further defaults, and could therefore create a tendency for job losses to lead economic weakness (rather than just lagging it). Now I don’t think that the feedback will be strong enough to lead to a self-reinforcing collapse, but I do think that it is naïve to expect that the economy will just “shake off the blues” and roar ahead.

• John Silvia (Wells Fargo): Macro clouds, micro foundations, realities for decision-makers, July 8, 2009.
In the rush to solve the current economic problems policymakers base their projections of success on high-level multipliers and big-picture estimates. Often missed, however, are the on-the-ground microeconomic implications of policy proposals, a failure which has led to disappointment in the past.

• Daniel Gross (Slate): Artificial stimulus, July 9, 2009.
It’s too soon to say whether the stimulus package is working.

• Edward Lazear (The Wall Street Journal): Do we need a second stimulus, July 9, 2009.
A more troubling question is why so little is being spent from the first.

• Economist.com: Appetite suppressant, July 9, 2009.
Capital rules now seem the only way to tame the banks. They will need to be tighter than in the past.

• Edward Conway (Telegraph): When recovery comes, it won’t feel like one, July 9, 2009.
The end of the recession will merely be the start of a long, painful journey.

• Economist.com: Yuan small step, July 9, 2009.
The dollar’s role as the world’s main reserve currency is being challenged.

• Robert McGregor (Financial Times): China’s banks lend with communist zeal, July 9, 2009.
A prominent Chinese economist surveying business outside Beijing last month was taken aback when a provincial governor confided in him his greatest political achievement for the year. It wasn’t anything that he had expected. The governor didn’t cite cleaner drinking water, a drop in the crime rate, or even the conventional benchmark for local leaders in China, speedier economic growth. According to the economist who told me the story this week, the governor’s chest swelled on news that bank lending in his province had outpaced the national average.

• Philip Stephens (Financial Times): Western awe and domestic anxiety: tale of two Chinas, July 10, 2009.
Beijing knows the autocracy and corruption on which the present system rests will not withstand the pressures of economic and social change. It is too simplistic to see the country’s global dominance as certain. The big mistake is to assume that the future can be mapped out in linear progression from now.

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