Prieur’s readings (August 20, 2009)

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

• Randall Forsyth (Barron’s): No bull! Rally hits the wall, August 19, 2009.
Coming off a “sugar high,” stocks have stalled below the early August highs. Pause or correction?

• Brian Wesbury and Robert Stein (Forbes): This recovery is no sugar high, August 18, 2009.
The way we see it, those who were pessimistic about stocks and the economy early this year are going through the classic five stages of grief. First, they denied a recovery was going to happen anytime soon. Then they lashed out with anger at those who spotted signs of the recovery. Now, they are bargaining, admitting the existence of the recovery that they did not see coming, but belittling it. Next, as things keep moving up, we can expect them to get depressed. We don’t expect acceptance to fully set in until late next year.

• Neil Irwin (The Washington Post): The signs don’t point to a typical recovery, August 17, 2009.
The wounded US economy has shown signs of improvement in recent weeks. But many economists, who were caught off guard by the brutality of the downturn, are accentuating the negative, bracing for head winds that could cause the recovery to be weak.

• Mark Thoma (Economist’s View): How will we know when the economy turns the corner?, August 16, 2009.
One question I am asked fairly often is how we will know when the economy turns the corner and we are on our way to a solid recovery. My answer is that we will be able to detect upticks in the data, though this may come with a bit of a lag, the important but harder task will be to understand why the data are showing improvement.

• Edward Harrison (Credit Writedowns): Weak consumer spending will last for years, August 16, 2009.
It has been my thesis for some time that we are seeing a secular change in consumption patterns in the United States. This will have grave implications for a world economy used to seeing the American consumer as an economic growth engine and consumer of first choice.

• Anja Hochberg (Credit Suisse): Why we need inflation, August 17, 2009.
Central banks have an important role to play not only in times of exceptional financial market stress, but also during the normalization process. There is nonetheless a significant difference between the respective tasks. To prevent the global economy from falling into deflation, reflation is initially required before inflationary pressure can then be brought under control.

• Fred Bergsten and Arvind Subramanian (Financial Times): America cannot resolve global imbalances on its own, August 19, 2009.
Countries such as China will have to find ways to expand domestic demand on a lasting and substantial basis.

• Rolfe Winkler (Reuters): America’s Japanese banks, August 17, 2009.
A banking system loaded down with hundreds of billions of dollars worth of unrecognized bad debt – Japan in the 1990s? No, it’s the United States today. And where are American banks hiding their losses? In loan portfolios.

• Kenneth Rogoff (Financial Times): Why we need to regulate the banks sooner, not later, August 18, 2009.
There are problems with the view that the costs of greater bank regulation outweigh the benefits, and that the issue for the financial sector was a botched Lehman bail-out. The problem of moral hazard – created by the bank bail-outs – remains.

• Robert Kaplan, Robert Merton and Scott Richard (Financial Times): Disclose the fair value of complex securities, August 17, 2009.
Efforts by banks to escape the strictures of fair-value accounting are gaining support among regulators and legislators, but should be resisted.

• Shai Feldman and Gilead Sher (Financial Times): The grand bargain that is the Mideast’s best hope, August 18, 2009.
The promise of peace embodied in a revived Arab Peace Initiative would justify Israeli concessions such as in settlement construction.

• Anders Åslund (Financial Times): Russia’s botched policy in its own backyard, August 17, 2009.
The Kremlin does not know how to deal with its post-Soviet neighbours. The result is that these nations are trying to develop relations with anybody but Moscow.

Karsten Staehr (RGE Monitor): The economic downturn in the Baltics – it is time to call it a depression, August 17, 2009.

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