Prieur’s readings (September 6, 2009)

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In the absence of the “Words from the Wise” review while I am traveling, this post provides links to a number of thought-provoking articles I have read over the past few days that you may also find interesting.

• Paul Krugman (The New York Times): How did economists get it so wrong?, September 2, 2009.
It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes – or so they believed – were both theoretical and practical, leading to a golden era for the profession. Last year, everything came apart.

• Daniel Gross (Slate): Failure caucus, September 1, 2009.
Who is rooting for the economy to tank again?

• Ralph Atkins and Norma Cohen: (Financial Times): G20 plans for stimulus exit, September 3, 2009.
World leaders have set out the first steps toward withdrawing emergency support for the global economy even though they warned that the crisis was not over. On the eve of Friday’s meeting of G20 finance ministers to prepare for a summit on financial regulation later this month, the US, UK, France and Germany called for work to start “on exit strategies to be implemented in a co-ordinated manner as soon as the crisis is over”.

• Jack Hough (SmartMoney): Don’t count out the US dollar, September 4, 2009.
If America is unable to close its gaping budget deficits in coming years, the dollar might indeed tumble. But don’t expect it to do so relative to the currencies of peer nations. Japan owes far more relative to the size of its economy. France and Germany, almost as much. The UK owes less but its debt is growing fast. And the US is expected to have a much younger population than these countries in coming years – a key predictor of a nation’s ability to generate economic growth and tax revenue. The 1% that US money markets pay savers at the moment won’t make anyone rich. But the dollars stashed in them might be something of a bargain.

• Timothy Geithner (Financial Times): Financial stability depends on more capital, September 3, 2009.
Strengthening capital requirements is an essential part of a broader effort to modernize our regulatory framework so that the financial system is strong enough to withstand the failure of large, complex institutions. That is the most effective way to prevent the world from re-living the events of last autumn. And that is the challenge we must tackle in London, Pittsburgh and beyond.

• Ambrose Evans-Pritchard (Telegraph): The case for borrowing is born out of the Great Depression, September 2, 2009.
At the core of Keynesian economics is the idea that fiscal policy (government taxing and spending) should be used as a tool to control an economy.

• Simon Johnson (Baseline Scenario): The nature of modern finance, September 1, 2009.
Is modern finance more like electricity or junk food?  This is, of course, the big question of the day. If most of finance as currently organized is a form of electricity, then we obviously cannot run our globalized economy without it.  We may worry about adverse consequences and potential network disruptions from operating this technology, but this is the cost of living in the modern world. On the other hand, there is growing evidence that the vast majority of what happens in and around modern financial markets is much more like junk food – little nutritional value, bad for your health, and a hard habit to kick.

• Lawrence Williams (Mineweb): China pushes gold and silver investments to the masses, September 3, 2009.
Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder.  If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!

• Ambrose Evans-Pritchard (Telegraph): World faces hi-tech crunch as China eyes ban on rare metal exports, August 24, 2009.
Beijing is drawing up plans to prohibit or restrict exports of rare earth metals that are produced only in China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons.

• Reuters: Beijing’s derivative default stance rattles banks, August 31, 2009.
A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

• David Pilling (Financial Times): A wiser Japan casts its vote without illusions, September 2, 2009.
Hatoyama’s Democrats have responded to the national mood, offering direct support for farmers, poverty alleviation for families, a higher childcare allowance and better worker protection.

• Andrew Osborn (The Wall Street Journal): As if things weren’t bad enough, Russian professor predicts end of US, December 29, 2008.
In Moscow, Igor Panarin’s forecasts are all the rage; America “disintegrates” in 2010.

• Liz Moyer and Emily Lambert (Forbes): Meet the new masters of the universe, September 1, 2009.
A brash new generation of traders is making a fortune by remaking financial markets. Political furor aside, that’s good for the little guy.

• Wegelin & Co: Farewell America, August 24, 2009.
The agreement between the USA and Switzerland under which Switzerland is to provide administrative assistance with regard to 4,450 UBS clients suspected of tax fraud is, in our view, remarkable in three ways.

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