Prieur’s readings (October 2, 2009)

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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.

• Matt Taibbi (Taibblog): An inside look at how Goldman Sachs lobbies the Senate, September 29, 2009.

Samuel Brittan (Financial Times): A cool look at the current deficit hysteria, October 1, 2009.
In the early Victorian period the debt ratio was nearly 200 per cent and almost reached that level again in the early 1920s.

• Edmund Conway (Telegraph):  An inconvenient truth: financial crises are inevitable, October 1, 2009.
The IMF’s new early warning system to avoid crises such as the credit crunch is doomed to disappoint.

• Edward Harrison (Credit Writedowns): The recession is over but the depression has just begun, October 1, 2009.
This post discusses why we are in a depression, not a recession and what this means about likely future economic and investing paths.

• James W. Hughes and Joseph J. Seneca (Advance & Rutgers Report): America’s new post-recession employment arithmetic, September 2009.
It is vitally important to have a set of realistic economic expectations of what is to come. Consequently, the subject of this first Advance & Rutgers Report (formerly the Rutgers Regional Report) is developing the daunting arithmetic of employment recovery in the United States. The implications and conclusions of this sobering arithmetic can be instrumental in shaping the economic, business, and real estate markets as the new decade evolves.

• Jonathan Weil (Bloomberg): Banks have us flying blind on depth of losses, October 1, 2009.
Just when the conventional wisdom suggests the banking crisis might be under control, along comes a reality check that tells us we’re still flying blind.

• Raghuram Rajan (Financial Times): More capital will not stop the next crisis, October 1, 2009.
The emphasis should be placed on “contingent capital” infused when the institution or system is in trouble, writes Raghuram Rajan.

• Robert Barro and Charles Redlick (The Wall Street Journal): Stimulus spending doesn’t work, October 1, 2009.
Our new research shows no evidence of a Keynesian “multiplier” effect. There is evidence that tax cuts boost growth.

• Frank Luntz (Los Angeles Times): What Americans really want, September 27, 2009.
For business and political elites, the message should be clear: Restore trust. Politicians should be hosting more town hall meetings even if it means encountering surly voters. Business leaders should be seeking input from their hard-pressed customers and workers, and they should stop paying themselves huge bonuses while everyone else suffers. If those in power shut up and listen, they’ll hear what I’m hearing. It’s time to heed the anger and reinforce the positive values behind it.

• Nina Koeppen (Real Time Economics): Q&A: Shiller sees 5 years of stagnant home prices, September 30, 2009.
Robert Shiller, the Yale University economist who famously predicted the housing bust, was awarded the Deutsche Bank Prize in Financial Economics today. In this interview, he talks about the state of the housing market and the implications of low interest rates.

• Eliot Brown (The New York Observer): Commercial real estate seeks a bailout, September 29, 2009.
Almost from the moment that the financial industry entered its tailspin a year ago, landlords and developers began to sound the warnings that commercial real estate would be the other shoe to drop in the economy.

• Doug Kass (TheStreet.com): Mission accomplished, September 30, 2009.
I feel at home with my top call now, even though it is deeply out of favor, as the fear of being left out has brought out the animal spirits and has replaced the fear of being in, which was prevalent at the market’s bottom. As I have described, what is much more important than the swing back toward positive sentiment from a negative sentiment extreme in March is that a wide range of outcomes must now be considered against a consensus that looks for the certainty and smoothness of rapid 20%-plus year-over-year S&P growth.

• Nouriel Roubini (Forbes): Obama’s world, October 1, 2009.
Geopolitical headaches abound for the president.

• Jonathan Spence (Financial Times): China’s sixty years of living dangerously, September 30, 2009.
Again and again, by dint of his persistence and ideological self-confidence, Mao was able to impel his political allies and subjects to follow him into utterly unknowable terrain.

• Leo Lewis (Times Online): Beijing moves to halt growth as supply starts to outstrip demand, October 1, 2009.
The Government of China has launched an attack on overcapacity in its heavy industries with a series of stinging curbs on new factories, smelting plants and port-building projects. The government crackdown, unleashed a day before the country enters a ten-day holiday to celebrate the communist revolution, comes amid rising fears that China’s economy may be blundering into a destructive boom-bust cycle.

• Mure Dickie (Financial Times): Hatoyama faces daunting economic in-tray, September 30, 2009.
The new Japanese prime minister faces gross national debt climbing toward 200 per cent of gross domestic product; unemployment at a record high; accelerating deflation; and anaemic exports.

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2 comments to Prieur’s readings (October 2, 2009)

  • Paul C Sandison

    I liked Edward Harrison’s piece. I find it highly enjoyable when some real historical statement has been uncovered so that the reader can compare it, in the unforgiving light of today, with what has actually happened down the years .

    Amazing that so much water has flowed under the bridge since 1988. After all, it was only eight years after Keynes was air-brushed from western university economics textbooks after Reagan took power in 1980.

    Yet I think it even more amazing that the nihilist Chicago school and their proxy, the (pseudo) Austrian school still carry on largely unchallenged, both in the closters of academia and out in the public domain. Not only in view of the gigantic scale of the crisis but also now that the causes have been laid bare for everyone to see.

    Fortunately, Keynes was obviously not air-brushed from the Chinese universities, and the West’s doddering baby-boomer Keynesians have now come out of the woodwork (or retirement) to assist in saving the US and world economy.

    But give a thought for the younger (indoctrinated) generations. What will happen when the old-timers have long been buried? Who in the generations after the baby-boomers will save e.g. the U.S in the next big recession after this?

    I think it is surprising indeed that the Chicago school(s) whose acolytes not only caused untold damage by insisting on impossible terms for third-world countries applying for loans from the IMF but also caused the present crisis in the developed world, are sniping from the sidelines, instead of being taken out themselves.

    Economics is for them just a tool, a pose, a way of clothing their naked Ayn Rand nihilism in pseudo-economic language. An academic who skulks in the academic closter and is not prepared to accept when he or she is wrong and change, has some other reason for maintaining a doctrinaire position.

    All too often they harbour an evil ideology which runs deeper than true investigation, and which over-rides any knowledge they have. “You can take the boy out of the cult but you can’t take the cult out of the boy” is probably the real explanation here.

    I am still waiting to see malfeasance trials of all those – who at every stage of the process – engaged in the criminal practices of fraud and deception when mortgages were mis-sold to sub-prime borrowers and sliced and diced and repackaged and and sold on.

    A clean break with the past is necessary for any society after such a hiatus, or the rot will just continue to spread unaddressed in another form. Indictment should go right to the top, to the ones with the evil ideas. They should be punished hardest, for they had the knowledge, schooling and training but over-rode them, either for ideological reasons, a total lack of business ethics, or sheer unadulterated greed, or any combination of these three.

    At Nurnberg after the Second World War the Allies tried not only the nazi henchmen, but the top Nazis whose ideas and status and power caused and co-ordinated the war and genocide.

  • TF

    Yes, and the fact that Mr. Taibbi from the Financial Times leaves out of the picture is that we faced an economic decline after WW1 more severe than what took place in 1929 and the government instead of jumping into spending took a more hands off approach.

    The Fed hiked their discount rate from 4.75 to 6% in 1919 and up to 7% in 1920 and did not cut it until 1921. Unemployment reached an 11.7% peak in 1921 but declined rapidly thereafter.

    The period from 1923 to 1929 was among the most prosperous in American history.

    On the other hand, after the 1929 crash and continual government intervention starting first with Hoover and continued and expanded by FDR with his New Deal legislation et al, the Fed lowered it lending rate to 1.5% in 1930 and kept it low.

    Meanwhile, unemployment continued to be double digit throughout the 30’s peaking at 24.9% in 1933 and returning to nearly 20% (19.8%) in 1938. Unemployment averaged 18.36% from 1930 to 1939. It was 14.6% in 1940 and 9.9% in 1941. So much for the FDR ended the depression myth! And so much for deficit spending and absurdly low Fed controlled rates of interest.

    Mr. Taibbi needs to do a little research to fill in the facts methinks.

    Source: Bureau of Labor and Statistics

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