Prieur’s readings (October 15, 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 of interest.

• Martin Wolf (Financial Times): The rumours of the dollar’s death are much exaggerated, October 13, 2009.
Recent figures have proved that the dollar’s fall is a symptom of success, not of failure. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.

• E.S. Browning (The Wall Street Journal): Dow at 10000 as crisis ebbs, October 14, 2009.
The Dow Jones Industrial Average surged to 10015.86, passing the symbolic 10000 level much faster than expected and racking up a 53% gain in just seven months. Wednesday’s trading marked the first time the Dow touched 10000 since October last year, when markets were unraveling after the collapse of Lehman Brothers Holdings. As recently as March 9, the Dow was at 6547.05.

• Todd Harrison (MarketWatch): We’ve seen this movie before: Another man-made bubble is lurking, October 14, 2009.
Is anyone else having the strangest sense of vuja de? Like, we’ve been here before and sincerely wish we weren’t? Taking a page from the last 10 years, the policy response to the most recent crisis has masked the disease with drugs rather than curing it with medicine. It gave the drunk another drink with hopes he doesn’t sober up. The anatomy of a recession.

• John Gapper (Financial Times): A credibility problem for Goldman, December 14, 2009.
Having taken government money to survive the crash, Goldman Sachs is in such rude health that it will be handing out billions in bonuses. There is much outrage that the US bank wants to carry on as its old self (but bigger) in a world that has changed.

• Cam Hui (Humble Student of the Markets): Is the Fed changing its tune?, October 14, 2009.
The combination of an expensive and overbought market with an unfriendly Fed could be setting us up for a bearish reversal. Downside risks could rise even further if investor sentiment gets more bullish or by unexpected changes in fiscal policy such as the enactment of a tax on financial transactions.

• Lakshman Achuthan and Anirvan Banerji (ECRI): A reply to Paul Krugman, October 14, 2009.
In an October 13 blog post Professor Krugman questioned ECRI’s real-time forecasting track record and the validity of our leading indexes. … many of the things that you write about ECRI are untrue …

• Simon Johnson (The Baseline Scenario): Diana Farrell and the White House theory of bank size, October 13, 2009.
If Ms. Farrell and the White House (or anyone else) has hard numbers we can put on the benefits of big banks, please make these public.  We can then weigh these against the obvious costs of running our financial system in this fashion – on this round alone: fast approaching 40 percent of GDP, i.e., the increase in government debt as a direct result of our financial fiasco; plus persistently high unemployment; millions of homes lost; likely permanent loss of output, etc.

• John Kay (Financial Times): How the skies proved the limits of regulation, October 13, 2009.
The experience of the airline industry illustrates the phenomenon of regulatory capture – the tendency for regulators to see through the eyes of the industry they regulate.

• Vincent Fernando (Clusterstock): The 10 countries most at risk of a meltdown, October 14, 2009.
We’re not out of the woods yet. Should the world economy stagnate, or worse yet “double-dip”, a handful of countries could once again be pushed to brink. Who are the most likely candidates for this?

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