Prieur’s readings (December 7, 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.

• Joseph Gagnon (Peterson Institute for International Economics via Absolute Return Partners): The world needs further monetary ease, not an early exit, December 2009.
We need additional stimulus now. In particular, central banks in the main developed economies should push long-term interest rates 75 basis points below the levels they would otherwise take by purchasing a combined $6 trillion in long-term public and private debt securities. Relative to current forecasts, this policy action is expected to boost GDP 3 percent or more over the next eight quarters and to reduce unemployment rates by between 1 and 3 percentage points.

• Bill Fleckenstein (MSM Money): Why the Fed loves inflation, December 4, 2009.
This man [Bernanke] would cheer an inflation rate of some small percentage, partly because he appears to think that’s better, no matter how it comes about, and because I’m sure he feels he can snap his fingers and stop it once it gets started. But of course he is dead wrong.

• John Hussman (Hussman Funds): Credit crises generally require multi-year adjustments, December 7, 2009.
The aftermath of systemic banking crises involves a protracted and pronounced contraction in economic activity and puts significant strains on government resources. On average, government debt rises by 86 percent during the three years following a banking crisis. As a consequence, a clear inflationary bias throughout history emerges. The handmaiden to inflation is, of course, currency depreciation.

• James Grant (The Wall Street Journal): Requiem for the dollar, December 5, 2009.
At least, however, being alive, we can begin to set things right. The thing to do, I say, is to restore the nets to the tennis courts of money and finance. Collateralize the dollar – make it exchangeable into something of genuine value. Get the Fed out of the price-fixing business. Replace Ben Bernanke with a latter-day Thomson Hankey. Find – cultivate – battalions of latter-day Hellmans and set them to running free-market banks.

• Elizabeth Warren (The Huffingtom Post): America without a middle class, December 3, 2009.
America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff. America without a strong middle class? Unthinkable, but the once-solid foundation is shaking.

• Floyd Norris (The New York Times): Why many home loan modifications fail, December 4, 2009.
Why are so few temporary mortgage modifications turning permanent? One reason may be the same one that a lot of bad loans were made in the first place. Borrowers can declare their income, and the banks are willing to grant temporary modifications based on those figures, without any evidence to confirm them.

• Aline Van Duyn (Financial Times): The word on the street over latest crossover hit, December 4, 2009.
If the Credit Derivative Swap (CDS) markets continue to be more negative about the credit standings of European governments than bond markets, it might start to affect the interest rate governments have to pay to sell new debt. With record amounts of government debt being sold next year, this is no marginal issue.

• The Economist: Knock-on effects, December 4, 2009.
Assuming that the ECB and the Fed are, for whatever political reason, unable to respond to Chinese devaluation with ambitious expansionary measures of their own, is China’s dollar peg a good idea? I do think China deserves something less than a pat on the back for saving the world economy, if they had to endanger the future of global trade to do it.

• Tania Branigan (Guardian): China “wants to set up factories in Africa“, December 4, 2009.
The Chinese government has shown “strong interest” in setting up factories in Africa, helping the continent develop a manufacturing base and boost its economy, the president of the World Bank said today.

• Pat Boyle (Independent): Ireland not likely to seek cash bailout, says IMF, December 5, 2009.
Despite the dire financial situation the Government is facing the International Monetary Fund (IMF) does not expect Ireland to seek a bailout along the lines of that granted to troubled economies like Iceland. “It is hard to imagine that Ireland would need to resort to a loan from the International Monetary Fund”, an IMF spokeswoman said yesterday in response to warnings from the Irish Government over its finances.

• Mohamed Ahmed (Reuters): Somali sea gangs lure investors at pirate lair, December 1, 2009.
In Somalia’s main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.

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