Prieur’s readings (February 22, 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.

• Charles Munger (Slate): Basically, it’s over: A parable about how one nation came to financial ruin, February 21, 2010.

Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland.

• John Mauldin (Thoughts from the Frontline via InvestorsInsight.com), The Pain in Spain, February 19, 2010.

• George Soros (Financial Times): The euro will face bigger tests than Greece, February 21, 2010.

The survival of Greece would still leave the future of the euro in question. Even if it handles the current crisis, what about the next one? It is clear what is needed: more intrusive monitoring and institutional arrangements for conditional assistance.

• Richard Parker (The Nation): Athens: The first domino? February 18, 2010.

If help isn’t forthcoming, little Greece – whose economy is just 3 percent of Europe’s GDP – could, against its will, set off a chain reaction that pulls down Portugal, Ireland, Spain, perhaps even Italy, and thereby throws Europe’s, and then America’s and the rest of the world’s, fragile recoveries into reverse.

• John Hussman (Hussman Funds): Notes on a difficult employment outlook, February 22, 2010.

Unfortunately, the high debt burdens and weak employment conditions cannot coexist without producing credit strains. Simply put, current employment levels are incongruous with servicing existing levels of household debt.

• Peter Goodman (The New York Times): Millions of unemployed face years without jobs, February 20, 2010.

Even as the American economy shows tentative signs of a rebound, the human toll of the recession continues to mount, with millions of Americans remaining out of work, out of savings and nearing the end of their unemployment benefits. Economists fear that the nascent recovery will leave more people behind than in past recessions, failing to create jobs in sufficient numbers to absorb the record-setting ranks of the long-term unemployed.

Reading break:

Considering the short-term technical picture of gold bullion, Adam Hewison (INO.com) provides a short analysis arguing in favor of a multi-month trading range. Click here to access the presentation.

• Wolfgang Münchau (Financial Times): Inflation must not become a moving target, February 21, 2010.

Price stability is a critical component of the social contract we call money. We accept money as a means of payment, a unit of account and a store of value and trust that the central bank does not debase it.

• Robert Shiller (Project Syndicate): Engineering financial stability, February 18, 2010.

The severity of the global financial crisis that we have seen over the last two years has to do with a fundamental source of instability in the banking system, one that we can and must design out of existence. To do that, we must advance the state of our financial technology. Contingent capital, a device that grew from financial engineering, is a major new idea that might fix the problem of banking instability, thereby stabilizing the economy – just as devices invented by mechanical engineers help stabilize the paths of automobiles and airplanes. If a contingent-capital proposal is adopted, this could be the last major worldwide banking crisis – at least until some new source of instability emerges and sends financial technicians back to work to invent our way of it.

• Chris Farrell (BusinessWeek): Amid gigantic deficits, the bond market shrugs, February 19, 2010.

With the US budget gap reaching a mind-bending level, why are Treasury yields lower than when the government ran a surplus more than a decade ago?

• Paul Sullivan (The New York Times): Real estate looks risky, but less so for bargain hunters, February 19, 2010.

Even a cursory glance at recent events in commercial real estate would make you think the next big collapse is upon us. Yet, financial advisers are telling their wealthy clients that there is tremendous opportunity in real estate. What is equally intriguing is that these investors are looking again at something as illiquid as a building, which goes to show just how quickly people can reacquire their appetite for risk if it means higher returns.

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2 comments to Prieur’s readings (February 22, 2009)

  • Pkpetro

    Mr. T. Barber, FT’s Brussels bureau chief, in his post http://blogs.ft.com/brusselsblog/2010/02/germany-rescues-greece-but-demands-its-pound-of-flesh quotes Mr. Otmar Issing’s remarks on German TV that Greeks enjoyed “one of the most luxurious pension systems in the world” (!!!) I would also like to comment on Mr. Issing’s claims in his article “Europe cannot afford to rescue Greece” (FT, 02/15/2010).

    With regards to Greek pensions, rather than go into lengthy theoretical arguments or statistical data comparisons, I will describe my personal example. As a Greek ex-CEO and professor of economics and management, I received at the age of 65 a monthly pension of about 700 euros from IKA , which is the Social Security Organization for employees of the private sector (though I admit that public employees receive somewhat higher pensions). It would be interesting to compare my pension with Mr. Issing’s, or with German or other northern European pensions…

    As to his previously mentioned article:

    Everything he denies in the first paragraph of his article (namely that other EU countries will follow if Greece collapses, that speculators, and I should add their collaborators, are doing their work and have identified the next candidates, -as Ms Lagarde and Mr Zapatero’s recent comments have confirmed-, that the EMU is at risk, and that solidarity is needed to rescue the Euro) are all now firmly established as facts in the minds of serious economists and policy makers.

    As to his claim that “a bail-out would violate EU treaties, I refer him to Article 122 of the Lisbon Treaty, or Art.119 of the EU Foundation Treaty.

    What he says in paragraph 4 of his article about the structural design flaw of establishing a monetary union without economic and political union, or “putting the cart before the horse”, as he says, and that what is now at stake is “the viability of the whole (EU) framework” contradicts his entire article. Indeed the Greek crisis is an opportunity for the EU to put the horse before the cart. And “solidarity” to Greece would be the first step. Anybody who is against solidarity is logically against the unification of Europe.

    The responsibilities of successive Greek governments have been amply reported in the media, and I will not deny many of the allegations, although there have been many other gross exaggerations, half-truths, omissions, or even inaccuracies, in addition to the ones I have already mentioned above. E.g. failure by many to focus on the responsibilities of Germany and other developed countries for the global and internal EU imbalances, the beggar-thy-neighbour currency and trade policies of major countries, the “deficit fetishism” of the EU commission and some EU governments, the strong-euro monetarist policies of the ECB, the fact that many countries have similar deficit and debt figures as Greece, the questionable record of the rating agencies and their role in all of this, that the EU will not bail out Greece because they love the Greeks but for their own self interest (over 200b. euros worth of Greek bonds and other receivables are held by EU banks and companies), the fact that the currency swap with Goldman-Sachs was arranged after Greece had joined the EMU, not before, and that it was then acceptable by Eurostat, and was used by many other EU countries, that there are still no clear, uniform and standard accounting rules for national budget preparation to be followed by all EU countries, or procedures to monitor them, and therefore budgets are not comparable, or “credible” for that matter, etc.

    With respect to the issues raised in Mr. Issing’s article and Mr. Barber’s post, and in support of my comments here, I do want to refer you all to some very important recent interventions by US economists, such as Rogoff, Stiglitz, Eichengreen, Feldstein and Krugman .

    In the Guardian (Jan. 25, 2010), Professor J. Stiglitz says that “A principled Europe would not leave Greece to bleed. Unless it is one rule for the big and powerful and another for the small, the EU must stand behind Athens’ new leadership”.

    Professor P. Krugman has also made useful contributions to the problem. (See “Anatomy of a Euromess” Feb. 8, 2010 in his NYT blog, and “The real reason for the euromess” in the Guardian Feb.15, 2010, with the subtitle “Greece and other European nations are in trouble because policy elites pushed the continent into adopting a single currency”.

    In Project-Syndicate (02/15/2010), Professor B. Eichengreen in his article “Europe’s Trojan Horse” says that “Germany is not innocent of responsibility for this crisis (and goes on to explain why.)“ (Germany) has benefited enormously from the creation of the Euro. It should repay the favor”. Also: Europe “will have to get over its past.” And Mr. Barber refers to “Greece’s horrific experiences under Nazi occupation” in WWII. Finally, it is true that in the Greek parliament, an MP has reminded the world that Germany has yet to pay the war reparations to Greece, which, I may add, would amount to about a quarter of the total Greek debt. As one whose father was among the 1390 civilians executed in Kalavryta in 1943, I think I am entitled to say: Yes. I agree that present-day Germans are not to blame for those atrocities. And, I also agree that we must get over our past, if only people like Mr. Issing will let us.

  • Superstar

    Welcome back Prieur,

    Hope you had a productive week. Missed your postings that’s for sure.

    Superstar

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