Prieur’s readings (May 12, 2010)

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This post provides links to some interesting articles I have read over the past few days that you may also enjoy.

• Matthew Lynn (Bloomberg): Euro package leaves governments out of ammunition, May 11, 2010.
Big problem, big number. The leaders of the euro-area countries have thrown 750 billion euros ($963 billion) at shoring up confidence in the single currency. But it doesn’t matter how many zeros you put on the end of a bad idea. It’s still a bad idea. In reality, you can’t stabilize a sinking ship.

• Martin Wolf (Financial Times): Governments up the stakes in their fight with markets, May 11, 2010.
The German inclination is to believe that everything would be fine if deficit countries were placed under greater discipline. This is false. The answer, instead, is to create a system that recognises and responds to reality.

• John Taylor (Financial Times): Central banks are losing credibility, May 11, 2010.
We are definitely seeing contagion, but it is a contagion of deviations from the independent and credible monetary policy that has served us well in the past.

• Doug Kass (TheStreet.com): European bailout is no TARP Deux, May 11, 2010.
On Monday, the markets cheered for shock and awe redux, under the belief that if it worked here (in the U.S.), it will most certainly work over there (in Europe). I am by no means a specialist in this area, but I see that there are a number of differences.

• Dean Baker (Guardian): Banks failing to lend is not the problem, May 10, 2010.
One of the big myths of the current downturn is that the reason the slump persists is that banks are refusing to lend. The story goes that because the banks have taken such big hits to their capital as a result of the collapse of the housing bubble and record default rates, they no longer have the money to lend to small- and mid-sized businesses. We then get the story about how small businesses are the engine of job creation, responsible for most new jobs. Therefore, if they can’t get capital, we can’t expect to see robust job growth …

• Noam Scheiber (The New Republic): Close call, May 10, 2010.
Last Wednesday, Arkansas Senator Blanche Lincoln took to the Senate floor and delivered about as fiery a speech as you’ll hear in the chamber, at least on the subject of financial reform. “Currently, five of the largest commercial banks account for ninety-seven percent of the [derivatives] market,” she said. “That is a huge concentration of economic power, which is why I am in no way surprised that several individuals are seeking to remove it from the bill.”

• Kevin Hamlin (Bloomberg): China’s bubble risk adds pressure to tighten policy, May 12, 2010.
China’s accelerating inflation and surging house prices are adding pressure on policy makers to raise interest rates and allow yuan gains even as their concerns over Europe’s debt woes persist. Property prices rose at a record pace in April, consumer prices climbed at the fastest rate in 18 months and new lending exceeded the forecasts of all 24 economists surveyed, figures showed yesterday.

• Hana Alberts (Forbes): Asia’s Doctor Gloom, May 6, 2010.
Economist Jim Walker may laugh off the nickname, but he’s legitimately worried about China’s collapse. The year before the 1997 Asian financial crisis hit, Jim Walker was introduced on television as “Dr. Gloom”. As officials brag of the Chinese economy’s 12% growth rate 13 years later, the moniker still fits. That puts Walker, 52, and Asianomics, his one-person research shop in Hong Kong, at odds with many far more prominent prognosticators.

• John Kay (Financial Times): Brace yourself, Britain, for higher taxation, May 11, 2010.
The British have no appetite for fewer services. So much of the rebalancing of public finances will have to come from higher taxes.

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