Prieur’s readings (March 10, 2010)

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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.

• Brian Sack (New York Fed – transcript of speech): Preparing for a smooth (eventual) exit, March 8, 2010.
When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. Second, we will be using tools to drain reserves that are new and that will have to be implemented on a scale that the Fed has never before tried. And third, we will be operating in a framework of interest on reserves that has not been fully tested in US markets.

• John Cassidy (The New Yorker): No credit, March 15, 2010.
Timothy Geithner’s financial plan is working – and making him very unpopular.

• Clive Crook (Financial Times): Good for America, as far as it went, March 7, 2010.
Three-quarters of Americans think last year’s fiscal stimulus was mismanaged. But actually it’s been helpful. It would have helped a lot more, though, if it had been bigger, if its designers had commanded public confidence; and if a plan to control medium-term borrowing had been included up front.

• Joshua Aizenman and Gurnain Kaur Pasricha (National Bureau of Economic Research): On the ease of overstating the fiscal stimulus in the US, February 2010.
This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean. This paper discusses the implications of limitations on states’ ability to run deficits for the design of fiscal stimulus at the federal level.

• Lynn Thomasson (Bloomberg): S&P rally slowed by fastest cash depletion since 1991, March 8, 2010.
Equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor’s 500 Index may slow.

• Jonathan Davis (Financial Times): The end of gilts’ 30-year high is nigh, March 7, 2010.
It is not that investors who buy bonds today cannot experience one last hurrah before the 30-year cycle turns for good. There will always be opportunities to play the yield curve (now much steeper than its historical average) for profit. The message is rather that the returns of the last 30 years cannot and will not be repeated over the next 30, with all the implications that must flow from that statement.

• Wolfgang Münchau (Financial Times): Why the euro will continue to weaken, March 7, 2010.
We have always known a monetary union cannot exist without political union in the long run.

• Gideon Rachman (Financial Times): Japan edges from America towards China, March 8, 2010.
The prime minister is giving the impression of shifting away from its postwar ally. Even if he does not intend to follow through, Japan has an uncomfortable strategic choice ahead.


• Edmund Conway (Telegraph): Why the sun looks poised to set on Japan’s era of cheap government debt, March 7, 2010.
With a deficit rising yearly, many Japanese believe that the heralded budget apocalypse has arrived.

• Anatole Kaletsky (Times Online): Rejoice – the pound is down again, March 8, 2010.
If economic recovery in the eurozone and Japan turns out to be slower than in Britain, while political conditions in America continue to deteriorate, the weakness of the pound may be impossible to sustain. Rather than sterling weakness, the real problem in the year ahead for Britain is likely to be sterling strength.

• Michael Gray (New York Post):  Greece’s hidden debt soaring, March 7, 2010.
The Greek debt tragedy currently unfolding – the country’s on-balance-sheet debt is 13 times its gross domestic product – may be just the tip of the iceberg. More troubling, according to a report out last week, is the off-balance-sheet debt owed by the country, and its fellow, over-indebted nations Portugal, Italy, Ireland and Spain, the so-called PIIGS, representing the five-nation acronym. The off-balance-sheet debt, where countries guarantee the debt of private developments, many of which had gone bust, could multiply the problem many times – putting further pressure on the euro, the report said.

• Katherine Burton and Anthony Effinger (Bloomberg): Steve Cohen’s trade secrets, April 2010.

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