Monday, September 13, 2010

Today's Best Reads

1--Banks' Plans for Foreclosed Homes Will Drive Market, Wall Street Journal (more evidence of a housing coup/stealth bailout)

2--Geithner Urges Action on Economy, Wall Street Journal, Key quote: "The typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. You saw that in the United States in the 30s, you saw that in Japan in the 90s. It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth."

3--China, Japan, America, Paul Krugman, New York Times (China continues to "unfairly" underbid American workers. Policymakers continue to look the other way)

4--Second Helpings, James Surowiecki, The New Yorker (More proof that the public has no idea of how stimulus works)

5--A Scary Thought, The economics of contempt. (Question: What if another euro crisis triggers another run on US money market funds. Hmmmm)

6--Fun with George Will, Dean Baker, CEPR (Baker skewers ABC's pompous pundit)

7--What the good trade numbers tell us, Michael Pettis, China Financial Markets (always a "must read")

8--The Slump Goes On: Why?, Paul Krugman and Robin Wells, The New York Review of Books

9--The Fair, Tim Duy, Fed Watch (Wow. Duy never fails to astound with his keen insight and astonishing grip of the issues. Key quote:

"But the output gap itself is important to managing disinflationary expectations. By not specifically targeting the gap, the Fed is implicitly accepting the disinflationary consequences. If the US falls into a Japan-style malaise in the wake of this, or what I think is more likely, the next recession, I believe it will be attributable a clear unwillingness of Fed policymakers to view potential output as a relevant policy objective.....

Bottom Line: Although the Federal Reserve is poised for another round of quantitative easing, it is important to recognize their ultimate objective. It is not to pursue an a rapid return to potential output in order to rapidly alleviate unemployment. It is simply to maintain policy expectations in the context of a return to potential growth. Thus, one should expect the actual easing to be commensurate with such a policy. In other words, pay attention to what Bullard is saying - "measured" policy action. This, in my opinion, will be too little too late, as I am more concerned with an aggressive assault on unemployment and believe that using potential growth as a policy reference effectively locks the US into a suboptimal equilibrium."

Duy really hits it out of the park here. It is important to see that the Fed is not even trying to lower unemployment or reduce the output gap. It's only objective is to promote modest growth. Pathetic.

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