Tuesday, September 21, 2010

Today's Best Reads

Quote of the day---"The U.S. economic situation “is obviously unsustainable, and the concerted attempt to suspend disbelief is playing increasingly poorly abroad,” says poll respondent Eric Kraus, chief strategist for Otkritie Brokerage House in Moscow. “One can delay, but no one can forestall the unwind of a multidecade credit bubble.” Bloomberg

1--Double dip or global deflation?, Christopher Whalen, Reuters
Excerpt: Earlier this week in a research note for the IRA Advisory Service, we reported that some of the leading experts in the housing sector believe that the U.S. is less than 25% through the restructuring of defaulted loans on commercial and residential real estate, and that the backlog is growing. Last week at the AmeriCatalyst conference held in Austin, TX, Laurie Goodman from Amherst Securities predicted that one in five U.S. households remains at risk of foreclosure. If this prediction turns out to be correct, the optimistic view of the U.S. economy and banking sector must be radically revised — and soon.

Just as the housing sector and the related debt was the driver of the U.S. economy over the past several decades, I believe that the deflation of the housing market could spell an equally drastic period of shrinkage in economic activity in the U.S. and around the world.

2--America Needs Jobs' Idea No. 1: A Payroll Tax Holiday, Dan Froomkin, Huffington Post

3--15 Shocking Poverty Statistics, The Economic Collapse

4--Deleveraging with a twist, Steve Keen, naked capitalism

Excerpt: The finance sector exists to create debt, and the only way it can do that is by encouraging the rest of the economy to take it on. If they were funding productive investments with this money, there wouldn’t be a crisis in the first place—and debt levels would be much lower, compared to GDP, than they are today. Instead they have enticed us into debt to speculate on rising asset prices, and the only way they can expand debt again is to re-ignite bubbles in the share and property markets once more...

Here’s where the level of debt (when compared to income) matters, as opposed to its rate of change: reigniting these bubbles is easy when debt to GDP levels are low. But reigniting them when debt to income levels are astronomical is next to impossible. Speculators have to be encouraged to take on a level of debt whose servicing consumes a dangerously high proportion of their income, in the belief that rising asset prices will let them repay that debt with a profit in the near future.

With the debt to GDP levels for all non-government sectors of the American economy at unprecedented levels, the prospect that any sector can be enticed to take on yet more debt is remote. Deleveraging is America’s future.

5--Is the US in worse shape than Japan during the "lost decade"?, Washington's blog

6--Obama Raises Prospects of New Economic Team, Wall Street Journal

Excerpt: Asked about the future of his economic team, the president praised Treasury Secretary Tim Geithner and National Economic Council Chairman Larry Summers, but he said: “I have not made any determinations about personnel. I think Larry Summers and Tim Geithner have done an outstanding job, as have my whole economic team. This is tough, the work that they do. They’ve been at it for two years. And, you know, they’re going to have a whole range of decisions about family that’ll factor into this as well.”

7--What You Don't Understand About the Stimulus, Derek Thompson, The Atlantic

Excerpt: If the Recovery Act failed to stimulate Americans' confidence, it's because it replaced more things than it built. It filled the crater left by the financial crisis. By and large, it succeeded. But its success has been nearly invisible. After all, a filled hole looks like nothing at all.

8--Monetary policy and aggregate demand, Marshall Auerback, credit writedowns

9--(It's over) The Great Recession was so 2009, FT. Alphaville

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