Saturday, September 25, 2010

Today's Best Reads

1--FBI Launching Mass Raids of Antiwar, antiwar.com

Excerpt: The FBI is confirming that this morning they began a number of “raids” against the homes of antiwar activists, claiming that they are “seeking evidence relating to activities concerning the material support of terrorism.”

2--It Is Official: The US Is A Police State, Paul Craig Roberts, antiwar.com

Excerpt: Antiwar activist Mick Kelly, whose home was raided, sees the FBI raids as harassment to intimidate those who organize war protests. I wonder if Kelly is underestimating the threat. The FBI’s own words clearly indicate that the federal police agency and the judges who signed the warrants do not regard antiwar protesters as Americans exercising their Constitutional rights, but as unpatriotic elements offering material support to terrorism.

3--War on depression, The Economist (wonkish)

Excerpt: We document that the American economy went to war starting in June 1940, fully 18 months before Pearl Harbor..... By July 1941, the American economy was in a state of perceived national emergency. (Fiscal multipliers lifted the economy out of Depression)

4--Fixing Europe's single currency, The Economist

Long Excerpt: When the euro was being designed, its creators decided, in effect, not to rely on market discipline alone. They assumed that without rules fiscal laxity by one member would impose costs on all. One concern was that deficits would boost spending and so put upward pressure on inflation, and thus on the zone’s interest rates. Another, chiefly German, worry was that unchecked deficits would build pressure on the ECB to monetise public debts. A related German nightmare, that countries with sound finances would be forced to bail out the profligate, came true....

In contrast, the problems that arose because different economies responded differently to the zone’s common monetary policy were underestimated. The sudden drop in real interest rates on joining the euro in Greece, Ireland and Spain fuelled huge spending booms. (Portugal had enjoyed its growth spurt in the late 1990s in anticipation of euro membership.) Rampant domestic demand pushed up unit-wage costs relative to those in the rest of the euro area, notably in Germany, hurting export competitiveness (see chart 2) and producing big current-account deficits....

The euro allowed these internal imbalances to grow unchecked and now stands in the way of a speedy adjustment, because euro-area countries whose wages are out of whack with their peers’ cannot devalue...(Excellent summary of the euro-woes. Remedy--A centralized fiscal authority?)

5--August New Home Sales Were The Second-Worst Month On Record, Huffington Post

Excerpt: Last month's new home sales were unchanged from a month earlier at a seasonally adjusted annual sales pace of 288,000, the Commerce Department said Friday. Sales were down by 29 percent from the same month a year earlier. (Prices gotta fall to move the backlog. There's no other way)

6--The Credit Meltdown and the Shadow Banking System: What Basel III Missed, Ellen Brown, Huffington Post

Excerpt: Holding loans on the balance sheets of banks is not profitable. . . . This is why the parallel or shadow banking system developed. If an industry is not profitable, the owners exit the industry by not investing; they invest elsewhere. Regulators can make banks do things, like hold more capital, but they cannot prevent exit if banking is not profitable. 'Exit' means that the regulated banking sector shrinks, as bank equity holders refuse to invest more equity. (Required reading for anyone interested in the mess that collapsed the financial system)

7--Bernanke: Efforts Failed to Produce Recovery With 'Sufficient Vigor', Wall Street Journal

Excerpt: "Although financial markets are for the most part functioning normally now, a concerted policy effort has so far not produced an economic recovery of sufficient vigor to significantly reduce the high level of unemployment," Bernanke told a conference at the Ivy League university where he taught from 1985 to 2002. (Bernanke prepares the markets for a second round of bond purchases--quantitative easing)

8--Arsenal of Recovery, Paul Krugman, New York Times

Excerpt: periods of war or preparation for war are, in practice, the only really clear-cut cases we have of big increases in government spending in the face of a depressed economy. The New Deal pursued only half-hearted expansions, leading to Cary Brown’s famous conclusion that fiscal policy failed to produce recovery because it “was not tried”. The Obama fiscal stimulus more or less evaporates when you look at it closely, and take state and local cutbacks into account; basically, all it did was to keep overall fiscal policy from being outright contractionary.

But in the prewar buildup you had a clear-cut expansion of federal spending on the order of 14 percent of GDP. That’s a real experiment with the economy. And the results were clearly Keynesian. (Fiscal policy works)

8--Default Is In Our Stars, Paul Krugman, New York Times

Excerpt: So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt. (A double-shot of Krugman)

9--Structural Failure, Paul Krugman, New York Times

Excerpt: Basic textbook macro tells you how to distinguish between slumps brought on by supply shocks and those brought on by demand shocks: look at inflation. If you have stagflation, rising unemployment combined with accelerating inflation, that’s the signature of a supply shock; if you have unemployment with disinflation, that’s the signature of a demand shock. And guess what we see?...

I really don’t think there’s any way to make sense of the fuss about structural unemployment unless you posit that a lot of influential people are looking for reasons not to act... What the economy needs is more demand; provide that, and you’ll be amazed at how many willing, productive workers there are, currently sitting idle. (A Three-fer for Krugman)

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