Links 5/29/09

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The Consolation of Animals Richard Coniff, New York Times Happy Days, The piece is nice, but the very existence of this blog (“The Pursuit of What Matters”) is a real sign of the times.

The Obama Time Capsule (hat tip reader lambert). I am not sure what to make of this…and it does seem to be serious.

Stupid Burglar Nabbed by Backup Program Bruce Perens

G.M. Plan Gets Support From Key Bondholders New York Times and Hopes rise for fast GM bankruptcy exit Financial Times. Both stories report progress on the GM bondholder front, with the FT more positive, in keeping with the headline. The Times article is much more detailed on the state of play and seems more credible.

Proposal for US bank regulation draws flak Financial Times

Making Sausages, Data in China Wall Street Journal (hat tip reader Michael)

Insight: Recovery not as easy as U, V, W Gillian Tett, Financial Times. A balanced and useful reading.

The Inefficient Capital Markets Hypothesis Steve Lubben, Credit Slips

The Big Inflation Scare Paul Krugman

A Return to a Nasty External Dynamic? Tim Duy, Today’s must read. Directly addresses the Treasury yield issue which Krugman pointedly avoided.

Antidote du jour, from reader North:

I’ve attached a picture of a goat from my trip to a goat dairy outside Philadelphia (the only place I’ve ever seen chubby dairy animals – the owner really loves his goats). The goats were, if possible, even cuter than they look in the photos, and because they’re bottle-fed, they’re friendly as puppies.

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  1. Brick

    Paul krugman’s argument has a hole in it the size of a barn door, Namely that he assumes no impact from the change in value of the dollar and that decisions outside the US have no impact.
    Tim Duy’s argument is much more credible with an increase in headline inflation, and inflation expectations among the general public, while there is continued weakness in the US labor market.

    In other words once the inventory bounce is over the US will go into a very slow steady decline until house prices and commerical real estate prices begin to bottom. Although some states are well on their way some are only starting down this path.

  2. attempter

    The Obama Time Capsule is funny. It’s like the political equivalent of those “poetry yearbooks” where you can submit your lousy rhymes and get them printed along with those of other poetasters, if you buy the yearbook.

    It’s not even as good as paying a porn star or baseball player to sign something you had to buy (at least there your hero actually signed it).

    Exploiting the Obama cultists…(Are there still a lot of those left?)

    Of course, plenty of politicians have engaged in the same exploitation. Nothing new there.

    On a much happier note, I too like the NYT animal blog. It’s a nice, human interlude in the generally grotesque news cycle.

  3. Richard Kline

    Duy’s ending summary to his post was useful and timely. An important additional post this week, to which he alludes indirectly, was one by Brad Setser on Wednesday regarding foreign purchases of US Treasuries. The key point in the analysis of Setser and his colleagues is that purchase of long Treasuries has collapsed to near trivial sums. Yes, foreign central banks are continuing to buy short Treasury debt as a way of holding their currency positions.

    Who will get stuck with long, soft $ T-notes? That is the current question. Clearly, foreign central bankers are saying “Rap, rap; no taps back.” But the Fed has indicated that it isn’t going to be the long Treasury market, either. That means that private US investors are the ones expected to buy up long $ T-bills by the boatload. And as of Wednesday they served notice that they will be charging more for it. A corrollary conclusion from that result is that the peak of the dollar unwind has passed for now. Going forward, those buying dollars will be doing so for reason of opportunity, not necessity. Hence again, long rates are pushed up to profit from a maximum spread.

    Rather than recap Duy’s useful freeze-frame picture of inflationary pressures of the moment, I’ll add one observation to what he surmises. The key issue here isn’t where US policy rates are or are shifted to but rather the where the volume of debt issuance by the Treasury is going to land, at what cost, and with what result. ‘It’s the debt, stupid,’ might be the observation.

    Regardgin Krugman, I’m with you, Brick. He takes no interest in the effect public debt issuance has on the $. In this, he is at least consistent. His concern from the beginning has been stimulus support for the _domestic economy_. This is comparable to reasoning only regarding the variables inside a box (the domestic economy), and generally good reasoning. However, the volume of $ debt being issue changes the shape of the box, in my view, with relevant implications for what happens subsequently within that box, and that seems to be a prespective Paul is reluctant to countenance. Or perhaps more accurately given his qualifying statements in that article and elsewhere, reluctant to identify as a major and relevant force as of today. Since changes to the shape of the box, particularly inflationary changes, are not yet in view while other problems manifestly are, a not unreasonable perspective if one somewhat unfortunate. Krugman’s angle that much of the ‘Inflation is coming’ hue and cry in the political arena is from right wing opponents intervention in the domestic economy true enough, although yes-also even a herd of blind pigs can stumble upon an incipient brush fire on occasion.

    The problem here is that changes to the shape of the domestic-economy box are likely to be discontinuous, as for example the sideways speculation in oil last year. All we are likely to know is that massive issuance of soggy Treasury notes which no one wants to hold long at present rates will change interest rates and the dollar. There may be very little notice to where the critical point in volume is, but past it once the relationship shifts it will be hard to shift it back.

    ‘Where’s the revenue, stupid?’ should be the question, but everyone charged with answering that is pointedly too busy to answer it.

  4. Charles

    “And the United States itself emerged from World War II with debt exceeding 120 percent of G.D.P. In none of these cases did governments resort to inflation to resolve their problems.”

    Surprising statement from Krugman ! Real interest rates were strongly negative between 1940 and 1955.
    using inflation rate from BLS and T-bill rate for the Fed one finds an accumulated loss of value of circa 40%. I.e. 1 dollar invested in t-bill for 15 years from 1/1/1940 (without taxes…) had a purchasing power of 60 cents on 1/1/1955 !
    60% of 120% makes 72%, which is not far from the 60% Debt to GDP ratio that was prevailing in 1955. So inflation was a large part of the solution.

  5. Hugh

    I once was on a site where Krugman was. I blasted the policies of both Paulson and Bernanke. Krugman never did address the substance of my criticisms, but he did come up with a strange statement where he said that he owed his job, and hence a lot of his career, to Bernanke who hired him at Princeton and he really wasn’t going to criticize him.

    Although I enjoy reading him and often agree with him, Krugman has holes and weaknesses in his ideas. In particular I do not give much weight to anything he has to say that touches in any way on the Fed.

    Richard Kline: “where the volume of debt issuance by the Treasury is going to land, at what cost, and with what result.”

    I agree. In the run up to the meltdown, we saw that risk could be pushed around through various securitized instruments but it could not be eliminated. It could even be magnified. The same is true with bank losses. These can be traded back and forth between the Fed and banks but they are still there. It looks like the game plan is to dump them on taxpayers and the question becomes how will they pay them. Krugman doesn’t have anything to say on this.

    The one area where I would change anything in your assessment is that speculation in oil isn’t something that just occurred last year. It is happening again right now. Given a depressed world economy and abundant supplies of oil, there is simply no other explanation for the run up in oil price than the same excess speculation we saw last year.

    The investment banks may have changed their names but they never really went away. Now they have some money and lots of clients who need to make up losses in other areas. Yet almost everyone seems anesthetized to it. There are still a lot of people out there who still argue that last year’s spike was all about supply and demand.

  6. porttfe

    Money doesn’t grow on trees for most of America. We sit down at our kitchen tables and write out checks to the phone-company, electric company, credit card-company, mortgage-company, and auto finance company every month. We clip coupons and go to the grocery store every week to put food in the mouths of our children. This is what our parents did before us.

    bankers selling our childrens futures..for more bailouts? the disgrace. it’s horrible. too big to fail needs to fail. we neeed LESS bailouts. If you fail U fail. Tons of informative articles.
    I came across this interesting site..check it out Econ & Finance Articles Updated Daily

  7. Clark

    Yves: Regarding The Obama Time Capsule, I can understand your confusion. Let me take a stab at it: It’s a cheesy example of a 21st century techo-fascist appeal to morons with extra cash to burn. I’m sickened. The fascinating part is the “You and We are One” kind of hokum . . . I think that BHO is so good at this that it’s going to become kind of a trademark of his. Brought to you by BigBrotherBrands, LLC, a 501(c)(3) organization.

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