Links 12/1/10

These kids eat nothing but fast food: SIX hungry cheetah cubs learn to hunt with mum Daily Mail (hat tip reader May S). The photos are adorable.

Goldman challenged on trading code Financial Times. This could get very interesting.

Brussels launches formal Google probe Financial Times. Shades of Microsoft.

Senate passes sweeping food safety bill Washington Post

How Does Our Fiscal Security’s Fiscal Blueprint Work For Climate Hawks? Mike Konczal

Does more economic activity mean more driving? Felix Salmon

Has Botox had its day? Guardian

Russians Refuted US Claim of Iranian Missile Threat to Europe TruthOut (hat tip reader May S)

The United States of Fear Tom Englehardt

Robert Fisk: Now we know. America really doesn’t care about injustice in the Middle East Independent (hat tip reader May S)

Before Business Leaders, Bernanke Discusses Unemployment’s Toll on Americans New York Times. Do you see what is wrong with this picture? Bernanke is talking about job creation of a group that is dominated by mega corporations. Earth to base, in the last expansion, large and medium sized corporations shed jobs! And predictbly, one of the corporate chieftans, the head of IBM, is using his face time to lobby for more deregulation, when there is no reason to believe that will promote jobs (indeed, some types of regulation, for instance, for greater fuel efficiency, have actually spurred innovation. Detroit did itself a huge disfavor in fighting fuel economy rules, it ceded much of the global market for cars to manufacturers in countries that accepted these restrictions).

States Lift Spending After Spell of Cuts Wall Street Journal

Charles Ferguson (Inside Job) on Charlie Rose Barry Ritholtz

The financialisation of commodities Ke Tang, Wei Xiong, VoxEU

Europe Examines Ways to Quell Its Debt Crisis New York Times. OK, I hate to sound churlish, but when I ran posts months ago saying what a train wreck was coming, I got all sorts of hell from European readers. And what has come to pass?

U.S. Treasury Envoy to Visit Spain as Portugal Faces Downgrade Bloomberg

Why the Irish crisis is such a huge test for the eurozone Martin Wolf, Financial Times

Trichet hints at bond purchase rethink Financial Times

Ireland: The Rise & the Crash Ian Jack, The New York Review of Books (hat tip Chris Whalen via Joe Costello)

The Disastrous Consequences of a Return to the Deutsche Mark Der Speigel (hat tip reader Mikkel F)

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  1. dearieme

    “when I ran posts months ago saying what a train wreck was coming, I got all sorts of hell from European readers”: my dear, you’re lucky you weren’t burnt as a heretic. The euro is a religious orthodoxy.

    1. MyLessThanPrimeBeef

      I think Calculated Risk was wondering how to add ‘B’ to PIIGS yesterday.

      I suggest Bi-Pigs…they can both default and regain their sovereingty, two ways.

      1. MyLessThanPrimeBeef

        Before Belgium joined the party, one could have called them iPigs, but you would have to check if Apple had trademarked that already.

      2. Diego Méndez

        I’m afraid we’ll get more and more letters faster than you could create acronyms with them…

    2. Richard Lyon

      I have exactly the same experience in attempting to discuss the issue on American and European blogs. The established EU faith is that all criticisms of the EU can be dismissed as a malicious American invention. Such an inability to deal in reality is a direct path to extinction.

  2. Diego Méndez

    “OK, I hate to sound churlish, but when I ran posts months ago saying what a train wreck was coming, I got all sorts of hell from European readers. And what has come to pass?”

    My excuses. You were right. The euro, as love, works through a spell of eternal union. Once your partner deceives you and shows there was no long-term, real consideration for your wellbeing, the spell disappears.

    Entzauberung. It all comes down to a German word.

    1. Foppe

      (See also my point below) And I think what played a large role in Euro reader unwillingness to accept the Euro had caused at least as much trouble as it’s been worth is that we believed it would be a good thing to have, or at least something that is neutral. However, the banks seem to just have taken the creation as permission to invest money in whatever way they liked, consequences be damned.
      And at least we citizens did not sign up for the Euro for it to be a tool of international ROI-seeking finance.

      1. Hunman

        “And I think what played a large role in Euro reader unwillingness to accept the Euro had caused at least as much trouble as it’s been worth is that we believed it would be a good thing to have.”

        I have always been critical of the way the euro was implemented. Speculative attacks like we see now were entirely predictable, even without imagining a global financial meltdown.

        But I think as Europeans, we should be very wary of the armies of eurobashing commentators currently filling the pages of our competitors’ financial media. Whether its plain old europhobia or a calculated attempt to weaken economic rivals’ credit ratings – or even to force them into the devastating appreciation that would follow a split – Europeans, as well as serious and independent journalists from elsewhere, should always first consider the source of this euro-alarmism.

        1. Foppe

          If Euro leaders are really that concerned about helping their fellow member states, then please explain to me why senior Irish bondholders and the like are not expected to share in the suffering that’s now being heaped on the Irish.
          Also, the “devastating appreciation that would follow a split” only applies to NL/DE/(Fr?), all other countries would probably depreciate, and be better off. So whose concerns should be weighed to be more important?

          1. Hunman

            In a sense, the euro is actually delivering just that: a moderate depreciation caused by the debt crisis benefiting the export sectors of all member states. And lower borrowing rates with which the more solvent (or less insolvent) countries may compensate weaker ones for the deficit in depreciation, with guarantees that amount to some form of credit risk dilution.

            This seems like an optimal solution given the alternative: depreciation and even higher borrowing rates in the South, and appreciation and (probably somewhat) higher rates in the North.

          2. Foppe

            Which would be great for the Southern Eurostates if they actually needed to borrow more. However, they don’t, and the only reason they *do* need to borrow is because they’re expected to pay back everything northern predatory banks have lent them, whereas the Northern nations do feel the need to lend, because those “moderate” lending rates are much higher than what they can get by lending to ‘Northern’ borrowers. Never mind that they were all doing it, creating the current crisis.

    2. Swedish Lex


      I have been involved in European affairs since the yearly 90s when the euro was still a distant goal that at the time seemed unrealistic. But the single currency was succesfully launched despite the batallions of critics who said that the thing would never fly.

      I have always supported the euro and also supported the pro euro side in the Swedish referendum which was narrowly lost (from my point of view).

      However, it was always obvious to me that the euro would not be sustainable unless new Treaties on a fiscal Europe were adopted too. I used to challenge my Brussels friends saying that there was a 10% risk that the euro would not survive its tenth birthday and that the first major crisis for the euro would determine the currency’s long-term viability.

      So, when the lamps began flashing red in 07 I was hoping that the various European leaders would have seen the clear and imminent danger. But unfortunately, in my view, decision-makers just kept on doing to the wrong thing and acted far too late through improvisation. A year ago, the train had left the station and since then it has merely been a matter of time.

      We will see if there will be a euro 2.0 with a more limited number of states and a EU Treasury although I very much doubt it.

      Merkel and Sarkozy will go down in history as the couple that dropped the ball.

      1. Diego Méndez

        Swedish Lex,

        funny. I had an informal conversation the other day about whether the euro breakup was to be expected from day 1, and whether the European leaders did well 20 years ago to blueprint an EMU with no fiscal union.

        Our conclusion: there was only a 10% probability to have a once-in-a-century financial crisis in any decade. Thus, it was a rational decision to push for an incomplete euro: 9 out of 10 times, it would have survived its first decade and maybe it could have been completed later.

        Funny how we both got at the 10% figure. And yes, the European leadership doesn’t deserve any horse-riding statues in our towns.

        1. alex

          “there was only a 10% probability to have a once-in-a-century financial crisis in any decade”

          Unfortunately “once-in-a-century” events seem to happen about every 10-20 years.

      2. carol

        Lex: “Merkel and Sarkozy will go down in history as the couple that dropped the ball.”

        Not so fast. It is not (yet?) a given that they will undemocratically act against the Maastricht treaty and the eu constitution. Anyway, Kohl and Mitterand have already gone down in recent history as having dropped the ball.

        In todays links is a Spiegel article about the “disastrous” return to the D-mark. The arguments against a euro break-up are very weak and empty. Aren’t there are any real, strong, convincing ones?

        1. Foppe

          Actually, it would be quite bad for the German economy, as they would have to switch from export-based to internal-consumption-based living, which would cause inflation, which would probably make it a lot harder to meet the pension requirements that are coming up. But I’m not quite sure that gives them the right to shaft Spain etc…

    3. rental_paradise

      The euro, like every other singe currency in Europe’s history will be replaced at some point. What is so mysterious about that?

      And that a currency union doesn’t replace default risk (broadly defined, and more along the lines of a thought experiment) will be just as obvious when the first American state defaults – and yet oddly, no one will talk about how the break up of the U.S. is just around the corner. After all, American states are forbidden from issuing any currency but those backed by gold and silver, much the same way that eurozone countries are not allowed to issue euros at will.

      What many people in the U.S. don’t quite grasp is how useful a single currency has been in daily life throughout basically all of the eurozone – leaving aside a certain reporter’s account a couple of years ago how people in Germany were critically examining where euro bills were printed, which remains one of those stories that absolutely no one else who actually lives in Germany has ever been able to confirm. Or how the eurozone default crisis is not merely contained to the euro – Ireland and the UK’s banks have a very intricate relationship, none of it looking particularly promising for the pound.

      Someday, the euro, to focus on just one country’s currency, like the mark (and its step child the other mark), the previous mark, the mark before that mark, and the mark before that one, stretching back to the currency union which Bismarck can be considered the father of – well, currency union might not exactly be the most accurate way to describe imperial conquest though – will be no more. (Though oddly, Bismarck’s ponzi pension scheme has never actually stopped working, even as currencies and governments come and go – the reason is simple. It isn’t a ponzi scheme, it is a redistribution system, a ‘generational contract’ as it is called in Germany – yep, Bismarck would make a modern American Democrat seem almost reactionary in this regard.)

      A fact most likely to elicit giant yawns from most Europeans, apart from knowing that they will lose a certain convenience throughout the no longer eurozone. And raising the costs of companies now needing to deal with exchange rates again.

      After all, a decade ago, they were using other money anyways.

      This is one of the more interesting perspectives to see in this discussion – Americans are not familiar with even the idea of bills and coins simply being declared as no longer valid, while just about every European (including the Swiss, who are quite rigorous in declaring previous notes no longer valid in commerce) experiences this several times throughout their lives.

      What would be interesting is to see whether some of the more hysterical reporting confusing the EU and the eurozone will prove to be more prescient than the hopes which a number of the euro’s planners pinned on a common currency leading to a common economy, a seemingly logical step in the light of the creation of a common market.

  3. Foppe

    Martin Wolf’s article is nice. However, I wish he had focused a little more on the other side of the lending-to-(Es/Ir/Pt/Gr). That is, on the fact that the banks who lent the money to the Irish banks did so not because they had suddenly figured out that these economies were safe to invest in, but rather merely because they no longer feared the power of devaluation/sovereign default because of the Euro.
    And the only reason they did so was because they were generating returns that were “too low” at home, because the risk there was nonexistent and the credit markets were already fully funded.
    So because there was too much money around by way of savings, which had led to too-low returns, these banks (and pension funds? I’m not very clear on who funded it) decided to lend massive amounts to these economies, just so they could make interest. And look at what’s happened now: because they wanted higher returns, entire economies are being austered out of existence, while the money is gone anyway.
    Was the need for returns really that high that everything had to be risked in order to invest just a little bit more, hoping for returns that were just that little bit higher? Why doesn’t anyone talk about this feature of the need for ‘growth’? Because it seems to me pretty dangerous to see that, in times when there is a lot of money floating around in the system, it will be invested in such a way that crises of whatever sort start to happen regular as clockwork. All because we’ve all adopted a belief in the eternal “growth” is possible meme, rather than taking a more nuanced position with regard to how likely this is to be possible.

    1. Pwelder

      That Martin Wolf piece is pretty good even by his standards, and a definite keeper. Here’s a few sentences that resonate on this side of the pond:

      “The Irish banking system is worse than too big to fail; it is too big to save. The first duty of the state is to save itself, not to load its taxpayers with obligations to rescue careless lenders. If the eurozone is not a “transfer union”, that has to work both ways: taxpayers of one state should not rescue those of others from having to save their banks from their follies.

      The Irish state should have saved itself by drastic restructuring of bank liabilities. Bank debt simply cannot be public debt. If bank debt is to be such debt, bankers should be viewed as civil servants and banks as government departments. Surely, creditors must take the hit, instead.”

      Yep. Where’s Wright Patman when we really need him?

    2. Ming

      Let’s be more specific…. The European banks engaged in massive credit
      creation, and allocatted this credit based money to various speculation based activities… And Despite their poor judgement in placing those
      bets, they want the taxpayers of Europe to bail them out. It’s too bad they did not spend that credit based money on something useful, like medical research or green energy or space exploration, at least they would have
      gained plenty of new knowledege and may have solved
      an important world issue ( or two).

  4. Hunman

    “OK, I hate to sound churlish, but when I ran posts months ago saying what a train wreck was coming, I got all sorts of hell from European readers. And what has come to pass?”

    What has come to pass? A barrage of pumped up stories on European sovereign debt in anglosaxon media that have consistently ignored facts, figures and economic fundamentals in favor of a self-fulfilling alarmism driven by ‘perceptions’ and ‘market sentiment’ has now succeeded in sinking another small euro country through senseless speculation.

    Sabotaging the railway, then priding yourself on predicting a trainwreck is not just churlish. It’s pathetic.

    1. Diego Méndez

      The only people who have consistently ignored facts, figures and fundamentals are the European leaders, and especially so the German leadership.

      1. Hunman

        If the Germans had implemented the eurozone in order to use it as a dumping grounds for their underpriced exports – I assume you refer to some version of that ridiculous narrative – then why were they the ones to insist on fiscal discipline and the Maastricht criteria?

        1. Diego Méndez

          I’m sure all euro-countries created the euro in order to have a larger voice at the global stage, and their objectives were honest.

          However, it was the current euro and German leadership that have brought the euro breakup past their point of no return.

          Had Merkel rescued Greece at the very first moment and defended publicly their stance, we wouldn’t read all kind of culturalist (or rather cultural supremacist) German opinions against euro bail-outs and Southern countries, and hence against the very existence of the euro.

          Merkel was the first among Germans to express a vision of cultural supremacism (the “schwäbische Hausfrau”, the Swabian saving housewife) and let the euro crisis explode.

          We could be growing now (all of Europe), had the ECB slashed interest rates since the very first moment, and had the German leadership pushed for a pan-European, deficit-spending, fiscal federation. On contrast, we are going for CreditAnstalt II.

          1. Hunman

            “we wouldn’t read all kind of culturalist (or rather cultural supremacist) German opinions against euro bail-outs and Southern countries, and hence against the very existence of the euro.”

            Do you read German at all? The opinions you mention are actually sparse in quality German media. Nor would Germans have much reason for it, because their economy is booming. Most recognize the benefits of a weaker euro. Their historical fixation on a strong currency is a persistent market fable.

            The “pan-European, deficit-spending, fiscal federation” you mention is coming about, even if it is by default.

          2. Diego Méndez

            Yes, I can read German perfectly. Not that you’d need it to know German opinions.

            Mainstream media has somewhat moderated their hysteria post-Greek bailout (a hysteria made by Merkel), but it would be unpalatable for the German public, after so much brainwashing about German culture’s financial superiority, even a minor proposal about a EU fiscal federation.

            They’ve been brainwashed, and keep on being brainwashed, that the PIIGS’s wrong behaviour is the cause for their current crisis. Which it isn’t. The real cause is purely financial and euro-related. It doesn’t matter whether you are Irish, Spanish or Swabian, a decade long of negative real interest rates followed by global deleveraging and no fiscal nor monetary policy margin, puts you in this mess.

            And let me tell you something: the real consequences of German current policies will be most felt in Germany, starting as soon as the euro breaks up.

  5. rjs

    Senate passes sweeping food safety bill

    guess this means i cant cart any of my excess produce into the hunger centers in cleveland anymore…

  6. Bas

    Diego Méndez says:
    ‘after so much brainwashing about German culture’s financial superiority’

    Since you say you read German, could you point me to MSM articles by serious Germans expressing ‘financial superiority’ or ‘cultural supremacist’ views?

    You seem to have some issue with the Germans (or more likely, with yourself) but you’re only embarrassing yourself with these shrill accusations of ‘brainwashing’ and your cheap Godwin-type attacks.

    Populist anger erupted mostly around the Greek bail-out. And rightly so, because only in Greece was public sector overspending and deception of eurozone partners the root cause of the crisis.

    1. Diego Méndez

      Populist anger erupted mainly after the Greek bailout because Merkel did everything in its power to lead that populist anger, starting with the “schwäbische Hausfrau” line.

      Of course, Greek housewives can’t manage money… only Swabian ones, it seems. That’s what I mean by cultural supremacism.

      I would be blind or deaf if I couldn’t read nor hear in lots of opinion pieces and talkshows the idea that Northern Europe is “diszipliniert” while Southern Europe lacks discipline. That’s, simply put, false. The real cause for the current mess is the euro – even if Greece had been as fiscally disciplined as Spain, it would be in the current mess.

      And please don’t get me started on all the lies that have been said about Greece. Can’t you see any brainwashing?? Even *beer* ads had its fair share of brainwashing about how much Greece owed Germany (when, in fact, the German leadership did everything in its power to slow the European-wide bailout package for Greece, sowing the current crisis):

      Let’s get this clear: Greece, Ireland, etc. haven’t received any gifts from Germany. Germans are being brainwashed that they, in fact, have been giving money for free.

    2. auskalo

      I’m sorry Bas, but the Greek crisis is a drop of water in the euro-crisis.

      The germans and the ECB have been so stupid that one can only hope they will react when they see the debts of german banks in Ireland and Spain.

      In the eve of the crisis the ECB was tightening rates and if the euro breaks up, they will deserve the results.

  7. armand eddon

    On safety:

    Primitives thought photos captured souls, but what have we to fear from electronic images? TSA privacy invasion whining seems childish considering the thousands Iraqi/Afghan/American killed/maimed in the name of War on Terror. Thanksgiving/Christmas are nigh. Maybe for 31 days America can show more concern for others’ real suffering than childish embarrassment about our own electronic images?

  8. dearieme

    The euro was so badly designed that it was bound to fail. I conclude that it must have been a British plot. Or, just possibly, that the people who designed it were reckless fools.

  9. EmilianoZ

    Julian Assange gave the material to mainstream media. But there’s no guarantee they will report the interesting stuff.

    Amy Goodman on 2 wikileaks stories I haven’t seen anywhere in the US press:

    “El-Masri was snatched in Macedonia as part of the CIA’s secret extraordinary rendition program, in which people are taken by the U.S. government and sent to other countries, where they can be subjected to torture. He was held and tortured in a secret prison in Afghanistan for months before being dropped by the CIA on an isolated road in Albania, even though the CIA had long established that it had grabbed the wrong man. El-Masri, a German citizen, sought justice through German courts, and it looked like 13 CIA agents might be charged. Then the U.S. Embassy in Berlin stepped in, threatening, according to one cable, that “issuance of international arrest warrants would have a negative impact on our bilateral relationship.” No charges were ever filed in Germany, suggesting the diplomatic threat worked.”

    “Couso was a young cameraman with the Spanish TV network Telecinco. He was filming from the balcony of the Palestine Hotel in Baghdad on April 8, 2003, when a U.S. Army tank fired on the hotel packed with journalists, killing Couso and a Reuters cameraman. Ambassador Aguirre was trying to quash the lawsuit brought by the Couso family in Spain. The U.S. ambassador was also pressuring the Spanish government to drop a precedent-setting case against former Defense Secretary Donald Rumsfeld and other Bush administration officials. In that same memo, Aguirre writes, “The Deputy Justice Minister also said the GOS [government of Spain] strongly opposes a case brought against former Secretary Rumsfeld and will work to get it dismissed. The judge involved in that case has told us he has already started the process of dismissing the case.””

  10. kravitz

    Live from Dodd Part 2 on Mortgage Mess – Terence Edwards, executive vice president for credit portfolio management at Fannie Mae, said in his opening speech that Fannie Has a one track foreclosure process. But… Freddie Mac Executive Vice President Donald Bisenius said the so called dual track process is okay, and Ed DeMarco, citing FHFA director, backed hem as well.

    So Fannie and Freddie can’t do anything to deal with servicer reform because they don’t agree how to do it themselves. They’ve been trying to do it with influence, Edwards says. But within the GSEs, they don’t agree if it’s more humane to stop a foreclosure when a consumer came looking for help.

    Fannie and Freddie still seem to think banks matter more than people.

  11. Doug Terpstra

    RE: Robert Fisk and US indifference to injustice, Fisk presents no single earthshaking scandal or outrage but rather the pervasive impression of a mercenary lack of empathy from a petty and paranoid, soulless empire (and partners) whose only mission is power and conquest.

    This larger picture is even more disturbing overall than any single gotcha. It’s a pathetic picture of the US’s grovelling posture before Mossad and Israeli leaders, arguably the genesis of our ruinous and wicked wars. Could this have anything to do with Zionist concentration in banking and lobbying?

    Undoubtedly it is for this same reason that the NYT highlights WikiLeaks revelation of Arab leaders wanting the US to target Iran. Well, quelle surprise, the puppet monarchs and princes utterly reliant on US military for repression of their own population are now parroting US saber-rattling.

    How Orwellian it is that Interpol launches an international manhunt for someone suspected of “sexual misconduct” for the first time in world history—and, meanwhile, we have war criminals doing public book-signings; torture-lawyers serving as honored professors; CIA spooks receiving Presidential Medals; traitors like Libby getting pardons; and war-mongers like Kissinger and Obama awarded peace prizes for decade-long quagmires for corrupt narco-lords.

    We should never ever take too seriously this cosmic comedy we call reality.

    1. Richard Kline

      The sheer, peevish pissantry of power’s response to citizen action is indeed telling. Power demands that, on principle, we grovel. If we don’t, even if the issue is marginal, even if the issue is trivial, power will slap back. We have reduced to a single, perfect example the moral vacuity of nation-states in perfect illustration. No state has ‘a right to be respected,’ and any state action is always accountable to those who constitute the populace—though power will always take the view diammetrically opposite to that. That the actors of a state, any state, feel threatened by a disclosure such as those on Wikileaks is perfect illustration of the illegitimacy of their mean, ends, agents, and agendas. If they are right, they need fear no exposure; therefore if they fear, they should so fear.

  12. MyLessThanPrimeBeef

    ‘Life as we don’t know it’ will be unveiled by NASA tomorrow, according to The Telegraph.

    I hope that means more antidotes du jour.

  13. Maju

    On the Der Spiegel article (Witte):

    A return to the Deutsche Mark “… would make German goods dramatically more expensive abroad, which would result in a serious competitive disadvantage, especially since roughly 40 percent of German exports go to other euro-zone countries”.

    Let’s face the fact that the €uro is nothing but an expanded Deutsche Mark, with whatever minor qualifications. In practical terms all the other Eurozone countries have been required to adopt an extended version of the DM. This is good for Germany but bad for most others. It worked while the bubble was on but it’s not anymore desirable nor useful for the vast majority of Eurozone countries, who would obviously be much better with a weaker currency.

    This would no big deal if the ECB worked for all the Eurozone in equal terms but the ECB works for the Paris-Berlin tandem, which is not obviously representing well the interests of all Europeans but only those of the founder core.

    It doesn’t matter much for us (the non-core Europeans) if Germany is in or out, what matters is which is the monetary policy of the ECB. If we would get a better (more relaxed) monetary policy from the ECB in exchange of Germany leaving the euro, we’d be better. Germany (and France, Benelux, UK) almost only floods us with their underpriced goods in a dumping scheme that has only a very short run and is pathetically colonialist and arrogant. They buy little in exchange.

    The only solution for the periphery is to drive real costs lower: cheaper homes and such would allow for lower comparative salaries and this could be achieved by controlled inflation without major risks (with the benefit of extra public investment or more relaxation with budgets).

    The periphery needs to lower costs, what means controlled inflation. But, considering where their markets are, this is also necessary for the core. They should not just kill the hen of the golden eggs: it’s plainly stupid, extremely narrow-sighted.

    Is it time to get rid of the €uro or is it time to rethink the policies of the €uro? The latter is the correct answer but is it possible within the current decission-making system (even after the Lisbon Treaty)?

    1. alex

      “Germany (and France, Benelux, UK) almost only floods us with their underpriced goods in a dumping scheme that has only a very short run and is pathetically colonialist and arrogant. They buy little in exchange.”

      Now you understand how Americans feel about China and its manipulated, pegged, undervalued currency.

      1. Foppe

        But what the Americans would do well to recognize is that they were perfectly happy with it until they were presented with the bill. And then to recognize who, in very large part, created and funded the Chinese manufacturing sector: Western investors+expertise. And then figure out a way to deal with that. Free trade is fine, but unrestricted capital flows may well not be.

  14. Sundog

    The Wilmot team at Credit Suisse has a notion of “effective money” that seems very sensible and deserving of wider recognition.

    Effective money, our favored broad money aggregate for the US, is the sum of plain old bank money – M2 or savings and checking deposits – and shadow money, which is based on the outstanding value of liquid debt securities which can be repo’d quickly for cash.
    Effective [US] money was $27.7 trillion in February 2007 and collapsed to $25.7 trillion by late 2008. Much of the fall was in private shadow money, which suffered from a collapse of funding liquidity (rising haircuts), a sharp fall in bond prices, and very weak net issuance. However, this deflationary shock was offset by a public balance sheet expansion. Later in the recovery private shadow money rebounded, and our latest estimate of effective money is now $33.8 trillion.
    [The $6.1 trillion expansion] represents just 5.3 per cent annualized growth since Feb 2007 – obviously much more than nominal GDP but not a money stock spiraling out of control.

    Short post, great reality check; part of a terrific one-day project at FTA.

  15. Richard Kline

    On a newsy day, Tang and Xiong’s paper on speculative linkage in commodity pricing gets a bit less love than it deserves. It’s a nice study, and validates the position of Yves and others a few years back now that the spike in commodity prices during the instability peak of the present financial crisis was ‘unnatural,’ not something produced by demand. The finding that, for example, prices did _not_ spike inside China for some of the commodities whose prices on did spike on international markets, i.e. in the US, is a telling one as well. A good example of after the fact economic forensics at work, and a basis for reasoning about causes of effects in price movements in the near term to come.

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