Category Archives: Economic fundamentals

Satyajit Das: European Death Spiral – Mission Unaccomplished

In early 2010, drawing on the military leadership of President George W. Bush, European leaders declared the economic equivalent of “mission accomplished”. A bailout – whoops support! – package of Euro 750 billion had shocked and awed speculators into submission. Like the Bush pronouncement, the European prognosis provided premature. The return of European sovereign debt problems in late 2010, culminating in the bailout of Ireland highlighted the deep seated and perhaps intractable problems of some over indebted European nations.

Would You Be Bullish About A Country with Five Years of Negative Real ROE?

Hat tip reader Michael Q:

Is a Tainter-Style Collapse in Our Future?

Gloom, doom, and apocalyptic musings seem to be a permanent feature of modern society. But we’ve had more in the way of dystopian movies and talk of imperial decline in the last ten years than in the preceding ten.

Quite a few readers have taken to mentioning Joseph Tainter’s classic, The Collapse of Complex Societies, in comments, a sign it might be worth discussing formally.

Auerback: Drinking the Austerity Kool Aid in 2011

By Marshall Auerback, a portfolio strategist and hedge fund manager; cross posted from New Deal 2.0

What’s coming in 2011? We asked thought leaders to share their perspectives on the biggest challenges for the year ahead, along with the changes they’d like to see and the hopes they cherish. Marshall Auerback explains how misguided attempts to reduce the deficit kill jobs, squeeze the working and middle classes, and inflate crude oil prices. And a corrupt political system doesn’t help.

The beginning of the year always seems a good time to lay out some broader themes which could develop throughout the year, good and bad, so here goes:

Amherst Securities: Investors Underestimating Severity of Housing Problem

Amherst Securities, whose mortgage research is well respected, published a new article on Monday which gives a sobering reading of the prospects for the housing market. It gives a detailed analysis of default rates among performing and non-performing mortgages, and concludes that the outlook is far worse than most investors assume.

How the Other Half Lives

Even though most people face some form of financial stress in their lifetime, and the financial crisis upended the affairs of many who had been comfortable, the poor and near poor contend with ongoing difficulties.

Floyd Norris Repeats “Big Banks Are Necessary/Desirable” Canard

Aargh, can someone please acquaint economists with the economics of banking? Consider the embarrassing premise of a piece by Floyd Norris of the New York Times:

If big banks start failing again, what will replace them?

“Summer” Rerun: Should the Fed Be Independent?

This post was first published on June 6, 2008

An article in today’s Wall Street Journal, “Insider Joins Critics of the Fed, Faulting Credit-Crisis Programs,” discusses at some length a recent speech by Richmond Fed president Jeffrey Lacker in which he took issue with some of the Fed’s recent financial services industry rescue efforts. The article itself failed to do justice to his speech, which was more nuanced than the usual “bailing out banks creates moral hazard” argument.

In fact, as we’ll discuss, the expanded charter of the Fed calls into question the appropriateness of its independence. It is increasingly making resource allocation decisions which are political in nature and should arguably be debated and determined in that realm.

Guest Post: Eurocrisis: We knew all we needed to know…

Yves here. The alternative title for this post could be “No ‘whocouldanode’ excuses for the Eurozone crisis.”

By Geoffrey R D Underhill, Professor of International Governance, University of Amsterdam. Cross posted from VoxEU

Many policymakers have reacted to both the financial crisis and the recent Eurozone sovereign debt problems as though they were unexpected. This column argues that we knew more than enough to anticipate both problems, that the evidence was easily accessible, and that the institutional and political weaknesses of the Eurozone were hardly a mystery either.

Is the Ireland Bailout About to Become Bear Redux?

Not being an expert in either the Lisbon Treaty or the rules governing the ECB, I’m restricted in my ability to interpret an article in the Financial Times and the underlying position paper at the ECB on the legality of the Irish bailout. The Irish finance minister asked for a reading on the “draft law”, which is the Credit Institutions (Stabilisation) Bill 2010. There is a certain amount of grumpy harrumphing in the ECB response, namely, that it should have been consulted earlier and its preliminary reading has been made in more haste than it would like.

Regardless, it does not take a lot of expertise to get the drift of this gist:

Dylan Ratigan on Get America Working

Dylan Ratigan is leading town hall events in various cities to help spur the establishment of a job creation movement. The goal is to push for policies that foster higher employment than the ones we’ve seen over the last thirty years, which instead promoted financialization, the use of consumer debt to paper over lack of wage growth, asset inflation and speculation, and increasing income and wealth disparity.

Ratigan wants to create a dialogue among key political groups, including ordinary citizens, investors, small business operators, and corporate leaders. His sessions will focus on four issues, as he outlined in in the Huffington Post:

Auerback/Wray: Liberals need not fear Obama’s tax deal: Why a payroll tax holiday actually helps support tomorrow’s retirees

Yves here. As much as Auerback’s and Wray’s argument does describe the reality of government fiscal operations accurately, I see their political reading as wildly optimistic. Given that disproven ideas like “trickle down economics” still hold considerable sway, I think the concerns about how a payroll tax holiday will serve as a wedge to cut Social Security benefit are valid.

By Marshall Auerback, a portfolio strategist and hedge fund manager, and L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

The commentary in the aftermath of President Obama’s announced tax deal with the GOP has been both predictable and, for the most part, misconceived….

Is It Verboten to Talk About the Securitization Buyers’ Strike?

There is a perfectly fine article up at the Wall Street Journal on the current, probably weakening, state of the housing market, save that it fails to discuss the elephant in the room, that of the continuing moribund conditions in the so-called private label securitization market.