(Paul Krugman - The Net)

There are many obstacles to taking action on climate change. Most of those obstacles have deep roots: there are powerful interest groups that don't want market prices to reflect true costs, and there are ideologues -- financially supported by these interest groups -- who don't want to admit that sometimes the government has to intervene.

But there's also, it seems, growing opposition to cap-and-trade from people who should be on the side of progress -- but whose reaction is basically "Eek! Markets!Wall Street! Speculation! Bad!"

We don't need this.

So let me talk a bit about why this reaction is 99% wrong, and bad for the planet.
(...)

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(Forbes - U.S.)

President Obama has noted that his health care plan will "probably include some additional revenue from well-to-do people." The numbers that are being discussed in policy circles will increase marginal tax rates among the highest earners substantially.

The House version of the health care plan will place a 5.4% income surtax on the highest income earners, and this surtax, combined with the expiration of the Bush tax cuts, will raise marginal tax rates about 10 percentage points. This means that states with high state income tax rates, such as California and New York, will have combined federal-state marginal tax rates that will approach 60%.
(...)

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(Newsweek - U.S.)

It's not surprising that the much-ballyhooed "economic stimulus" hasn't done much stimulating. President Obama and his aides argue that it's too early to expect startling results. They have a point. A $14 trillion economy won't revive in a nanosecond. But the defects of the $787 billion package go deeper and won't be cured by time. The program crafted by Obama and the Democratic Congress wasn't engineered to maximize its economic impact. It was mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.. (...)

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(Financial Times - U.K.)

By Clive Crook

Unemployment has already risen further in the US than President Barack Obama's economics team expected, and forecasters agree it will rise for quite a while yet. In fact, it has risen further than in the White House projections early this year of what would happen if Congress failed to pass the fiscal stimulus. A huge stimulus was enacted. Now Republicans point to the weakness of the economy and say the policy failed.

Supposing it did, was this because the fiscal remedy was misconceived in the first place? Or was it because the stimulus was too timid, as some Democrats believe, implying the need for a second round of tax cuts and spending increases? (...)

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(The New Yorker - U.S.)

By James Surowiecki

If you came up with a list of obstacles to economic recovery in this country, it would include all the usual suspects--our still weak banking system, falling house prices, overindebted consumers, cautious companies. But here are fifty culprits you might not have thought of: the states. Federalism, often described as one of the great strengths of the American system, has become a serious impediment to reversing the downturn.(...)

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(VOX EU - The Net)

The global turmoil threatens the progress Sub-Saharan Africa has made in deepening its financial sector in recent years. This column says that it is up to Africa's financial sector stakeholders - bankers, donors, and policymakers - to guide financial sector reforms in a way that maximises Africa's opportunities.(...)

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(VOX EU - The Net)

What should we conclude about the implications of the global crisis for the future of the world economy? This column, the second of a two-part series, outlines the exit strategies required for fiscal and monetary policy. It says that the crisis ought to be seen as a temporary period of turmoil, rather than a paradigm-shifting event.(...)

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(The New York Times - U.S.)

by Paul Krugman

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits -- and it's preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?(...)

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Why Africa depends on handouts (Al Jazeera - Qatar)

Barack Obama, the charismatic US president, whom I like and much respect, came to Africa bearing a message and a gift. Both spoke of Africa's need for self-determination. This was part of his message: "Governments that respect the will of their own people are more prosperous, more stable and more successful than governments that do not ... This is about more than holding elections - it's also about what happens between them (...)

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California's Green Dream (Le Monde Diplomatique - France)

America is waking up to the reality of peak oil and climate change. In California there are very different responses to the crisis: some pin their hopes on new technology, while others advocate a radical change of lifestyle. (...)

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Lessons for the future: Ideas and rules for the world in the aftermath of the storm, Part I (Vox EU - The Net )

It's time to start drawing conclusions about the global crisis. This column, the first of a two-part series, assesses the causes and nature of the problems. Although the crisis originated in financial market failings, policymakers are much to blame. Regulatory failure amplified private sector errors, and poorly planned policy responses exacerbated the troubles..(...)

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Is It Possible to Detect Bubbles? (The Baseline Scenario - U.K.

On the one hand, it seems obvious; didn't we all know there was a housing bubble back in 2006? On the other hand, if it's that easy, why aren't we all as rich as John Paulson? A while back I suggested that the Fed could spot a housing bubble by treating housing prices the same way if treats the prices that make up the CPI. If there is high inflation in the core CPI, you don't stop and ask if there is a fundamental reason for higher inflation; you tighten monetary policy (raise interest rates). The Fed could do the same thing for housing prices, since housing is an asset that people need to consume. But that's probably a simplistic view.

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Goldman's Back, and Why We Should Be Worried (Robert Reich - The Net)

Should we breath a sigh of relief that Goldman Sachs has posted record earnings as revenue from trading and stock underwriting reached all-time highs (second quarter net income was $3.44 billion) -- less than a year after the firm took $10 billion directly from taxpayers and $13 billion indirectly through AIG?

In some ways, yes. That Goldman is back signals that the worst of Wall Street's recent meltdown is over. And at least New York City's economy will again benefit from the trickle-down effects of the multi-million dollar bonuses of Goldman's executives and traders.

But in another respect, Goldman's resurgence should send shivers down the backs of every hardworking American who has lost a large chunk of retirement savings in this economic debacle, as well as the millions who have lost their jobs. (...)

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Mounting Job Losses Will Hurt Consumption, Housing, Banks' Balance Sheets, Public Finances and Lead to Protectionist Pressures (RGE Monitor - The Net)

By Nouriel Roubini

Recent data suggest that job market conditions are not improving in the United States and other advanced economies. In the U.S., the unemployment rate, currently at 9.5%, is poised to rise above 10% by the fall. It should peak at 11% some time in 2010 and remain well above 10% for a long time. The unemployment rate will peak above 10% in most other advanced economies (especially Europe and Japan), too, where social safety nets are broader and thus leading to less short term job losses and pain, but where the effects of the crisis on growth have been even more severe than the U.S.(...)

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Waiting Game (The New York Times - U.S.)

Unemployment is rising. Foreclosures are surging. Lending is still constrained. So why exactly is the Obama administration waiting to act?(...)

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The Bernanke Market (Wall Street Journal - U.S.

By Andy Kessler

We won't get real growth until Congress and Treasury get policy right.(...)

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Villains of the Piece (Megan McArdle - The Net)

Oh, the crisis has produced villains, or rather, exposed them. Bernie Madoff, Allen Stanford, et al are genuine human sewage as far as I can tell. But the crisis would have gone on just the same without Bernie Madoff, and Bernie Madoff would have gone on just the same without the housing bubble. At any given time, there is a certain amount of garden variety financial fraud going on. It tends to emerge in financial crisis not because they're actually connected, but because falling asset values expose the con.

There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis. Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis. Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates. Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth. What would be different now? Nothing of any importance, as far as I can tell. (...)

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Chutzpah on Steroids (The New York Times - U.S.)

By Bob Herbert

These malefactors of great wealth (thank you, Teddy) developed hideously destructive credit policies and took insane risks that hurt millions of American families and nearly wrecked the economy. Then they were bailed out with hundreds of billions of taxpayer dollars, money that came from the very people victimized by the industry's outlandish practices.

Now the industry is fighting against creation of an agency that would protect taxpayers and ordinary consumers from a similarly devastating onslaught in the future. And at the same time they are scrambling to raise credit card interest rates and all manner of exploitive fees to build a brand new superstructure of questionable profits on the backs of the taxpayers who came to their rescue. (...)

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Insight: This crisis is not over (Financial Times - U.K.)

By Tim Lee

Since the financial crisis began, these macroeconomic imbalances have corrected significantly. However, they have not disappeared. My own judgment is that we have seen about two-thirds of the necessary adjustment. Believing - as some do - that the credit crisis is over when these economic imbalances remain is akin to a doctor believing the patient has been cured when he still has the symptoms of the disease.(...)

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Obama's Stimulus Plan: Failing by Its Own Measure (TIME - U.S.

By Stephen Gandel

The $787 billion stimulus plan is turning out to be far less stimulating than its architects expected.

Back in early January, when Obama was still President-elect, two of his chief economic advisers, and leading proponents of a stimulus bill, predicted that the passage of a large economic-aid package would boost the economy and keep the unemployment rate below 8%. It hasn't quite worked out that way. Last month, the jobless rate in America hit 9.5%, the highest level it has reached since 1983.(...)

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How globalisation led to universal banking in America (Naked Capitalism - The Net)

By Edward Harrison

Last week, I followed up Yves Smith's excellent post on "Why Big Capital Markets Players Are Unmanageable" with "More on why big capital markets players are unmanageable." I would like to extend the discussion beyond the U.S. border into a look at how the universal banking model abroad encroached on the U.S. banking system and created a response that made the repeal of Glass-Steagall an inevitability. I begin this post with the end of the Bretton Woods system and the beginning of deregulation. These event internationalised finance in way that made universal banking a desirable business model in the U.S. and ended Glass-Steagall.(...)

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Boiling the Frog (The New York Times - U.S.)

By Paul Krugman

Is America on its way to becoming a boiled frog?

I'm referring, of course, to the proverbial frog that, placed in a pot of cold water that is gradually heated, never realizes the danger it's in and is boiled alive. Real frogs will, in fact, jump out of the pot -- but never mind. The hypothetical boiled frog is a useful metaphor for a very real problem: the difficulty of responding to disasters that creep up on you a bit at a time.

And creeping disasters are what we mostly face these days. (...)

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Two cheers for US health reform (Financial Times - U.K.)

By Clive Crook

After a frazzled week, the politics of US health reform looks messier than ever. Yet the odds on a bill passing in the end are improving. It will be an untidy thing, but if it moves the country close to universal health insurance the administration will call it a success. And on the whole, despite the avoidable mistakes this legislation seems bound to embody, that will be a fair assessment.

At the moment this view may seem unduly optimistic. The Democratic leadership in the House of Representatives had hoped to produce a finished bill last Friday. That plan came to nothing when the party's fiscal conservatives demanded further savings. House Democrats are also divided on revenue-raising measures. Proposals ranging from a fat tax on sugary drinks to a fat-cat surtax on households earning more than $350,000 a year are still being debated.(...)

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Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days (Brad Delong - The Net

The financial crisis of last fall hit the economy's levels of production, spending, and employment much harder than people thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a fiscal stimulus program as the Obama administration in fact did propose.(...)

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The Stimulus Trap (The New York Times - U.S.)

By Paul Krugman

As soon as the Obama administration-in-waiting announced its stimulus plan -- this was before Inauguration Day -- some of us worried that the plan would prove inadequate. And we also worried that it might be hard, as a political matter, to come back for another round.

Unfortunately, those worries have proved justified. The bad employment report for June made it clear that the stimulus was, indeed, too small. But it also damaged the credibility of the administration's economic stewardship. There's now a real risk that President Obama will find himself caught in a political-economic trap.(...)

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Artificial Stimulus (Slate - The Net)

By Daniel Gross

Even before it was signed into law, President Obama's $787 billion stimulus package was denounced as both too big (mostly by the right) and too small (mostly by the left) to succeed. Now, a mere five months later, it's being declared a failure across the political spectrum.(...)

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A modest step (The Economist - U.K.)

SCEPTICS could refer to an old joke about a music lover who would do anything to play the violin--except practice. The countries that emit 80% of the world's heat-trapping gases, gathered at the Group of Eight (G8) meeting in the earthquake-stricken city of L'Aquila, in Italy, agreed on a goal this week. But they failed to say how they intended to achieve it.(...)

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Lessons of the G-8 Summit: Eight Isn't Enough (TIME - U.S.

There was a time when eight was enough: The annual meetings of the leaders of the world's eight most industrialized nations (well, seven, plus Russia, which while lagging well behind in the economic stakes, was deemed a politically wise addition back in the mid-1990s) were once the unquestioned epicenter of global economic and military might. The G-8 summits staged in scenic spots around the world offered an opportunity for the key leaders of the Northern Hemisphere to chart the direction of the world economy, for thousands of protesters to gather and voice to Quixotically challenge that direction amid clouds of tear gas.(...)

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Innovation can give America back its greatness (Financial Times - U.K.)

By Jeff Immelt

Over the past few decades, many in business and government bet that the US could transform itself from an innovative, export-orientated ¬powerhouse to an economy based on services and consumption - and that we could still expect to prosper. For a time, it looked like a can't-miss bet.

Then we missed - badly. Trillions of dollars vanished, along with America's competitive edge. An economic hurricane shook our financial system to its foundation, leaving our middle class hurt, bewildered and looking for cover. General Electric was not perfect through all of this but, throughout our 130-year history, we have adapted and remained competitive.
(...)

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What India must do if it is to be an affluent country (Financial Times - U.K.)

By Martin Wolf

What will the world economy - indeed, the world - look like after the financial crisis is over? Will this prove to be a mere blip or something more fundamental? Much of the answer will be provided by the performance of the two Asian giants, China and India. Rightly or wrongly, it is widely accepted that China will continue to grow very rapidly. But what is the likely future for India?(...)

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The Great Synchronisation: What do high-frequency statistics tell us about the trade collapse? (Vox EU - The Net)

By Sónia Araújo and Joaquim Oliveira Martins

What's driving the unprecedented collapse in global trade flows? This column shows that the magnitude of the global decline reflects greater synchronisation of trade flow declines across countries. Globalisation has brought the world in sync.(...)

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The devil's punchbowl (The Economist - U.K.

Curbing Britain's dangerous banking system.(...)

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Oh, That G-8 (New York Times - U.S.)

Expectations are low as this year's Group of 8 summit meetings open Wednesday in the earthquake-damaged Italian city of L'Aquila. That is not for any lack of urgent problems, like a faltering global economy and Iran's unchecked nuclear appetites. A successful summit also could give a much-needed push to international negotiations to address global warming and revive earlier promises to help the world's poorest nations.

But inexcusably lax planning by the host government, Italy, and the political weakness of many of the leaders attending, leave little room for optimism. If this session is going to justify the time and effort, President Obama will have to lead the way. It is time for him to turn the diplomatic credit he has been earning over the past six months into diplomatic capital.(...)

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The G7/G8: Why Bother? (A Viewer's Guide) (The Baseline Scenario - The Net)

The G7 was originally conceived as a form of steering committee for the world economy (antecedents). Existing formal governance mechanisms, around the IMF and the UN, seemed too cumbersome (and too inclusive) during the 1970s, with the breakdown of fixed exchange rates, assorted oil shocks, and the broader shift of economic initiative towards Western Europe and Japan.

And the G7 had some significant moments, particularly with regard to moving exchange rates in the 1980s. More broadly, behind the scenes, it served as a communication mechanism between the world's largest economies ("coordination" is a dirty word in G7 policymaking circles). And it was probably a good thing in the 1990s that Russia wanted to join the G7 - hence the G8 once a year, although many of the most important technical meetings are just the G7.

But today, honestly, what's the point?(...)

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In Health Reform, a Cancer Offers an Acid Test (The New York Times - U.S.)

It's become popular to pick your own personal litmus test for health care reform.

For some liberals, reform will be a success only if it includes a new government-run insurance plan to compete with private insurers. For many conservatives, a bill must exclude such a public plan. For others, the crucial issue is how much money Congress spends covering the uninsured.

My litmus test is different. It's the prostate cancer test.

(...)

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Is this really a great global recession? (RebelEconomist - The Net)

In a VoxEU column that attracted significant media attention, Eichengreen and O'Rourke (E&O) present evidence suggesting that the present global economic downturn is "every bit as big as the Great Depression shock of 1929-30" and "every bit as global". In contrast, this post presents an unconventional indicator of global economic activity that shows no sign of truly global recession yet. This indicator is the seasonally adjusted atmospheric carbon dioxide concentration at Mauna Loa, Hawaii. Admittedly, the rate of carbon dioxide emission varies between different industries, and atmospheric carbon dioxide concentration is affected by natural variables such as sea surface temperature, making it a noisy indicator of economic activity. Nevertheless, atmospheric carbon dioxide does have the advantage as an economic indicator that it covers the whole world equally well, including regions where official statistics may be unreliable, and it does seem to have reflected previous major global downturns, so the absence of such a signal so far should at least raise doubts about E&O's assessment of the present episode. The explanation for the disagreement with E&O may be that their analysis gives too much weight to activity in existing developed countries, and that the prominence of the downturn there belies an ongoing improvement in living standards of a vast number of people in poorer countries, especially in Asia, that is to some extent being sustained by stimulating domestic activity to substitute for reduced export demand.(...)

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Does the US need a second stimulus package? (Naked Capitalism - The Net)

by Edward Harrison of Credit Writedowns

Laura Tyson, an advisor to President Barack Obama, said in a speech to day in the lead up to the -8 conference that the ground work for a potential second stimulus bill must be laid now. To be sure, the G-8 leaders are expected to recommend continued policy accommodation worldwide. However, Vice President Joe Biden recently suggested that the Obama Administration has no plans for a second stimulus bill on the political TV show Meet the Press (transcript here).  So, which is it - stimulus or no stimulus?(...)

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Trade policy and the crisis (VOX EU - The Net)

For most nations in the world, this is a trade crisis. Leaving China and India aside, income of developing nations is expected to drop 1.6% this year, even though these nations had nothing to do with subprime assets or the financial shenanigans that triggered the crisis. A new CEPR-World Bank e-book reports that protectionism is not yet a problem, but argues that the "fateful allure of protectionism" is a threat. To counter the threat, four concrete steps should be taken to reinforce the global trade and financial architecture.(...)

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Pope Calls for New Economic Structure (The Washington Post - U.S.)

Pope Benedict XVI today criticized the world's economic systems and called for a new global structure based on social responsibility, concern for the dignity of the worker and a respect for ethics. "Today's international economic scene, marked by grave deviations and failures, requires a profoundly new way of understanding human enterprise," Benedict said in his latest encyclical, which is the most authoritative document a pope can issue. "Without doubt, one of the greatest risks for business is that they are almost exclusively answerable to their investors, thereby limited in their social value." (...)

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The emerging V-shape recovery (China Daily - China)

Faced with a severe economic downturn at the end of last year and the beginning of this year, people are debating intensely the prospects of the Chinese economy. However, there is increasing evidence to indicate that the ongoing recovery is likely to be V-shaped. Factual evidence of a strong rebound can be found in China's steel output, electricity production, industrial value added, foreign trade as well as the Shanghai Exchange's A share index which has jumped by 65 percent so far this year. China's surprising pent-up automobile sales amid the global recession shows that no matter how radical a prediction about the Chinese economy is, it still risks being too conservative. The country is now set to break the mark of selling 10 million new cars in a year. Yet not so long ago it was still deemed too optimistic to expect that the country's car sales can reach that figure by 2015.(...)

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The food crisis will be back (China Daily - China)

By Marcos Fava Neves

The food crisis, a problem that we faced in 2007 and 2008, will be back sooner than expected. This is due to several factors, arising out of the economic and financial crisis, that are generating pressure on our capacity to supply food.
First, there has been increase in areas dedicated to biofuels. Several countries are starting production of biofuels, which is taking up land used for food production. Now the tank of our car is a competitor of our stomach. Both want food. Biofuels is not the major problem, since there are very positive results, in certain areas, of biofuels being produced together with increase in food production. But biofuels as a factor should be considered.(...)

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T Economics Unbound Can the Federal Reserve stay independent? (Business Week - U.S.)

by Peter Coy

Fed watchers note: Fed Vice-Chairman Donald Kohn is testifying this Thursday on the topic of Federal Reserve independence. It's before the House Financial Services Subcommittee on Domestic Monetary Policy and Technology. Should be interesting, coming on the heels of Fed Chairman Ben Bernanke's efforts to fend off congressional attacks, including a bill from Texas Republican Ron Paul seeking to audit the central bank.(...)

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Whatever happened to the food crisis? (The Economist - U.K.)

The FAO reckons that, to keep pace, the amount of food available in developing countries will have to double by 2050, equivalent to a 70% rise in world food production. If that does not happen, fears Joachim von Braun, the head of the International Food Policy Research Institute in Washington, DC, there could be a return to the food conflicts of 2007-08 which caused riots in more than 60 countries and set off a controversial worldwide land grab--a rush by rich food-importers to buy swathes of Africa and South-East Asia on which to grow food.

(...)

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America's Fiscal Train Wreck (Naked Capitalism - The Net)

Here's the question: can the U.S. run up a huge deficit now as long as it shows a credible plan to reduce it over the long-term? I have suggested that healthcare (and social security) be a main target of that longer-term deficit reduction plan. But, is this a trade-off that can actually work?

ek(...)

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Policy Responses to the Crisis: Implications for the WTO and International Cooperation (Vox EU - The Net)

For most nations in the world, this is a trade crisis. Leaving China and India aside, income of developing nations is expected to drop 1.6% this year, even though these nations had nothing to do with subprime assets or the financial shenanigans that triggered the crisis. A new CEPR-World Bank e-book reports that protectionism is not yet a problem, but argues that the "fateful allure of protectionism" is a threat. To counter the threat, four concrete steps should be taken to reinforce the global trade and financial architecture (...)

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We do not need a second stimulus plan (Financial Times - U.K.)

As the US unemployment rate has risen to 9.5 per cent from 8.1 per cent since the $787bn fiscal stimulus package was enacted in February, many Democrats have become very nervous. They say that another large stimulus may be needed to keep unemployment from rising well beyond the 10 per cent rate that President Barack Obama has predicted will be reached this year.

Another stimulus would be a grave mistake. The first one was justified by extraordinary circumstances. But it must be given time to work. People should not allow their impatience to lead to the adoption of policies that will not only fail to reduce unemployment this year, but could stoke inflation in the not-too-distant future.(...)

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G8 leaders must tackle low wages (Al Jazeera - Al Qatar)

By Samah El-Shahat

A new summit is upon us - the G8 will take place next week. Another photo opportunity, another media event, another circus. World leaders will tell us they are addressing the financial crisis, they will speak of their co-ordinated action to tackle the worst global recession since the Great Depression. But they will be introducing two new words to their communique: exit strategy.(...)

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That '30s Show (New York Times - U.S.)

By Paul Krugman

O.K., Thursday's jobs report settles it. We're going to need a bigger stimulus. But does the president know that?

Let's do the math.

Since the recession began, the U.S. economy has lost 6 ½ million jobs -- and as that grim employment report confirmed, it's continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we're about 8 ½ million jobs in the hole.(...)

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American jobs data are worse than we think (Financial Times - U.K.)

By Mohamed El-Erian

What if the US unemployment rate rises above 10 per cent and stays there for an extended period? This is a question that is not being asked enough, even though it entails yet another historical anomaly that will further complicate policy formulation and open it up to greater political interference.

The unemployment rate is traditionally characterised as a lagging indicator and, as such, is viewed as having limited predictive power. After all, unemployment is a reflection of decisions taken earlier in the cycle so the rate always lags behind the realities on the ground - or so says conventional wisdom. (...)

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"Hire the Unemployed" (Economist's View - The Net)

By Mark Thoma

The stimulus package had two components, new spending and tax cuts. Everybody knew that the spending component would take time to put into place, six months or more for a lot of the infrastructure projects, and that meant that we needed something to increase demand and provide a bridge until the new spending comes online.

Enter the tax cuts that the GOP insisted upon, tax cuts that were a larger part of the stimulus package than I thought justified. These cuts were to come online immediately and stimulate demand until the spending could begin taking up some of the slack later in the year. I would have preferred targeted, non-infrastructure spending that could have been put in place almost as fast as the tax cuts (particularly those that simply require making existing programs more generous), but that type of spending was considered wasteful because it didn't add to our long-run capacity for growth and hence had little chance of being part of the stimulus package. (...)

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An Emerging Split That Matters: Treasury vs. the National Economic Council (Economix - The Net)

By Simon Johnson

In the configuration of responsibility for economic strategy in the current administration, the National Economic Council, led by Lawrence Summers, has a broad mandate -- covering essentially all issues to some degree. But the Treasury secretary Timothy F. Geithner has enormous authority and discretion with regard to the financial sector. The Council of Economic Advisers plays a supportive analytical role, which can matter on particular points, and other departments or agencies tend to have a more limited scope. For major economic policy initiatives, the most important drivers within the administration are the views of Mr. Summers, Mr. Geithner and their respective staffs. These obviously interact with -- and bump up against -- the Federal Reserve on many technical issues and Congress on everything political.

There are also increasing indications that Mr. Summers's economic council and Mr. Geithner's Treasury are not exactly on convergent paths.
(...)

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Madoff's sentence is necessary and rare (Financial Times - U.K.)

By John Gapper

For what it is worth, I thought Mr Sorkin mumbled his way through a poor attempt to defend Mr Madoff in his closing argument. It was neither here nor there, however: Mr Madoff's conduct was ultimately indefensible and he deserved what he got.

The question is whether Mr Madoff's spectacular sentence should become the benchmark for future cases of corporate fraud, as Douglas Berman, an Ohio State law professor and blogger on sentencing policy has suggested that it will.(...)

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The consequences of external reform: Lessons from the French Revolution (Vox EU - The Net)

Can external agents successfully impose significant institutional reforms? Many economists are sceptical. This column assesses major reforms the French imposed upon their conquered European neighbours in the years after the French Revolution. The reforms, imposed suddenly without concern for being "appropriate to local conditions", appear to have spurred significantly faster economic growth. (...)

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A sound funeral plan can prolong a bank's life (Financial Times - U.K.)

By Anil Kashyap

Buried within the 88-page Obama administration proposal to overhaul financial regulation is an overlooked option called a "rapid resolution plan". It mandates that systemically important financial companies be required regularly to file a "funeral plan": a set of instructions for how the institution could be quickly dismantled should the need to do so arise. This simple step would have both short-run benefits if another wave of panic occurs and longer-term pay-offs that would complement other reform efforts. It could be implemented now, without the need for legislative action. Regulators should do so immediately. (...)

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The cautious approach to fixing banks will not work (Financial Times - U.K.)

By Martin Wolf

With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed.(...)

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A Forecast With Hope Built In (New York Times - U.S.)

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate -- then 7.2 percent -- rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic.(...)

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Wall Street's Toxic Message (Vanity Fair - U.S.)

By Joseph E. Stiglitz

Every crisis comes to an end--and, bleak as things seem now, the current economic crisis too shall pass. But no crisis, especially one of this severity, recedes without leaving a legacy. And among this one's legacies will be a worldwide battle over ideas--over what kind of economic system is likely to deliver the greatest benefit to the most people. Nowhere is that battle raging more hotly than in the Third World, among the 80 percent of the world's population that lives in Asia, Latin America, and Africa, 1.4 billion of whom subsist on less than $1.25 a day. In America, calling someone a socialist may be nothing more than a cheap shot. In much of the world, however, the battle between capitalism and socialism--or at least something that many Americans would label as socialism--still rages. While there may be no winners in the current economic crisis, there are losers, and among the big losers is support for American-style capitalism. This has consequences we'll be living with for a long time to come. (...)

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China's loan growth isn't boosting my confidence in China's "green shoots" (China Financial Markets - The Net)

By Michael Pettis

"China's overall surge in credit in the first half of 2009," an article in yesterday's People's Daily assures us, "is normal and healthy; however problems still exist in the structure, quality and flow of credit. China should continue to optimize credit structure and guard against potential risks."

Credible rumors suggest that new loans in June will hit RMB 1.2 trillion or more, as banks rush to inflate their quarterly loan numbers, just as they did in March, on the assumption that any cap in quarterly loan growth will be based on the previous quarter's numbers. I would argue that new lending in 2009, running at 2 to 3 times the new lending over the same period in 2008, is not at all normal and is very unlikely to be healthy. (...)

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California's Economy: Too Big to Fail? (Business Week - U.S.)

Despite a $24 billion budget deficit and a legislature in stalemate, California lawmakers haven't persuaded the Obama Administration to bail out the state. California's economy is in deep distress. Political gridlock is preventing tax increases and spending cuts, and the recession has pushed its deficit over the edge. Governor Arnold Schwarzenegger's proposals to fix the mess have been rejected by California voters, most recently on May 19. On June 16, Standard & Poor's put California's credit rating--already the lowest among states--on watch for a downgrade.(...)

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Financial sector developments and pro-cyclicality (VOX EU - The Net)

The current crisis has made obvious the power of the financial sector to amplify business cycle dynamics. This column, the first half of a series, focuses on how leverage, capital regulation, and managers' incentives contributed to the crisis.

With the benefit of hindsight, two of the most foretelling indicators of a crisis looming in the financial sector were the strong increase in leverage and managers' appetite for risk due to compensation schemes based on incentives to boost performance (Panetta et al., 2009). In this column, we discuss below how the evidence on recent developments in capital regulation, leverage, and managers' compensation may have contributed to the current crisis..(...)

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Sears: Lose Your Job, Keep Your Purchase, Forget The Debt (The Consumerist - The Net)

Acknowledging that skittish consumers are still unwilling to buy big-ticket items, Sears tomorrow plans to unveil a bold new guarantee: if you lose your job after charging a purchase worth $399 or more to your Sears card, the retailer will credit 1/12th of the purchase price to your account for each month you are unemployed. If you stay jobless for one year, the debt is entirely forgiven, and the appliance is yours to keep. (...)

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Caveat Mortgagor (The New Yorker - U.S.)

By James Surowiecki

Consumer finance, in other words, is an industry in which keeping customers confused often seems to be a business strategy. This means that there's a chance for the state to help balance, if not level, the playing field. Requiring more transparent disclosures will be useful in some cases. But transparency isn't always enough; there are some consumer-finance products whose costs so vastly outweigh their benefits that they should probably just be banned.(...)

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The Pitfalls of the Public Option (The New York Times - U.S.)

By Greg Mankiw

IN the debate over health care reform, one issue looms large: whether to have a public option. Should all Americans have the opportunity to sign up for government-run health insurance?

President Obama has made his own preferences clear. In a letter to Senators Edward M. Kennedy of Massachusetts and Max Baucus of Montana, the chairmen of two key Senate committees, he wrote: "I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest."

Even if one accepts the president's broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don't need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices. (...)

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Obama is choosing to be weak (Financial Times - U.K.)

By Clive Crook

As he promised last year, Barack Obama has brought climate change and healthcare reform to the centre of the nation's attention. As well as evangelising, he is pressing Congress to act. Last week the House of Representatives passed the Waxman-Markey cap-and-trade bill to curb carbon emissions, a measure that, if enacted, would touch every part of the US economy. Both House and Senate have drafted far-reaching healthcare bills, with stunning price tags.

Mr Obama aims to keep his promises, which is admirable. Unfortunately, there is a problem. This is not, as many Republicans argue, that neither issue requires forthright action. Both do. The problem is that the bills emerging from Congress are bad and Mr Obama does not seem to mind. (...)

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Is Health Care Reform Worth $1.6 Trillion? (Economix - The Net)

By Uwe E. Reinhardt

Indeed, to give a sense of perspective: Whatever waste there might be in any new spending on health care, the loss of welfare it implies is dwarfed many times over by the actual loss of G.D.P. and human welfare over the coming decade caused by the reckless mismanagement of our financial sector. Not to mention the diversion of additional G.D.P. to Wall Street bailouts and away from uses that taxpayers probably would have preferred. To be sure, Congress may have a political problem of financing an estimated $1.6 trillion price tag for health reform without raising taxes of some sort, a subject to be explored in a future post to this blog.

But that price tag is not much of a real burden, if any, on our economy over all.
As Congress is hemming and hawing over this price tag, America's middle class might take a moment to contemplate its future fate in health care without any government subsidies toward health insurance. (...)

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Will the US dollar remain king? (BBC - U.K.)

The dollar's role as the world's dominant currency is coming under intense scrutiny. This week, China added its voice to demands for a new global currency as an alternative to the dollar in international trade and finance. It is worried that the dollar's value is being eroded by the steps the US is taking to rescue its economy from the worst financial crisis since the 1930s.(...)

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Does the US Still Care about Germany? (Der Spiegel - Germany)

German Chancellor Angela Merkel was in Washington Thursday evening to receive an award for her contributions to trans-Atlantic relations. But with few politicians in attendance, she might have gotten the feeling that Germany no longer carries its former weight in the US capital. For a brief moment, the American-German relationship looked just as Germans like to imagine it. Chancellor Angela Merkel was on the stage on Thursday evening at the Library of Congress in the heart of the United States capital, where she had just received the Warburg Prize handed out by the Atlantik Brücke, an important trans-Atlantic organization. The chancellor was clearly moved, her voice full of emotion. And she spoke of a senior US politician.(...)

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Icarus' syndrome: Rating agencies and the logic of regulatory license (VOX EU - The Net)

by Marc Flandreau and Norbert Gaillard

How did the rating agencies come to have such a prominent role in the regulation of securities? This column traces their history back to the Great Depression. Ironically, the agencies became a regulatory instrument to address concerns about securities originators' conflicts of interest, the very problem plaguing the agencies today. The lesson may be that no fixed regulatory solution is durable in the long run. (...)

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Reform of regulation has to start by altering incentives (Financial Times - U.K.)

By Martin Wolf

Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama's administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector's weaknesses. It is unlikely that envisaged reforms will offset this danger.

At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayers' money. The mystery is that crises erupt so rarely.(...)

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Will the Banks Sort Themselves Out? (Economix - The Net)

By Simon Johnson

Major banks in the United States, Western Europe and elsewhere have became "too big to fail," in the sense that their impending collapse last September and October was so disruptive and generally scary that policy makers felt obliged to step in with big bailout packages. This turns out to be both very expensive, and yet not enough to prevent a severe global recession.(...)

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A Recession in Dog Years (Slate - The Net)

By Daniel Gross

The United States is experiencing what Japan did in the 1990s, but seven times faster.(...)

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Does Ben Bernanke blow bubbles too? (Naked Capitalism - The Net)

During Alan Greenspan's tenure at the helm of the Federal Reserve, he was often accused of using monetary policy to target asset markets so as to keep the party going. In short, Alan Greenspan was seen by many, including myself, as the bubble blower-in-chief. All of this came to an end with the very hard landing we have experienced after the global housing bubble.

However, despite the economy being in tatters and debt deflation looming as a threat, many asset markets have zoomed ahead. The cause: easy money in the U.S. and elsewhere. In the U.S., we have zero percent rates with Ben Bernanke at the helm. So, naturally, you should ask yourself: Does Ben Bernanke blow bubbles too?(...)

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Economic crisis forcing CEE food sector consolidation (Warsaw Busienss Journal - Poland)

The European Central Bank has pumped a record €442.2bn into the eurozone banking system in a first-ever offer of unlimited one-year funds as it battles continental Europe's severe recession. The results of the operation, part of ECB efforts to revive the eurozone economy by rejuvenating the financial system, highlighted expectations that liquidity will not be available again on such favourable conditions. The previous largest amount injected in a single ECB operation was €348.6bn in December 2007.(...)

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Dragon-ride out of crisis a possibility (China Daily - China)

Signs of economic recovery have become evident just more than two months after the G20 summit. Did the G20 meeting help? Though the G20 may have fallen short of expectations on commitments to a low-carbon future and the developing world, the world has begun benefiting from the additional $1-trillion stimulus package. In the medium term, the world stands to benefit from a reform of the International Monetary Fund and the World Bank and the agreement to regulate financial markets.(...)

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Incentive accounts: A solution to executive compensation (VOX EU - The Net)

Many blame executive compensation for encouraging shortsighted risk-taking. This column argues that compensation should be structured so as to provide incentives consistent with the firm's position and long-term interest. It proposes "incentive accounts" that it says would be superior to existing compensation schemes.(...)

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Real Consumer Protection (The New York Times - U.S.)

The federal consumer protection system failed the country, disastrously, in the years leading up to the mortgage crisis. One big cause was the sharing of responsibility for compliance with laws and regulations among several agencies that communicate poorly with each other and tend to put the bankers' interests first and consumer protection second -- if they pay attention to it all.(...)

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The (Mythical?) Housing Wealth Effect (Real Time Economics - The Net)

Much commentary in the financial press over the last several months has been concerned with the impact of falling house prices on consumer spending. While some see evidence of "green shoots" and hope for economic growth over the horizon, many still fear that lower home values will depress consumer spending. This "wealth effect," a drop in home values that causes consumers to cut back on purchases, is thought to dampen economic growth and hamper any recovery.

At first glance, it seems reasonable to expect such a wealth effect. If consumers are less wealthy because of declines in the value of the assets they own, whether they be stocks or their homes -- it seems logical that they would cut back on their spending. Indeed, many prominent economists have conducted research purporting to find large housing wealth effects, and often argue that the wealth effect from homes exceeds that from equities. Moreover, the Federal Reserve employs a model, which presumably guides its policies, that assumes the housing wealth effect is large.(...)

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Yawn. Detroit gets closer in J.D. Power's quality study. (Businessweek - U.S.)

Here's a storyline I have heard before. The Big Three are narrowing the gap on quality. J.D. Power and Associates have just released their annual Initial Quality Study, which measures problem per 100 cars in the first 90 days of ownership. Detroit's carmakers reduced problems by 10%. Their foreign foes reduced problems by just 8%. When measuring problems per 100 cars sold, no one will notice the difference.(...)

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Is Latvia the new Argentina? (Vox EU - The Net)

Latvia has been hard hit by the global crisis and faces an unsustainable currency peg. Should the country float its currency, adopt the euro, or try a contained devaluation? This column assesses the options and says that the latter is most realistic, in that it will address the concerns of the EU, IMF, and Latvia.(...)

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Something for Nothing (New York Times - U.S.)

By David Brooks

On May 12, the Senate Finance Committee held a hearing on health care reform. There was a long table of 13 experts, and a vast majority agreed that ending the tax exemption on employer-provided health benefits should be part of a reform package.

They gave the reasons that experts -- on right or left -- always give for supporting this idea. The exemption is a giant subsidy to the affluent. It drives up health care costs by encouraging luxurious plans and by separating people from the consequences of their decisions. Furthermore, repealing the exemption could raise hundreds of billions of dollars, which could be used to expand coverage to the uninsured.(...)

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'Obama Is Certainly a European' (Der Spiegel - Germany)

Oxford historian Timothy Garton Ash discusses the demise of Europe's social democrats, threats to the European Union posed by populist nationalists, the imminent change of government in Great Britain and America's rapid slide to the left.(...)

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Not just straw men (The Economist - U.K.)

The largest emerging markets are recovering fast and starting to think the recession may mark another milestone in a worldwide shift of economic power away from the West. Estimates for their national incomes in the first quarter were better than expected. In the year to the end of March GDP rose by around 6% in China and India.(...)

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Brazil more dependent than ever (Le Monde Diplomatique - France)

by Renaud Lambert

President Lula fancied his country's economy was 'decoupled' from the rest of the world's. But when the economic crisis reached Brazil this March, it came on a tidal wave. Half a million people are now in poverty or extreme poverty.(...)

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Oil Check (The New Yorker - U.S.)

How fast the world turns. Only a few months ago, as consumer spending evaporated and commodity prices collapsed, investors and policymakers were haunted by the spectre of deflation. Today, with the economy showing some signs of bottoming and commodity prices back on the rise, the worry du jour has suddenly become inflation.(...)

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The Honeymoon Is Not Over (Slate - The Net)

Obama's challenge: get the public to like his policies as much as it likes him. A good test of whether a marriage is still in the honeymoon phase is how accepting one spouse is of the other's irritating qualities. When a husband interrupts a wife in front of others and she thinks nothing of it, they're still honeymooners. When the same behavior initiates a kick under the table, the honeymoon is over, or at least imperiled. Fork in the thigh, forget it.(...)

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Out of the Shadows (The Wall Street Jorurnal - U.S.)

By PAUL KRUGMAN

Would the Obama administration's plan for financial reform do what has to be done? Yes and no. Yes, the plan would plug some big holes in regulation. But as described, it wouldn't end the skewed incentives that made the current crisis inevitable. Let's start with the good news. Our current system of financial regulation dates back to a time when everything that functioned as a bank looked like a bank. As long as you regulated big marble buildings with rows of tellers, you pretty much had things nailed down. But today you don't have to look like a bank to be a bank. As Tim Geithner, the Treasury secretary, put it in a widely cited speech last summer, banking is anything that involves financing "long-term risky and relatively illiquid assets" with "very short-term liabilities." Cases in point: Bear Stearns and Lehman, both of which financed large investments in risky securities primarily with short-term borrowing.(...)

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( Real Time Economics - The Net)

by Erica Alini

As the recession swells the demand for higher education, you'd think universities and colleges would be fretting about overcrowding. But many, especially private institutions, have exactly the opposite concern, i.e., that cash-strapped Americans will soon turn their backs on a four year degree and flock to community colleges. The Chronicle of Higher Education recently picked on those fears with a provocative op-ed by Joseph Marr Cronin, the former Massachusetts secretary of educational affairs, and Howard E. Horton, the president of the New England College of Business and Finance. They argue that higher education is on track to be "the next bubble to burst." Here's the reasoning: Just as house prices did, average tuition and fees have risen much faster than inflation; and, just as many homeowners did, most American families with kids in college have relied on debt to foot the bill. As the Wall Street Journal noted in January, despite the Bush administration's quick actions to shelter student loans from the worst of credit crunch last fall, lending to students has become scarcer. As mortgage payments and depleted pension funds eat into parental budgets and kids find it harder to borrow, Cronin and Horton argue, the credit dry-up could prove as lethal for higher education as did it to real estate. A college degree, they write, is starting to look as over-valued as a condo in California.(...)

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The global financial crisis: A wake-up call for trade finance capacity building in emerging Asia (VOX EU - The Net)

The current crisis has drawn attention to the important role of trade finance in supporting international trade. This column argues that emerging market economies in Asia need to significantly develop and strengthen national trade finance institutions.(...)

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Asymmetric information and corporate governance in bank bailouts (Naked Capitalism - The Net)

by Edward Harrison of Credit Writedowns.

So, things are looking a lot brighter we are told by most economists and policy makers. The crisis is over and the banking system is on the mend. Now is the time for true reform and for bankers to get back to business as usual. While the foregoing may make for nice copy in the mainstream media, I would like to make the case for continued vigilance, especially in regards to corporate governance and incentives in the banking sector. Let's look at this from the point of view of a big bank CEO who we will call Phil. (...)

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Regulatory Reform For Finance: Three Views (The Baseline Scenario - The Net)

By Simon Johnson

By Simon Johnson There are three views on who exactly is behind financial regulatory reform package that will be officially presented Wednesday lunchtime. Each view has distinct implications for political dynamics going forward...

This is going to be quite a fight. (...)

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Obama's opening shot (The Economist - U.K.)

HAVING spent much of the past year putting out fires, America's leaders are now turning their attention to preventing future blazes. Barack Obama unveiled proposals on Wednesday June 17th that would refashion the federal rules governing almost every corner of finance, pushing government much more deeply into private markets and partially rolling back a quarter-century of liberalisation. Eye-catching though the 85-page "white paper" is, it might have been bolder. It merely sounds the opening salvo in a battle that could stretch into next year, because much of the plan requires approval in Congress, where jurisdictional and ideological clashes beckon.(...)

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America should also look to its fiscal health (Financial Times - U.K.)

By Kenneth Rogoff

It is a disgrace that the world's richest country cannot provide reliable basic care for its poorest citizens. But if the politics of reform produces too extravagant a plan when the nation's fiscal health is already so weak, the US may experience a form of financial crisis even more virulent than the one it is recovering from. Any healthcare plan would then be dead on arrival.(...)

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Today's balance of payments release was overshadowed ... (Brad Setser - The Net)

By Brad Setser

Events in Iran (rightly) dominate the headlines, along with the Obama Administration's plans to revamp the United States' system of financial regulation.

And it doesn't take much to overshadow the release of the United States' balance of payments data, as it largely tells us things that we already know -- whether from the trade data (the trade deficit is way down) or the TIC data (private investors didn't put much money in the US in q1).

But there are still stories to be found in the balance of payments data. Give the US a bit of credit. No other country releases as much detail about its balance of payments as the United States. Play with the interactive tables for a while; it is hard not to be impressed.
(...)

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Is Obama's Financial-Reform Plan Bold Enough? (TIME - U.S.)

By Justin Fox

Almost every reference to the financial regulatory plan that was unveiled today by President Obama is prefaced with something along the lines of "the most sweeping overhaul of financial regulation since the 1930s." Obama himself used such language in his speech this afternoon. The description isn't wrong. The Obama plans would, if enacted, amount to the biggest changes in financial regulation since the 1930s. But don't let this make you think the Obama reforms even approach in significance and forcefulness the changes made back then.(...)

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The New Boom-Bust Cycle (Slate - The Net)

By Daniel Gross

If you're waiting on housing and finance to get us out of the mess they caused, then you better pull up a comfortable chair and a bag of popcorn, because it's going to be a long wait. Just as regulators always fight the last battle--regulating accounting after the dot-com meltdown, promising to regulate derivatives now--analysts always look to the last boom to cause the next one. The new reality is that the sector that dragged the economy down is never the one to lead the recovery. (...)

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What Monetary Policy Cannot Do (Economix - The Net)

Six months ago, the Federal Reserve chairman, Ben S. Bernanke, announced that he might widen the scope of monetary policy by purchasing long-term Treasury securities. Market commentators had high expectations for the results of Mr. Bernanke's new actions, but the results so far have been what Milton Friedman anticipated: disappointing in terms of both interest rates and inflation.

More than 40 years ago Mr. Friedman said in his famous address to the American Economic Association that "we are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve" (...)

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Health Reform's Twisted Economics (National Journal - U.S.)

By Clive Crook

Throughout his presidential campaign, Barack Obama stressed two goals for health care reform: wider coverage and cost control. Of the two, he usually prioritized costs. Health insurance, he said, is becoming ever harder to afford and hurting even those American families with coverage they otherwise like. It is crippling the economy because of its effect on competitiveness. And it threatens the solvency of the government itself because of its awful fiscal consequences.(...)

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The recession tracks the Great Depression (Financial Times - U.K.)

By Martin Wolf

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.(...)

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The return of liquidationism (Paul Krugman - The Net)

One discouraging feature of the current economic crisis is the way many economists and economic commentators -- apparently ignorant of what went on over the last 75 years or so of macroeconomic debate -- have been reinventing old fallacies, imagining that they were coming up with profound insights. I've written about how Fama, Cochrane, and others have reinvented the "Treasury view". (...)

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Crisis? Bank of Japan says economy improving (Financial Times - U.K.)

The Bank of Japan on Tuesday upgraded its outlook for the world's second-largest economy, buttressing hopes that the worst of its recession since the second world war may be over. The central bank, which left its benchmark interest rate untouched at 0.1 per cent, acknowledged that domestic private demand continued to decline, but noted that exports and production were improving and that public investment had increased..(...)

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Seeing red( The Economist - U.K.)

America's debt is Barack Obama's biggest weakness. "PAYING for what you spend is basic common sense. Perhaps that's why, here in Washington, it's been so elusive," said Barack Obama on June 9th. He was urging Congress to pass a new "pay-as-you-go" (PAYGO) plan that would oblige it to pay for new spending either by raising taxes or by cutting outlays. By following the same principles that guide "responsible families managing a budget", he said, Americans could dig the country out of the "very deep hole" that "the reckless fiscal policies of the past have left us in".

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China's recovery still isn't adding (much) to global demand (Brad Sester - The Net)

At least not for anything other than commodities, where Chinese demand -- and Chinese stockpiling -- clearly has had an impact. Exports to China from the US and Korea continue to be pretty weak. Exports from the US have bounced back from their winter lows, but still well below their pre-crisis levels. And exports from Korea to China are still down far more than I would have expected..(...)

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Andy Xie: Tight Spot for Fed, Blind Spot for Investors (Caijing.com.cn - The Net)

Market chatter over green shoots and rising prices has fueled a bear market rally that won't last, despite policymaker 'noise.' A combination of growth optimism and inflation fear has catapulted asset markets in the past few weeks. These two concerns should drive markets in different directions: Inflation fear, for example, should limit room for stimulus and prompt stock markets to retreat. But the investment camps expressing these opposite concerns go separate ways, each pumping up what seems believable. As a result, stock and commodity markets are mirroring the behavior seen during the giddy days of 2007.(...)

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A New Financial Foundation (The Washington Post - U.S.)

By Timothy Geithner and Lawrence Summers

Over the past two years, we have faced the most severe financial crisis since the Great Depression. The financial system failed to perform its function as a reducer and distributor of risk. Instead, it magnified risks, precipitating an economic contraction that has hurt families and businesses around the world.(...)

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Stay the Course (The New York Times - U.S.)

By Paul Krugman

The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it's déjà vu all over again -- literally. .(...)

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Promises, promises ( The Economist - U.K)

Much has changed for the IMF as a result of the financial crisis. The G20 summit in London in April promised a tripling of its lending capacity. Long known for championing fiscal stringency, the fund has recommended that Tanzania and Mozambique consider countercyclical fiscal expansions. Mexico, Colombia and Poland have been enticed to sign up for its new precautionary lines of credit. Another first is now well on the way, as the IMF prepares to issue its own bonds. (...)

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The Bubble Next Time (Economox - The Net)

Ben Bernanke gave a great speech in 2002, mapping out exactly what the Fed should do if the United States faced a deflationary price spiral -- falling wages and prices -- that could wreak havoc on the economy. He outlined a series of steps: starting with lowering short-term interest rates to zero, then making purchases of longer-dated Treasury securities, then purchasing securities issued by Fannie Mae and Freddie Mac. All of this is has come to pass since mid-2007. Surely, Mr. Bernanke was well prepared for the crisis, and is a shoo-in to be reappointed as chairman of the Fed early in 2010. (...)

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Crisis? What crisis? The market confounds the left (Financial Times - U.K.)

Surely it was only yesterday that the west was engulfed by the crisis of capitalism? Markets buckled under the strains of the credit crunch. Portraits of Adam Smith made way for freshly-burnished busts of John Maynard Keynes. Popular rage against greedy bankers promised to restore politics to parties of the left.

Pace the doomsayers who predicted imminent Armageddon, liberal market capitalism has survived: somewhat humbled and, in the case of the financial services industry under much tighter official supervision, but recognisably much as it was. Governments have stepped in to prop up markets rather than to dismantle them. Nationalising the banks has been a means to an end rather than an end in itself.(...)

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Which debt are we worried about?( Free Exchange - The Net)

WARNING: there may be a lot of posts about debt today. The issue is the talk of the blogosphere, and this being a social medium, I feel inclined to participate...

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The biggest bill in history (The Economist - U.K.)

THE worst global economic storm since the 1930s may be beginning to clear, but another cloud already looms on the financial horizon: massive public debt. Across the rich world governments are borrowing vast amounts as the recession reduces tax revenue and spending mounts--on bail-outs, unemployment benefits and stimulus plans. New figures from economists at the IMF suggest that the public debt of the ten leading rich countries will rise from 78% of GDP in 2007 to 114% by 2014. These governments will then owe around $50,000 for every one of their citizens.(...)

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Principles, not pitchforks (The Economist - U.K.)

Some sensible new proposals for curbing corporate greed in America

Although the debate about excessive executive pay in America has been heated, cool heads prevailed when the time came to tackle the problem. On Wednesday June 10th Tim Geithner, America's treasury secretary, said the government would not impose fierce restrictions such as caps on pay. Nor would it meddle in the detail of compensation packages. Instead, it wants companies to adopt a series of broad principles on pay and it intends to make it easier for shareholders to ensure that they do so.
This approach will infuriate pitchfork populists, who were hoping the Obama administration would impose a regulatory straitjacket on corporate pay after an outcry earlier this year over hefty bonuses dished out at firms rescued with taxpayers' cash. But Mr Geithner warned that such an approach would ultimately be "counterproductive". In practice only firms that have been bailed out will face stiff restrictions on bonuses and other forms of pay. Some will have to submit senior managers' compensation for review by a new, government-appointed "special master". (...)

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Latvia's currency crisis is a rerun of Argentina's (Financial Times - U.K.)

by Nouriel Roubini

After a recent failed public debt auction, the authorities in Latvia are desperately trying to prevent a depreciation of the currency, the lat. The country's predicament is similar to the one that faced Argentina in 2000-01: a severe recession driven by global financial shocks, a sudden drying up of capital inflows and the need to reduce a large external deficit worsened by an unsustainable currency peg. As in Argentina, the International Monetary Fund initially went along - somewhat uncomfortably - with the authorities' strong preference for not letting the currency depreciate, in spite of its significant overvaluation. But a real exchange rate depreciation is necessary to restore the country's competitiveness; in its absence, a painful adjustment of relative prices can occur only via deflation and a fall in nominal wages that will take too long and exacerbate the recession. (...)

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Small Bank--Big Trouble? ( Realtime Economic Issues - The Net)

One of the more interesting counter-arguments against the idea that big banks should be broken up comes from people who play close attention to the behavior of small banks.  They point out that small banks are a powerful political lobby, a point nicely illustrated by the NYT's explanation of how changes to bankruptcy law were recently derailed. (...)

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Goals Shift For Reform Of Financial Regulation (The Washington Post - U.S.)

By David Cho, Binyamin Appelbaum and Zachary A. Goldfarb

The Obama administration is pulling back from some of its most ambitious ideas for overhauling the financial system, after determining that the consolidation of power under fewer federal agencies would face grave opposition by lawmakers and regulators, sources familiar with the discussions said. (...)

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Sarkozy's plan to muscle in on the City? (The Independent - U.K.)

A French plot? There are whispers of it in London, and it has an almost Napoleonic resonance. The plot, if such it is, involves two European Union directives grinding their way through the EU's bureaucratic procedures, heavily backed by the Elysée, and which may one day have the final effect of moving the UK's lucrative hedge fund business out of Mayfair and into some suitably chichi quarter of Paris. (...)

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It is in Beijing's interests to lend Geithner a hand (Financial Times - U.K.)

By Martin Wolf

Creditor countries are worrying about the safety of their money. That is what links two of the big economic stories of last week: Chancellor Angela Merkel's attack on the monetary policies pursued by central banks, including her own, the European Central Bank; and the pressure on Tim Geithner, US Treasury secretary, to persuade his hosts in Beijing that their claims on his government are safe. But are they? The answer is: only if the creditor countries facilitate adjustment in the global balance of payments. Debtor countries will either export their way out of this crisis or be driven towards some sort of default. Creditors have to choose which. (...)

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Banks to buy back their independence (Chicago Tribune - U.S.)

by Becky Yerak

Ten big banks may soon be able to sponsor golf tournaments, fly their corporate jets, and pay their executives in relative peace. President Barack Obama's administration on Tuesday announced the clearing of 10 of the nation's largest banks to repay $68 billion they received to stabilize the U.S. financial system. (...)

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Osborne and a corporate tax revolution (BBC News - U.K.)

George Osborne has said it twice now in major speeches, so I think the City has to take the threat seriously: a Conservative government is likely to make it much more expensive for companies to finance their activities by borrowing vast amounts rather than through equity funding. (...)

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David Takes On Goliath and Loses: The Ferguson - Krugman Exchange (A Fistful of Euros - The Net)

Well, I think the title to this post makes my view on the high-profile shenanigans we are currently witnessing on the part of two widely respected contemporary intellectuals clear enough, even if Paul would probably respond that he is perfectly well able to take care of himself, thank you very much. Nonetheless, looking at the way the tone of his most recent and most public debate with Niall Ferguson has deteriorated (yes, it is Niall I'm talking about here, and not Sir Bobby, although sometimes even I have my doubts), let me confess, I am not entirely convinced on this point (Niall Ferguson's argument can be found summarised in his Financial Times Op-Ed here, and in his rejoinder letter to Martin Wolf reproduced by the FT Alphaville's ever interesting Izabella Kaminska here, while Paul Krugman's "input" to the debate can be found here, here, and here).(...)

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Thank Bernanke (New York Magazine - U.S.)

I'll just come right out and say it: Ben Bernanke will go down as the greatest Federal Reserve chairman in history. The soft-spoken academic who has toiled in the shadows of his legendarily self-promoting predecessor, Alan Greenspan, will be known as the man who averted the Great Depression Two, a sequel that could have eliminated the United States as a world financial superpower and reduced us to this century's Britain. Make no mistake about the parentage of this success story. President Obama pushed through a stimulus plan that will ultimately help the economy later this year, and Treasury Secretary Tim Geithner chose to adopt Bernanke's strategy of allowing banks to raise money themselves rather than bowing to calls from politicians and pundits to have taxpayers bail them out even more than they already had. But it was the 55-year-old former Princeton professor who spent his teaching career studying how the Great Depression could have been prevented who deserves the bulk of the credit.(...)

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Ugly but interesting in Strasbourg ( Financial Times - U.K.)

Ever since the economic crisis broke I have been scanning the European horizon for signs of political turmoil: red flags being unfurled, jackboots polished. But on the evidence of the elections for the European parliament over the weekend, I should have directed my gaze closer to home. There is only one big country in the European Union that is having a national nervous breakdown - Britain.(...)

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The Media Fall for Phony 'Jobs' Claims ( The Wall Street Journal - U.S.)

Tony Fratto is envious.

Mr. Fratto was a colleague of mine in the Bush administration, and as a senior member of the White House communications shop, he knows just how difficult it can be to deal with a press corps skeptical about presidential economic claims. It now appears, however, that Mr. Fratto's problem was that he simply lacked the magic words -- jobs "saved or created."

"Saved or created" has become the signature phrase for Barack Obama as he describes what his stimulus is doing for American jobs. His latest invocation came yesterday, when the president declared that the stimulus had already saved or created at least 150,000 American jobs -- and announced he was ramping up some of the stimulus spending so he could "save or create" an additional 600,000 jobs this summer. These numbers come in the context of an earlier Obama promise that his recovery plan will "save or create three to four million jobs over the next two years."

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Detroitosaurus wrecks (Economist - U.K.)

The demise of GM had been expected for so long that when it finally died there was barely a whimper. Wall Street was unmoved. Congress did not draw breath. America shrugged. Yet the indifference with which the news was received should not obscure its importance.(...)

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Change We Can't Believe In (The New Yorker - U.S.)

The Retiro queue is a sign of the most peculiar economic crisis in recent memory: the great Buenos Aires coin shortage. For well over a year now, small change has been hard to come by there. Stores hang "No Coins" signs in their windows, and offer candies instead of change.(...)

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Why is Japan so heavily affected by the global economic crisis? An analysis based on the Asian international input-output tables ( Vox Eu -The Net)

Though Japan has not suffered greatly from a housing collapse or toxic assets, its economy has been hit harder by the crisis than the US or EU. Japan's contraction is almost entirely due to a steep fall in external demand. This column uses input-output analysis to show that the fall in US demand has had an amplified effect on Japan because it not only reduces Japanese net exports to the US but also net exports of intermediate goods to Asian countries, where they would have been assembled for final export to the US.(...)

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Italy, before and after Lehman Brothers (Vox EU- The Net)

The post-crisis data indicate that Italy is faring worse than the rest of Europe, except Germany. Moreover, the Italian economy entered a period of hardships and disappointing growth well before the mortgage crisis developed. This column argues that Italy cannot afford to postpone reforms if it wants to resume faster long-run growth. (...)

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Trade - it's not just the currency (China Financial Markets - The Net)

One of the reasons why trade-related discussions can seem so off-the-mark, I think, is because the conditions governing international trade are much more complex than we often realize. The determinants of the international balance of trade basically include anything that affects domestic consumption and domestic production, which pretty much means nearly everything in economics. Among other things this means that there is a very wide range of government policies that can affect trade - sometimes explicitly and sometimes implicitly.

Unfortunately much of the analysis and debate doesn't seem to get this. For example, many economists have pointed out that the bailout of GM is effectively a protectionist measure. I think it clearly has a trade impact, and this impact is "protectionist", although not intended that way. What is missing from the discussion, I think, is a clear explanation of why it is effectively a protectionist measure. I would argue that the GM bailout has a trade impact because it affects in specific ways the balance between production and consumption in the US (and, of course, elsewhere), and since the US trade deficit is also the gap between US consumption and US production, to the extent that the bailout affects this gap it must affect the US trade balance.(...)

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Keeping Them Honest (The New York Times - U.S.)

By Paul Krugman

"I appreciate your efforts, and look forward to working with you so that the Congress can complete health care reform by October." So declared President Obama in a letter this week to Senators Max Baucus and Edward Kennedy. The big health care push is officially on.

But the devil is in the details. Health reform will fail unless we get serious cost control -- and we won't get that kind of control unless we fundamentally change the way the insurance industry, in particular, behaves. So let me offer Congress two pieces of advice:

1) Don't trust the insurance industry.

2) Don't trust the insurance industry (...)

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The Bond War (Slate - U.S.)

By Daniel Gross

It's fair to say that 10-year and 30-year Treasury bonds are not subjects that enthrall the American public the way, say, Kate Gosselin does. In the last six months, however, the state of those bonds has become the subject of feverish argument in the economic elite. The interest rate of the 10-year Treasury bond has spiked from 2.07 percent in December 2008, when the world was falling apart, to a recent high of 3.715 percent on June 1--a 79 percent increase. The 30-year bond has risen from 2.5 percent last December to about 4.5 percent today. Now factions led by economist Paul Krugman and historian Niall Ferguson are feuding bitterly about the import of these charts. In late April, Krugman and Ferguson squared off at a New York Review of Books/PEN panel, and they've continued with an op-ed war in the Financial Times and New York Times. (...)

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Obama's America: Too Fat to Fail (The Wall Street Journal - U.S.)

Studebaker, Nash-Kelvinator, Packard, Hudson, Stutz, Pierce-Arrow, Stanley, Checker and American Motors were once household names of the U.S. auto industry. Unlike General Motors in our time, they were not too big to fail. Despite mergers and rescue efforts by their owners, each was shut down. Their legacy lives on as classic cars, restored with erotic affection by collectors. (...)

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Recovery could arrive much sooner than expected (The Independent - U.K.)

By Sean O'Grady

One of the most eagerly awaited and bullish indicators of recovery in the British economy was published yesterday. The latest survey of business confidence in the services sector showed that output may already have started to rise in that part of the economy - which comprises 70 per cent of the total. (...)

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Why Bernanke is right to be worried (The Financial Times - U.S.)

By Mohamed El-Erian

Fed chairman Ben Bernanke's congressional testimony on Wednesday warrants careful attention by market participants - this at a time when policy measures play an unusually large role in determining both absolute and relative values in many markets. (...)

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Rising Interest on Nations' Debts May Sap World Growth (The New York Times - U.S.)

By NELSON D. SCHWARTZ

As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt. Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany. (...)

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Bank of England sucks it, sees and sits on its hands (The Guardian - U.K.)

by Larry Elliott

This time last year, the Bank of England adopted a wait-and-see approach as the UK economy slid into recession. Threadneedle Street got it wrong, underestimating the risks of a meltdown in the financial markets and putting far too much stress on the risk of a wage-price spiral. (...)

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Worse Than 1982? (Economix> - The Net)

Casey B. Mulligan is an economics professor at the University of Chicago. The recession of 1981-'82 is frequently used as a benchmark for comparing today's economic reports, such as the real gross domestic product released last week by the Bureau of Economic Analysis. Often overlooked is the fact that the 1981-'82 recession was closely preceded by a 1980 recession; the combination of the two is sometimes referred to as the "1980-'82 recession." The chart below graphs inflation-adjusted G.D.P. indexes for late 1979 through the end of 1982 (the blue series) and for mid-2006 through the first quarter of 2009 (the red series). Each point represents G.D.P. as a percent of the G.D.P. level three years before the given recession ended. (...)

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America the deadbeat? (Foreign Policy> - U.S.)

By C. Randall Henning

Want a global recovery? Better hope Congress delivers the money the United States promised the IMF. In the war to win back the global economy, the leaders of the G-20 have placed the International Monetary Fund (IMF) at the center of the battlefield, armed with $750 billion in promised funding to pull emerging economies back from the edge. Speaking in China this weekend, U.S. Treasury Secretary Timothy Geithner praised the plan as "an insurance policy for the global financial system." The IMF, he seemed to be saying, is a white knight for an economy in the red. That is, until the plans made their way to Capitol Hill. Just two months after leaders of the world's major economic powers made grand promises of action, those plans face resistance in the U.S. Congress. The Senate, before leaving town for Memorial Day recess, approved legislation to meet President Barack Obama's commitments made at the G-20 summit in London. But the IMF funding didn't make the House bill. If Congress fails to include the IMF legislation in the final bill now being hashed out, it will put both the U.S. and global recoveries at risk. (...)

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A recession breathes life (The Economist - U.K.)

Less smog equals more toddlers. When glam rockers T-Rex released the song "Children of the Revolution" in 1972, the revolution they had in mind was not America's Clean Air Act. But two economists later calculated that about 1,300 extra one-year-old Americans were trying to stand up and walk at the end of that year. These babes survived because the 1970 law led them (and their mothers) to breathe in fewer sooty particles than they otherwise would have. (...)

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Bill Gross: "Staying Rich in the New Normal" ( Naked Capitalism - The Net)

PIMCO's founder Bill Gross is out with his latest monthly missive.  It makes for interesting reading, especially in regards to the captains of finance and their desire to stay rich using other people's money. I remember as a child my parents telling me, perhaps resentfully, that only a doctor, airline pilot, or a car dealer could afford to join a country club. My how things have changed. Now, as I write this overlooking the 16th hole on the Vintage Club near Palm Springs, the only golfers who shank seven irons into the lake are real estate developers, investment bankers, or heads of investment management companies. The rich are different, not only in the manner intoned by F. Scott Fitzgerald, but also in who they are and what they do for a living. Whether some or all of them are filthy is a judgment for society and history to make. Of one thing you can be sure however: over the next several decades, the ability to make a fortune by using other people's money will be a lot harder. Deleveraging, reregulation, increased taxation, and compensation limits will allow only the most skillful - or the shadiest - into the Balzac or Forbes 400.(...)

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Obama's Test: Restoring G.M. With a Limited U.S. Role (New York Times - U.S.)

President Obama boiled down his three goals as the reluctant majority shareholder of General Motors this way on Monday: "To get G.M. back on its feet, take a hands-off approach and get out quickly."(...)

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UK, Ireland Resist Push for More Financial Regulation (Der Spiegel -Der Spiegel)

"The European Union is split over how best to apply the lessons of the global downturn to the regulation of financial markets. Countries like Germany want tighter controls on risky deals and exotic securities, but the UK, Ireland and parts of Eastern Europe are fighting for free markets (...)

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Hubris, nemesis, and catharsis (Vox Eu - The Net)

The desire to regulate to avoid repeating this financial crisis is commendable, but this column says that the haste with which new regulations are being promulgated is unnecessary and dangerous. Precursory analysis that is incomplete, incorrect, or inadequate creates substantial potential for unintended consequences. We should take the time to appropriately analyse, design, and implement new regulation. (...)

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General Motors holds a mirror up to America (Financial Times - U.K.)

As president of General Motors when Eisenhower tapped him to become secretary of defence in 1953, "Engine Charlie" Wilson voiced at his Senate confirmation hearing what was then the conventional view. When asked whether he could make a decision in the interest of the US that was adverse to the interest of GM, he said he could. Then he reassured them that such a conflict would never arise. "I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. Our company is too big. It goes with the welfare of the country."(...)

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Reagan Did It (The New york Times - U.S.)

By Paul Krugman

"This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot." So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation's significance. And as for that jackpot -- well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression. (...)

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Hope and anxiety (Economist - U.K.)

Rising oil prices suggest hope for the world economy, but could they also limit its recovery? (...)

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Fed Clueless Perplexed About Spike in Bond Interest Rates (Naked Capitalism - The Net)

Lordie, if this Reuters article is to be taken at face value, the Fed is even more detached from reality than I feared. The Fed does not understand why the Treasury bond market had a mini-panic last week. Is it that investors believe the "green shoots" story and are seeking riskier assets? Or is it that they are worried about burgeoning Treasury auctions and a possible fall in the dollar?

Note there is another theory, that it was Fannie and Freddie moves to manage their duration risk that caused the mess. However, it did appear that the selloff in the dollar and longer Treasuries was triggered by Standard & Poors' announcement that it was putting the UK on negative watch, meaning it is at risk of losing its AAA rating. (...)

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The Big Inflation Scare (The New york Times - U.S.)

by Paul Krugman

Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike.

But does the big inflation scare make any sense? Basically, no -- with one caveat I'll get to later. And I suspect that the scare is at least partly about politics rather than economics. (...)

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Recovery not as easy as U, V, W (Financial Times - U.K.)

By Gillian Tett

Are you expecting a "V" shaped recovery this summer? Or do you anticipate a scenario more like a "U" or a "W"? That is the question I have been asked repeatedly this month, as the debate about "green shoots" roars on.

Personally, though, I suspect that none of the letters in the Roman alphabet quite captures what is most likely to go on. To be sure, the last year might seem to correspond to the start of a "V", "U" or "W". (...)

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Fed Watch: A Return to a Nasty Dynamic? (Economist's View - The Net)

By Tim Duy

At the moment, the economic dynamic is exceedingly complicated. An understatement, I fear. The crosscurrents in the data and the markets are treacherous, and I suspect will have Fed officials scratching their heads. Hold steady with existing plans? Step up the liquidity provisions? More actively engage plans to tighten policy? The latter option seems almost inconceivable; for the moment, the debate will focus on the issue of further easing. At this point, I think the Fed will sit tight, allowing further easing to come from the already active TALF program, rather than expanding outright purchases of Treasuries. (...)

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Piling on (The Economist - U.K.)

DEFENDING American capitalism these days is a thankless job. Reckless lending by American financiers produced a crisis that has pushed the world into its worst recession since the 1930s. Tales of greed and fraud during the boom years abound.

Small wonder that although Americans still prefer their government neat and local, they are a little less hostile to federal activism these days (see article). Such sentiments, last November, helped propel Barack Obama into the White House and his Democratic Party to bigger majorities in both houses of Congress. As Rahm Emanuel, the president's chief of staff, says, Mr Obama does not want to waste this crisis. He is using it to create a bigger role for government throughout the economy, from education and health care to banking and energy.(...)

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Crazy Compensation and the Crisis (Wall Street Journal - U.S.)

by Alan S. Blinder

Despite the vast outpouring of commentary and outrage over the financial crisis, one of its most fundamental causes has received surprisingly little attention. I refer to the perverse incentives built into the compensation plans of many financial firms, incentives that encourage excessive risk-taking with OPM -- Other People's Money. What, you say, hasn't huge attention been paid to executive compensation -- especially those infamous AIG bonuses? Yes. But the ruckus has been over the generous levels of compensation, or the fact that bonuses were paid at all, not over the dysfunctional incentives that inhere in the way many compensation plans are structured. (...)

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Will Savings Banks Be the Next Casualties? (Spiegel - Germany)

By Beat Balzli, Christoph Pauly and Wolfgang Reuter

Germany's public sector-owned savings banks were long considered an oasis of stability amid the turbulence of the financial crisis. But now they too are looking shaky, with some institutions already at acute risk. (...)

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In defence of foreign banks (VOX EU - The Net)

by Ralph De Haas

In recent months, foreign-owned banks have been accused of abandoning the emerging markets that have contributed so much to their profitability over the last decade. This column analyses a large bank-level dataset of foreign bank subsidiaries across the world, to compare lending by foreign bank subsidiaries with lending by domestic banks. Importantly, it finds that as a result of parental support, foreign bank subsidiaries do not typically rein in their lending during a financial crisis. (...)

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Global crisis 'hits human rights' (BBC - U.K.)

The global economic crisis is exacerbating human rights abuses, Amnesty International has warned. In its annual report, the group said the downturn had distracted attention from abuses and created new problems. Rising prices meant millions were struggling to meet basic needs in Africa and Asia, it said, and protests were being met with repression. Political conflict meant people were suffering in DR Congo, North Korea, Gaza and Darfur, among others, it said.. (...)

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Beware the Beijing model (The Economist - U.K.)

Talk of a new, Chinese model of capitalism merits scepticism. China may or may not achieve its target of 8% economic growth this year. But there is still a sense of triumphalism among Chinese business leaders, politicians and academics. The economic crisis, in the view of many people around the world, has revealed the catastrophic shortcomings of the American system of capitalism. Chinese officials have endured years of lectures from visiting Western officials about how to reform their economy; but now many countries are looking to China's stimulus package, not American verbiage, to help pull them out of the mire. (...)

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The Treasury market, in a world no longer dominated by central bank reserve managers (Brad Sester - The Net)

n case you haven't heard, the Treasury market - and the mortgage market -- had a bad day. Ten-year Treasury yields are back at their November 2008 levels (long-term Treasury yields didn't fall immediately after Lehman). 3.7% for ten year money isn't all that high a rate. Especially for a country with a substantial fiscal deficit. But it isn't 2% either. What happened? (...)

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Green shoots or yellow weeds? (The Globe and Mail - Canada)

By Nouriel Roubini

Recent data suggest that the rate of contraction in the world economy may be slowing. But hopes that "green shoots" of recovery may be springing up have been dashed by plenty of yellow weeds.(...)

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Recession seen ending in '09; then economists see uneven ride (USA Today - U.S.)

By Jeannine Aversa

More than 90% of economists predict the recession will end this year, although the recovery is likely to be bumpy. That assessment came from leading forecasters in a survey by the National Association for Business Economics released Wednesday. It is generally in line with the outlook from Federal Reserve Chairman Ben Bernanke and his colleagues. About 74% of the forecasters expect the recession -- which started in December 2007 and is the longest since World War II -- to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year, and the remaining 7% believe the recession will end in the first quarter of 2010. (...)

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Is this a bubble within the crash? (The Guardian - U.K.)

By Aditya Chakrabortty

Did someone forget to tell shoppers there's a recession on? If you went out shopping this bank holiday weekend, the chances are you were part of a throng - the number of visits to shops is rising at its strongest rate in five years and retail sales are going up, despite mounting unemployment. (...)

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Search your underpants for signs of a recovery (The Economist - Free Exchange Blog - The Net)

DURING the halcyon days of consumer overspending, there emerged a trend of mid-riff bearing starlets not wearing underpants. The hemline indicator suggests skirts are shorter during booms, but fashion gets more conservative during downturns. Perhaps we should have taken the skin exposure a few years ago as an omen. (...)

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When austerity does not come easily (Financial Times - U.K)

By Gideon Rachman

There was a moment, a few months ago, when sensible people in rich countries were considering pulling all their money out of the bank, buying gold ingots and hiding them under the bed. But now that the panic has passed, something less frightening and rather bleaker is beckoning. Welcome to the politics of austerity.

Across the developed world, unemployment, public debt and taxes are rising. When the global economic crisis first hit, it was natural to assume that the poorer and more recent democracies would be most vulnerable to a political backlash. Without the accumulated wealth or the welfare systems to cushion the blow, their populations looked vulnerable. Most countries in central Europe or Latin America only made the transition to democracy in the 1980s, so authoritarian nasties might still be lurking in the shadows.

But perhaps we are looking for trouble in the wrong places. It could be that it will be the richer democracies, such as Britain and the US, that find it most difficult to adapt to the politics of austerity.(...)

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Trade and Hard Times (The New York Times - U.S.)

Foreign trade has been a potent force for good over more than half a century. It propelled Japan's emergence from the ashes of World War II and helped it become an industrial powerhouse. It is the cornerstone of development strategies from China to Brazil. It is what links countries all over the world in a network of production that underpins global prosperity.

Today, trade is collapsing, one more casualty of the global financial crisis. That is especially bad news for countries that are dependent on trade for economic growth, including many developing nations that had nothing to do with the financial mess.(...)

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Beware the Beijing model (The Economist - U.K.)

CHINA may or may not achieve its target of 8% economic growth this year. But there is still a sense of triumphalism among Chinese business leaders, politicians and academics. The economic crisis, in the view of many people around the world, has revealed the catastrophic shortcomings of the American system of capitalism. Chinese officials have endured years of lectures from visiting Western officials about how to reform their economy; but now many countries are looking to China's stimulus package, not American verbiage, to help pull them out of the mire.(...)

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The Crisis Is Over, And We Wasted It (The Baseline Scenario - The Net)

Rahm Emanuel reportedly has a doctrine: Never let a serious crisis go to waste. His point is a good one - vested interests usually block change across a wide range of important issues in the US, and a major financial/economic crisis provides an opportunity to bypass or breakthrough those interests in order to introduce meaningful and substantial change. Emanuel listed (from the 1:40 minute mark) five priority areas for change: health care (cost control and expansion of coverage), energy (independence and alternatives), taxes (fairness and simplicity), education (fundamental changes to effectively train the workforce), and financial regulation (transparency and accountability). (...)

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As the Dollar Continues to Collapse, Where Will You Put Your Money? (Seeking Alpha - The Net)

This piece follows a previous article, in which I warned against shorting equities -- despite the fact that I believe the stock market is going to fall dramatically, at least in real terms (which I'll again expand upon later). As usual, my cautious outlook prompted a flurry of emails from readers asking what they should be doing with their money in order to prepare for the impending firestorm of rising prices that will derive from the inflationary printing and unprecedented credit-easing governments worldwide are foisting on their citizens.

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Decoupling 2.0 (The Economist - U.K.)

A year ago, many commentators--including this newspaper--argued that emerging economies had become more resilient to an American recession, thanks to their strong domestic markets and prudent macroeconomic policies. Naysayers claimed America's weakness would fell the emerging world. Over the past six months the global slump seemed to prove the sceptics right. Emerging economies reeled and decoupling was ridiculed.(...)

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State of Paralysis (The Economists' view - The Net)

California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America. The recession has hit the Golden State hard. The housing bubble was bigger there than almost anywhere else, and the bust has been bigger too. ... What's really alarming about California, however, is the political system's inability to rise to the occasion. .(...)

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Heal the economy to mend the politics (The Guardian - U.K.)

In 1982 it was a war in the South Atlantic. In 2009 it has been moats, manure and the flipping of houses. Different mechanism, same outcome: the economy has been taken off the front pages. Unlike the liberation of the Falklands, this is not unalloyed good news for the government. Voters may well blame Gordon Brown for the recession but Labour's poll ratings perked up on the two occasions the prime minister was seen as getting on top of the crisis - last October's bank rescue and the G20 ¬summit last month (...)

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The world's best banks: A short list (The Economist - U.K)

As the dust starts to settle, which banks deserve the most plaudits?

TRYING to work out which banks are the world's best is a bit like awarding the prize for prettiest war-torn village. It is a title that carries little kudos. It is also likely to prompt further shelling. Winners of industry awards in the past three years include Ken Lewis, the chief executive of Bank of America, for banker of the year (2008); Société Générale for its risk management; and Angelo Mozilo of Countrywide, a failed mortgage lender, for a "lifetime of achievement".(...)

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The Crisis and How to Deal with It (The New York Review of Books - U.S.)

Following are excerpts from a symposium on the economic crisis presented by The New York Review of Books and PEN World Voices at the Metropolitan Museum of Art on April 30. The participants were former senator Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells, with Jeff Madrick as moderator.(...)

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Can We Save the Banks, and Also Protect Consumers? (Economix - The Net)

By Simon Johnson

The United States government's strategy for its big banks is now quite clear. These banks have suffered big losses, so they are short on capital and ordinarily you would want them to raise more capital promptly (if this sentence doesn't make sense to you, start with some "bad bank" basics). But, as we saw in the recently concluded stress tests, the Treasury does not wish to press this point. "Saturday Night Live" provided the hilarious and accurate explanation: The big banks are just too powerful.(...)

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Why a GM Bankruptcy Would Be a Disaster (Business Week - U.S.)

President Obama is nearing the most important decision a President has made in modern times regarding the American economy. On or about June 1, he will push General Motors (GM), the nation's largest industrial company, into bankruptcy. The key trigger may be on May 26, when GM's offer to bondholders to accept 10¢ on the dollar fails to win acceptance from 90% of them, a criterion that Obama has set for continued loans to GM.

But there's a strong probability the decision to push GM into bankruptcy will be disastrous. The mere threat of bankruptcy caused GM's U.S. sales to fall by 50% in the first quarter from already depressed levels. If GM were to declare Chapter 11 bankruptcy, sales would decline even further. (...)

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Why Britain has to curb finance (Financial Times - U.K)

By Martin Wolf

The UK has a strategic nightmare: it has a strong comparative advantage in the world's most irresponsible industry. So now, in the wake of the biggest financial crisis since the 1930s, the UK must ask itself a painful question: how should the country manage the cuckoo sitting in its nest?

The question is inescapable. London is one of the world's two most important centres of global finance. Its regulators have, as a result, an influence on the world economy out of proportion to the country's size. In the years leading up to the crisis, that influence was surely malign: the "light touch" approach led the way in a regulatory race to the bottom.(...)

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What You Don't Know Makes You Nervous (The New York Times - U.S.)

By Daniel Gilbert

Seventy-six years ago, Franklin Delano Roosevelt took to the inaugural dais and reminded a nation that its recent troubles "concern, thank God, only material things." In the midst of the Depression, he urged Americans to remember that "happiness lies not in the mere possession of money" and to recognize "the falsity of material wealth as the standard of success." "The only thing we have to fear," he claimed, "is fear itself.". (...)

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How many monies does Africa need? (VOX EU - The Net)

by Thorvaldur Gylfason

Does every country in Africa need a currency of its own? No. This column describes the monetary zones in-the-making in Africa and how a further reduction of the number of currencies in Africa would likely encourage trade and growth and attract investors who are understandably wary of weak and volatile currencies.. (...)

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Private Sector the Loser in China's Stimulus Plan (Chinastake - The Net)

While the Chinese economy is becoming the most dynamic sector in the world and creating the most job opportunities, Chinas' private companies are falling the largest losers in the Chinese government's ambitious stimulus plan.(...)

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Is California Too Big to Fail? (Megan McArdle - The Net)

So what about California? A reader asks. Ummm, that's a tough one. No, wait, it's not: California is completely, totally, irreparably hosed. And not a little garden hose. More like this. Their outflow is bigger than their inflow. You can blame Republicans who won't pass a budget, or Democrats who spend every single cent of tax money that comes in during the booms, borrow some more, and then act all surprised when revenues, in a totally unprecedented, inexplicable, and unforeseaable chain of events, fall during a recession. You can blame the initiative process, and the uneducated voters who try to vote themselves rich by picking their own pockets. Whoever is to blame, the state was bound to go broke one day, and hey, today's that day!(...)

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Asia needs to ditch its growth model (Financial Times - U.K.)

By Michael Pettis

The recent upturn in Asian economies is creating a dangerous optimism that almost wilfully ignores the difficulties ahead. Future historians will mark 2008 as the year that the development model that has driven much of Asia's rapid growth for the past two decades went bankrupt. While the next decade will represent a difficult transition towards a new development model, unfortunately many Asian countries are responding to the economic crisis with policies that may temporarily boost growth but that are only likely to make the transition more difficult. (...)

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Why Keynes Was Wrong (Council on Foreign Relations - U.S.)

One of the many attractions of Keynes is that, like a good magician, he makes you think twice about what you think you see and know. And the General Theory is full of great tricks. Most people vaguely familiar with Keynes' economics associate his counter-laissez-faire views with the observation that nominal wages are "sticky" downward (that is, workers resist wage cuts), and that, in consequence, the free play of the price mechanism fails to steer the economy toward full employment. But he goes well beyond this in the General Theory, arguing, contrary to classical economics, that even without assuming any fixing of prices there can be a stable, persistent equilibrium with chronic, large-scale unemployment.(...)

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Redistribution through the Geithner Plan (Vox EU - The Net)

By Dennis J Snower

Under the threat of the present economic crisis, US financial institutions have received huge bailouts and guarantees. This support is leading to large increases in the national debt, which will need to be financed through taxes in the future. In the process, a massive redistribution of income is under way (Sachs 2009).

The public is vaguely aware of this redistribution and is angry about it. Why, people are asking, are we giving such generous payouts to the financiers who got us into this mess? How large might this redistribution turn out to be? Is this redistribution necessary to restore the financial industry to health? (...)

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Soak the Rich, Lose the Rich (The Wall Street Journal - U.S.)

By ARTHUR LAFFER and STEPHEN MOORE

With states facing nearly $100 billion in combined budget deficits this year, we're seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the "fair" way to close his state's gaping deficit. (...)

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A coming world that's 'a whole lot smaller' (Globe Investor - Canada)

By DAVID PARKINSON

Until two months ago, Jeff Rubin was the audacious chief economist and chief strategist at CIBC World Markets, a high-profile pulpit from which he preached his unconventional and occasionally controversial views on economic matters for nearly two decades. His blunt talk and bold predictions didn't always win him friends, but his penchant for being right, more often than not, had won him international respect - and made him CIBC's most public star. (...)

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Quarterly Housing Starts and New Home Sales (Calculated Risk Blog - The Net)

The Census Bureau has released the "Quarterly Starts and Completions by Purpose and Design" report for Q1 2009 today. Monthly housing starts (even single family starts) cannot be compared directly to new home sales, because the monthly housing starts report from the Census Bureau includes apartments, owner built units and condos that are not included in the new home sales report. (...)

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No Relief for Luxe Retailersx (The Ticker Blog - U.S.)

How can you tell we're still in a recession? Same-store sales at Saks are down 28 percent compared to this time last year, the company said this morning. Bargain retailers such as Wal-Mart and McDonald's have not only survived but thrived during this recession, now in its 17th month, thanks to the "trade-down effect," meaning that bargain-conscious shoppers are eschewing pricier retailers for cheaper ones. (...)

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So Far So Good (The New York Times - U.S.)

Unfortunately, Detroit's problems -- and the White House's -- don't end there. Still looming is the fate of General Motors, a much larger and more complex company than Chrysler. G.M.'s bankruptcy is becoming increasingly likely as its bondholders refuse to accept the government's terms for a restructuring out of court.

Even if G.M. -- with a lot of help -- manages to survive bankruptcy, it has yet to show that it has a solution for one of its most fundamental problems: its inability to make cars that consumers want to drive. This is the government's problem too. Under a plan being negotiated by General Motors and the Treasury, the government would swap some of its loans for a stake of at least 50 percent. (...)

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A stress test for good intentions (Economist - U.K.)

IN JUNE Gap, a big retailer based in San Francisco, will hold a strategy meeting for its corporate social responsibility (CSR) team. In previous years that meant flying in people from 20 countries around the world. But this time the company plans to bring them together virtually, via online meetings. The main reason for the switch is not to help save the planet by reducing Gap's carbon footprint, but to help save money. "Everyone's looking to become more efficient," explains Dan Henkle, who leads the company's CSR activities.

As firms grapple with a brutal economic downturn, they are taking a long, hard look at the resources they devote to everything from supporting charities to making their activities carbon-neutral. That is hardly surprising: cutting back on CSR, or "sustainability" as it is sometimes known, would seem to be a quick and relatively painless way to save money. Cassandras who felt many CSR initiatives were little more than publicity stunts in the first place predicted that they would perish as soon as the economy fell off a cliff.(...)

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Germany needs more than an accounting trick (Financial Times - U.K.)

After the US, the country with the biggest banking problem is probably Germany. Last week the German cabinet adopted a bank rescue plan worth looking at in detail. If you want to know how long the European crisis will last, this might give you the answer. The Geithner/Summers plan in the US has two fundamental planks - a strategy to ring-fence structured finance products for which there is no market, and a strategy to recapitalise the banking system. Both seem to be based on unrealistically optimistic assumptions about the economic recovery. And both have been criticised sharply, mainly for that reason.

The German scheme is constructed very differently. It is a ring-fencing plan only and it is voluntary. Under the draft legislation put forward by the German government last week, a bank can apply to set up its own bad bank. A bad bank is not really a bank at all. It is a special purpose vehicle, similar to those off-balance sheet vehicles that triggered this crisis in the first place. The proposed SPV will have a shelf life of up to 20 years. It buys the structured securities from the bank at 90 per cent of book value - the price at which the securities are currently valued on the balance sheet. In return, the SPV issues new debt securities to the bank, guaranteed by the government. So if a bank shifts structured securities with a notional value of €10bn ($13.5bn, £8.9bn) to the SPV, it gets €9bn in good securities back. The state is the guarantor. The idea is to give the banks an incentive to lend again.

Will it work?(...)

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Why did the bankers behave so badly? (Vox EU - The Net)

Many people share the blame for the current financial crisis; politicians, supervisors, regulators and even imprudent households and businesses. One group, however, has been judged to be especially guilty; the employees in the financial services sector. In response to their perceived greed and bad judgment, the US House of Representatives passed a bill that would effectively confiscate the 2008 bonuses of employees of financial firms receiving significant bailout assistance. In the UK, vandals smashed the windows and trashed the Mercedes of the former head of the Royal Bank of Scotland, while protestors tried to take over a London branch of the bank. In Iceland, financiers have wisely fled the country.

The populist outrage may be excessive, but it is hard to deny that certain aspects of these employees' conduct were undesirable. Bankers imprudently counted on a continuation of the US housing boom long after most economists predicted its demise; they were overly sanguine about sustainable leverage ratios; managers of insurance companies and pension funds failed to exercise sufficient caution when they purchased collateralised debt obligations and asset-backed securities that they did not understand or know the value of. Since few would characterise the bankers and other employees of financial firms as an unintelligent group, it is interesting to ask why they behaved in such an egregious fashion; I advance three theories. (...)

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Damage assessment (The Economist - U.K.)

Amid the hubbub over a few less-bad-than-expected statistics, America's economic debate has turned to the nature of the recovery. Optimists expect a vigorous rebound as confidence returns, pent-up demand is unleashed and massive government stimulus takes effect. Most observers, including this newspaper, are bracing for a long slog, as debt-laden consumers rebuild their savings, output growth remains weak and unemployment continues to rise(...)

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A populist interpretation of the last boom-bust (Naked Capitalism - The Net)

As with my most recent post here on Naked Capitalism about Larry Summers, I want to write a thought piece here, as much for discussion's sake as for its analysis. Now, the core of what you are about to read is something I put together and posted on Credit Writedowns in March of '08. At the time, I was struggling with the dichotomy between the perceived increase in wealth in the United States and the obviously poor macro statistics on debt, leverage and earnings for the middle class. This piece was the product of that struggle. (...)

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The Doha Round: A safety net in stormy weather (VoxEu - The Net)

The current financial crisis has fostered a demand for protectionism and put the Doha Round at the back of the agenda. This column argues that a failed Doha Development Agenda would send the wrong signal in terms of global governance and could lead to an unravelling of the past 15 years of trade liberalisation..(...)

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The Economy: the next 100 days (Video) (The New Yorker - U.S.)

On Tuesday, May 5th, the New Yorker staff writer James Surowiecki spoke with Douglas Holtz-Eakin, Robert Kuttner, and Joshua L. Steiner about the future of the U.S. economy at the New Yorker Summit(...)

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Failure: A Bankrupt Idea (Business Week - U.S.)

Why the bankruptcy process that sorted out the mess when companies failed no longer works Failure can be a beautiful thing. Maybe not if you work for General Motors (GM), which seems to be stumbling toward bankruptcy. But for the U.S. economy as a whole, the swift and clean disposition of weak companies is an essential part of the formula for getting growth back on track. (...)

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Chinese model and the doctrine of mean (China Daily - China Daily)

By Martin Wolf

As the economic crisis batters the world, many experts have started a debate on economic models. A number of these experts regard the Chinese economy as a model distinct from those of the US or European countries.(...)

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Economic Crisis Could Deepen Latin America's Energy Woes (The Oil Drum - The Net)

The current economic crisis may exacerbate the slow growth of Latin America's crude oil and natural gas output, which has lagged as the region has struggled to exploit its abundant energy resources. (...)

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Why Markets, Not the Treasury, Determine Bank Capital (Economix - The Net)

By Casey B. Mulligan

Bailout mania began with the Bush administration's attempts to boost bank capitalization rates. The Obama administration's reaction to bank stress-test results marks an important change by asking failing banks to raise their own capital rather than injecting another round of taxpayer funds. Yet neither administration has admitted to the public how difficult it is for the Treasury to have an impact on bank capitalization, because the market works to offset Treasury transactions in bank capital.

Bank capital refers to the excess value of banks' assets over liabilities. Bank capital belongs to the bank shareholders, but provides a degree of insurance to the bank's creditors -- its depositors and bond holders -- because their claims on bank assets (in the case of bankruptcy, for example) are senior to those of bank shareholders. Some economists also think that adequate bank capital is also essential for lending.(...)

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Fama's Fallacy, Take I: Eugene Fama Rederives the "Treasury View" (Brad Delong - The Net)

A Guestpost from Montagu Norman, former Governor of the Bank of England

Back in the 1920s and 1930s--in the days that overly-clever bisexual academic dilettante John Maynard Keynes was trying to persuade us that if only we got the government to spend more money the unemployment rate might go down--by far the silliest argument against his position was the one put forward by the staff of the Chancellor of the Exchequer: the so-called "Treasury View."

The Treasury View was that nothing could boost employment: not government spending, not tax cuts, not private business decisions to expand their capacity, not irrational exuberance on the part of entrepreneurs--for the level of output was what it was and the unemployment rate was what it was and no fiscal policies or private investment decisions could change it, for all they could do was move resources from one use to another without affecting the total flow of economic activity.

Back on Christmas Eve Paul Krugman whacked Caroline Baum of Bloomberg on the nose for rediscovering the Treasury View. Now Eugene Fama of the University of Chicago has rederived it from scratch (apparently without knowing anything of its history), claiming that the savings-investment national income identity proves that fiscal policy cannot have any effect on output and employment.(...)

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Why Obama's conservatism may not prove good enough (Financial Times - U.K.)

By Martin Wolf

"If we want things to stay as they are, things will have to change." Thus wrote the Sicilian writer Giuseppe di Lampedusa, in The Leopard. This seems to me the guiding principle of the Obama presidency. To many Americans, he seems a flaming radical. To me, he is a pragmatic conservative, albeit one responding to extraordinary times. In his own way, Mr Obama is following the path trodden by Franklin Delano Roosevelt.

Nowhere is his conservatism more obvious than in the handling of the economic crisis. What we have seen unfolding, from the president's choice of Lawrence Summers and Tim Geithner as his principal policy advisers, to last week's "stress tests", is classic conservative policymaking. The aim is simply to get the show back on the road. As Mr Obama told The New York Times: "I'm absolutely committed to making sure that our financial system is stable." Stability is a quintessentially conservative aim. Many radicals on the right and left insist that undercapitalised banks should be recapitalised right now. But Mr Obama sees this as far too risky.(...)

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Geithner's Revelation (The Wall Street Journal - U.S.)

He concedes that monetary policy was 'too loose too long.'

The Earth stood still, the seas parted and a member of the U.S. political class admitted last week that the Federal Reserve helped to cause the financial meltdown. OK, only the last of those happened, but it's a welcome miracle nonetheless.

The revelation came from Timothy Geithner last Wednesday with PBS's Charlie Rose, who asked the Treasury Secretary: "Looking back, what are the mistakes and what should you have done more of? Where were your instincts right, but you didn't go far enough?"
(...)

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Has the recession bottomed out? (BBC News - U.K.)

By Steve Schifferes

By some measures, the global recession seems to be accelerating, with unemployment rising and overall economic activity falling. But there are some signs that the rate of decline is slowing. How significant is the evidence for a turning point? (...)

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Despite Stimulus Funds, States to Cut More Jobs (The Washington Post - U.S.)

By Alec MacGillis

Eleven weeks after Congress settled on a stimulus package that provided $135 billion to limit layoffs in state governments, many states are finding that the funds are not enough and are moving to lay off thousands of public employees. (...)

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Tight storage may lead to huge oil price drop (The Oil Drum Blog - The Net)

The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption. The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future. (...)

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Assets grab (The Economist - U.K.)

In the latest episode in its drive to increase its control over Venezuela's oil and gas industry, the government of President Hugo Chávez has announced its intention to seize the assets of 60 local and foreign oil-services companies. Ultimately, the move could prove self-defeating if it exacerbates the downturn in oil production and export income, and dissuades other private investors and contractors from entering the country. (...)

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In Trade Numbers, a Reminder of the Downturn (The New York Times - U.S.)

By JACK HEALY and BETTINA WASSENER

The gap between United States imports and exports widened for the first time in eight months in March, the government reported on Tuesday, primarily as a result of a drop in exports. But economists said the sharp declines in the value of trade between the United States and the rest of the world appeared to be hitting a plateau. (...)

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Vive la différence! (The Economist - U.K.)

A strong beneficent state, with heavy taxation, regulation and protection, is common to many continental European countries. But nowhere is it more pronounced or entrenched than in France, where it reaches back to the construction of roads, canals and industrial mammoths under Jean-Baptiste Colbert, Louis XIV's minister of finance and industry..(...)

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It's not bankers Labour is watching, it's you (The Guardian - U.K.)

According to the prime minister, we are now living in a different world. The crisis of neo-liberalism has ushered in a new age in which there is a new and more important role for the state. That is true, but only up to a point. The state is rather keener on controlling the people than the markets (...)

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Germany's Economics Minister on Fight to Save Opel Jobs (Der Spiegel - Germany)

German Economics Minister Karl-Theodor zu Guttenberg, 37, a member of the conservative Christian Social Union, the Bavarian sister party to Chancellor Angela Merkel's Christian Democrats, discusses Fiat's possible investment in carmaker Opel and the deal's potential election-year impact. (...)

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The Opportunity in Autos (Newsweek - U.S.)

The White House is at this moment trying to save America's auto industry and the tens of thousands of jobs that depend on it. Although nobody knows what the bailout is expected to cost, it's going to be huge--on the order of $100 billion. Spending this kind of money on a salvage operation will not work: business as usual will ultimately result in failure as usual. Incremental technological improvements will not help because foreign competitors will simply match them, as they have been doing for decades. (...)

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Will special drawing rights supplant the dollar? (Naked Capitalism - The Net)

The unduly charitable coverage of the stress tests continues...

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Stressing the Positive (The New York Times - U.S.)

Hooray! The banking crisis is over! Let's party! O.K., maybe not. In the end, the actual release of the much-hyped bank stress tests on Thursday came as an anticlimax. Everyone knew more or less what the results would say: some big players need to raise more capital, but over all, the kids, I mean the banks, are all right. Even before the results were announced, Tim Geithner, the Treasury secretary, told us they would be "reassuring."

But whether you actually should feel reassured depends on who you are: a banker, or someone trying to make a living in another profession.(...)

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What Will Happen to Banks that Fail the Stress Test, When You and I Own Wall Street (Robert Reich's Blog - The Net)

The outcome of the "stress tests" will be that the banks needing extra capital will get it from the Treasury. But where will the money come from, now that the TARP fund is almost exhausted and Congress is dead set against providing more bank bailout money? The Treasury will simply swap debt for equity - turning what the banks owe the government into shares of stock in the banks. Presto. Ailing banks will get more capital, and Tim Geithner won't have to go back to Congress to ask for it. (...)

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Stress Tests and The Nationalization We Got (The Baseline Scenario - The Net)

When the stress tests were first announced on February 10, bank stocks went into a slide (the S&P 500 Financial Sector Index fell from 133.13 on February 9 to 96.18 two weeks later), in part on fears that the stress tests would be a prelude to "nationalization" of the banks. This week, it has emerged that several large banks will require tens of billions of dollars of new capital, most notably Bank of America. They could obtain that capital by exchanging common shares for the preferred shares that Treasury now holds, an accounting trick that boosts tangible common equity without providing the banks any new cash. Such a conversion would greatly increase the government's stake in certain banks, perhaps even above the 50% level, yet the markets seem relatively unconcerned this week, with the S&P 500 Financial Sector Index at 168.14 and rising.

What happened?(...)

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Will special drawing rights supplant the dollar? (Vox EU - The Net)

China recently called for SDRs to replace the dollar as the international reserve currency and diminish the US economic supremacy. This column argues that because of the huge network benefits associated with using dollars, SDRs are not likely to supplant the dollar anytime soon as an international reserve unit, especially with the euro as a more viable competitor.(...)

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A new pecking order (The Economist - U.K.)

FOR years leaders in continental Europe have been told by the Americans, the British and even this newspaper that their economies are sclerotic, overregulated and too state-dominated, and that to prosper in true Anglo-Saxon style they need a dose of free-market reform. But the global economic meltdown has given them the satisfying triple whammy of exposing the risks in deregulation, giving the state a more important role and (best of all) laying low les Anglo-Saxons.

At the April G20 summit in London, France's Nicolas Sarkozy and Germany's Angela Merkel stood shoulder-to-shoulder to insist pointedly that this recession was not of their making. Ms Merkel has never been a particular fan of Wall Street. But the rhetorical lead has been grabbed by Mr Sarkozy. The man who once wanted to make Paris more like London now declares laissez-faire a broken system. Jean-Baptiste Colbert once again reigns in Paris. Rather than challenge dirigisme, the British and Americans are busy following it: Gordon Brown is ushering in new financial rules and higher taxes, and Barack Obama is suggesting that America could copy some things from France, to the consternation of his more conservative countrymen. Indeed, a new European pecking order has emerged, with statist France on top, corporatist Germany in the middle and poor old liberal Britain floored. (...)

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Blame this crisis on the myth of inflation (The Times - U.K.)

When things go wrong, it is a human instinct to attribute blame. Today, many people are routinely blamed for this economic crisis - investment bankers, for greed; central bankers, for being "behind the curve"; regulators, for being "asleep at the wheel"; credit rating agencies, for too many triple A ratings; even the public themselves, for foolishly borrowing too much.

What made all these people reckless at the same time? The record seems to show that they were all just victims. Their mistake was to believe what they were told. They were lulled into a false sense of security by an idea - that if policymakers could maintain low inflation (and more important, low inflation expectations), then all good things would follow: growth, employment, prosperity, stability.

Unfortunately, the idea turned out to be a myth - the largest public policy failure of our generation. The Myth of Inflation Targeting created the illusion of the new Jerusalem, the new paradigm, the end of the economic cycle. (...)

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The Other Stress Test (For Bankers) (The Baseline Scenario - The Net)

There is nothing you can teach Wall Street titans regarding the timing of news flow. Stephen Friedman, the former head of Goldman Sachs, resigned last night as chair of the New York Fed's board, after committing essentially a rookie error. In December/January, he traded the stock of a company (Goldman) overseen by the NY Fed, while helping to pick a new head of the Fed (formerly from Goldman), and presumably being aware of other potentially nonpublic information regarding bank rescues (benefiting Goldman both directly and indirectly). The real error, given the Federal Reserve System's incredibly lax rules on potential conflicts of interest at this level, was failing to disclose this information to the NY Fed - they learned it from WSJ reporters and that cannot have been a good moment. (...)

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How We Tested the Big Banks (The New York Times - U.S.)

This afternoon, Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve will announce the results of an unprecedented review of the capital position of the nation's largest banks. This will be an important step forward in President Obama's program to help repair the financial system, restore the flow of credit and put our nation on the path to economic recovery. (...)

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From recession to recovery: A long and hard road (Vox EU - The Net)

Two features of the current recession - its association with a deep financial crisis and its highly synchronised nature - suggest that it is likely to be unusually severe and followed by a weaker-than-average recovery. Current and near- term policy responses are the key to understand how the recession will evolve this time. (...)

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I'd Be Broke If Ben Bernanke Were My Financial Adviser (The New York Times - U.S.)

Yesterday, I came across an Associated Press piece that attempted to track Federal Reserve Chairman Ben Bernanke's recent economic predictions. From the article:

Federal Reserve Chairman Ben Bernanke said Tuesday that the U.S. economy could begin to grow later this year if the government can gradually repair the financial system. His testimony to Congress' Joint Economic Committee largely echoed statements he's made in recent months. But this time, Bernanke was a bit more optimistic: He said not just that the recession could end but that the economy could start growing again by year's end. (...)

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The Banks and Orwell (Business Week - U.S.)

by Yves Smith

I continue to be amazed at the bank cheerleading in the press.

Admittedly, article writers are not responsible for headlines, so I do not know who to hold responsible for this New York Times item, "As Stress Tests Are Revealed, Markets Sense a Turning Point.".

How much have bank stocks rallied since March 9? Declaring the up move today a turning point is nearly two months late. (...)

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Gold sales cost Europe's central banks $40bn (Business Week - U.S.)

J Europe's central banks are $40bn poorer than they might have been after they followed a British move taken 10 years ago on Thursday to shrink the Bank of England's gold reserves, analysis by the Financial Times has shown. London's announcement on May 7 1999 that it would sell a large share of the Bank's gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called "anti-gold" sentiment among European central banks. (...)

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Central banks must target more than just inflation (Financial Times - U.K.)

By Martin Wolf

Did inflation targeting fail? Central banks have mostly escaped blame for the crisis. Do they deserve to do so?

Just over five years ago, Ben Bernanke, now chairman of the Federal Reserve, gave a speech on the "Great Moderation" - the declining volatility of inflation and output over the previous two decades. In this he emphasised the beneficial role of improved monetary policy. Central bankers felt proud of themselves. Pride went before a fall. Today, they are struggling with the deepest recession since the 1930s, a banking system on government life-support and the danger of deflation. How can it have gone so wrong?(...)

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What's left of central bank independence? (Maverecon - The Net)

The modern independent central bank was born in New Zealand in 1989. It had a short life. The onset of the financial crisis of the north Atlantic region in August 2007 signalled the beginning of the end. Today, only the ECB still has a significant degree of operational independence left, and it will have to give that up if it is to be effective in the current phase of the crisis. In other words, the ECB is the last central bank to understand that, if it is to play a significant financial stability role, it cannot retain the degree of operational independence it was granted in the Treaty over monetary policy in the pursuit of price stability. (...)

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The Fairness Doctrine: The best argument against Obama's tax-haven plan. (Slate - The Net)

By Christopher Beam

Republicans, business leaders, and even a few Democrats don't like President Obama's new plan to crack down on tax havens. But they're having a hard time explaining why. According to the president of the Business Roundtable, John Castellani, it's "the wrong idea at the wrong time for the wrong reasons." Senate Minority Leader Mitch McConnell did a little better, saying that the plan "gives preferential treatment to foreign companies at the expense of U.S.-based companies." And at least Rep. Joseph Crowley, D-N.Y., is candid about his constituency: He wants to make sure it doesn't hurt Citibank.

Politicians are in a tricky spot here: They want to be seen as pro-business, or at least helping businesses create jobs, but they don't want to get painted as cozying up to tax evaders. That means they'll have to be a little more nuanced in their critique.(...)

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The Dangers of Playing with Credit Markets (Megan McArdle - The Net)

Governments have unique power over credit markets. If a private party, provided that you live in a reasonably well-functioning democracy, the government will make him pay--or at least, set out the terms by which he can avoid doing so. Saying, like Bartleby the Scrivener, that "I would prefer not to" is usually not considered sufficient.

A government, of course, can default whenever it wants, under any terms it wants. It is limited only by the prospect of future difficulties in borrowing money.

But in times of duress, politicians--especially in emerging markets--are willing to deal with that comfortably far-off possibility, rather than find the money to pay the creditors now.(...)

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The economic outlook (the Fedral Reserve U.S.)

Chairman Ben S. Bernanke's speech before the Joint Economic Committee, U.S. Congress, Washington, D.C.

The U.S. economy has contracted sharply since last autumn, with real gross domestic product (GDP) having dropped at an annual rate of more than 6 percent in the fourth quarter of 2008 and the first quarter of this year. Among the enormous costs of the downturn is the loss of some 5 million payroll jobs over the past 15 months. (...)

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Some Aspects of Our Industry Seem Greedy (Der Spiegel - Germany)

The investment bank Goldman Sachs is back in the black. SPIEGEL spoke with the chief executive of its German operation about finance industry greed, the morals of banking and who should be blamed for the global financial meltdown. (...)

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Spring is in the in the air, but not all green shoots make it to summer (The Independent - U.K.)

by Stephen King, managing director of economics at HSBC

It's spring, so it must be time for green shoots (unless, of course, you live in the southern hemisphere, in which case the seasonal metaphor is utterly irrelevant). Like a good version of swine fever, economic buds appear to be turning up all over the place. In the US, we have seen a welcome bounce in consumer confidence and a more positive clutch of manufacturing indicators. (...)

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Obama on Wall Street (The New Yorker - U.S.)

by James Surowiecki

David Leonhardt's interview with President Obama in this week's New York Times Magazine is full of lots of interesting material, particularly in Obama's discussion of Wall Street. The most important point he makes is that the real aberration of the past decade was the fact that financial-industry profits rose so steeply that they actually accounted, at one point, for about forty per cent of total corporate profits in the U.S.. (...)

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Stock-ownership society (The Economist - U.K.)

IN RETROSPECT, were higher rates of stockmarket participation a positive development? Barack Obama reckons yes, but James Surowiecki is not so sure the average investor has benefited. (...)

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The butcher's bill (The Economist - U.K.)

Economists argue that a pandemic would affect both global demand and global supply, but that the first of these is particularly vulnerable to the uncertainty and fear surrounding even the possibility of widespread disease. That would cause consumer spending to fall and businesses to put investment plans on hold.

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A Conflict of Interest is Not a Conflict of Interest If It Involves Goldman (Naked Capitalism - The Net)

Readers may recall that Goldman had the biggest exposure to AIG and thus had the most to benefit from a course of action that would be generous to counterparties (who had chosen of their own cognizance to enter into contracts with the big insurer)...(...)

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Zombie Oligarchs (Real Time Economic Issues - The Net)

by Simon Johnson

At this stage in any economic stabilization process, the state-sponsored lifeboat for oligarchs starts to get a little crowded. Governments don't have enough resources to save everyone, and not all major borrowers can have their debts rolled over. In emerging markets, it's usually the shortage of foreign exchange that sets a limit on government largesse.(...)

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Reflections on the chronology of the financial crisis (VoX-Eu - The Net)

by Roger M. Kubarych

The financial crisis is not over but it seems less scary since the US stock market decided that most big banks will survive. This column provides a current scoreboard of the crisis game and reminds everybody that the underlying problems are hardly resolved. A lot of banks sorely needed capital and need to raise it relatively cheaply. (...)

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Current Crisis Shows Uncanny Parallels to Great Depression (Spiegel - Germany)

Is history repeating itself? The current global downturn has many parallels to the Great Depression. And if the current massive bailout packages fail, the effect on the world's economies could be similarly drastic.

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Bretton Woods III? (Forbes - U.S.)

by Nouriel Roubini

A few years back, before this crisis erupted, several economists were concerned about the sustainability of the large global imbalances fueled by the so-called Bretton Woods II system. These economists recognized, in the tendency of export-led economies to manage their exchange-rate systems, the origin of large trade and current account surpluses that, via large foreign reserve accumulation, were financing the mirror image of those surpluses, namely the large U.S. trade and current account deficits..(...)

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New Sentiment Indicator Shows No Sign of Recovery Yet (Real Time Economics - The Net)

The U.S. economy's contraction slowed during April, but there are still no signs of a full-blown recovery, according to the new Dow Jones Economic Sentiment Indicator. Published for the first time Thursday morning, the ESI aims to identify significant turning points in the U.S. economy by analyzing coverage of 15 major daily newspapers in the U.S. The ESI edged slightly higher to 27.6 in April, from 26.3 in March, continuing a modest rise from November where it bottomed at 22.2, the lowest monthly result over nearly two decades of testing.(...)

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Are the Markets Too Complacent About Swine Flu? (Naked Capitalism - The Net)

by Yves Smith

The WHO has designated swine flu an "imminent" pandemic, and raised its alert to a level 5 out of a possible 6. The World Bank guesstimates the cost of a severe pandemic at 4.8% of world GDP (yikes!). Yet the US had a very nice day for equity investors yesterday, and the Japanese stockmarket is up handsomely as of this hour. What gives? (...)

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Confidence boost (Buttonwood's Notebook - The Net)

CONFIDENCE is improving. The latest Conference Board index of American consumer sentiment jumped to 39.2 from 26.9 in March, the biggest gain since November 2005. Last week, the Ifo survey of German business confidence rebounded from a 26-year low.

All this adds to evidence from other surveys, such as purchasing managers' indices, to suggest that economic activity is not declining as rapidly as it was in late 2008 and January/February this year. The second derivative, as economists like to call it (the rate of change in the rate of change) has turned up.

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How similar is the current crisis to the Great Depression? (Vox EU - The Net)

Thomas Helbling

Despite the stunning contraction of industrial production and trade across the globe, the global economy is still a far cry away from the calamities of the Great Depression. However, if the economic damage of the current global crisis may have been contained so far, worrisome parallels to the early 1930s remain and preventive policy actions must be kept up.

The world is experiencing its most severe recession since World War II. In their recent Vox column, Barry Eichengreen and Kevin O'Rourke (2009) suggest that we are already on the path to another global depression. By other metrics, however, we are still far cry away from the calamities of the Great Depression (Romer, 2009). The economic damage caused by the current crisis has been contained thus far, though worrisome parallels to the early 1930s persist.(...)

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The Last Temptation of Risk (National Interest - Germany)

By Barry Eichengreen

THE GREAT Credit Crisis has cast into doubt much of what we thought we knew about economics. We thought that monetary policy had tamed the business cycle. We thought that because changes in central-bank policies had delivered low and stable inflation, the volatility of the pre-1985 years had been consigned to the dustbin of history; they had given way to the quaintly dubbed "Great Moderation." We thought that financial institutions and markets had come to be self-regulating--that investors could be left largely if not wholly to their own devices. Above all we thought that we had learned how to prevent the kind of financial calamity that struck the world in 1929.

We now know that much of what we thought was true was not. The Great Moderation was an illusion. Monetary policies focusing on low inflation to the exclusion of other considerations (not least excesses in financial markets) can allow dangerous vulnerabilities to build up. Relying on institutional investors to self-regulate is the economic equivalent of letting children decide their own diets. As a result we are now in for an economic and financial downturn that will rival the Great Depression before it is over.(...)

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Fixing bankrupt systems is just the beginning (Financial Times - U.K.)

By Martin Wolf

Can we afford to fix our financial systems? The answer is yes. We cannot afford not to fix them. The big question is rather how best to do so. But fixing the financial system, while essential, is not enough. (...)

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Permira chairman Damon Buffini warns worst of crisis may be ahead (The Telegraph - U.K.)

Addressing investors in Permira's annual review, he said that although the firm was well-diversified, every part of its business had been hit by the synchronised nature of the downturn. "We have taken some difficult decisions over the last year and there will be more to come in the months ahead, as we seek to secure the long-term future of the Permira funds' companies," he said.

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FSA Chief Says Large Bank Firms Need Tighter Rules (The Wall Street Journal - U.S.)

By ALISTAIR MACDONALD

Banks large enough to threaten the stability of the financial system should be subject to higher capital requirements, the head of the U.K.'s financial regulator said in comments that offered a glimpse at the future of regulation in one of the world's biggest financial centers. Adair Turner, the chairman of the Financial Services Authority, also warned large banks with operations overseas that regulators may require their local operations to be "separately and strongly capitalized" and hold their own reserves of cash for daily operations. (...)

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Britain's Tax-Bracket Backlash (The Washington Post - U.S.)

By Kevin Sullivan

Composer Andrew Lloyd Webber called it "the final nail in the coffin" for the British economy. Actor Michael Caine threatened to move to the United States because of it, and one of Britain's top soccer coaches said it could undermine the national sport. (...)

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At the open: Markets shrug, again (Globe and Mail - Canada)

by David Berman

For the second day in a row, futures activity had suggested a bloodbath among North American stocks - but major indexes opened only modestly down on rising concerns about the economic impact of the swine flu and ongoing concerns about U.S. financial firms. The Dow Jones industrial average fell 69 points or 0.9 per cent, to 7956 - about half the damage that futures activity had suggested about an hour before markets opened. The broader S&P 500 fell 8 points or 0.9 per cent, to 850. (...)

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Beyond the Recession: Disease and Terrorism (Time - U.S.)

by Douglas A. McIntyre

There are many fears about the swine flu outbreak. It is not simply that it could cause the death of thousands or in the case of a pandemic, perhaps millions. Other fears are economic in nature based on the reality that tens of millions of very sick people would drive a weak global economy into a depression. (...)

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A glimmer of hope? (The Economist - U.K.)

Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.

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Put It on My O-Card (Slate - The Net)

On the list of villains of the economic crisis, credit card companies are rising faster than their own rates. So after President Obama met Thursday with CEOs from Visa, Mastercard, and American Express, he stated his disapproval loud and clear. "The days of any-time, any-reason rate hikes and late-fee traps have to end," he said.(...)

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Money for Nothing (The New York Times - U.S.)

by Paul Krugman

Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which he tried to defend financial innovation. His examples of "good" financial innovations were (1) credit cards -- not exactly a new idea; (2) overdraft protection; and (3) subprime mortgages. (I am not making this up.) These were the things for which bankers got paid the big bucks? (...)

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How financial stress spreads - A first comprehensive look at the current crisis (VoxEu - The Net )

by Ravi Balakrishnan, Stephan Danninger, Selim Elekdag and Irina Tytell

Financial stress reached unprecedented levels in 2008. This column presents a new IMF financial stress index and puts the current crisis into historical perspective. It also shows that bank-lending linkages appear to be the main driver of the transmission of stress. International financial integration brings both opportunities for growth and risks of contagion.(...)

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The Next Big Thing: America (Foreign Policy - U.S.)

by Michael Lind

What will the world look like when the present emergency has passed? The safest prediction is that the post-crisis financial sector will be downsized and more heavily regulated, nationally and internationally. The financial sector as a whole, which peaked at 40 percent of corporate profits in the United States in 2006, may shrink as much as 50 percent in the aftermath of the emergency.

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Chrysler's Looming Tag Sale (Business Week - U.S.)

If the carmaker is forced to sell assets, as bondholders claim they want, what would Chrysler's Jeep, minivan, and Dodge truck lines go for?(...)

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China's "dollar trap": Lessons from France's 1920s "sterling trap" (VoxEU - The Net)

by Olivier Accominotti

China's "dollar trap" has many analysts worried about its future resolution. This column discusses a similar situation in the in the 1920s when France held more than half the world's foreign reserves. France's "sterling trap" ended disastrously. Sterling suffered a major currency crisis, French authorities lost a lot of money, and subsequent policy reactions deepened the Great Depression. (...)

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Preferences for redistribution: The crisis, reduced inequality, and soak-the-rich populism (Vox EU - The Net)

Will Americans turn into "inequality intolerant" Europeans? Such a radical shift is unlikely, but this column argues that this crisis may be a turning point towards more government intervention and redistribution in the US. More and more Americans believe that hard work is insufficient to climb the income ladder and are expressing anger against "unfairly" accumulated wealth. Politicians should prefer wise policies but may be tempted by populist outbursts.

The current financial crisis will reduce income and wealth inequality. The rich who heavily invested in financial and stock markets have lost much more than the less wealthy. The relatively poor "young" may face the sale of the century. Go and tell a young (and poor) just-married couple that the collapse of housing prices is a problem; mention to a young worker just beginning to accumulate retirement money that low stock prices are a problem!

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The avoidance Budget (The Times - U.K.)

Yesterday was a moment for a sober account of how the public finances could be restored. Alastair Darling failed to rise to the occasion

It was, unquestionably, a terrific Budget for Switzerland. The decision to raise the top rate of tax to 50 per cent will punish some bankers, but will simply send others scurrying to Geneva.

The vast majority of the 350,000 people earning more than £150,000 will, of course, stay in the UK. They will not complain. They will call their accountants. A higher rate of tax is likely to generate much less revenue than the Treasury hopes, and much more avoidance. But Mr Darling is also guilty of tax avoidance. His Budget sidestepped the central issue of the public finances: it answered the problem of future spending with a commitment to future borrowing but no clear or plausible route map to reducing debt.(...)

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Irreversible Damage: Why Little Action on Banking Can Do Great Harm (Economix - The Net)

Top economic decision-makers in the administration argue that they are following a doctrine of "reversible error," meaning that they prefer to adopt measures today that they feel can be revised later, and "there is a general aversion to taking high-risk steps that could do more harm than good," as The Financial Times put it.

Specifically, Lawrence H. Summers and Timothy F. Geithner are arguing against putting large banks through the bankruptcy and restructuring procedures advocated by some senior Federal Reserve officials (see the Congressional testimony of Thomas Hoenig on Tuesday). If major banks fall in this way, the Treasury Department and the White House point out, this will cause irreversible damage -- after all, once a bank has been restructured, it can never be the same. (...)

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Those greedy, self-serving MBAs (Free Exchange - The Net)

What's wrong with business school is not that some MBAs cheat. It's that they don't even feel compelled to lie about it. That may be because business schools operate as, well, businesses that bring in lots of revenue for the university. (...)

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How economics lost sight of real world (Financial Times - U.K.)

By John Kay

The past two years have not enhanced the reputation of economists. Mostly they failed to point out fundamental weaknesses of financial markets and did not foresee the crisis, and now they disagree on appropriate policies and on the likely future course of events. Although more economic research has been done in the past 25 years than ever before, the economists whose names are most frequently referenced today, such as Hyman Minsky and John Maynard Keynes, are from earlier generations.

Since the 1970s economists have been engaged in a grand project. The project's objective is that macroeconomics should have microeconomic foundations. In everyday language, that means that what we say about big policy issues - growth and inflation, boom and bust - should be grounded in the study of individual behaviour. Put like that, the project sounds obviously desirable, even essential. I confess I was long seduced by it.

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In Finance, Too, Learning Entails Risk (Wall Street Journal - U.S.)

Modern cities were built through trial and error. As architects reached upward, there was the trial of inventing a safe elevator so that buildings could become skyscrapers. Early contraptions were used in factories and mines, but when cables broke they plummeted to the bottom of the shaft. In the 1850s, Elisha Graves Otis developed a safety device to keep elevators from falling, eventually giving people the confidence to use them.

Our era may be losing the tolerance for the trial and error needed to make innovations successful. Consider the financial engineers whose mistakes led to today's financially led recession. They thought they were creating a more stable economy by applying mathematical models to markets, using new technologies of computing power and global trading. Even having lost fortunes, today they and their financial institutions are pariahs, subject to media frenzy and government regulation.
The innovators who thought up the elevator, the cotton gin and space travel didn't intend to kill or injure people as they perfected the technologies. Likewise, today's financial engineers never imagined their miscalculations could result in a global recession.(...)

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Swimming Without a Suit (New York Times - U.S.)

Speaking of financial crises and how they can expose weak companies and weak countries, Warren Buffett once famously quipped that "only when the tide goes out do you find out who is not wearing a bathing suit." So true. But what's really unnerving is that America appears to be one of those countries that has been swimming buck naked -- in more ways than one.(...)

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Give the IMF credit (literally, and figuratively) (Brad Setser - The Net)

One issue to watch over the next few days, as the world's finance ministers gather for the IMF's spring meetings: whether or not the G-20 (and other) countries carry through on their pledge to expand the resources available to the IMF.

The IMF cannot supply credit to a host of troubled emerging markets unless it gets credit (via its supplementary credit line, or a bond issue sold to key central banks with excess reserves) from a bunch of countries in a (somewhat) stronger financial position.

But also give the IMF credit for producing analysis that has become an essential guide to the current crisis. Like Dr. Krugman, I am eagerly awaiting the release of first few chapters of the WEO tomorrow. That is something that I couldn't have credibly said all that often in the past. The detailed WEO will provide a baseline, among other things, for assessing whether the fall in the world's macroeconomic imbalances in the first quarter can be expected to persist for this year, and for the next. (...)

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Fine words, but where's the money going to come from? (The Independent - U.K.)

By Jeremy Warner

The age of government activism is back. Or is it? Once you've waded through the grandiose-sounding principles and statement of objectives, yesterday's government paper purporting to set out an industrial strategy for the future - New Industry, New Jobs: Building Britain's Future - doesn't add up to a hill of beans, or given its focus on creating "green-collar" jobs, one might even say a hill of green beans. (...)

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How Environmentalism Misses the Forest for the Trees (The New York Times - U.S.)

By Edward L. Glaeser

Can environmentalism be bad for the environment? In Massachusetts, the Alliance to Protect Nantucket Sound has led the fight against providing alternative energy with a wind farm off of Cape Cod. Greenpeace declares that "nuclear power is unsafe, uneconomical and unnecessary." In Canada, the Sierra Club fights against the development of hydroelectric power, fearing "toxic mercury increases in fish." (...)

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Choosing alternatives to layoffs (Los Angeles Times - U.S.)

By Cyndia Zwahlen

The women and men, gently prodded by a facilitator, opened up about their daily inspirational practices: "Every morning and every night I create a feeling of gratitude for everything in my life," one woman said. Said another: "Remembering that there are so many people with so much less." Group therapy? No. (...)

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The curse of politics ( The Economist - U.K.)

Economists have long studied how institutional constraints interfere with efficient economic choices, such as when special interests erect barriers to entry in product markets. Such constraints have received relatively little attention in the burgeoning literature on financial crises. Yet a closer examination shows that many of the same political obstacles crop up from one crisis to the next.(...)

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Is Big Finance Too Big To Save? Joint Economic Committee Hearing Tomorrow (The Washington Post - U.S.)

By Simon Johnson

It's always hard to tell how the interpersonal dynamics of any hearing will play out, but this looks to be a broad strategic discussion of the big picture. The fundamental principles of our financial system are on the table and there is a pretty straightforward, but also incredibly difficult question before us: How do we prevent this system from repeatedly damaging the US and global economy? (...)

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Hanging Tough (The New York Times - U.S.)

by Paul Krugman

OK, I don't get the latest bank-rescue idea: converting TARP preferred shares to common equity. It really does seem to fall into the shuffling-the-deck-chairs category (...)

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Europe Is No Model for Our Banks ( The Wall Street Journal - U.S.)

By DAVID SMICK

Barack Obama is facing a policy civil war within his party. One side is led by New York Times columnist Paul Krugman. The other is led by the president's top economic adviser, Larry Summers. The battle is over the future of Wall Street banks. The president's dilemma is that both sides offer credible arguments but both also miss an essential point. (...)

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Citigroup 1Q results top Wall Street forecasts (BusinessWeek - U.S.)

By MADLEN READ

Citigroup's problems are far from over, but Friday it reported its smallest quarterly loss since 2007. The bank posted a first-quarter loss to common shareholders of $966 million after massive loan losses and dividends to preferred stockholders. However, before paying those dividends, tied to a private stock offering in January 2008, the bank earned $1.6 billion. (...)

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Hanging Tough (The New Yorker - U.S.)

by James Surowiecki

In the late nineteen-twenties, two companies--Kellogg and Post--dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn't see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (...)

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Loans and growth (Economist - U.K.)

The New Republic is having an interesting chicken versus egg debate about whether loans drive growth, or growth drives loans. It's akin to asking does supply drive demand or does demand drive supply. Let's say economic growth manifests itself in the will and desire to start or expand businesses. Such activity requires capital. (...)

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April Surprise: Consumer Sentiment Jumps Higher (The Wall Street Journal - U.S.)

By Michael S. Derby

Consumer sentiment levels took an unexpected jump higher as of the middle of April. The Reuters/University of Michigan preliminary consumer sentiment index for April came in at 61.9, after standing at 57.3 in March. It had been expected to come in at 57.5. The increase was likely tied to robust gains in stock markets and increasing evidence that the worst of the economy's slide into recession may be over. Wachovia chief economist John Silvia said the report suggests "better times ahead." (...)

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Recession, Climate Change and the Return To Planning ( New Perspectives Quarterly - The Net)

By Anthony Giddens

Climate change and how to respond to it are everywhere in the news at the moment. So, of course, is economic recession, just as global in scope and itself deeply worrying. But what is the relationship between them likely to turn out to be?

Every crisis, Sigmund Freud said, is potentially a stimulus to the positive side of the personality -- it is an opportunity to start afresh. The point has not gone unnoticed by political leaders. Following the example of President Obama in the U.S., many have signed up to the idea of a climate change New Deal. Investment in low-carbon technologies, the insulation of buildings and public transport, it is reasoned, can make a key contribution to getting the economy moving again.

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Regulate Me, Please (New York Times - U.S.)

By Tom Wilson, chief executive of Allstate.

THERE are plenty of people singling out causes for the collapse of the financial markets, and conveniently, the source of the problem is usually someone else. But accountability lies with all of us -- the insurance industry, regulators, banks and credit rating agencies. The insurance companies that wrote credit default swaps were happy not to be regulated. Insurance regulators didn't expand their oversight to ensure the solvency of these companies. Banking regulators, banks and credit rating agencies did not properly assess the strength of issuers and readily accepted these complex derivatives.

My company, Allstate, serves more than 17 million American households. While we played only a small role in unregulated insurance markets, we have a duty to help stabilize the financial system. It was, after all, an insurance product that contributed to the risk that almost brought down the global economy.(...)

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The 'Stress Tests' Are Really 'Fudge Tests' (Forbes - U.S.)

Nouriel Roubini
The fog of opacity grows greater still.

The spin machine about the banks' stress test is already in full motion. Some banking regulators have already served up--to The New York Times--their spin that all 19 banks that are subject to the stress test will pass it. In other words, not one will fail.

But let's look at the actual data. The macro data for the first quarter on the three variables used in the stress tests--growth rate, unemployment rate and home-price depreciation--are already worse than those in the FDIC baseline scenario for 2009. They are, in fact, even worse than those for the stressed scenario for 2009. (...)

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Don't set Goldman Sachs free, Mr Geithner (Financial Times - U.K.)

By John Gapper

Should Tim Geithner let Lloyd Blankfein escape?

Mr Blankfein, the chairman and chief executive of Goldman Sachs, is eager for his institution to become the first big bank to shake off the stifling embrace of the US government. Mr Geithner, the US Treasury secretary, must decide whether to let him.

Mr Blankfein's argument is seductive: it is Goldman's "duty" to pay back the $10bn in taxpayer money it took last autumn when its future - and that of the global financial system - looked dicey. Goldman seems to be doing fine now: this week, it reported unexpectedly robust first-quarter earnings of $1.8bn. (...)

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If It's in the Ground, It Can Only Go Down (Newsweek - U.S.)

If You Dig It: Energy is driven by demand
By Ruchir Sharma

As playwright Arthur Miller once observed, "An era can be said to end when its basic illusions are exhausted." And most of the illusions that defined the late global economic boom--the notion that global growth had moved to a permanently higher plane and housing prices from Miami to Mumbai would rise indefinitely--are now indeed exhausted. Yet one idea still has the power to capture imaginations and markets: it is that commodities like oil, copper, grains and gold are all destined to rise over time. Lots of smart people believe that last year's swoon in commodities prices represented a short pause in a long-term bull market.

It's a view rooted in powerful and real trends, like the growth of China and India, the decline in global reserves (many of the world's biggest and best oilfields are tapped out), fears over resource nationalization (independent oil firms now control only 20 percent of global reserves) and long-term underinvestment in energy and agriculture, which hampers supply.

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Bankers vs. Economists (Slate - The Net)

Who deserves more blame for the global economic collapse?
By Daniel Gross

Which profession bears more blame for the global credit meltdown and its ensuing gazillion-dollar bailouts: bankers or economists?

This isn't a trick question.

So far, bankers have been getting most of the opprobrium. Yes, there are a few solid bankers who didn't destroy their firms. But pretty much all the prominent bankers failed. And their failures are writ large on the pages of the Wall Street Journal every day. They've been hauled before Congress, been deposed and fired, lost vast fortunes, and been the targets of populist rage. By common consensus, bankers (and by this I mean the term as it's used in the tri-state metro area: to describe anybody who works at a relatively high level in the financial services industry) blew it.

But they couldn't have created the Dumb Money debacle without a substantial assist from economists. Toiling in government and academia, at trade groups and Wall Street firms,
practitioners of the dismal science provided the intellectual ballast and justification for much of the insanity of this past decade. At every step of the way, as an Era of Cheap Money devolved into an Era of Dumb Money and then into an Era of Dumber Money, Ph.D.s led the cheers. And when things started to go bad, they failed to grasp just how bad things would get. (...)

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We Need More Stimulus, Not More Bailout (Robert Reich's Blog - The Net)

If Geithner gets Congress to give him more bailout money, Congress won't be in any mood to do what it really needs to do - which is to enlarge the stimulus package. Voters are already worried about too much government spending. At most, the administration is going to get only one more bite at the congressional apple. Make that more stimulus rather than more bailout.(...)

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Uncertainty bedevils the best system (Financial Times - U.K.)

By Edmund Phelps

In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards. Ignorance of what it can contribute has in the past led some countries to throw out the system or clip its wings. Ignor¬ance of the hazards has made imprudence in markets and policy neglect all the more likely. Regaining a well-functioning capitalism will require re-education and deep reform.

Capitalism is not the "free market" or laisser faire - a system of zero government "plus the constable". Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society's formal business economy. Last, a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism.

In essence, capitalist systems are a mechanism by which economies may generate growth in knowledge - with much uncertainty in the process, owing to the incompleteness of knowledge. Growth in knowledge leads to income growth and job satisfaction; uncertainty makes the economy prone to sudden swings - all phenomena noted by Marx in 1848. Understanding was slow to come, though. (...)

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The Neediest Are Not the M.B.A.'s (Economix - The Net)

By Edward L. Glaeser

A number of recent newspaper stories have suggested that this recession is taking a surprisingly heavy toll among more formerly successful Americans. Yet it is important to recognize that in this recession, just as in every other recorded downturn, unemployment is overwhelmingly concentrated among those who started with less. .

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Banking on the fund (The Economist - U.K.)

It is easy to be cynical about the recent G20 summit in London. There was lots of hoopla, but there were no new, substantial remedies for the global slump, whether in the form of co-ordinated stimulus or comprehensive plans to clean up banks

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The macroprudential approach to regulation and supervision (VoxEu - The Net)

By Claudio Borio

There is now a growing consensus among policymakers and academics that a key element to improve safeguards against financial instability is to strengthen the "macroprudential" orientation of regulatory and supervisory frameworks. Paraphrasing Milton Friedman, one could even say that "we are all macroprudentialists now". And yet, a decade ago, the term was hardly used.

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Ever get the feeling you've been cheated (The price of everything - The Net)

By Tim Price

If one can identify just one proximate cause of the Panic of 2007 - ..?, it was the uncontrolled growth of credit nurtured by weak regulators, fanatical central bankers and conflicted politicians, and supercharged by banks and, yes, greedy homeowners and investors. To suggest that ineffectual financial regulation should be replaced by the effective closure of free markets is akin to saying that because swimmers occasionally drown, water should be made illegal. Meanwhile, the G20 summit, in time honoured fashion, gave rise to all sorts of ludicrously unrealistic hopes of some "co-ordinated solution" by the participants.

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Help, My Degree Is Underwater! In the recession, does advanced education really pay off? (Slate - The Net)

By Emily Bazelon

Education pays. That's the lesson of study after study on the income effects of going to college and graduate school. In general, you make more money if you get a higher degree. Harvard economists Claudia Goldin and Lawrence F. Katz have written that since 1980, "[t]he increase in the relative earnings of college graduates and those with advanced degrees has been particularly large."

The studies that show this finding typically crunch broad swaths of data. They look at the census, or other large population samples, and show a positive correlation between income and years of education. This means that college and graduate school are generally a good bet. But it doesn't tell you that every single degree pays off financially at every single point in time.

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International Policy Coordination or Protectionism? (Economist's View - The Net)

A Roundup of the Issue by Mark Thoma

Lots of worry about the global economy, the lack of an internationally coordinated policy response to the downturn, and about the imposition of protectionist measures. First, Joseph Stiglitz...

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Rajan roundtable (Free Exchange - The Net)

IN THE thick of the worst financial crisis since the Great Depression, economists and policymakers are understandably interested in the question of how best to avoid a recurrence of the events that led to collapse. This has entailed a long, hard look at the state of financial market regulation. Much of the discussion so far has focused on the proper scope of new regulations. Should they be loosened or tightened, and if tightened by how much? Should regulatory reform take place at the national or international level (the subject of our last roundtable)?

Too little time has been spent on how best to structure new regulations. This important issue is addressed in a new guest "Economics focus" column by Raghuram Rajan, a professor at the University of Chicago Booth School of Business and a former chief economist of the IMF, who writes that new regulations must take into account the ways in which circumstances shift with the business cycle...

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Making Banking Boring (The New York Times - U.S.)

By Paul Krugman

Much of the seeming success of the financial industry has now been revealed as an illusion. (Citigroup stock has lost more than 90 percent of its value since Mr. Weill congratulated himself.) Worse yet, the collapse of the financial house of cards has wreaked havoc with the rest of the economy, with world trade and industrial output actually falling faster than they did in the Great Depression. And the catastrophe has led to calls for much more regulation of the financial industry.

But my sense is that policy makers are still thinking mainly about rearranging the boxes on the bank supervisory organization chart. They're not at all ready to do what needs to be done -- which is to make banking boring again.

Part of the problem is that boring banking would mean poorer bankers, and the financial industry still has a lot of friends in high places. But it's also a matter of ideology: Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.(...)

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The US is exporting its recession (by not importing) (Follow the Money - Brad Setser) - The Net)

I don't see any green shoots in the data. Not yet. Exports and imports are both falling at a rapid pace. And -- as Calculated Risks' charts make clear -- the fall in both exports and imports is far sharper during this recession than during the 2001 recession.

One last point: Average US oil imports in the first two months of the year were around $15 billion a month. That is down almost $20 billion from this time last year. And it is down over $30 billion from the peak of the summer. The fall in oil prices -- more than anything else -- explains the improvement in the trade balance. Moreover, US petrol import volumes are down 6% y/y, even with lower prices. That suggests that American behavior has changed. Or perhaps it just suggests that the fall in economic activity trumped any response to lower prices. (...)

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Quelle Surprise! Bank Stress Tests Producing Expected Results! (Naked Capitalism - The Net)

The whole point of this charade exercise was to show the big banks weren't terminal but still needed dough, and I am sure it will prove to be lots of dough before we are done. But they now have the Good Housekeeping seal, so the chump taxpayer can breathe easy that the authorities are taking prudent measures to make sure his money is being shepherded wisely.

If you believe that, I have a bridge I'd like to sell you.

We said from the beginning the stress tests were a complete sham. Just look at the numbers. 200 examiners for 19 banks? When Citi nearly went under in the early 1990s, it took 160 examiners to go over its US commercial real estate portfolio (and even then then the bodies were deployed against dodgy deals in Texas and the Southwest). This is a garbage in, garbage out exercise. The banks used their own risk models to make the assessment, for instance, the very same risk models that caused this mess. And there was no examination of the underlying loan files.(...)

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Is Governor Zhou a closet Bernanke-ite? (China Financial Markets - The Net)

I have recently finished reading Martin Wolf's latest book, Fixing Global Finance, and I strongly recommend it for its very clear laying out of the global balance of payments issues behind the global crisis. I should warn my readers that Wolf and I have come to very similar conclusions about the underlying root causes of the crisis - we are both in agreement, for example, about the distorting effect of Asian policies to constrain consumption and boost investment in manufacturing output - but I am mostly impressed by the fact that we come to the same conclusion from such different angles.

Wolf begins with a model based on analyzing the financial architecture of the past forty years and brings to his analysis a very US-centric view of the world, whereas my conceptual model is based on my obsessive reading in the history of financial flows between rich and poor countries and starts with a China-centric view. Somehow we end up in almost exactly the same place, which suggests to me that we may be right or, at the very least, onto something important.(...)

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The Outlook For China's Economy (Forbes - U.S.)

By Nouriel Roubini

China, the world's second largest economy by purchasing power parity, contributed over 10% to global economic output in 2007 and 2008 and is thus a key part of any recovery of the global economy. China faced a severe deceleration of growth in the second half of 2008 based on a number of indicators: GDP, production of electricity, the Purchasing Managers' Index (PMI), weakness of auto sales, a fall in residential home sales, manufacturing data and falling imports and exports. In fact, calculated on a quarter-by-quarter basis like most other countries, Chinese growth (which is reported only on a year-on-year basis) was practically zero and even negative by some private sector estimates. (...)

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Gref Warns of a New Banking Crisis (The Moscow Times - Russia)

By Jessica Bachman

Sberbank CEO German Gref warned that a second wave of the crisis was about to sweep over the banking sector on Wednesday, two days after Prime Minister Vladimir Putin told State Duma members that banks were out of trouble.(...)

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There Will Be Bankruptcies (Financial Times - U.K.)

By Owen Matthews and Anna Nemtsova

A year ago he was Russia's richest oligarch. Now he's a warning to the others.

Oleg Deripaska had no time for empty formalities. By his 40th birthday he had risen to be the wealthiest man in Russia, with a $44 billion global empire and 290,000 employees. Still, not even he could skip the big conference in the city of Krasnodar where Vladimir Putin's handpicked successor as president, Dmitry Medvedev, was to lay out his vision for the future. Deripaska dutifully showed up and greeted Medvedev--and then left early by private plane, too busy to stay for his own scheduled speech. Success had dazzled him, says Krasnodar's senator, Alexander Pochinok, an old Deripaska friend who was there. "He believed he could grab God by the tip of his beard. (...)

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China's Dirty Little Secret In The Global Economic Crisis (Forbes - U.S.)

By James McGregor

The Communist Party grasps the opportunity to realign the Chinese economy and society.

As China's top leaders trooped to the podium at the annual National People's Congress from March 5 to 13 to outline strategies to keep China afloat amid the global economic crisis, they held back one dirty little secret: The crisis is the best thing to happen to the Chinese government in a long, long time.
(...)

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Pensions faces a cash-flow collapse? (Naked Capitalism - The Net)

As a follow-up to my last post on checkmate for pensions, the FT reports that the collapse in value of US state and local government pension plans is a disastrous double blow for them:

They are being forced to sell off assets at huge discounts to pay out pensions, and are at the same time seeing their funding levels plummet to dangerous new lows.
(...)

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Don't Bet on 'Recovery' Unless You're Willing to Redefine It (Seeking Alpha - The Net)

If you are investing, looking for a job, making (or not making) a purchase, and generally behaving with the belief that a recovery from this crisis is somewhere over the horizon, you may have the wrong premise. I have believed for a while that if "recovery" means a return to the way things were, then we're probably not going to see a recovery. This belief is based on my thinking that the current global economic crisis in not simply economic in cause or nature, but cultural in both. As such it will have cultural consequences, and I think they will be wide, deep and long-lasting. (...)

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The Economy's 'Green Shoots,' Real or Imagined (New York Times - U.S.)

Ben Bernanke, the Federal Reserve chairman, said on CBS's "60 Minutes" that he is seeing "green shoots" showing up in the economic landscape, "as some confidence begins to come back." While the unemployment rate has soared to 8.5 percent, the highest level in more than a quarter century, there are indications that credit markets are starting to thaw, companies are borrowing in the bond markets, and durable goods sales are improving. The latest New York Times/CBS News poll finds that Americans are more optimistic about the economy and the direction of the country than they were in January. What are the bright spots in the economy? Is there reason to believe that Mr. Bernanke's view is not wishful thinking?

• Mark Thoma, economist, University of Oregon
• Tyler Cowen, economist, George Mason University
• Roger Altman, former deputy Treasury secretary
• James K. Galbraith, economist, University of Texas
• Charles A. Lewis, former investment banker
(...)

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The green shoots are weeds growing through the rubble in the ruins of the global economy (Maverecon - The Net)

The Great Contraction will last a while longer

This financial crisis will end. The Great Contraction of the Noughties also will come to an end. But neither the financial crisis nor the contraction of the global real economy are over yet. As regards the financial sector, we are not too far - probably less than a year - from the beginning of the end. The impact of the collapse of real economic activity and of the associated dramatic increase in defaults and insolvencies by non-financial enterprises and households on the loan book of what is left of the banking sector will begin to show up in the banks' financial reports at the end of the summer and in the autumn. By the end of the year - early 2010 at the latest - we will know which banks will survive and which ones are headed for the scrap heap. With the resolution of the current pervasive uncertainty about the true state of the banks' balance sheets and about their off-balance-sheet exposures, normal financial intermediation will be able to resume later in 2010.(...)

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Ten principles for a Black Swan-proof world (Financial Times - U.K.)

By Nassim Nicholas Taleb

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks - and hence the most fragile - become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal..(...)

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East Asia and the new world economic order (Vox EU - The Net)

This column says the G20 summit was a remarkable event as leaders crafted a coherent set of strategies to address the crisis. The Asian participants emerged as a constructive force, agreeing to expand their role in IMF funding and governance, ease the trade credit bottleneck, and advocate the standstill on trade barriers.

Now that the dust has begun to settle, it's time to assess British PM Gordon Brown's claim that the G20 Summit saw the creation of a new world economic order.

This was a remarkable event. In less than a year, the leaders of a representative group of twenty of the largest or most important economies in the world met for a second time to address the challenges of global economic crisis. They and their advisers have crafted a coherent set of strategies to turn the international economy around and to deal with the structural frailties that sent world markets into free-fall.(...)

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Engine failure (JapanInc - Japan)

Ahh, the problem(s) with Japan's economy...

Last time I had Japan under the loop I asked whether there was no end in sight for Japan's economy and as I wind up for another close look, I must say that it is still very difficult to find good news if any at all. However, and for the sake of argument I thought that we might begin with some recent arguments in the context of the global economy which suggest that we may be past the worst of our travails. The first observation comes from the Economist's ever eloquent financial markets pundit, Buttonwood, who recently made the neat point that while we are still stuck in the mire, the second derivative might be turning positive. This suggests that while indicators are still on the decline they are now declining less rapidly. In Tokyo, Cassandra voices a similar sentiment as she takes stock of the number presented earlier last week by the Asian Development Bank that as much as USD 50 trillion, so far, has vanished into thin air during this crisis.(...)

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Few Budget options as public finances spiral out of control (The Independent - U.K.)

By Jeremy Warner

It would have been hard enough for Alistair Darling, the Chancellor, to get away with announcing a new fiscal stimulus in the Budget this month after the shot across the bows delivered a couple of weeks back by the Governor of the Bank of England, Mervyn King (...)

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On the job front, still no Great Depression, but getting a little closer (TIME - U.S.)

By Justin Fox

My first stab at comparing non-farm payroll employment declines in the current recession with those from the Great Depression was beset by a couple of flaws. One was that I was using seasonally adjusted numbers from the current recession while the figures from the 1930s were unadjusted. That was easy enough to fix. (...)

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Russian Auto Bailout Protects Jobs, Not Efficiency (The New York Times - U.S.)

By ANDREW E. KRAMER

If there is a country that truly needs a car czar, it is Russia, home of the czars -- and Lada. The factory here has been stamping out the same version of the Lada, the typical boxy people's car of the former Eastern Bloc, for four decades. (...)

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A Public Plan for Health Insurance? (The New York Times - U.S.)

President Obama has rightly called for sweeping health care reform and charged Congress with coming up with a program. Expect a tough political fight. Already one of the most contentious issues is whether to include a new public plan option to compete with private insurance plans. Many Republicans deride it as "government-run health care" and a step toward "socialized medicine." Democrats find the notion appealing -- even of vital importance. (...)

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Legalisation of drugs could save UK £14bn, says study (The Guardian - U.K.)

by Duncan Campbell

The regulated legalisation of drugs would have major benefits for taxpayers, victims of crime, local communities and the criminal justice system, according to the first comprehensive comparison between the cost-effectiveness of legalisation and prohibition. The authors of the report, which is due to be published today, suggest that a legalised, regulated market could save the country around £14bn. (...)

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From Bubble to Depression? (The Wall Street Journal - U.S.)

By Steven Gjerstad and Vernon L. Smith

Bubbles have been frequent in economic history, and they occur in the laboratories of experimental economics under conditions which -- when first studied in the 1980s -- were considered so transparent that bubbles would not be observed. We economists were wrong: Even when traders in an asset market know the value of the asset, bubbles form dependably. Bubbles can arise when some agents buy not on fundamental value, but on price trend or momentum. If momentum traders have more liquidity, they can sustain a bubble longer (...)

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A Tale of Two Depressions (VoxEU - The Net )

By Barry Eichengreen and Kevin H. O'Rourke

Often cited comparisons - which look only at the US - find that today's crisis is milder than the Great Depression. In this column, two leading economic historians show that the world economy is now plummeting as it did in the Great Depression; indeed, world industrial production, trade and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better.(...)

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The rich under attack (The Economist - U.K.)

The rich are certainly not the only targets in the current populist backlash. Frightened by the downturn, people are furious with politicians, central bankers and immigrants. But a rising wave of anger is directed against the new "malefactors of great wealth".(...)

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China's Dollar Deception (The Washington Post - U.S.)

Robert J. Samuelson

We are in a race between economic recovery and economic nationalism. At last week's Group of 20 summit, leading nations agreed to roughly $1 trillion of additional lending, mostly through the International Monetary Fund, to help end the worldwide slump. But beneath the veil of consensus, countries are maneuvering to protect their economies and blame someone else for the crisis.(...)

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The first bricks in a new world order (The Financial Times - U.K.)

Some useful progress, but still a way to go. That must be the conclusion of the Group of 20 summit in London. Gordon Brown, UK prime minister and chairman of the meeting, set out a six-point plan to save the world. This reflected some real achievements: a generous increase in funding for the International Monetary Fund, a new issuance of special drawing rights and a boost for trade finance. He sounded disappointingly thin on other key areas - notably cleaning up banks and future fiscal stimulus. More detail would have been reassuring. (...)

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A Rare Triumph of Substance at the Summit (The Washington Post - U.S.)

By Steven Pearlstein

International economic summits deserve to be regarded with skepticism: The most important decision to come out of them is usually the call for yet another meeting.

But yesterday's G-20 meeting in London was an exception. While President Obama may have overstated things a bit when he declared it a "turning point" for the now-shrinking global economy, the meeting did manage to boost the confidence of financial markets, inject another trillion dollars into the financial system and provide needed political cover for world leaders to take unpopular actions back home.(...)

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G-force (The Economist - U.K.)

When an infamous summit of world powers in London ended in 1933, such was the mood of protectionist acrimony that many argued it would have been better if the meeting had not been held at all. At times in the run up to the G20 gathering of world leaders in London on Thursday April 2nd it looked as if history might be repeated. But the leaders have shown some grit, and some ingenuity in finding money when little is about. Many holes can be picked in their pledges to reflate the world economy and re-regulate global finance. But, at the very least, it was better that they met than not.(...)

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Why World Leaders Have Missed the Boat (Newsweek - U.S.)

By Rana Foroohar

Despite all the promises today at the G20 to ban tax havens, stop protectionism, and hold those greedy bankers accountable, the truth is that world leaders missed the boat. The only issue that matters - and the only one on which they made absolutely NO progress - is rebalancing the global economy. Until Americans stop spending so much, and China and Germany and all the rest of the surplus countries start spending more, we're all in a sinking ship.(...)

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Meeting as metaphor: a G20 that suggests a shift in the world's own worldview (Foreign Policy - U.S.)

By David J. Rothkopf

The most important outcomes of the G20 Summit had to do with symbolism, process, and the evolution of international ideas. The specific actions taken were less important and, as we will likely see, less significant than they could or should have been. The monies allocated to the IMF represent a good step in a healthy direction and will help the neediest nations but do not address the larger growth issues associated with the world's largest economies, the ones that created the crisis and will lead the way out. As for those economies, commitments to stimulus were soft and the follow-through on them is destined to be spotty. The regulatory steps outlined -- focusing on hedge funds, bank secrecy and executive salaries, for example -- don't cut to the core issues associated with risk-laden global derivatives markets or the other larger causes of the recent crisis and they fall far short of the global regulatory structures we will ultimately need to manage truly global markets. And it is unclear just how much of the $250 billion announced for trade finance is actually new money.(...)

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Cooperation crucial to claw way out of crisis (China Daily - China)

Apart from the leaders who came to London to discuss prescriptions for global economic recovery, President Hu Jintao's Wednesday meeting with US counterpart Barack Obama on the sidelines of the Group of 20 Summit drew the most interest from people worldwide. The first-ever meeting between China's top leader and the newly elected US president was expected to map out guidelines for the future development of bilateral relations and start ties anew.(...)

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Asia flexes financial muscle at G20 (AlJazeera - Qatar)

Asian countries have won a greater say in how to solve the global economic crisis at the G20 meeting in London, marking a shift in influence in the Western-dominated international financial system.(...)

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Two and a half cheers for a G20 triumph (The Times - U.K.)

By Anatole Kaletsky

The Anglo-Saxon economies, galvanised by low interest rates, can be more optimistic than the eurozone and Japan.

Forget the stage-managed rows, walkouts and last-minute reconciliations, today's G20 summit will end in agreement, amity and mutual congratulation. The summit's success is preordained in two and a half ways.

First, it is a matter of simple arithmetic that today's meeting will be essentially a rubber-stamping ceremony for deals already done between the sherpas, the senior civil servants who have spent the past three months clearing the way to the summit for the G20 leaders. This can be stated with certainty because genuine negotiations will be impossible in the summit's four hours of business sessions. With 24 political leaders not known for their self-effacement all determined to have a say, the time allotted averages barely 11 minutes per speaker - and this calculation makes no allowance for the central bankers, finance ministers and international officials also in attendance, or the long and ornate soliloquies delivered on such occasions by Italian, Spanish and Latin American politicians.

Second, it is a matter of political certainty that all the leaders genuinely want to save the world from the present crisis. And none has any reason to obstruct the four different roads to salvation on the summit agenda. Everyone agrees on the need for monetary, fiscal and trade stimulus, to save failing banks with government support, to save failing countries with support from international institutions and to save global capitalism with reforms that restore faith in the financial system. (...)

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Ask Not What Europe Can Do for You (Foreign Policy - U.S.)

By Stephen Sestanovich

For any U.S. president, the trick to dealing with Europe is to politely ignore its advice.

Barack Obama is in Europe this week, for meetings in which America's allies are likely to tell him that they can't contribute much more to the U.S. military campaign in Afghanistan, and don't want to re-float the world economy through government deficits. He shouldn't take it personally. And we shouldn't treat it as the end of the story.

For half a century and more, in good times and bad, European leaders have advised new American presidents not to bother them with big, risky, expensive Washington ideas. They almost always prefer the status quo -- or, at most, very incremental change. But, having said their piece, they then usually come around. (Sometimes -- very rarely, it has to be said -- they're right to begin with.)(...)

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Japanese Expert Criticizes US Wishful Thinking on Economic Crisis (Naked Capitalism - The Net)

The George Santayana saying, "Those who cannot learn from history are doomed to repeat it," is so oft repeated as to verge on cliche. Yet the US variant of this syndrome is to be aware of history, then rationalize how it does not apply to us.

Japanese policy makers from the early days of the crisis have been saying in an uncharacteristically direct manner that the top priority is resolving nonperforming assets. Recapitalizing banks without taking this step is a mere palliative.

What is telling in this VoxEU account by Keiichiro Kobayashi is how the US and UK are going down the path of denial and expediency blazed by Japan in the 1990s. And Kobayashi contends (in classic Japanese passive voice) that America's dud assets are two to three times the size of Japan's at the time of its bust. Since the US economy (then) was roughly two times the size of Japan's and unlike them, we did not come into our mess with a large buffer of savings, the implication is that our problem is more severe than theirs. (...)

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The Socialist Solution to the Crisis (Wall Street Journal - U.S.)

Thatcherism and Reaganism have failed on a momentous scale.
By POUL NYRUP RASMUSSEN president of the Party of European Socialists and a former prime minister of Denmark (1993-2001)

The job losses, repossessions, uncertainty, fear and misery faced by the people of Europe, the United States and Japan are a terrible stain on the consciences of those bankers and politicians whose doctrine of neo-liberal markets plunged us all into this crash. But the effect of the crisis on the Third World is of an entirely different magnitude. While developed countries scramble to save their economies, half of humanity languishes. For many, this means hunger, disease and death.

In Europe, we have been protected from the worst effects of the crisis thanks to welfare states built up over the past 60 years to cushion citizens from the threats posed by the free market. We can all count on state health care, social housing, education, unemployment support and other universal, tax-funded services.(...)

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Geithner's Plan: Loopholes Galore (Business Week - U.S.)

Here are five ways hedge funds and investment banks may exploit Treasury's toxic-assets plan
By Theo Francis and Mara Der Hovanesian

It has been a little less than two weeks since Treasury Secretary Timothy F. Geithner unveiled the details of his project to restore banks to financial health. But analysts say hedge funds and investment banks are already looking for ways to exploit the complex web of auctions, public-private partnerships, and government guarantees proposed by Treasury to cleanse banks' books of toxic assets. "It's a highly gameable system," says H. Peyton Young, an Oxford University economist and a senior fellow at the Brookings Institution in Washington. "It's very difficult to write rules that are going to prevent self-dealing behavior."

Geithner's goal: entice investors to buy up the billions of dollars' worth of subprime mortgages, underwater commercial property loans, and other shaky securities that weigh down the banks' books. The partnerships will bid at auction for the dodgy parts of the banks' portfolios, hoping to get a big enough bargain that they can resell the assets later at a profit.(...)

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The Quiet Coup (The Atlantic - U.S.)

By Simon Johnson

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government--a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we're running out of time.

ONE THING YOU learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your "clients" come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You're never at the top of anyone's dance card.(...)

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The G20 has lost the plot (The Telegraph - U.S.)

By Ambrose Evans-Pritchard

As we sit in this construction site in outer Docklands -- wondering what on earth the greatest concentration of world leaders in half a century must think of such a G20 venue, Saudi King Abdullah for instance - it is worth adding up the score in the stimulus war. This is a not a fight between the US-UK on one side, and Europe on the other. This the entire world on one side, and France-Germany on the other. (Why France is playing this bizarre role when social order is breaking down across the French industrial heartland at an alarming pace is a story in itself).(...)

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'Failure Is not an Option -- History Would not Forgive Us' (Spiegel - Germany)

By Nicolas Sarkozy

France's president argues that the current global economic crisis was created by a system that has drifted away from the basic values of capitalism. At the G-20 summit, he wants a reform of international financial systems, additional economic aid and speedier crisis management.

Thursday in London, for the second time in only five months, the leaders of the world's top 20 economies will be meeting to seek a joint response to the unprecedented global economic crisis that we are going through. (...)

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Asia is the victim if the bond bubble bursts (Financial Times - U.K.)

By Yu Qiao

President Barack Obama is set to urge leaders to boost government spending to save the world economy. European Union countries are expected to focus on fixing lax financial regulatory systems. For Asian countries, however, the key agenda issue is the safety of their assets denominated in dollars, as they look ahead to a devalued dollar from rising US sovereign debt.

Most of Mr Obama's stimulus spending is devoted to social programmes rather than growth promotion, which may exacerbate America's over-consumption problem and delay sustainable recovery. On top of this, the unprecedented fiscal stimulus, with the Federal Reserve's move to inject money into credit markets, contains self-destructive seeds. The US risks ending the dollar's role as the reserve currency, especially considering there is already $10,000bn (€7,535bn, £7,009bn) in US Treasury debt, and much more in liabilities from the costs of social security, healthcare and financial institution bail-outs.(...)

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Paid Cadillac Prices, Got a Chevrolet (Slate - The Net)

Obama's auto bailout punishes Wall Streeters as much his toxic-assets program helped them.

The Obama administration's new program to encourage the purchase of troubled mortgage assets last week offered what seemed to be a nice wet kiss to the private-equity/hedge-fund complex. But on Monday, with his announcement about the future of the U.S. auto industry, President Obama delivered a slap to the same folks.

In addition to pushing out General Motors CEO Rick Wagoner, Obama also sent unwelcome tidings to other stakeholders of both GM and Chrysler. Given that Obama is being advised on these efforts by Steve Rattner, a veteran private-equity manager and investment banker, it's not too hard to divine the unpleasant message he was delivering to Wall Street hotshots.(...)

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Encouraging the Sellers, Not the Buyers, of 'Toxic Assets' (Economix - The Net)

By Casey B. Mulligan

Last week the Obama administration released what has become known as the "Geithner plan": an administration policy to reorganize asset ownership in the banking sector. The plan may have its desired effect of loosening up the market for "legacy assets," but probably not for the reasons the Obama administration has stated.

Banks own mortgages (either directly, or through ownership of mortgage-back securities) whose values plummeted in 2008, because the mortgages are collateralized with real estate whose value crashed.

Conventional wisdom about the banking crisis says that bank lending to the wider economy cannot occur because banks have been unable to sell these assets, which adds to their difficulties in making new loans.(...)

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Keeping American dream on the road ( The Independent - U.K.)

President Barack Obama gave a number of reasons for wanting to save the core of the American car industry yesterday after rejecting the survival plans submitted by management. Unfortunately, very few of these reasons were commercial. Rather, the President referred in dewy-eyed hyperbole to the importance of the automobile as an emblem of the American spirit that had helped to build the very fabric of the nation. The car, he concluded, was the very essence of the American dream. (...)

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Electric cars are coming to Europe ( The Oil Drum - The Net)

The fate of electric cars in the US is better known than the parallel European story thanks to the 2006 film "Who killed the electric car?" Because of this film, we know the sad story of the EV1, the first all-electric car built by General Motors. After a few years of testing, GM decided to take back all the EV1s it had produced and destroyed all of them. The last ones were crushed to oblivion in 1999. But the European story wasn't so dramatic. European electric cars built in the 1990s are still around and running, although in very small numbers. There are signs, now, that after many years of neglect, electric cars may come back to Europe. (...)

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Who Else Is Hurt by Automaker Woes? ( The Wall York Street Journal - U.S.)

By David Gaffen

With every action there are always unintended consequences, and even if one applies the noblest of intentions to the move to resolve the festering problems in the U.S. automotive industry, some unknown outcome is likely to roil markets or the public, one way or another. After all, when Lehman Brothers Holdings went bust in September, the impact wasn't just felt in the credit-default swaps market (and ultimately, with AIG), but with money-market funds, as it was in part responsible for the Reserve Primary Fund's need to "break the buck," that is, let its net asset value fall below $1 a share. (...)

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'Merkel Does Not Get Basic Economics (Der Spiegel - Germany)

Former British Prime Minister Margaret Thatcher famously declared at EU summits: "I want my money back." Can we expect a similar performance by German Chancellor Angela Merkel at the G-20 summit in London? Will she tell US President Barack Obama and other world leaders that she does not want to spend more of her money on economic stimulus, as she insisted over the past few weeks? (...)

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Holding the bottom line (China Daily - China)

With the G20 sum-mit in London fast approaching, many British newspapers and indeed many columnists across the world are reflecting on the collapse of the London economic conference in 1933. That was a failure that not just prolonged the recession but led to even greater disasters. Therefore collective action, or a united front, as people are calling for, is needed from the largest economies in the world. As people have seen many times, no country can remain unscathed by a worldwide crisis. Even less can they expect to make an early recovery by not helping others - its past and future partners. (...)

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London calling (The Economist - U.K.)

THE first task for the leaders of the Group of 20, who will meet in London on April 2nd, will be to do no harm. Don't fall out over whether Germany and China are spending enough public money to get the world economy going. Let's not have a row over how to run the IMF. And spare us a tirade against "market fundamentalism". (...)

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What the G20 has to do in London ( Financial Times - U.K.)

The meeting of the heads of government of the Group of 20 leading high-income and emerging countries in London is a defining moment. At a time of economic crisis, the leaders of countries that generate the vast bulk of global economic activity must point the way towards shared solutions. If they do achieve this, the summit may not be regarded as the beginning of the end of this crisis, but it will surely be the end of the beginning. (...)

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Rebuilding the global economy at G20: it's a lot to do in just one day ( The Guardian - U.K.)

Tougher curbs on the financial system, including hedge funds and offshore tax havens. Keeping trade open. Reforming the institutions that have overseen the world economy for 65 years. Making sure the poorest countries are helped through the most severe downturn since the second world war. Thursday's meeting of the Group of 20 nations has much to do in a single day of summitry, and the portents are not good. (...)

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Protectionism: we have been here before (Le monde diplomatique - France)

Although the recent EU summit put pressure on France not to make loans to auto manufacturers conditional on favouring French suppliers, the economic crisis has put protectionism back in the spotlight, with increases in customs duty and massive aid for the car industry. Examining the debates of the late 19th century shows that we have been here before (...)

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The nuts and bolts come apart (The Economist - U.K.)

Comparisons to the Depression feature in almost every discussion of the global economic crisis. In world trade, such parallels are especially chilling. Trade declined alarmingly in the early 1930s as global demand imploded, prices collapsed and governments embarked on a destructive, protectionist spiral of higher tariffs and retaliation. Trade is contracting again, at a rate unmatched in the post-war period. This week the World Trade Organisation (WTO) predicted that the volume of global merchandise trade would shrink by 9% this year.(...)

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Transparent Obfuscation (The Washington Post - U.S.)

One problem with the Obama financial rescue plan is that it is almost as complicated and obscure as the problem it is designed to solve. Treasury Secretary Tim Geithner, testifying yesterday on Capitol Hill, called for greater simplicity in financial regulation. Good luck with that. (...)

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European-stability ( The New York Times - U.S.)

On the social front, there's a quantum difference. For given depth of recession, the human suffering in America -- where losing your job means losing your family's health insurance, and unemployment benefits are minimal at best -- is vastly greater than in Europe. (...)

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The End of Excess: Is This Crisis Good for America? ( TIME - U.S.)

We saw what was happening for years, for decades, but we ignored it or shrugged it off, preferring to imagine that we weren't really headed over the falls. The U.S. auto industry has been in deep trouble for more than a quarter-century. The median household income has been steadily declining this century ... but, but, but our houses and our 401(k)s were ballooning in value, right? Even smart, proudly rational people engaged in magical thinking, acting as if the new power of the Internet and its New Economy would miraculously make everything copacetic again. We all clapped our hands and believed in fairies. (...)

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The IMF - As It Tries to Please Everyone, It Serves No One (Seeking Alpha - The Net)

By Michael Pomerleano

To much fanfare, the International Monetary Fund Tuesday announced its latest attempt to revamp its lending instruments to better serve the post-financial crisis world. The new "flexible credit lines" are intended to speed bailouts, cut down on conditionality, and improve countries' payback terms -- in theory, pleasing both donor countries and recipients. (...)

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Battling stigma ( The Economist - U.K.)

THE International Monetary Fund has been finding more to do in recent months, as various countries--including Hungary, Ukraine, Pakistan and Iceland--have come cap in hand in search of emergency aid. The fund has lent some $50 billion so far, and yet still has about $200 billion in its kitty. To some outsiders' puzzlement, however, the fund has been scrambling to double its resources to $500 billion, and has succeeded in getting commitments for around $100 billion each from the European Union and Japan. Having addressed the supply side, it is now turning to stimulating demand for its resources. (...)

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Don't Buy the Chirpy Forecasts (Newsweek - U.S.)

By Carmen Reinhart and Kenneth Rogoff

The history of banking crises indicates this one may be far from over.

The good news from our historical study of eight centuries of international financial crises is that, so far, they have all ended. And we confidently predict this one will end, too. We are just not quite so sure it will be nearly as soon as the chirpy forecasts coming from policymakers around the globe. The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking? (...)

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Capitalism's Berlin Wall (The Moscow Times - Russia)

By Dominique Moisi

As the economic crisis deepens and widens, the world is searching for historical analogies to help us understand what is happening. At the start of the crisis, many people likened it to 1982 or 1973 -- which was reassuring because both dates refer to classical cyclical downturns.

Today, however, the mood is much grimmer, with references to 1929 and 1931 beginning to abound, even if some governments continue to behave as if the crisis was more classical than exceptional. Europe is being cautious in the name of avoiding debt and defending the euro, whereas the United States has moved on many fronts in order not to waste an ideal opportunity to implement badly needed structural reforms. (...)

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Is the worst behind us? (Econbrowser - The Net)

A couple of weeks ago we received the encouraging news that retail sales for both January and February were 1.8% above December. On Monday the National Association of Realtors reported that February sales of ex isting homes were 5.1% above January levels on a seasonally adjusted basis. Today the Census Bureau reported that new orders for manufactured durable goods rose 3.4% in February, with new orders for nondefense capital goods up 7.4%. And also today the Census Bureau reported that new home sales in February were up 4.7% (on a seasonally adjusted basis) relative to January. Is the tide starting to turn?(...)

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Brown must focus on the banks (The Guardian - U.K.)

By Bill Emmott

Can this truly be called a "retreat"? Only last November, when Alistair Darling was unveiling his package of VAT cuts and extra public spending in his pre-budget report, the spin from the Treasury and 10 Downing Street was that this fiscal stimulus would be quite enough, thank you, to support the economy. So if Gordon Brown is now "retreating" from a further stimulus package, he must be retreating from a position he had said he wasn't going to take anyway. (...)

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Economy vs. Environment (The New Yorker - U.S.)

By David Owen

The world's financial and energy crises are connected, and they are similar because credit and fossil fuels are forms of leverage: oil, coal, and natural gas are multipliers of labor in much the same way that credit is a multiplier of wealth. Human history is the history of our ascent up what the naturalist Loren Eiseley called "the heat ladder": coal bested firewood as an amplifier of productivity, and oil and natural gas bested coal. Fossil fuels have enabled us to leverage the strength of our bodies, and we are borrowing against the world's dwindling store of inexpensive energy in the same way that we borrowed against the illusory equity in our homes. Moreover, American dependence on fossil fuels isn't going to end any time soon: solar panels and wind turbines provided only about a half per cent of total U.S. energy consumption in 2007, and they don't work when the sun isn't shining or the wind isn't blowing. Replacing oil is going to require more than determination.(...)

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The Axis of Upheaval ( Foreign Policy - U.S.)

By Niall Ferguson

Forget Iran, Iraq, and North Korea--Bush's "Axis of Evil." As economic calamity meets political and social turmoil, the world's worst problems may come from countries like Somalia, Russia, and Mexico. And they're just the beginning.

After nearly a decade of unprecedented growth, the global economy will almost certainly sputter along in 2009, though probably not as much as it did in the early 1930s, because governments worldwide are frantically trying to repress this new depression. But no matter how low interest rates go or how high deficits rise, there will be a substantial increase in unemployment in most economies this year and a painful decline in incomes. Such economic pain nearly always has geopolitical consequences. Indeed, we can already see the first symptoms of the coming upheaval.(...)

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The Promise Of Pragmatism (The Daily Dish - The Net)

And what does Obama's response to these multiple crises look like two months in at this point? It looks to me like relentless, detailed, reasonable pragmatism. It is what I hoped for. The Geithner package is neither right nor left: it's about solving the problem within the existing structures as far as possible. Will it work? I cannot know. But it is not dividing one half of the country against another; it is resisting the most radical and irreversible move; it is part of an entire package designed to move the world economy out of a dangerous abyss. I see it as a good faith effort, and prepared meticulously in the time-table dictated by the crisis and simple human competence - not a political product to be wheeled out as marketing. It is a serious project that the president asks us to keep close track of and for which he will remain accountable. What more can we ask for at this point? (...)

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