Subprime crisis: warning signs glaring in 1999!

July 23, 2016

Representatives from the Office of Thrift Supervision, the FDIC, and banking associations,  symbolically slashing red tape in 2003

While doing some file management, I stumbled on an investment newsletter published in 2001: “A house without equity is rental with debt” by Wall Street analyst Josh Rosner, whose analysis of industry and macro factors turned out to be prescient.

Here’s an overview, and, after that, I’ll briefly contrast it with a 2005 article that wasn’t so prescient, yet was published by a prestigious economic paper… Read the rest of this entry »

The fiscal union of Europe

January 31, 2012

This blog reported on the EU summit to fix the Euro zone in October, which included a second bailout of Greece, followed by an overview of the dilemma the region is facing, namely reinforced integration (a US-like federation) vs breakup. This blog discusses the EU’s solution, the fiscal compact. Read the rest of this entry »

Ron Paul : “we have a recession [because] we have not liquidated the debt”

December 11, 2011

The quote in the title is taken from the transcript of the December 10 Republican primary debate. According to Ron Paul the stimulus creates excessive debt and is a repeat of the mistake of the of Great Depression. To put this judgment in perspective, here’s a graph reproduced from the post Age of deleveraging in Steve Keen’s blog:

The private debt is being liquidated, fast, but this is partially offset by a rise in public debt…

Greece and Milton Friedman’s case for flexible exchange rates

November 4, 2011

The deterioration of the Greek economy is not unique in the Euro-zone (EZ), only more acute than that of its peers. As discussed in our previous post on this topic, the flaw in the design of the Euro-zone (EZ) is one-size-fits-all monetary policy in a monetary union. Some get too much slack, when others need more of it.

In a centrally planned system, such as the US federal government, states that are lagging see their share of fed spending stable (in fact, increased through social benefits) whereas their contribution in taxes is comparatively reduced. It’s easy to understand, therefore, that this acts a counterbalancing mechanism in a downturn.

The EU’s remedy for Greece has centered on internal devaluation, a broad term that encompasses austerity and reducing wages. It has brought hardship but, so far, few of the  desired gain in competitiveness. The alternative route, advocated by Nouriel Roubini, is to exit the Euro and let the new currency depreciate. Competitiveness up, trade deficit down.

Let’s present the argument in the words of Milton Friedman. Read the rest of this entry »

S&P 500 Index (1929-2011)

October 31, 2011

Click here. On a tangential note, the late Angus Maddison is a renowned economic historian.

Way out of the debt crisis (Euro-English)

October 30, 2011

Here’s the link to the relevant press release of the European council. “Way out” probably translates (from Euro-English) to “The way out”… Not having really paid  attention to the existence of the council, I wondered : why not the European commission? My concern was assuaged : both presidents are pictured in the photo op

Trivialities aside, experts on the matter are at best lukewarm in sharing the optimism of the title although markets seemed to have welcomed it rather well. While they sort out the details in the coming days, let’s review why the Euro has so much trouble picking itself up. Read the rest of this entry »