Daily Investment Interpretations

January 19, 2009

2009-1-19:  The U. S stock markets were closed today (Martin Luther King Day). However, a certain amount has been written since Friday. Paul Krugman has written quite a bit, beginning with Saturday's Permanent Link to Zero lower bound blogging.
He quotes a paper by Goldman Sachs Jan Hatzius. Mr./Dr. Hatzius applies the "Taylor Rule" to estimate how much farther the Fed should cut interest rates to combat the deepening recession through conventional monetary policy alone, and concludes that the rates should decline to -6% by 2011 (and still falling). Since interest rates can't practically go negative, the only alternative is fiscal stimulus or unconventional monetary measures.
    Permanent Link to Bad bank bafflement, Dr. Krugman observes that he doesn't understand how a "bad assets" bank that buys up the toxic assets on banks' balance sheets is suppsed to work--why it isn't tantamount to rearranging the deck chairs on the Titanic.
    Permanent Link to Y? Y not? is a link to a video interview by David Brancaccio at New York City's 92nd Street YMCA. During the interview, Dr. Krugman mentions that the current situation bears eerie similarities to the Great Deoression, although he explains later that he doesn't see the current imbroglio being as bad, given the lessons learned from the Great Depression and Japan's "lost decade".
    Permanent Link to Crazy people. Here, Dr. Krugman cites a right-wing lobbyist who equates a 35% U. S. corporate tax rate of 35% with waterboarding.
    In Permanent Link to An alternative economic strategy, Dr, Krugman says, "The interest rate is up against the zero lower bound; the fiscal stimulus doesn’t look big enough; the TARP has been a disappointment. What to do? My wife suggests that we might try sacrificing a few bankers — central bankers, investment bankers, whatever — to appease the financial gods."
    Permanent Link to More on the bad bank, Dr. Krugman follows up on his Bad Bank Bafflement article above. Having learned more about the "bad assets" bank, he's thinking that, based on what he knows, the "bad assets" bank proposal doesn't sound effective.
    Permanent Link to Getting fiscal. This commentary concerns Nobel Prize-winning economist Gary Becker asking why there's so much interest in fiscal stimulus today compared to 1982. Unemployment peaked at 10.5% in 1982. Peak unemployment today is forecast to hit 9% even if there's no stimulus package, so why should we worry about a stimulus package. Dr. Krugman responds, "Urp. Gack. Glug. If even Nobel laureates misunderstand the issue this badly, what hope is there for the general public?" Interest rates when the unemployment rate peaked at 10.5% in 1982 were in the neighborhood of 15%. All that Paul Volcker had to do to re-ignite the economy was to lower interest rates to 14%, which is what he did in the second week of August, 1982  Today, with the unemployment rate at 7.2% and the economy falling into the abyss, interest rates are already at 0% to 0.5%, and they can't go any lower. This is a deflationary recession, categorically different from the inflationary recessions that beset us since World War II blasted us out of the Great Depression. The Fed has fired its last, best shot at the bear, and has failed to stop it. Keynesian fiscal stimulus is one of the only weapons we have left. (Think of it as an antibiotic-resistant infection.)
    Permanent Link to Minds thinking alike refers to the fact that Felix Salmon seems to have reached the same conclusions as Paul Krugman.
    Permanent Link to Economists, ideology, and stimulus In this page, Dr. Krugman deplores the first-rate economists who reject fiscal stimulus on ideological grounds.
    Permanent Link to Spreads  This page points out that the extremely higher interest rates on loans to corporations versus loans to the U. S. Treasury (because of the perceived risks of corporate defaults) means that we still have a credit crunch. 
    Permanent Link to Shorter Wall Street Journal pertains to the far-right ownership of the Wall Street Journal distorting reality to try to shift the blame to the Democrats for the Republicans' roles in incubating the current financial crisis. 
     Permanent Link to The pain in Spain … explains why Spain is having so much trouble with the current crisis.
    The two articles below are slef-explanatory.
EU: recession will be deep and long-lasting
Brazil loses 654,000 jobs in December amid crisis
    Peter Brimelow writes: Market bottom in sight again, and Rex Nutting says, Only one more bad year for the economy.