This week’s
selection of readings on the economy and some research papers. Markets- and
Off-topic-posts coming up next.
Previously
on MoreLiver’s:
Ever since the Crash of 2008 there has been a
widespread recognition, both among economists and the general public, that
economic theory has failed. But there is no consensus on the causes and the
extent of that failure. I believe that the failure is more profound than
generally recognized.
In particular, southern Europe’s economic disaster is both
reflected — and is largely caused by — a demographic decline that, if not soon
reversed, all but guarantees the continent’s continued slide.
The Breakeven Point (Wonkish But Terrifying) – Krugman
/ NYT
Overall eurozone inflation must be sufficiently
high. That’s a necessary but not sufficient condition for salvation; not
sufficient because a banking crisis can still blow the thing apart, but
necessary because you can’t resolve the banking crisis unless there’s some
plausible path back to sustainable economies.
America’s economy, oddly enough, has been
playing the role of bright spot in the world economy in recent months. The
worse the outlook elsewhere, however, the less distinction comes with the part,
and the less impressive becomes the American recovery.
Emerging markets: Beware falling masonry – Free
exchange / The Economist
Attention is focused on troubles in the euro
zone, but emerging markets are looking a shaky these days, as well. Shakiest of
the bunch is India, which reported a surprisingly poor 5.3% rate of growth for the first
quarter.
End This Depression Now! – London
School of Economics (audio)
Professor
Paul Krugman | The Great Recession is
more than four years old—and counting. Yet, "Nations rich in resources,
talent, and knowledge—all the ingredients for prosperity and a decent standard
of living for all—remain in a state of intense pain." In his new book, End
This Depression Now! which he will discuss in this event Krugman shows how the
failure of regulation to keep pace with an increasingly out-of-control
financial system positioned the United States and the world as a whole, for the greatest financial crisis since the
1930s. Decrying the tepid response thus far, he lays out the steps that must be
taken to free ourselves and turn around a world economy stagnating in deep
recession. His is a powerful message: a strong recovery is only one step away,
if our leaders find the intellectual clarity and political will to see it
through. (also video
player)
The Non Jobs Report and the Myth of De-coupling – TF
Market Advisors
…currency devaluation risk, even more than
solvency risk, is putting the entire Spanish economy in jeopardy, with Italy not too far behind.
This has to be addressed immediately…What form will QE3 take? I think after
this job report there should be little doubt that we will see more QE.
The global economy is sitting on a volcano.
What happens next? –
Fabius Maximus
Why do people choose to live on a dangerous
explosive volcano? People are too
comfortable to move, and it pays to live there. The soil is often rich. Some volcanoes have rich mineral deposits or
tourism. And they probably will get lucky, as large eruptions occur decades or
even generations apart.
Accruing better sovereign credit – alphaville
/ FT
In other words, in a crisis of weak balance
sheets – does your government know what its balance sheet even looks like?
Why We'll Never Run Out of Oil – reason
The notion that world oil production had
reached its summit and would soon begin a decline was in great vogue not so
long ago.
A central-bank failure of epic proportions – Free
exchange / The Economist
The ECB's reaction has been stunningly limited.
Its benchmark lending rate has stood at 1% for months. Its long-term
refinancing operations were a bold step that prevented a financial disaster. It
has since stood by, however, as financial conditions have rapidly deteriorated.
Third time unlucky – Free
exchange / The Economist
The rum employment figure came in below
expectations, but it wasn't entirely out of line with recent data points, which
have signalled a slowdown in hiring and slower growth in the economy. Moreover,
the news is in keeping with a general turn in global economic sentiment, helped
along by troubles in emerging markets but driven largely by chaos and recession
in the euro zone
Austerity and Debt Realism – Project
Syndicate
Kenneth Rogoff: Above all, voters and politicians must beware of seductively simple
approaches to today’s debt problems.
The Austerity Agenda – Krugman
/ NYT
Even if you have a long-run deficit problem —
and who doesn’t? — slashing spending while the economy is deeply depressed is a
self-defeating strategy, because it just deepens the depression.
Data table
from BoA.
RESEARCH ARTICLES
Thousands of models, one story: current account
imbalances in the global economy – ECB
(pdf)
Liquidity and credit risk premia in government
bond yields – ECB (pdf)
Estimating Inflation Expectations with a
Limited Number of Inflation-Indexed Bonds – IJCB (pdf)
Stress testing German banks against a global
cost-of-capital shock
– Bundesbank
(pdf)
Does Wagner's law ruin the sustainability of
German public finances? – Bundesbank
(pdf)
Regulation, credit risk transfer with CDS, and
bank lending – Bundesbank
(pdf)
Credit portfolio modelling and its effect on
capital requirements
– Bundesbank
(pdf)