"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Monday, March 15, 2010

Really great links - second wave of credit losses - price level targeting - sovereign debt explosion - Volcker rule - fiscal policy

John Hussman - mortgage resets - "From the pattern we observed during the round of sub-prime resets, delinquencies tended to follow the resets within about 3 months, and foreclosure actions within about 6 months. Although the 2010 peak in the Alt-A / Option-ARM reset schedule doesn't occur until July, with a much larger peak in mid-2011, a small initial round of resets is already in progress, having started about November of last year. I would expect that if we are indeed at risk of a second wave of mortgage defaults and credit strains, it will show up first as a surprising jump in 30-day "

The Globe and Mail - price level targeting in Canada - "The central bank is putting considerable effort into studying an intriguing, yet untested, technique called price-level targeting."

Mohamed El-Erian - How to handle the sovereign debt explosion - "More than 40 per cent of global GDP now resides in jurisdictions (overwhelmingly in the advanced economies) running fiscal deficits of 10 per cent of GDP or more. For much of the past 30 years, this fluctuated in the 0-5 per cent range and was dominated by emerging economies."

Axel Weber, Bundesbank president (via Money Supply blog) - "Taking aim at the proposed “Volcker rule” which would prohibit proprietary trading in deposit-taking institutions, Mr Weber said it could lead to greater instability in institutions that were not covered by the rule, such as hedge funds or investment banks. But the more serious problem, said Mr Weber, is that banning activities “that are perhaps more risky but not necessarily economically inefficient” is a “very far reaching economic intervention.”"

Nicholas Gruen - "As for the idea that monetary policy can substitute for fiscal policy if you're not at the zero bound, that might be true in the medium term, but not in the short term. Australia was able to dump a fiscal expansion of 1% of GDP into its economy within a couple of months of deciding to act - in (from memory) Oct 2008. Cheques were in the mail by December giving us a great Christmas - unlike just about everyone else."

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