Really great links - Undervalued assets - Sticky wages - European stress tests - Trapped in depression - Greece

Robert Hall - Interview with Minneapolis Fed - Q: What should be done by the Fed - A: "Well, it does point in the direction of focusing on things like lower rates for corporate bonds, BAA corporate bonds. They appear to be undervalued private assets, although that’s not been one of the types of assets that policy has seen as appropriate to buy or to help private organizations to buy. That would be one way to turn."

Alex Tabarrok - Sticky wage transmission mechanisms - "Tyler, for example, writes:

        [Consider] illegal immigrant Mexican construction workers, a group which lost jobs in large numbers following the crash. Are they -- who often came from $1 a day environments -- also supposed to have sticky wages? They are out of work in massive numbers.

        The focus here is on the unemployed workers with the argument implicit that it's the stickiness of their wages which counts (which makes sense given the standard story). But suppose that the problem is that firms can't get capital to expand--perhaps because the banking system is not working well--then what matters for firm expansion is free cash flow. But sticky wages keep firm costs high, reducing free cash flow "

Yves Smith - European stress test - "Imitation is the most sincere form of flattery. The ECB and European bank regulators are copying the US playbook for the stress tests, with results for 100 banks expected to be released around July 23. But the European authorities seem to have failed to understand why the US effort worked. The first was that Team Obama is particularly good at PR, and it used those skills to full advantage. Despite considerable evidence otherwise, it got the press to convey the message that the tests were tough, and the banks really were sound. Second, Geithner & Co. had a kitty they could draw on.
        By contrast, the Europeans have been simply dreadful at the optics of their various rescue operations, with disarray and disagreements covered extensively by the media. Admittedly, this exercise is being conducted by bank regulators, so it is likely to be more cohesive, but “more cohesive”, with a process involving agencies in different countries, may not be cohesive enough. And “show me the money” is a major problem. The reason for this exercise is concern over possible sovereign debt losses. Who is going to back up the banks at risk? Um, sovereign states, admittedly ones not considered at risk of default (France and Germany), but whose ability to bail out their own banks is limited for practical and political reasons."

Ambrose Evans-Pritchard - Trapped in depression - "It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.
        The Fed is already eyeing the printing press again. "It's appropriate to think about what we would do under a deflationary scenario," said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to "strict scrutiny", a comment I took as confirmation that the Fed Board is arguing internally about QE2.
        Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us."

John Dizard - It’s no secret: Greece is restructuring debt - Healthcare system liabilities - "You don't need to be a secret agent to find out that Greece has started to restructure its state debts"