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

Thursday, October 14, 2010

Really good links - Money expenditures - Why is Paul Krugman angry? - Bretton Woods 2 - Correlation bubble

Bill Woolsey - Money expenditures - "The problem isn’t that inflation changes and this disrupts output. The problem is that money expenditures change and inflation fails to change enough to avoid disruption of output.
        If some prices change and others don’t (say wages), then the problem isn’t that some prices changed or that everything would be fine if those prices didn’t change. The more fundamental problem is money expenditures changing, and the secondary problem is that some prices failed to change enough.
        In other words, the “too little inflation” approach is wrong, wrong, wrong."

Angry Bear (spencer) - Why is Paul Krugman angry? - "Last quarter real domestic consumption rose at a 4.9% annual rate. That was an increase of $162.6 billion( 2005 $). But real imports also increased $142.2 billion (2005 $).
        That mean that the increase in imports was 87.5% of the increase in domestic demand. That mean[s] that the increase in imports was 87.5% of the increase in domestic demand.
To apply a little old fashion Keynesian analysis or terminology, the leakage abroad of the demand growth was 87.5%."

Tim Duy - Bretton Woods 2 - "Bretton Woods 2 simply morphed forms. Rather than a reliance on US financial institutions to intermediate the channel between foreign savers and US households, a modified Bretton Woods 2 - Bretton Woods 2.1 - relied on the US government to step into the void created by the financial mess and become the intermediary, either by propping up mortgage markets via the takeover of Freddie and Fannie, or the fiscal stimulus, or a dozen of other programs initiated during the financial crisis.
        In essence, a nasty surprise awaited US policymakers - after two years of scrambling to find the right mix of policies, including an all out effort to prevent a devastating collapse of financial markets and a what Administration officials believed to be a substantial fiscal stimulus, the US economy remains mired at a suboptimal level as stimulus flows out beyond US borders. The opportunity for a smooth transition out of Bretton Woods 2 was lost. <..>
        Put simply, the Federal Reserve is positioned to declare war on Bretton Woods 2. November 3, 2010. Mark it on your calendars."

Marko Kolanovic (via FT Alphaville) - Correlation bubble - "We conclude that both the realized correlation of stock prices and option implied correlation are in a ‘bubble’ regime and forecast a significant decline of correlation over a one- to two-year time horizon."

No comments:

Post a Comment

The Money Demand