Economics Oct 7, 2008

October 7, 2008 § Leave a comment

From Rubini


Despite the so-called bailout plan passing the House of Representatives on Friday, there are obviously still some major strains to global financial markets, and it now appears as if commercial paper markets could be seizing up as well. How much of a help was the bailout plan, and where do you think things stand now?

The bill, first of all, in many dimensions is flawed. But leaving aside the flaws of the bill, there is a much more urgent problem that we’re facing right now. It is one of a generalized run on the short-term liabilities both of the banks, of the non-bank shadow system, and now of the corporate sector. In the case of the banks, there is the beginning of a silent run on the uninsured debts of the banking systems, which are still over $2 trillion despite the increased deposit insurance. Many institutions in the non-bank shadow financial system are also finding that they cannot roll over their debts. There is a situation of generalized panic and lack of trust in counterparties. And worst of all, at this point, the commercial paper [short-term debt issued by large banks and corporations] to the corporate sector, and other types of funding to the corporate sector, is frozen right now. That can tip a corporation into a situation of defaults. They might not be able to pay interest on maturing debts, they might not be able to roll over maturing debts, and they might not be able to finance their working capital. So we’re seeing a generalized liquidity run, and it’s something that this bill cannot directly address. It’s something that needs to be addressed with different sorts of tools.

What sorts of tools do you recommend? I see you’ve called for major coordinated interest-rate cuts, on the order of one hundred points across the board, in all major world economies.

That’s only part of the solution. It has to do with coordinated rate cuts, but it’s not obvious [even after the cuts] that liquidity is going to flow to those who need it. We need to do something slightly more radical than just an interest rate cut. Most likely the Fed will have either to guarantee all deposits on a temporary basis, since that’s the only way you can essentially stop a run. But since that requires legislation and it’s not obvious that Congress will pass a temporary blanket guarantee, the Fed has to stand ready to provide the liquidity to any bank that needs liquidity. So if there is a run on any bank, the Fed has to increase the money supply by as much as is needed to essentially prevent that particular institution from collapsing. That’s the first thing.

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An American Sahara

May 27, 2007 § Leave a comment


NASA satellite overflights of the northern states of Zacatecas, San Luis Potosi, Nuevo Leon, Durango, Coahuila, Chihuahua, Sonora and the Baja California peninsula now show spreading swatches of bone-white, waterless desert, inhospitable bad lands that can no longer support human communities.

Source: San Francisco Bay Guardian : Article : An American Sahara

More regulatory hijinks. – By Barron YoungSmith – Slate Magazine

March 4, 2007 § Leave a comment


The FDA is fixin’ to approve the extremely potent drug cefquinome for use on cattle—a step that risks creating diseases that are resistant to medicine’s most powerful antibiotics. Thirteen health groups, including the AMA, plus the FDA advisory board say the decision is needlessly dangerous. But the FDA is following a new “guidance document” telling it to weight public health concerns against pharma concerns less strongly than it has in the past.

Source: More regulatory hijinks. – By Barron YoungSmith – Slate Magazine

Bush and fundraising on divisions

March 3, 2007 § Leave a comment

Not a good sign. WE can see how it works, but ir produces parties that can’t solve real problems.

“Bush’s fundraising abilities underscore a key fact of modern political life, according to several Republican consultants and a major fundraiser: Political division is not necessarily a bad thing when it comes to breeding political loyalty, and loyalty translates into contributions.”

Source: White House Watch — News on President George W Bush and the Bush Administration –

Money and politics

March 3, 2007 § Leave a comment

 The problem is not Dodd, but the whole system of money and politics. Gotta change.

The long shot Democratic Presidential campaign by Christopher J. Dodd, the new Banking Committee chairman, solicited banking industry executives and lobbyists — Democrats and Republicans alike — for a fund-raising reception Wednesday.

Melanie Wong, an experienced Democratic fund-raiser who identified herself as Dodd’s “mid-Atlantic regional finance director,” sent the invitations. They addressed lobbyists by their first names, even those she had never met and who had never contributed to Dodd.

The evening event was held at Washington’s luxurious Madison Hotel to find individual fund-raisers. A “Team of 46” will consist of supporters who pledge to raise $46,000 for Dodd.

Source: Union Leader – Robert D. Novak: Another Hillary defector – Saturday, Mar. 3, 2007

NAFTA and Mexico

February 25, 2007 § Leave a comment


This is a bad sign. Ross Perot of course was right and Gore, with many others,  was wrong. Brad DeLong quotes

Louis Uchitelle:

Nafta Should Have Stopped Illegal Immigration, Right? – New York Times: THE North American Free Trade Agreement, enacted by Congress 14 years ago, held out an alluring promise: the agreement would reduce illegal immigration from Mexico. Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate–and not feel the need to cross the border into the United States. But today the number of illegal migrants has only continued to rise….

When Nafta finally became a reality, on Jan. 1, 1994, American investment flooded into Mexico, mostly to finance factories that manufacture automobiles, appliances, TV sets, apparel and the like. The expectation was that the Mexican government would do its part by investing billions of dollars in roads, schooling, sanitation, housing and other needs to accommodate the new factories as they spread through the country.

It was more than an expectation. Many Mexican officials in the government of President Carlos Salinas de Gortari assured the Clinton administration that the investment would take place, and believed it themselves, said Gary Hufbauer…. But “it just did not happen,” he said. Absent that investment, foreign factories congregated in the north, within 300 miles of the American border, where some infrastructure already existed. “Monterrey is quite good,” Mr. Hufbauer said, “but in a lot of other cities the infrastructure is terrible, not even enough running water or electricity in poor neighborhoods. People get temporary jobs, but that is all.”

Meanwhile, Mexican manufacturers, once protected by tariffs on a host of products, were driven out of business as less expensive, higher quality merchandise flowed into the country. Later, China, with its even-cheaper labor, added to the pressure, luring away manufacturers and jobs…. [T]otal manufacturing employment in Mexico declined to 3.5 million by 2004 from a high of 4.1 million in 2000, according to a calculation of Robert A. Blecker, an American University economist.

The implications for GardenWorld? It needs to be a world movement. Source: Grasping Reality with Both Hands: The Semi-Daily Journal of Brad DeLong

Iraq and the press distortions

April 15, 2006 § Leave a comment

An example of press manipulation, innocent maybe, but very ahrmful.

For the past 3 years, American audiences have seen a sanitized Iraq, whereas the rest of the world has seen the real thing. When CNN interviewed Iraqi foreign minister Barham Salih recently, they showed him with a peaceful Baghdad backdrop. But in fact, Salih could not have so much as taken a stroll in West Baghdad without being immediately shot down dead.

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