MacroScope

President Obama’s latest stimulus plan involved some big numbers but it did little to lift the mood of investors.

Instead, investor attention shifted to Europe where a WSJ report said “stress tests”, published more than a month ago, underestimated some lenders’ holdings of potentially risky government debt.

Concern over the European banking sector was further aggravated by Germany’s banking association saying the country’s 10 biggest banks may need 105 billion euros of additional capital under Basel III.

In a light week for macroeconomic data it seems bad news overseas is translating into investors taking their money off the table at home.

More gloom comes from Nouriel Roubini, a professor at New York University. At the annual Ambrosetti conference on Lake Como he said the U.S. has run out of bullets in its arsenal to fight off a recession, writes the Telegraph.

What went wrong and where we should go are topical post-crisis discussions and many books have been dedicated to tackle this question.

Eric Janszen, U.S.-based economic analyst, is the latest in analysing the crisis and its aftermath. He thinks that the problems of the global economy are rooted in the flaws of the debt-driven FIRE Economy (Finance, Insurance and Real Estate) and the only way out of the crisis is to change the fundamental approach.

“The entire economic system has been glued together by one profound fantasy: Finance can substitute for production, and credit for savings. Private debt, of households and businesses, and public debt, of governments federal, state, and local, foreign and domestic, piled up like snow by a blizzard of lending through mortgages, bonds offerings, and securitizations over decades. It then avalanched upon us,” Janszen wrote in his new book.

A number of African nations have established or are having debates about establishing sovereign wealth funds to manage their mainly resource-based wealth.

It may be surprising however to hear Rwanda — an aid-dependent nation racked by the 1994 genocide — is considering one. Its foreign minister Louise Mushikiwabo says a sovereign fund would help develop its economy and ease dependency on aid.

“We should not rely on someone else’s money. It’s about our own dignity. We’re looking at every policy — economic policy and foreign policy — to make sure Rwanda stands on its feet. Technology is one sector we’re looking at in Rwanda and how to use our own innovation,” Mushikiwabo tells Reuters during her visit to our London office.

The Becker-Posner Blog has an interesting debate posted on the question of  food shortages and their accompanying price rises. As usual, it is a to-and-fro between economist and Nobel laureate Gary Becker and his University of Chicago colleague Richard Posner, a U.S. appellate judge.

Becker reckons that some commodity prices will rise as the global economy recovers but that food is different.

“Rapid growth in future world GDP is likely to greatly raise the prices of oil and other fossil fuels, unless concerns about global warming induce major steps to reduce the demand for these fuels. Rapid growth in world output is also likely to sharply raise the demand for cereals, meat, and other foods in developing countries. However, I have tried to show why food is different from fossil fuels and minerals, like copper, in that the supply of food is not limited by natural bounds on overall quantity. Rather, the efforts and ingenuity of farmers and researchers are able to greatly increase world food supply to meet even very large increases in the world demand for food.”