Lunchtime Links 6-9

June 9, 2010

The blog prophet of euro zone doom (Thomas, NYT)

Hoenig wants a rate increase (Kelleher/Gillam, Reuters) He won’t get it. The Fed has trapped itself. The only way to keep the economy “growing,” is to pump ever more copious amounts of credit into it. If we’re not willing to put up with any recession whatsoever in order to pay-down/write-off debt, well, then, eventually we become Greece. Even central banks that print the currency in which their debt is payable can’t defy gravity forever. The Japanese have tried for the better part of a generation….hasn’t worked so well….

Here’s a chart to make the above point:

Fed trapped

All TruPSed up (Alloway, Alphaville) Great, clear post from Tracy. Bank capital is still just about the most important issue in financial markets; this is the latest fight…

CHART: Mortgage purchase applications keep dropping despite low rates (Culp, Reuters) There will be no sharp recovery for housing. Too much shadow inventory and too little demand. Rates may even decline to new lows on more flight to safety buying of U.S. government paper, but don’t expect housing to get much of a boost.

Legacy for one billionaire, death but no taxes (Kocieniewski, NYT) No clever tax dodge here, Duncan just happened to die in 2010, a year when the estate tax dropped to 0%.

Bubble Watch: $35k per night hotel room (Nassauer, WSJ) NY’s gilded age is surely returning post Lehman…

Whole new level of American laziness (reddit)

Weight-lifter goes for gold, projectile vomits on judge and passes out (windycitizen) He apparently went for a third attempt after this. Why? Just why?



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That Superman is a wuss. The REAL Superman would have stopped the train and not bothered with the van. And how come no cape? He wasn’t even trying!

And a note to mere mortals – once you have the van moving, keep going with it and don’t run back in front of the train.

Rolfe – are you sure Superman and the weight lifter aren’t the same guy?

Posted by Chicagoboy | Report as abusive

Rolfe — You are wrong about Japan.

The Japanese have have not sincerely tried to print, c’mon. Japan was massively levered and they never printed anything on the scale of the delevering. Instead they engaged in 20 years of Keynesian nonsense, with the government levering up, and are back where they started, only far older and with the debt on the public balance sheet.

You went to the U. of Chicago, you should know the answer! A real Friedmanite solution in Japan would have been to let the private sector delever but *do not* lever up the public sector with senseless and *unproductive* Keynesian spending. Instead, stand back and if deflation starts to go too far, just provide raw money printing to the people as needed to avoid letting deflation get out of control.

The private sector wants to operate with less leverage these days. This would be steeply deflationary because money multipliers would shrink. The solution must be to increase the base money supply in the least distortionary way possible. Rather than have the government borrow and spend on unproductive things, it should just get printed cash into the hands of its citizens. They will be able to pay off debt and the financial sector will heal naturally.

Japan has solved nothing in 20(!!!!) years because there just wasn’t a way to pay back the huge debt. It was bad debt, unservicable in relation to the money supply. The debt needed to be destroyed one of two ways: Either
(1) Stand back and let everyone go bankrupt in a deflationary collapse. This is the classical solution. You could then reorganize and not have wasted 20 years. This is brief, terrible and politically untenable.
(2) Print new base money immediately. This will seemingly be inflationary but in reality you are only pulling the money supply along to keep up with the asset inflation that has *already* occurred. Some debt may be destroyed by inflation but it is much less disruptive if it is at low levels.

Bill Gross pushed this very well in March 2009. rket+Commentary/IO/2009/Investment+Outlo ok+Bill+Gross+March+2009+Hairy+Lips+Sink +Ships.htm

Gross said in order to deal with the debt load, we need a “return to nominal GDP growth levels of 5-6%, the majority of which might actually come in the form of higher prices as opposed to increased production. This Faustian bargain would be acceptable if only to stabilize what now appears to be an even more dangerous deflationary debt liquidation.”

Posted by DanHess | Report as abusive