1. Roubini wrong again and again.
2. Cash for Corfu.
3. Axel Weber and Philipp Hildebrand versus Olivier Blanchard. See also Phil Lowe for further Blanchard repudiation.
4. Bill Emmott and Wolfgang Munchau as bumptious prats.
5. Hayek’s lessons for Kevin Rudd.
posted on 10 March 2010 by skirchner
in Economics, Misc
(9) Comments | Permalink | Main
Roubini may have been wrong on market direction a year ago, but I think many of the points he made still have currency. Tell me if I’m wrong but my understanding is that US banks survived because the Fed/taxpayer bought their dodgy loans at generous prices (and have more or less undertaken to do so in future). This is unlikely to result in a sustainable economic or stock market recovery - well, at least that seems to be the view of Macro Man and his fans. Why else is the bond market pricing 2 year notes at 0.9% and 5 year notes at 2.37%? Whether this would lead to an S&P500;at 500 (in 2009$) is another question, but some fund managers would say that such a level would be the modern equivalent of the bear market lows in 1974 and 1982.
You can’t misallocate capital on the scale of the US and not pay a penalty in terms of long-run growth and stock market performance. With Roubini, it’s a different story every week, but his bearishness is at least consistent with his support for bad policy!
Posted by skirchner on 03/10 at 11:40 AM
“You can’t misallocate capital on the scale of the US and not pay a penalty in terms of long-run growth and stock market performance”
But apparently China can misallocate capital on a gigantic scale yet the RBA forecasts 20 years of rapid growth ahead.
I have no idea whether China will keep galloping along on stimulus, slow down a tad, or crash, but what I want to know is why the RBA is so sure there’s nothing but blue skies ahead? Also, why does the RBA place so much faith in a highly regulated command economy, an economy that has seen much more government intervention in the past 18 months than in the previous decade.
A developing economy can get away with alot more in terms of resource misallocation. Dumb growth can be achieved simply by increasing inputs. Developed economies are a different story and China will have to change its ways eventually.
Posted by skirchner on 03/11 at 02:53 PM
Someone should tell the Africans. I’m sure they’d like to get some of that “dumb growth” just by spending money willy nilly.
So let me get this straight: China can pretty much lend money like crazy, build bridges to nowhere, and intervene at every level of the economy and get away with 8% growth forever, but if the Americans, Europeans or Africans were to do the same, they’d fall in a heap?
This is what Paul Krugman had to say about China back in 1994, when he was still an economist:
Posted by skirchner on 03/13 at 04:25 PM
Stephen Roach says: “The Chinese authorities are on top of it. They’re clamping down on excessive bank lending. Unlike the US, which lets bubbles get out of hand, and distorts the economy, that’s not the case in China.”
Roach says some sensible things in this interview (China needs to consume more, and depend on exports less) but why the total faith in the Chinese authorities to manage bubbles? Everywhere else conventional wisdom says you shouldn’t “lean against the wind” to deflate bubbles, but in China its different.
The US distorts its economy but China doesn’t?! I give up.
Regarding what Lowe said (p.5) about Australia having high real interest rates, I’m a little confused about what this means in a world where capital is free to move. Does it mean that the AUD needs to rise enough to generate an expectation of future depreciation in order to equalise common currency real interest rates in the longer term? If so, do you think that is what is currently happening?
Depends whether you believe in interest rate parity conditions, which are typically rejected by the data.
Posted by skirchner on 03/16 at 07:51 AM