Wednesday, September 28, 2011

Euro Yes, Drachma No

There'll be many a Euro bank run done
If the euro's allowed to come un-done,
But Greece in the ranks
Will be best for the banks
In Frankfurt and Paris and Lon-don.

With all the Greek unrest, European can-kicking and German resistance, many ask: why keep Greece in the euro zone? After all, they're effectively bankrupt and everyone knows that they will default sooner or later. However, those who have thought the situation through say that, while an orderly Greek default within the euro will bring pain, a chaotic default in a "new drachma" would bring disaster, both for the Greeks and their European creditors. As a Bloomberg editorial put it:
"The possibilities range from runs on European banks to violent rioting in the streets of Athens -- or even civil war... a prepackaged, well-managed bankruptcy, not unlike the ones arranged by the Obama administration for General Motors Co. and Chrysler Group LLC in 2009, would be better than letting the chips fall where they may."

Sunday, September 25, 2011

Overheard at the IMF Meeting

"I conclude, after carefully thinking,
That the options for action are shrinking;
If we take evr'y pail out
We still cannot bail out
The deadbeats whose dinghies are sinking."

This weekend was the annual meeting of the International Monetary Fund member states. No doubt many are asking the urgent question: could the IMF take bold action to save the troubled economies of Europe? Simon Johnson, in his Baseline Scenario blog, puts it in perspective: the IMF's entire lending capacity equals only 15% of the public debt of Italy. Says Johnson: "The world does not really need saving, at least in a short-term macroeconomic sense.  If the problems do escalate, the IMF does not have enough money to make a difference."

Friday, September 23, 2011

Bear Assets

The time-honored stock market lowdown,
In a global economy slowdown,
Is: a market advance,
Like a loose pair of pants,
Proves that what may go up, has to go down.

Stock markets around the world on Thursday heeded the lowdown on the slowdown, and proceeded to go down. Grim economic signs were intercontinental: in the US, where the Fed warned of "significant" downside risks to the economy; in China, where the latest manufacturing data appeared weak; and in Europe, where the crisis of banks and sovereign debt showed no sign of resolution. Proving that bad fundamentals trump all in the stock market, the S&P 500 sank 3.2% to 1130, and other indices also reversed recent gains. Ironically, belt-tightening may not help the situation, but that is a limerick for another day.

Thursday, September 22, 2011

Operation Twist

Said Bernanke, groovily dancing:
"Our economy needs more enhancing;
And the timing is apt
For the fiscally strapped
Whose mortgages beg refinancing."

Fed Chairman Ben Bernanke hopes that the reserve bank's remake of its 1961 hit "Operation Twist" will cause the mortgage market to shake it up, baby.  So named because it coincided with the popular dance craze, the original Operation Twist attempted to lower long-term rates through the Fed's buying long-term Treasury bonds and selling short-term notes. Similarly, the 2011 cover version, announced after a two-day meeting of the Fed Open Market Committee, calls for the sale of $400 billion worth of notes with maturities of 3 years or less, the proceeds of which will be used to buy 10- to 30-year bonds. In addition, maturing mortgage bonds in the Fed's portfolio will be rolled over into new mortgage purchases, in a bid to support the still-ailing home loan market.

Thursday, September 8, 2011

Decoding the Jobs Speech

"My Plan gives a chance to display
We're surmounting the partisan fray;
Though symbolic in scope,
It may offer up hope,
So I'll press you to pass it today."

President Barack Obama gave a ringing address to a joint session of the US Congress to introduce his $447 billion American Jobs Act. The President's plan - a mixture of payroll tax cuts, aid to states, tax incentives to hire, and infrastructure spending - was tepidly received by many economists (too little spending) and most Republicans (too much spending). However, after the politically damaging brawl over the debt ceiling, even House Majority Leader Eric Cantor (R, VA) was careful to offer lukewarm cooperation, so as not to convey more "partisan gridlock".

Overheard at the CEO Council

"It's harder to face competition
In a poor infrastructure condition,
But reversing neglect
Would lead, I expect,
To many a full-time position."

The Wall Street Journal's Alan Murray surveyed chief executives of some of the world's largest companies through the paper's CEO Council. Many CEOs would support a U.S. effort to update aging infrastructure, financed in part by private money, as a way to create jobs and make U.S. business more competitive. Typical was the comment of Marcelo Claure of Brightstar Corp., who said: "Upgrading our subpar infrastructure in the U.S., and even considering options like privatizing infrastructure if needed for funding purposes...would be a good place to start delivering meaningful jobs in the U.S."

Monday, September 5, 2011

The Ten Principles of Economics, in Limericks

Just in time for returning econ students, Dr. Goose has rendered the Ten Principles of Economics by Harvard Prof. Greg Mankiw (pictured) into a collection of ribald limericks.  Please click through, enjoy and study hard!

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