Prieur’s readings (March 8, 2010)

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• Robert Shiller (The New York Times): Mom, apple pie and mortgages, March 5, 2010.
For decades, the federal government has subsidized housing – particularly owner-occupied housing. This has been especially true during the continuing financial crisis, with Fannie Mae, Freddie Mac and the Federal Housing Administration propping up the housing market by issuing guarantees for investors on most new mortgages. But what is the long-term justification for putting taxpayers on the line to subsidize homeownership? Is this nothing more than a sacred cow in American society – a political necessity because so many voters own homes and are mindful of their resale value?

• Shahien Nasiripour (Huffington Post): Stiglitz, Nobel prize-winning economist, says Federal Reserve system “corrupt”, March 3, 2010.
One of the world’s leading economists said Wednesday that the very structure of the Federal Reserve system is so fraught with conflicts that it’s “corrupt”. Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve’s – in which regional Feds are partly governed by the very banks they’re supposed to police – it would have raised alarms.

• David Livingstone (Llinlithgow Associates): Skirting the abyss – from economic downturn to financial crisis to long-term malaise, March 2010.
We came right up to the edge of the economic abyss after a year of an accelerating economic downturn and have managed to avoid it, but are not out of the woods yet. The risks of a double-dip are growing and the likelihood of a weak recovery and poor job creation is high. A key problem is and was the financial crisis and credit market collapse which has created major lingering problems that will be with us for years. Beyond that a two-decade over-accumulation of debt, drastic declines in savings and under-investment have created long-term problems for getting back to sustainable long-term growth.

• Bruce Bartlett (Forbes): How much does the national debt matter? March 5, 2010.
Before we can take meaningful steps to control the debt – or even understand its true cost and effect on the economy – we first have to understand what it is.

• Jeremy Warner (Telegraph): Greece is a harbinger of austerity for all, March 5, 2010.
The economic crisis reached a turning point this week. What I am referring to is the sense of resignation, or surrender, that has crept into the economic argument – a collective global realisation that public policy, fiscal and monetary, has reached the limits of its ability to fight the downturn. Two events this week have highlighted that, despite a stimulus of unprecedented proportions and scope, they cannot. The first was the additional austerity package announced by Greece under pressure from its European masters. And the second was the spectacle of Jean-Claude Trichet, president of the European Central Bank, asserting his determination to “normalise” monetary conditions – while tacitly acknowledging the impossibility of even trying to do so, as long as the eurozone economy remains as stagnant as it is.

• Michael Wines (The New York Times): China’s bank chief says currency is unlikely to rise, March 6, 2010.
China’s central bank governor indicated Saturday that the government was unlikely to detach the value of China’s currency from that of the dollar anytime soon, echoing Prime Minister Wen Jiabao’s statement on Friday that exchange rates would remain “basically stable” for now.

• Michael Pettis (China Financial Markets): Stuck in neutral – what Japan’s rebalancing can teach us, March 2, 2010.
Japan’s experience suggests one of the risks China faces.  It is easy to talk about rebalancing as a solution to the underlying problem China faces, but rebalancing can be “tricky”, and it does not lead automatically to growth – that depends to a significant extent on how quickly consumption grows, and can take many years before that happens.

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