Pushing on a string Paul Krugman, New York Times. Update: David Merkel retorts. My take is Krugman has used the wrong metric to make his point. The Fed has cut rates, but is unhappy that borrowing costs haven’t come down much because spreads have widened in for many credit instruments.
LFKAJ* Update Tanta, Calculated Risk. On the subject of Loans Formerly Known as Jumbos. “The ‘stimulus’ to IT investment will outweigh the mortgage dollars put into circulation by a factor of probably five, but hey! Stimulus is stimulus.”
Financing Boob Jobs, Facelifts, Braces, Root Canals, LASIK, oh, and Artificial Insemination Adam Levitin Credit Slips. Only in America.
Ben Stein Watch Economist’s View. The evolutionary biologists are after him too.
Here Comes the Big One John Quiggin, Crooked Timber. A key section:
With so many pillars of the financial system displaying weak foundations, it is natural to wonder how the problems will be resolved. The general assumption is that, as with the real economy, the financial sector may contract briefly during the coming year, but will then resume its rapid expansion.
But the scale of the problems now becoming apparent suggests that the financialisation of the economy has exceeded the capacity of financial markets to manage risk. If so, large classes of financial assets, and the associated financial markets, may simply disappear. Hundreds of trillions of dollars in derivative contracts may be unwound, reversing the explosion of asset and transaction volumes over the three decades since the Bretton Woods system of financial controls broke down in the 1970s.
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Thanks, Yves. You put up a lot of good stuff. As for me, I don’t have a dog in the fight regarding “pushing on a string.” I’m just a bond guy who knows how spread relationships work. David