More downward revisions

The Citibank rescue Monday caused markets around the world to surge, but China was buying none of it.  Yesterday the SSE Composite dropped 3.7% and, after a morning rally, it declined a further 0.4% today to close at 1889.  The economic news continues to be bad and it is hard to find any enthusiasm anywhere, at least among the people I normally deal with.  Tuesday morning the World Bank revised its prediction for next year’s GDP growth sharply downward to 7.5%.  Its previous estimate for 2009, made three months ago, was 9.2%

If the Fed were a commercial bank, it might be declared insolvent

Recently, I have written quite a few posts highlighting the U.S. Federal Reserve’s ballooning balance sheet. It has increased purchases of assets at an unprecedented clip. In fact, that balance sheet had $900 billion in assets just this past year. By year’s end, we should expect it to have risen more than three-fold to $3 trillion. This is a wild experiment without parallel in modern history.

William Kristol on Economic Theory and Practice

I don’t usually read Bill Kristol’s column, but once in a while, my eyes get caught by a headline (that’s the difference between reading online and “on paper”), and I’ll check out what he has to say. The other day, I read his column “Admit we don’t know” on the current economic crisis that, while not in my mind “wrong”, seemed puzzling to me. Pay attention to the last paragraph (highlighted in bold).

Can China Adjust to the US Adjustment?


For the past ten years the global balance of payments has been dominated by the trade and investment relationship between China and the US.  This relationship is now undergoing a major shift.  Most large economies will be affected, and to the extent that their economic policies do not accommodate this shift, they are likely to fail, in much the same way that economic policy failed in the 1930s.

Consumers still adding leverage to income; when will this stop?

The NY Times published an interesting article written by an anonymous banker in the credit card industry. It highlights the pitfalls in the credit industry, where lax lending standards are partially to blame for the massive delevering that is likely on the horizon. I simply wonder when consumers will be forced to reduce debt? The massive Fed and Treasury measures designed to shore up real estate and consumer credit markets are clouding the data. It is not clear if/when consumers will stop drawing on existing lines of credit.

The more the merrier

How many economic-advice-giving organizations does it take to run a White House?

MarketWatch reports:

President-elect Barack Obama tapped former Federal Reserve Chairman Paul Volcker to run a new White House advisory board tasked with offering independent advice about how to stage an economic recovery. Obama named the 81-year-old Volcker to head the President’s Economic Recovery Advisory Board….

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