Flashman Letters

Rajiv Sethi: Maturity Transformation and Liquidity Crises

The risks of liquidity crises are also exacerbated by some structural sources of instability in the financial system. Some of these sources are endemic to the nature of the financial intermediation process and banking. Others are more specific to the idiosyncratic features of our particular system. Both types deserve attention because they tend to amplify the pressures that lead to liquidity runs.

via rajivsethi.blogspot.com

Japan's appreciating currency: Time for action | The Economist

Intervention to weaken the yen would carry a cost in terms of irritating Japan’s main trading partners. As Mr Fujii has noted, currency interventions can quickly lead to a round of competitive devaluations. But if he does raise the issue with his G7 counterparts, which he should, he should also stress the price impact of an excessively strong yen. If Japan were to fall into a deflationary trap, it would not suffer alone. Markets might quickly worry that over-indebted, slow-growing economies such as those of America and Britain were headed in the same direction.

via www.economist.com

Ferguson: How Economic Weakness Endangers the U.S. | Newsweek National News | Newsweek.com

Call it the fractal geometry of fiscal crisis. If you fly across the Atlantic on a clear day, you can look down and see the same phenomenon but on four entirely different scales. At one extreme there is tiny Iceland. Then there is little Ireland, followed by medium-size Britain. They're all a good deal smaller than the mighty United States. But in each case the economic crisis has taken the same form: a massive banking crisis, followed by an equally massive fiscal crisis as the government stepped in to bail out the private financial system.

via www.newsweek.com

Hussman Funds - Weekly Market Comment

We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let's face it, of no concern to Wall Street. The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we've already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again. It is not at all clear that the recent data have removed any uncertainty as to which world we are in.

via www.hussmanfunds.com

Economic View - The Danger to America of an Overheated China - NYTimes.com

Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.

Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

via www.nytimes.com

Is global warming unstoppable?

ScienceDaily (Nov. 24, 2009) — In a provocative new study, a University of Utah scientist argues that rising carbon dioxide emissions -- the major cause of global warming -- cannot be stabilized unless the world's economy collapses or society builds the equivalent of one new nuclear power plant each day.

via www.sciencedaily.com

Diabetics in U.S. May Double in 25 Years, Tripling Health Costs - Something needs to reward/punish personal behavior

Diabetes prevents people from breaking down sugar in their blood and can lead to complications including heart disease, kidney disease, vision loss and amputation of limbs. While some people have an inherited form of the condition, the majority of cases are linked to obesity.

via www.bloomberg.com

FT.com | Willem Buiter's Maverecon | Polite suggestion to the Dubai sovereign that creditors of Dubai World not be bailed out

Fortunately, property companies don’t fall into the systemically important category.  Their collapse is painful for their shareholders, creditors and, if the local labour markets are weak, their employees.  They are not, however, systemically important.  Their collapse will not threaten the delicate fabric of financial intermediation.  They are fit to fail.  Creditors beware.

via blogs.ft.com

Spain's economic troubles: Unsustainable | The Economist

Mr Zapatero’s credibility was dented when he refused to admit the scale of Spain’s problems as it fell into recession. Even so, he believes he can steer the country back to growth. This week his government planned to unveil a “sustainable economy” law, the main part of a strategy that looks forward to 2020. But the law will be long on good intentions and short on tough measures. Renewable energy, modest liberalisation and more training are likely to be on the list. Bold labour-market reforms to make it easier to fire workers will not be, to avoid upsetting Mr Zapatero’s trade-union friends. He prefers to rely on talks between the “social partners” that are unlikely to produce big change.

via www.economist.com

Bullrings, Theme Park Can’t Stop 20% Spanish Jobless (Update1) - Bloomberg.com

Bullrings and fake Eiffel Towers may not be enough to hold back the tide of surging unemployment in Spain, Europe’s one-time engine of job growth.

As an 8 billion-euro ($12 billion) stimulus program runs out, that will help destroy 250,000 jobs at the start of next year, according to the AGETT association of employment agencies, and push the jobless rate above 20 percent.

via www.bloomberg.com