Do these polices make sense and is there a human rights issue? Whats your take.
Friday, July 16, 2010
Thursday, July 15, 2010
At this point the perceived chances for a double dip recession seems lower than a few months ago. The potential Greek default added a huge amount of fear to financial markets making investors extremely bearish.
Lets first talk about past occurrences of a double dip recession. The NBER has recognized 33 recessions since 1854 of which only 3 have been double dip. Out of the 3 only one occurred post-war which is the famous 1981 recession. The chances of a "double dip" recession has been historically low.The recession of 1981/82 was caused primarily by contractionary monetary policy to control high inflation which was 13.5% by 1980. Paul Volcker raised the fed funds rate up to 20% by 1981.
I would argue that the chances of a double deep recession are well within a 10%... What we may get instead is a an prolonged anemic recovery.
Wednesday, July 14, 2010
What will happen to the euro zone, will it survive in its current form?
Some economists warned us about the drawbacks of having a european singe currency prior to its formation. Today it seems as if the euro zone dose not benefit any of the extremes. Greece could benefit and make its austerity program easier if it could devalue its currency. Germany, being the most credit worthy nation, will suffer the burden of a federal fiscal mechanism to protect other euro nations.
On the other hand, the cost of a single country doping out is extremely high. If a periphery country drops out, depositors will expect a devaluation and trigger a bank run. Fear wound spreed to other EU members with weak governments. This in turn will cause the core's banking system to also suffer as they own large amounts of the periphery's debt. Eventually this could cause a deep European rescission and given the importance of European banks globally the world economy would also suffer a setback.
Tuesday, July 13, 2010
How can one fundamentally evaluate gold... it seems as if gold prices are portraying a bubble pattern.
Last time it got exponential, in the 80s, it ended up crashing back down.
It is interesting to notice that the last time gold skyrocketed the economy was bracing for a double dip recession.