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There's a boom and bust cycle and good reason to fear it

The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it's just inflation that's driving the ones

Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren't real, consumption's up too
And the grasping for resources reveals there's too few

So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that's a matter of fact
Now its devalued capital that makes up the slack.

Whether it's the late twenties or two thousand and five
Booming bad investments, seems like they'd thrive
You must save to invest, don't use the printing press
Or a bust will surely follow, an economy depressed

For the full lyric

Fear the Boom and Bust

Regulatory Hybrid Securities

Schiller in Project Syndicate summarizes:

"The group [Squam Lake Working Group] calls their version of contingent capital "regulatory hybrid securities." The idea is simple: banks should be pressured to issue a new kind of debt that automatically converts into equity if the regulators determine that there is a systemic national financial crisis, and if the bank is simultaneously in violation of capital-adequacy covenants in the hybrid-security contract."

"The regulatory hybrid securities would have all the advantages of debt in normal times. But in bad times, when it is important to keep banks lending, bank capital would automatically be increased by the debt-to-equity conversion. The regulatory hybrid securities are thus designed to deal with the very source of systemic instability that the current crisis highlighted."

Change, Future and Hope / The centre right returns to power in Chile

Accordingly with The Economist:

"The new president is unlikely to make radical changes. He has paid regular tribute to Concertación’s achievements and will represent “a change of pilot, not of course,” suggests Patricio Navia, a political analyst. Mr Piñera grandly told a 30,000-strong victory rally in Santiago, the capital, that he aspired to make Chile into the “best country in the world”. But his government is not expected to make big shifts in policy. It is not, for example, expected to roll back the social-welfare programmes that have been a central feature of the government of Michelle Bachelet, the outgoing president. Some polls suggest that her approval rating remains over 80% (Chilean law bars presidents from running for a second consecutive term)."

King’s Speech

Nalguita

Accountability

Negligence

Bernanke vs. Taylor

Too low for too long fight

From Bernanke's AEA Speech

"[…] The alternative Taylor rule (that replaces the current rate of inflation on the right-hand side with a forecast of inflation over the current and subsequent three quarters) prescribes a path for policy that is much closer to that followed throughout the decade, including recent years. In other words, when one takes into account that policymakers should and do respond differently to temporary and longer-lasting changes in inflation, monetary policy following the 2001 recession appears to have been reasonably appropriate, at least in relation to a simple policy rule."

Taylor’s disagreement

"[…] The speech was largly an attempt to refute the now commonly held view that the Fed held interest rates too low for too long in 2002-2005. I was in Atlanta and though I could not go to the speech I read it afterwards and expressed by disagreement first in a Bloomberg interview with Steve Matthews and later in a CNBC interview with Larry Kudlow and will follow up with more details; note that a working paper prepared by seven Fed Board staff was released just before the speech. Others have raised questions about the speech from a variety perspectives […] "

¿Conmemoración?

"Pensar que el problema de México es mental desvía la atención de donde debería estar centrada: en ese artificio contractual que es el corporativismo postrevolucionario y el "capitalismo de cuates" que engendró. En la permanente redistribución de la riqueza en favor de los grupos que apoyan al statu quo que este acuerdo ha entrañado. En las prácticas de rentismo acendrado que este pacto ha perpetuado. En la apabullante concentración de la riqueza que este modelo ha permitido. En la economía oligopolizada que este pacto ha producido. Esas son las raíces de tantas mentiras piadosas que la clase política elaboró y sigue diseminando; esas son las razones detrás de códigos de culturas que las élites han usado para controlar a la población. El verdadero problema del país no es cultural sino estructural; no es una cuestión de valores sino de intereses. A México no le hace falta ir al siquiatra para resolver un problema mental; más bien necesita combatir una estructura de privilegios que ni la Independencia ni la Revolución lograron encarar."

Denise Dresser

Implications for Introductory Economics

Una excelente premisa para iniciar el cambio en la enseñanza de cursos de introducción a la Economía. De acuerdo con John Taylor:

"The financial crisis clinches the case for full integration in my view. The crisis is the biggest economic event in decades and it can only be understood with a mix of micro and macro. To understand the crisis one must know about supply and demand for housing (micro), interest rates that may have been too low for too long (macro), moral hazard (micro), a stimulus package (macro) aimed at such things as health care (micro), a new type of monetary policy (macro) that focuses on specific sectors (micro), debates about the size of the multiplier (macro), excessive risk taking (micro), a great recession (macro), and so on. It you look at the 22 items that the Financial Crisis Inquiry Commission has been charged by the Congress to examine, you’ll see that it is a mix of micro and macro. Defining the first term as micro and the second term as macro, or visa versa, is no longer the best way to allocate topics."

Burgernomics

"The most overvalued currency against the dollar is the Norwegian kroner, which is 96% above its PPP rate. In Oslo you can expect to pay around $7 for a Big Mac. At the other end of the scale is the Chinese yuan, which is undervalued by 49%. The euro comes in at 35% over its PPP rate, a little higher than six months ago."

Full Story

En busca de nuevos axiomas

Denise Dresser invita a derrocar los preceptos que inhiben el cambio en México

"¿Cómo promover el crecimiento económico acelerado? ¿Cómo construir un país de clases medias? ¿Cómo arreglar una democracia descompuesta para que represente ciudadanos en vez de proteger intereses?"

A Big Failure

Accordingly with Stiglitz:

"The failure of Copenhagen was not the absence of a legally binding agreement. The real failure was that there was no agreement about how to achieve the lofty goal of saving the planet, no agreement about reductions in carbon emissions, no agreement on how to share the burden, and no agreement on help for developing countries. Even the commitment of the accord to provide amounts approaching $30 billion for the period 2010-2012 for adaptation and mitigation appears paltry next to the hundreds of billions of dollars that have been doled out to the banks in the bailouts of 2008-2009. If we can afford that much to save banks, we can afford something more to save the planet."

The opposite course

Accordingly with Tony Blair:

"What is the way to bridge this gap between short and long term? To decide how to do that is to decide fundamentally what we believe in and what we want from our future. In deciding this, only the head can guide us in how to do it; but the heart must tell us what it is we truly believe in doing."