anuary 31 2:10 PM

Mauldin: This Time Is Different – (11pp pdf) When does a potential crisis become an actual crisis, and how and why does it happen? Why did most everyone believe there were no problems in the US (or Japanese or European or British) economies in 2006? Yet now we are mired in a very difficult situation. “The subprime problem will be contained,” said now controversially confirmed Fed Chairman Bernanke, just months before the implosion and significant Fed intervention.

David Walker: The Scary Budget Numbers – The recession and attendant financial shock appear to be easing as I write this. But in Washington, financial imprudence is part of the fabric of government. You can see that in a single document that gets updated every year: the US budget. In putting together the budget, the president and Congress set our national priorities and allocate resources among them. The results have been pretty consistent. Over the forty years ending in 2008, revenues have averaged about 18.3 percent of our economy and spending has averaged over 20.6 percent, resulting in an average deficit of about 2.4 percent. But that gap began to widen…

 Argentine advice: Duhalde cautions U.S. about debts – When an Argentine political figure cautions you about your government deficits and mounting debt, you better listen. In this case, it is former president — and perhaps future president — Eduardo Duhalde. He came to power eight years ago as the fifth president in the South American country in a 10-day period. The political uproar that drove out the first four, including elected president Fernando de la Rua and four successive interim presidents, was sparked by a financial meltdown in December 2001. Duhalde points out the economic implosion actually began years ago as a recession, before turning into a depression that rivaled the collapse Argentina suffered in the 1930s. Does any of this sound familiar? It should since the Obama administration has sought to spend the nation’s way out of the Great Recession.

China doing laps around US on energy – China is so far ahead in the race to create technology related to renewable energy, that "the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China," notes the New York Times. The United States, along with other countries, is trying to catch up, but it’s an uphill battle. While renewable energy continues to be more expensive, China charges a fee to all users to help spread out the cost, an example of how the government takes a deep interest in energy policy. And it’s not just about government regulations. In fact, part of the reason why China has been able to become a world leader in building this new technology is that its domestic market is growing. Demand for electricity in China is skyrocketing, so power companies have to constantly buy new equipment, making it easier to develop large-scale production lines

Formaldehyde-Laced Death Trailers to Haiti!?Children in Katrina Trailers May Face Lifelong Ailments – FEMA Trailer Manufacturers Knew About Formaldehyde, Findings Went Undisclosed Via: AP:The trailer industry and lawmakers are pressing the government to send Haiti thousands of potentially formaldehyde-laced trailers left over from Hurricane Katrina — an idea denounced by some as a crass and self-serving attempt to dump inferior American products on the poor. The 100,000 trailers became a symbol of the Federal Emergency Management Agency’s bungled response to Katrina. The government had bought the trailers to house victims of the 2005 storm, but after people began falling ill, high levels of formaldehyde, a chemical that is used in building materials and can cause breathing problems and perhaps cancer, were found inside. Many of the trailers have sat idle for years, and many are damaged.

 Slow Growth and Rising Debt – From Carmen Reinhart and Kenneth Rogoff: As government debt levels explode in the aftermath of the financial crisis, there is  growing uncertainty about how quickly to exit from today’s extraordinary fiscal stimulus. Our research on the long history of financial crises suggests that choices are not easy, no matter how much one wants to believe the present illusion of normalcy in markets. Unless this time is different – which so far has not been the case – yesterday’s financial crisis could easily morph into tomorrow’s government debt crisis.In previous cycles, international banking crises have often led to a wave of sovereign defaults a few years later. The dynamic is hardly surprising, since public debt soars after a financial crisis, rising by an average of over 80 per cent within three years. Public debt burdens soar owing to bail-outs, fiscal stimulus and the collapse in tax revenues. Not every banking crisis ends in default, but whenever there is a huge international wave of crises as we have just seen, some governments choose this route.
 

TARP Inspector General: Government Programs "risk re-inflating bubble" =To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market. From Office of the Special Inspector General for the Troubled Asset Relief Program: Quarterly Report to Congress, January 30, 2010

Volcker vs. Volcker? – Paul Volcker lays out his argument in the New York Times today for "Volcker rule” — President Obama’s new proposal to rein in "too big to fail” institutions by limiting the size of banks and keeping them out of riskier businesses like proprietary trading, hedge funds and private equity.   But those who suspect that the proposal is window-dressing for the more tepid approach favored by Treasury Secretary Tim Geithner won’t get much comfort. Volcker starts off well, identifying the core problem of protecting institutions considered too big to fail.  But then there is this jolt:   That approach does not really seem feasible in today’s world, not given the size of businesses, the substantial investment required in technology and the national and international reach required.

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