Weekend Reading

I meant to publish this last evening (see title), but I completely forgot to actually hit the publish button. Oh well... here's some interesting stuff from the weekend:

• My dad sent me this bit from Richard Russell of Dow Theory Letters fame. He writes about the world deflation story, based primarily on the fact that U.S. consumption has decreased while emerging market consumption is not increasing. The most interesting paragraph, to me, is quoted below (can anyone confirm if this is true? It's a fascinating little piece of information):
  

  Do you know the “why” of the Chinese wok? Fuel is scarce in China, and if food is diced and sliced and placed in a wok with a bit of oil, it will cook in a minute or so over a small fire. As soon as the food is cooked, the fire is put out and the remains of the fuel are saved for the next meal. Talk about fast food, wok-cooked food is the original fast food. Wok food is cooked as quickly and as inexpensively as possible.
  These are the billions of people we are dealing with. They live to work hard, and save — and to sell to the West, specifically to US consumers. And we wonder why there is world deflation.
  

•  Harvard Magazine with a neat bit of historical analysis that I've shown before through many other articles. When we deregulate, we lose:
  

  Of course, financial panics and crises are nothing new. For most of the nation’s history, they represented a regular and often debilitating feature of American life. Until the Great Depression, major crises struck about every 15 to 20 years—in 1792, 1797, 1819, 1837, 1857, 1873, 1893, 1907, and 1929-33.
  But then the crises stopped. In fact, the United States did not suffer another major banking crisis for just about 50 years—by far the longest such stretch in the nation’s history.  
  

  Calm Amidst the Storm: Bank Failures (Suspensions), 1864-2000
  

•  I like the title of this article: "It's Hard Being a Bear". That's part 5! I need to find and read parts 1-4. 5 shows, with a whole bunch of fancy charts and analysis, that the stimulus plan is failing to increase the broader money supply, which goes counter to classical economic theory. Summary: when the stimulus program runs out, we're going back to recession. This is assuming that the stimulus can't go on forever, though an IMF article recently mentioned an interesting tidbit. The IMF projects that the future cost of 'entitlements' (health care, social security, etc.) is 10x the future cost of stimulus. I'm not sure how accurate that projection is, but hey, it's the IMF. I'll trust them for now. The takeaway is that by reducing entitlements, the government may be able to continue stimulus for longer than one might expect. We're now getting dangerously near politics, so I'll leave it at that for you to chew on.
• Krugman on Skidelsky on Keynes. Here's a really interesting quote from that review:
  

  Most strikingly, Skidelsky declares that the traditional division between microeconomics and macroeconomics, which is based on whether one focuses on individual markets or on the overall economy, is all wrong; macroeconomics should be defined as the field that studies those areas of economic life in which irreducible uncertainty, uncertainty that cannot be tamed with statistics, dominates. He goes so far as to call for a complete division of postgraduate studies: departments of macroeconomics should not even teach microeconomics, or vice versa, because macroeconomists must be protected "from the encroachment of the methods and habits of mind of microeconomics".
  

• Was the G-20 summit dangerous? This article claims that there are fundamental differences between American and European banking that should really make for different solutions on either side of the Atlantic. Obama's drive to have a common solution might actually make for more harm than good:
  

  Obviously, raising capital standards in the US is going to be a long and drawn out fight.  The G20 could help, if it set high international expectations, but the opposite is more likely.  As Nocera suggests this morning, the inclination of the Europeans – largely because of their funky “hybrid” capital, but also because they have some very weak banks – will be to drag their feet.
  Why should we care?  This administration seems to think that we need to bring others with us, if we are to strengthen capital requirements.  Our progress will be slowed by this thinking, the glacial nature of international economic diplomacy, and the self-interest of the Europeans.