Commentary

Econ News Buried by the GM Story

A round up of the news this week that has been buried by the GM story. Here are articles on the key themes:

The Roman historian Livy famously described the terminal plight of the late Roman Republic: “Nec vitia nostra nec remedia pati possumus” (“We can bear neither our shortcomings nor the remedies for them”)… Like the Roman Republic’s lament, we think we can’t survive without deficit spending — but we soon won’t be able to survive with deficit spending, either.

Why not just have the government pay for dates for everyone in America every weekend? It would reduce American’s food and transportation costs, create jobs for countless people, and probably wind up helping solve the birth rate problem we face with an aging and declining population. It’s a near perfect plan, better than just building those boring turn lanes, duck ponds, and other infrastructure projects. And we’d be sure to get a Biden gaff or two out of the mix.

It was inflation that undermined the foundations of Habsburg power and opened the way for the Dutch Republic. It was the disastrous Mississippi Bubble of 1718-19 that fatally weakened ancien régime France, while Britain survived the contemporaneous South Sea Bubble with its fiscal system intact. For most of the nineteenth century, financial crises in the United States had only marginal effects on the City of London. By 1907, however, a Wall Street crash could send a shockwave across the entire British Empire, a harbinger of a new era of American power. Something similar may be happening as a consequence of the American financial crisis that began nearly two years ago.

As it piled up dollar reserves, China didn’t invest them at home but sent them back to the U.S. to purchase T-bills and Fannie Mae mortgage-backed securities. Voila — the housing bubble. The policy point is that the “imbalances” resulted more from reckless monetary policy than from spendthrift American consumers or Chinese exchange-rate policy.

A total of 27 banks, hedge funds, industry groups and money managers signed the letter, including Citadel Investment Group LLC, D.E. Shaw & Co., Barclays Capital and The Royal Bank of Scotland Group. Capitalized by its members, a clearinghouse acts as the buyer to every seller and seller to every buyer, reducing the default risk between parties to a trade. Also known as a central counterparty clearing service, or CCP, a clearinghouse allows regulators to assess market positions and prices.