Professors and Stock Markets don't mix

The (securely tenured) economist Robert Shiller seems to need some help in understanding stock market movements. In the New York Times he tries to explain the recent stock market volatility. But if he - or anyone else - thinks that this volatility was anything particularly exceptional he should just have a look back and he will find that the Cuban Missile Crisis of President Kennedy's stand-off with the Steel Industry in the early sixties also caused sharp sell-offs in the stock market. In the big picture a drop of 15 or even 20 per cent is nothing out of the ordinary. Any investor worth his salt knows that markets tend to decline more rapidly than they rise and if anything should be glad that he is offered the opportunity to acquire shares at much reduced prices.

Poor Advice - we need to freshen up economist gene pool

When a former economic adviser to Ronald Reagan claims that the US debt amounts to $211 trillion one has to wonder who ever believes a word uttered by a representative of that 'science'. Adding up all future entitlements and other spending to arrive at this gargantuan number is the same as adding an individual's expected lifetime spending and declaring that he was 'in debt' by the resulting amount. The number would not be pretty - not for anyone past or present. This type of facile calculation forgets completely that the spending would (hopefully) be paid for by future earnings. To forget the income (or tax) side of the equation is a mistake that no serious economist should ever make. It produces good (and alarmist) headlines only.

Growth cannot solve all Economic Problems

Reading Roubini's view that Karl Marx may have made a valid point about Capitalism chimes with a neglected aspect of economic discourse (especially as practiced by commentators employed by financial service firms). Quite apart from the fact that from an environmental perspective growth - in the number of humans as well as in economic activity - has to end at some stage, even if not in the immediate future, the desperate clamor for growth at any cost is distracting from the fact that maybe the distribution of income and wealth may have a larger role to play in healing society's problems. What would a world of zero growth (at least in the industrial countries) look like? We would still generate a large amount of wealth year in year out. But maybe a shift in the relative pieces that different individuals take out of the given cake would make a more substantial contribution to increase the sum-total of human happiness than squeezing out an extra decimal point in GDP growth.

European Bond no panacea

The Eurocratic 'Elites' seem to think that the issuance of a Bond guaranteed by all member states of the Eurozone would be the magic bullet that solves the sovereign debt crisis in Euroland and saves the Eurozone from breaking up. This may well be the case - for a while. But as economic and fiscal problems get papered over for a few more years the underlying tensions will only increase while those responsible for policy at the moment will have started to enjoy their well-padded retirement at the expense of their hapless taxpayers. The crunchtime will come when one of the states that have pledged to guarantee those 'Euro-Bonds' will no longer be able (or willing) to suffer from the burden of debt service. WE have (unfortunately successfully) argued back in 2004 that to accept bond spreads on Italian bonds that are just a tiny amount above the yields offered by German Bunds is a highly risky investment strategy. We hope - but are not confident - that we do not turn out to have warned in vain again.

Financial Chaos without European transfer payments?

When even seasoned financial commentators that usually display a certain amount of independent thinking argue that financial chaos is certain if Germany (and other 'northern' Euroland member states) don't continue to subsidise countries such as Greece, Ireland and Portugal one knows that the last vestiges of rational economic thought and any sense of democratic governance and financial responsibility is on the way out. Letting Greece or any other country go bust would certainly create difficulties in the short-term but the humongous financial resources (including central bank money created ex nihilo) would be much better applied to paper over the cracks in the financial system. In the long run this would be cheaper for the 'North' and the 'South' would either learn the lesson of good housekeeping once and for all or continue to slide further down the slippery slope of relative (and maybe absolute) decline in living standards.

Euro Drama - self-inflicted pain thanks to lack of democracy

The Euro has no democratic legitimacy, it is a construct created by (mostly unelected) bureaucrats, with unintended consequences (they are always the ones that count in the end).
Government spending in most countries is on an upward trajectory since early 1970s, no end in sight, in every election, in every country and from every party/politician you only hear about new 'projects', 'laws' etc that mean more spending.
But government can never spend 100% of the whole GDP, a limit will be reached and we are near it. Sooner or later those paying the bills will realise that more money does not buy more happiness in a finite life, why not make do and withdraw some of one's services.
That governments cannot cut 5 or 10 percent of GDP from their fiscal programs is an indicator for the lack of courage, best to cut all spending by an equal percentage, quick and avoids endless bickering.
Recommendation: avoid all banks in weak member states of the Eurozone, even check that any Euro Notes are not issued by central banks of these countries. Remember that 100 British Pounds in 1951 are worth only £ 4 in purchasing power today. It is a bit better in 'hard' currency countries but even worse in other countries. Germany's Mark (Euro) lost nearly 80 per cent of its purchasing power in the same period.

Italy: Desperate Fiscal Proposals

The proposed introduction of a 0.15 per cent tax on financial transactions and a 35 per cent tax on profits from proprietary trading by the banks (let's hope there are profits!) will do nothing but further strangle the financial marketplace. In an environment where the overall economy stagnates for the better part of the past ten years this can not be seen as an intelligent measure. In addition, the definitions required to make the fiscal net reasonably workable (which transactions? which institutions? - if only banks will that not give a tremendous boost for the 'shadow banking system'?) will not be worked out all that easily. As always, the political kleptocracy's instinct is to rely more on tax increases rather than conduct a root-and-branch reform of misdirected spending policies.