John At The Center

China is trying to temper rampant loan growth this year, in order to stave off potentially dangerous asset market bubbles and inflation.

Yet despite the government's expected efforts to get tough and tighten monetary policy, even the country's own regulators still expect total yuan loans outstanding to grow at a torrid pace in 2010.

via China’s Credit Tightening Pipedream Bursts As Yuan Loans Are Set To Jump 18% In 2010.

“It is a global problem, and I am only the messenger who provides the bad news, or even better, the truth,” Mr. Elmer, 54, wrote in a recent e-mail message. “Offshore tax evasion is the biggest theft among societies and neighbor states in this world.”

via Swiss Banker Blows Whistle on Tax Evasion – NYTimes.com.

Richard Koo’s recommendations on balance sheet recessions:

Has the U.S. government done enough to offset the crisis?

They are a bit too cautious. In this type of recession, government has to be in there in a sustained fashion to take this entire excess savings in the private sector and put that back into the income stream. It has to be sustained until private sector deleveraging is over. Individually, everybody is doing the right thing. I can't tell you to stop paying down debt. But when everybody does it at the same time, who is going to borrow and spend? Once the private sector starts borrowing again, we're back to the textbook world of maximizing profits. But U.S. households and U.S. financials are still deleveraging.

What do we need to see?

A three- to five-year program, minimum, where President Obama comes out and tells the American people: “Look, we have a different type of disease now.” That kind of explanation is essential to get Democrats and Republicans to understand why you need fiscal stimulus. I can assure you if [the government doesn't spend much more], your budget deficit will continue to increase. During the past 15 years, we in Japan tried to cut the budget deficit twice. On both occasions, the economy collapsed, and tax revenue dropped. The U.S. will experience that, too. If you say it's political suicide [to spend], not doing it will be an even bigger suicide.

via A Japanese Rx for the West: Keep Spending – Interview with Richard Koo – Barrons.com.

For example, the Federal Reserve Board published its final rules on credit card practices last week, requiring new disclosures and banning some abusive practices that have been immensely lucrative for the banking industry.

via Fair Game – New Credit Card Rules and Reluctant Regulators – NYTimes.com.

Investors snapping up 30-year Treasury bonds paying less than 5 percent are betting that the Fed will keep these inflation risks in check. They are probably right. But because current monetary and fiscal policy is so far outside the bounds of historical norms, it’s hard for anyone to be sure. A decade from now, we may look back at today’s bond market as the irrational exuberance of this era.

via Economic View – Will the Fed Use Its Whole Arsenal Against Inflation? – NYTimes.com.

The fact is that Paulson did take bold risks, on factors which were entirely out of his control: When would the bubble burst? How long could he hold out before his investors deserted him? Indeed, Paulson’s strategy had a Ponzi aspect to it, where he would try to make up losses with new investments: “He bought CDS contracts by the truckload,” Gladwell writes, “and, when he ran out of money, he found new investors, raising billions of new dollars so he could buy even more.”

Warren Buffett has described his most recent mega-acquisition, that of Burlington Northern, as a huge bet on the long-term health of the US economy. That kind of bet has made him more billions than even Paulson can dream of, and it’s a bet made in the positive-sum game of the equity markets. Stocks can and do rise over time, and a well diversified stock-market investor has been able to reasonably expect to see some kind of profit over the long term.

Paulson, by contrast, was playing in the zero-sum derivatives markets. In order for him to make any money at all, somebody else had to lose. If I bought a random basket of derivatives contracts and held them over the long term, my expectation would be that I would end up with less money than when I started.

via John Paulson’s high-risk hubris Analysis & Opinion Reuters.

One characteristic of this recession is that employment fell more dramatically than output. I think this requires the Garett Jones explanation, which is that the typical worker today is building organizational capital, not making widgets. This in turn begs the question of why so many organizations decided to cut back on building organizational capital at once.

via Why Such a Deep Recession?, Arnold Kling EconLog Library of Economics and Liberty.

If you are a Yale Keynesian, you would have been able to tell a good story when the S&P 500 stock index was down near 800. But it has gone back up over 1000, which means that Tobin's q is doing ok, which means that investment should be doing ok. It is not.

via Why Such a Deep Recession?, Arnold Kling EconLog Library of Economics and Liberty.

There is one interesting side issue here—that inflation-indexing of government bonds, entitlement payouts and tax brackets makes the measurement of inflation far more politically important than it used to be. As Peter Schiff pointed out to me a couple years ago, undercounting inflation is now very much in the interest of most people in official Washington. That's not to say we do undercount it. I think the Bureau of Labor Statistics (which calculates the consumer price index) has up to now remained pretty well insulated from political pressure. But not everybody agrees with me on that, and if the government debt keeps growing (the debt held by the public is currently at 55% of GDP), the pressure on the BLS will only grow.

via Has the invention of TIPS made hyperinflation less of a threat? – The Curious Capitalist – TIME.com.

But if the TIPS share grows, it will get harder and harder for our U.S. government to inflate its way out of its burgeoning debt burden

via Has the invention of TIPS made hyperinflation less of a threat? – The Curious Capitalist – TIME.com.