Government policy must be well-crafted in order to avoid negative unintended consequences that arise when the government inserts itself into the private sector. And this is where I am having a problem with the Obama Administration.

Recently, Tim Geithner’s comments about currency manipulation put me over the top; I felt compelled to give you my seven reasons to be skeptical about the policy course now being charted.

There seems to be a blame game making the rounds in policy circles these days in which Asia is at fault for the credit crisis and economic downturn. The meme goes like this: Everything was fine until the Asians started manipulating their currencies and creating excess savings to export to the West. This mercantalist policy of low domestic demand, high savings, and an export-oriented economy set up huge macro imbalances that created the debt bubble and recession we see today. Asians need to save less and buy more — and stop manipulating their currency. Do you buy this line of argument? I don’t.

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I am out of commission for most of the day, but here are a few articles that I ran across last night and early this morning. I should be posting more later tonight.
Cheers.
Ed
Bad news: we’re back to 1931. Good news: it’s not 1933 yet – Ambrose Evans-Pritchard, Telegraph
American exporters in last-ditch attempt to stop [...]

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‘Drug money flowed into banks’ – Fin24 South Africa (This is a must-read article)
California’s First Centennial Bank Shut by Regulator – Bloomberg.com (Another FDIC Friday night special)
Older workers escaping the ax – MSN Money (Very heartening to see this trend, even if it is for legal reasons alone)
Freddie Seeks Up to $35 Billion From U.S.; [...]

Marshall Auerback here. Now that Barack Obama has been inaugurated, we should actually look back to 1933 to get a sense of perspective. How did Americans see the economy at the Inauguration of Franklin Roosevelt? The short answer is that Americans were actually anticipating worse to come in 1933, but Roosevelt delivered on his promises? I do not expect the same from Obama.

You may have already seen the Warren Buffett interview on Dateline from last Sunday. In it, he gives a sober analysis of what to expect from the new Obama Administration in terms of economic policy. The long and short of it is that we shouldn’t expect a miracle turnaround. The recession will be deep and protracted regardless of how well Barack Obama’s team deals with economic issues.

Below is the video of Buffett. The transcript is linked as a source.

Update 08 Mar 2009: Remember this:

Wells Fargo gave anxious investors a pleasant surprise Wednesday, reporting a profit drop that was milder than anticipated and lifting its quarterly dividend by 10 percent.

Wells Fargo’s second-quarter profit fell 22 percent as more customers at the nation’s fifth-largest bank failed to pay back their loans. But it raised its dividend to 34 cents from 31 cents – at a time when many other financial institutions are slashing theirs to preserve capital.

Very foolhardy now that Wells has been forced to cut its dividend to 5 cents even after receiving $25 billion from the federal government. So, I am re-posting this story as a reminder of what lies ahead.

General Electric released its earnings report, posting net income in line with analyst estimates. And the world had a big sigh of relief. In posting its earnings, GE CEO Jeffrey Immelt defended his company’s dividend and AAA rating.

Merrill Lynch is looking like a real dog these days — much more than I realized back in September. As bearish/cautious as I have been on the economy and the financial sector, obviously I was not cautious enough. When the deal got done I had this to say:

Danish Prime Minister Fogh Rasmussen is preparing Denmark for admission to the Eurozone. Despite my skepticism about the Euro as a currency, I would say that Denmark is a perfect candidate for entry. The Danish economy is already very well harmonized with “core” Europe of France and Germany. Their business cycle, monetary policy, political economy, and per capita GDP are all similar to France and Germany.

Below is my translation of part of a German-language article from Financial Times Deutschland which discusses the upcoming referendum in Denmark for joining the Euro in which Fogh Rasmussen makes some interesting contrasts between Denmark and the UK.