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Why not use Fannie and Freddie?

I don’t understand the lack of imagination in DC. All the politicians have to do is tell the banks to lower their variable rate mortgage loans on the books to 4% right now, today or else and it is like $600-$750 billion of stimulus. With short rates as zero it’s the least the banks can do.

That probably offends the free market sensibilities of many of our readers, so here’s an alternative approach: Why not Fannie and Freddie, which are now de facto arms of the US government?

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Pushing on a string and similar notions on monetary policy ineffectiveness

As interest rates in the developed economies approach the zero bound, we must begin to ask ourselves how effective monetary policy can reasonably be in these circumstances. And if policy is to be effective, which policy tools will be most advantageous to use? Or are we just pushing on a string here?

In plain English: central banks are running out of bullets and the deflation bogeyman seems to be right on our doorstep. Can they even stop him from ripping our house to shreds and sending us into depression?

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Links: 2008-12-02

The news yesterday was pretty grim as Japanese, Chinese, Eurozone, UK and US manufacturing sectors all showed significant weakening. Combine this with an acknowledgment that we have been in recession for one year already and Meredith Whitney sounding the alarm bell for even worse yet to come and you get a steep sell-off in equities and a huge rally in Treasuries. One should note that Ben Bernanke sounded very dovish yesterday, putting paid to my post on quantitative easing and contributing to the rally in Treasuries.

Below are a few stories on the Internet that I would like to highlight. See the bulk of the news stories over at the news feed, which gets updated continuously.

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The U.S. has been in recession for one year

My very first post on this blog was in March and it was titled “The Economy Is Definitely In Recession.” Back then, this seemed like a stretch for a lot of people, but today the National Bureau of Economic Research (NBER), which makes the official recession call for the U.S., determined that the recession began in December 2007.

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In Memoriam: Tanta of Calculated Risk

Today I learned that we lost one of the most talented bloggers out there, Tanta from the blogsite Calculated Risk. Tanta had been battling cancer. She died aged 47 and will be missed not only by those who knew her but by her many readers and fans.

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A note on Japan’s experiment with quantitative easing

Japan’s policy makers generally procrastinated considerably in terms of implementing any kind of stimulative measures, as well as prematurely reversing the benign impact of policies which had some earlier success. In terms of monetary policy, the BOJ did not actually embrace quantitative monetary easing until 2001, eleven years after their bubble had burst.

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Meredith Whitney: more bearish than ever, but…

Last night, in an e-mail Yves Smith of naked capitalism pointed out an Op-Ed piece by Meredith Whitney which ran in the Financial Times yesterday. It was a fairly somber and downbeat assessment from an analyst who has proved right on the money throughout this credit crisis.

I will provide a highlight here so you get the gist of Whitney’s commentary. But so as not to steal Whitney’s thunder, I will link out to the entire article so you can read it on the FT website.

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ISM Manufacturing Index: Deep recession territory

ISM Manufacturing Index: Deep recession territory

The Institute for Supply Management (ISM) released its monthly report on Manufacturing, the ISM Manufacturing Report on Business®. It showed a reading of 36.2 down from 38.9. Where 50 is the demarcation line between growth and recession, 36.2 says the manufacturing industry in the United States is deep into recession territory.

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Links: 2008-12-01

I am altering my news round-up a bit here in that we have shifted the bulk of the news stories over to the news feed, which gets updated continuously. So, I will use the round-up to highlight a few top stories. The majority of today’s stories come from the British press.

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Quantitative easing: printing money like mad to ward off deflation

Quantitative easing: printing money like mad to ward off deflation

In economic circles, there has been a lot of buzz about Quantitative Easing of late. Basically, the U.S. Federal Reserve has lowered interest rates to near zero percent and the fear is that these cuts will not have enough effect on the willingness to lend in order to reflate the U.S. economy. Therefore, the Fed has decided to take more draconian measures, one of which is Quantitative Easing, flooding the economy with money.

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JPMorgan Chase: Large exposure to real economy downturn

The financial services sector has been the hardest hit sector in the credit crisis so far. Banks with large exposures to mortgage-backed securities like Citigroup, UBS and Merrill Lynch have suffered the most. This is largely because the crisis has been in asset prices — chiefly home prices. However, as credit has become severely restricted, the credit crisis has become a global recession and that means the real economy will be impacted. This spells trouble for JPMorgan Chase.

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Links: 2008-11-29

Below are links to a few posts on the web that I found particularly good. For more posts and news, see the news feed.

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