Celent Report Says "What Credit Crunch?"
I have seen this story linked all over the place, but just in case you missed it:
PARIS (Reuters) – The credit crunch is not nearly as severe as the U.S. authorities appear to believe and public data actually suggest world credit markets are functioning remarkably well, a report released on Thursday says.
As a result, governments are pumping masses of public money into the economy across the world because of the difficulties of a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway, according to the report published by Celent, a financial services consultancy.
“It’s just stabbing in the dark with trillions of dollars,” Octavio Marenzi, report author and head of Celent, told Reuters in a telephone interview where he questioned the depth of the analysis that preceded numerous fiscal stimulus packages.
The report, much of which is based on U.S. Federal Reserve data, challenges a long list of assumptions one by one, arguing that there is indeed a financial crisis but that, on aggregate, the problems of a few are by no means those of the many when it comes to obtaining credit.
“It is startling that many of (Federal Reserve) Chairman (Ben) Bernanke and (Treasury) Secretary (Henry) Paulson’s remarks are not supported or are flatly contradicted by the data provided by the very organizations they lead,” said the report.
I would just like to point out that I’ve been saying for months–try here, here, and here for some samples–that this “credit crunch” claim is bogus. Hats off to Alex Tabarrok, though, who was skeptical several months before I was.
The Future of the Auto Industry
Mario Rizzo (relying on the elusive Jeremy Sapienza) tips us off to a future car ad. The whole thing is pretty good, having the quality of a decent Onion article. An excerpt:
It’s in the way you dress. The way you boogie down. The way you sign your unemployment check. You’re a man who likes to do things your own way. And on those special odd-numbered Saturdays when driving is permitted, you want it in your car. It’s that special feeling of a zero-emissions wind at your back and a road ahead meandering with possibilities. The kind of feeling you get behind the wheel of the Pelosi GTxi SS/Rt Sport Edition from Congressional Motors.
Ex-Austrian Declares: "We Need to Save More and to Spend More"
Really, that’s what he says, though not in the same sentence. (HT2 Jim Fedako.) I’m not going to bother quoting this guy, who says he believed in Austrian economics until the Lehman collapse. I guess the guy’s position is analogous to somebody who says, “We never should have gone into Iraq, but now that we’re there, we need to drop a few nukes to show them we mean business.”
Except it’s worse than that; to make it truly analogous we have to add, “So let’s go ahead and drop those nukes, but keep in mind–as I’ve said ever since Bush ordered the invasion–that only a non-violent approach can really resolve this situation.”
Am I being unfair to this guy? Go ahead and read his post if you doubt me. And you don’t need to parse closely; just skim his sentences that are in bold.
Police / Firefighter Shakedown?
I just got a Christmas solicitation from a fireman (yes he was a man) and politely declined. (It was awkward because we both knew within 3 seconds that he was going to hit me up for money, but I had to sit there and listen to the song and dance for two minutes before he actually asked me and I could say no. Now I know how pretty girls in high school must feel.)
Does anyone else get nervous that when you say no, the guy on the other end checks a box that says, “Don’t speed on the way to this guy’s house”?
ISIS Magic Photo Gift Maker
Reader Lance (not sure if he wants me using his last name) emailed me about some issues, and then offered to print me up some free mugs using his business’ new technology. I have now been enjoying hot tea in my Free Advice / PIG to Capitalism mugs for several days now, and no accidental spills yet to report. Thanks Lance!
Sean McBeth: Right or Wrong?
Reader Sean McBeth writes and says he enjoyed the PIG to Capitalism. (BTW, if you want a favor from me, that’s always a good way to start the email.) He has begun blogging himself, and wants to know if he’s on the right track, is persuasive in his arguments, etc.
Unfortunately, due to time constraints I really can’t help Sean out. But I said I would link to his blog post on the bailout and ask Free Advice readers to render their constructive criticism, if you are so moved.
Mario Rizzo Reminds Macroeconomists About Economics
My dissertation chairman, Mario Rizzo, was invited to comment in the Social Science Research Council’s forum on “What Do We Know About Bailouts?” There are some big guns who contributed, and they all say basically variations of the stuff we’ve been hearing from the talking heads over the last few months.
Then Rizzo steps to the plate and shatters the box into which all the macro guys had painted themselves:
I am not a macroeconomist. I am not even a financial economist. So much of my reaction to the current financial and economic problem may seem a bit out-of-step with what most commentators are saying. Yet I think it is important.
The macro-economic frame of mind is quite peculiar, it seems to me. In the name of the emergency, the macroeconomic way of thinking dismisses most concerns about the efficient allocation of resources and throws almost total emphasis on maintaining levels of expenditure and employment….Thus the solution lies is returning to the status-quo ante. Restore the condition of the financial institutions perhaps by buying toxic assets or perhaps by infusing capital into them. Restore the conditions of the housing market by getting the Fed and/or Treasury to buy Fannie and Freddie mortgage securities, thus sending capital into housing and lowering mortgage rates. Restore the condition of industries with large numbers of employees and others indirectly dependent on them….Once economic agents believe all of this will take place, confidence will be restored.
I believe that the above analysis is an intellectual disaster that threatens not only the intermediate-term economic condition of the United States but its long-term reliance on market institution and the liberty they undergird.
The conventional macroeconomic diagnosis and proposed cures ignore many important factors, including the following:
The “irrationality” is not primarily in the system’s response to the initial financial impulse but in the unsustainable expansion of the housing and other capital markets in the first place….Too many resources went into the housing market due to the low interest-rate policy the Fed followed for too long….
Recessions are not simply crises of confidence or of insufficient demand (due to increases in the demand to hold money). They also have their allocational – or microeconomic – aspects….
I do not think that these hastily devised macroeconomic schemes will succeed in promoting recovery because they ignore the microeconomic fundamentals. I do fear, however, that will succeed in fundamentally transforming our economic system for the worse.
Go Mario! I think the only time I was ever more pleased by his words was when he said, “Congratulations Dr. Murphy!” (after my doctoral defense).
More Greenspan Loving: Is Everyone On Crazy Pills?!
I am getting increasingly frustrated by some economists’ attempts to deny that the housing bubble had anything to do with the )#$#4 negative real interest rates that Greenspan foisted upon us…during the exact period when housing prices exploded. What is particularly annoying is when these Greenspan defenders say things that are simply not true.
Take Casey Mulligan, whom I really like by the way, over at Cato Unbound. (Incidentally, I am starting to really love their format. They really take advantage of the Internet. Go Wilkinson!) Mulligan is taking Larry White to task for thinking the negative real rates–not seen since the 1970s, mind you, when I assume even Mulligan would admit the Fed messed with the real economy–might have spurred a jump in home prices.
Mulligan goes through some neoclassical analysis of the rational impact of short-term rates on housing prices. OK fair enough; I may come back to that in a future post. But then he says:
Perhaps Professor White would argue that market participants expected short term interest rates to remain low for much longer than a couple of years. If so, he is on shaky ground. First, such a claim is at odds with long-term interest-rate data. As I indicated in my article, long-term mortgage rates were not low during the housing boom. It’s not hard to find commentary from those years recognizing the low short-term rates were not expected to last.
To this, all I can say is, “What the hell are you talking about, Prof. Mulligan?!”
Seriously folks, look at this chart:
So if by “not low” he meant “the lowest they have been in the 35 years for which the St. Louis Fed keeps records,” then OK I see his point.
In fairness, maybe he means inflation-adjusted mortgage rates weren’t low during the housing boom. But at the very least he could have clarified that.
But this just goes to show that when people start throwing evidence at you for why Greenspan couldn’t possibly have caused the housing bubble, be sure to first make sure what they’re saying is even true. Then, once you’ve verified that they’re not saying the opposite of reality, you can go ahead and decide if it affects your opinion of Greenspan.
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