Recent articles by David Smick
How could several trillion dollars of fiscal and monetary stimulus
barely move the needle of gross domestic product growth? That’s the question
President Obama needs to answer in the wake of the midterm elections. Why
was his policy so ineffective at multiplying its stimulative effects throughout
The Obama administration just experienced its first interest rate scare. Last week’s tepid Treasury bond auctions caused long-term Treasury interest rates to jump. One speculation: America’s largest creditor, Beijing, reduced its purchases as payback for congressional criticism of China's currency policy.
Yet the surprise is not that interest rates jumped. The real question is: What took them so long? Despite today’s mind-boggling level of public debt and deficits, and extraordinary monetary expansion, interest rates have remained surprisingly low.
The 2008 meltdown was badly handled; the 2009 recovery may be a bubble; portents for the future are worrisome indeed. [PDF]
David Smick, chief executive officer at Johnson Smick International Inc., talks with Richard Clarida, global strategic adviser at Pacific Investment Management Co., and Bloomberg’s Tom Keene and Ken Prewitt about global currencies, the Chinese economy and Smick’s book “The World Is Curved.” Listen.
“Only a fool would bet against the American people’s ingenuity and persistence in figuring a way out of our economic mess. But the last year has been humbling all the same. Some of our most common assumptions, including the certainty of monetary and fiscal stimulus, are being challenged.
For example, for decades economists including Milton Friedman have argued that if policymakers in the 1930s had not run such a restrictive monetary policy, things might have turned out differently. Likewise, Keynesians add that if Congress hadn’t tried to balance the budget in 1936, the Great Depression might have ended a lot sooner.
Today, no one can accuse policymakers of committing such blunders. The U.S. is running the Niagara Falls of fiscal and monetary policies, yet the results to date have been discouraging.
Begin with prices, which have been dropping fast. From August 2008 to June 2009, the Consumer Price Index dropped from 5.3 percent to negative 1 percent. During the comparable period in 1929–30, the CPI dropped from zero to only a negative 1.8 percent.” Read more…
“Tim Geithner can’t seem to catch a break. Our Treasury secretary was at Beijing University last week to assure the Chinese that their dollar investments were safe. The audience broke into laughter.
The Chinese should be wary of such hubris. While America’s public finances are troubling, to say the least, Beijing and the rest of the world should examine the future for economies, including China’s, that have become overwhelmingly dependent on exports. Their future looks as problematic as the future of the debt-ridden United States.
As ugly as the credit markets have been, trade has been worse. Since World War II, global trade has grown twice as fast as gross domestic product. But things have shifted with the downturn. For starters, the exports of the world’s three biggest exporters—Germany, Japan and China—are 33 percent lower than they were a year ago. With American imports down by roughly the same amount, two-way trade has contracted by $1.5 trillion. There are real questions as to whether this development is more than a temporary pullback and will evolve into a quiet shift toward a new era of deglobalization.” Read more…
“There is a reason people say to beware what you
wish for because you may get it.
“Barack Obama is facing a policy civil war within his party. One side is led by New York Times columnist Paul Krugman. The other is led by the president’s top economic adviser, Larry Summers. The battle is over the future of Wall Street banks.
The Krugman Democrats opt for nationalizing today’s troubled banks. The Summers Democrats counter that dramatic bank restructuring, including nationalization, could collapse the system. Instead, the Summersites favor turning big banks into something similar to local electric or water companies -- heavily regulated, unimaginative public utilities.” Read more…
“Just as America is hooked on imports, emerging markets like China have a dangerous dependence on exports. It all began with the fall of the Berlin Wall.” Read more…
“Pity Barack Obama’s economic advisers. The blogs are now demanding their scalps, and Treasury Secretary Tim Geithner and his colleagues face a nasty dilemma: There are no solutions to the banking crisis without extraordinary political and financial risks. Thus, they have adopted a three-pronged approach, delay, delay, delay, in the hope that somebody comes up with a breakthrough.” Read more…
“With all due respect, President Obama and Federal Reserve Chairman Bernanke, to put it bluntly, should shut up. To their credit, they have deployed unprecedented amounts of fiscal and monetary stimulus.
Bernanke’s stimulus, in particular, has the potential to be extraordinarily effective once our national psyche brightens and the economy begins to improve.
Now it’s time to sit back and let that stimulus work.” Read more…
“Here’s a disillusioning thought: Solving the financial crisis may be beyond the capacity of government finances. The likely $3 trillion price tag, give or take, of both saving the banks and stimulating the economy is causing interest rates to inch up. U.S. Treasury long-term rates have already risen from 2.1 percent just before Christmas to nearly 3 percent.” Read more…
“That Sinking Feeling,” a review of The Great Inflation and Its Aftermath by Robert J. Samuelson and The Return of Depression Economics and the Crisis of 2008 by Paul Krugman, in the Washington Post, January 4, 2009
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David M. Smick
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