The World Is Curved


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Recent articles by David Smick

“The Problem With the Economy? Confidence,” in the Washington Post, November 5, 2010

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 economy?

The Krugman theory is that the stimulus just wasn’t large enough. But this is arguing a tautology—by definition, the policy can never be wrong. The stimulus should have always been larger, according to this thinking.

A more compelling theory is that global assets remain overvalued. Specifically, the price of real estate debt and sovereign debt on bank balance sheets, propped up by government actions, remains too high. The economy can’t gain traction until these prices reflect realistic valuations.… continue

“Is the U.S. playing a risky game of politics with interest rates?” in the Washington Post, March 28, 2010

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.

“A Never-Ending Economic Crisis?” in Commentary Magazine, January 2010

The 2008 meltdown was badly handled; the 2009 recovery may be a bubble; portents for the future are worrisome indeed. [PDF]

“Smick Says Europe Can’t Afford $1.60 Euro,” interview on Bloomberg Radio, October 26, 2009

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.

“Anti-Capitalism Chokes the Engine of Growth,” for CNN-Money/Fortune Magazine, July 16, 2009

“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…

“Geithner’s Last Laugh,” for the Washington Post, June 9, 2009

“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…

“The Money in Our Mattresses,” for the Washington Post, May 24, 2009

“There is a reason people say to beware what you wish for because you may get it.

For years, the world has wanted Americans to consume less and to save more. They are getting their wish. The U.S. savings rate, near zero less than a year ago, has soared to nearly 5 percent of income and could go higher. Total personal savings jumped from $20 billion in the first quarter of 2008 to a whopping $453 billion during the same period of 2009. The real danger is if the savings rate goes to 7 or 8 percent. If that happens, economic recovery could be seriously delayed.” Read more…

“Europe Is No Model for Our Banks,” for the Wall Street Journal, April 17, 2009

“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…

“How the Export Addiction Started,” for CNN-Money/Fortune Magazine, March 17, 2009

“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…

“Tim Geithner’s Black Hole,” for the Washington Post, March 10, 2009

“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…

“Why Obama Should Be Upbeat—And Worried,” for CNN, February 23, 2009

“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…

“America’s New Rescuer: Japan,” for the Washington Post, February 8, 2009

“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…

“Wait Till You See the Next Bailout,” for CNN, February 6, 2009

“Memo to the Banks: Lend or Else,” in the Washington Post, January 12, 2009

“Good Luck, Barack,” in Foreign Policy, January/February 2009

“The Money Hunt,” in Worth Magazine, December/January 2009

“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

“If Entire Countries Go Broke, We’ll Go With Them,” in the Washington Post, October 26, 2008 [PDF]

“Why There’s a Crisis and How to Stop It,” special to CNN, October 8, 2008