News round-up: 14 Oct 2008

By Edward Harrison On Oct 13, 2008

Now that we have seen our massive 1000-point rally, we can come back down to earth and worry about the real economy effects that the credit crisis has already wrought and ho well money markets are going to respond to all this monetary stimulus. While I wholeheartedly support, many of the financial manoeuvres in the dark, I remain concerned that some of them are inflationary and may yet not be able to restart the money markets as anticipated. While gold has dropped in price due to this relief rally, it still remains a hedge against falling fiat currencies in an environment where the Fed is lending unlimited amounts to the BoE, ECB, ad Swiss National Bank.

Yesterday, you will have noticed a blurb in the Sydney Morning Herald relaying the information that lending rates in Oz had fallen 71 basis points. Very nice. However, this as yet to be the case for LIBOR, where the move has thus far only been 7 basis points. Granted we had a holiday in the U.S. and bond markets were closed as a result. But, 7 basis points does not a better interbank market make. We need to see something of the 71 basis point magnitude today and tomorrow or there is going to be trouble.

In the meantime, note that Paul Krugman, the recent Nobel Prize Laureate believes we will experience a global recession. I agree. The damage has been done. The monetary authorities are merely trying to avoid depression. This does not augur well for long-term returns in shares. Below, you will see that Jeremy Grantham argues that shares are far from undervalued as a whole. This is a stock picker’s world now. Index trackers, beware!

Also as an ode to Krugman, I have a section reserved for him from prior Krugman missives surfaced by Mark Thoma over at Economist’s View.

Enjoy!

Ode to Krugman
Nobel winner Krugman says world recession likely – Reuters
Gordon Does Good – Paul Krugman (In praise of the British crisis reaction)
Thoughts about Thinking – Paul Krugman via Mark Thoma (this is something I very much agree with. Too much math and too little history led us to where we are today.)
In Defense of Macroeconomics – Paul Krugman via Mark Thoma
Why I’m an Economist (Sigh) – Paul Krugman via Mark Thoma
Incidents from My Career – Paul Krugman via Mark Thoma
“The Accidental Theorist” – Paul Krugman via Mark Thoma
How Bubbles Happen – Paul Krugman via Mark Thoma
Dead Parrot Society – Paul Krugman via Mark Thoma
Honoring Paul Krugman – Economix, NY Times, Edward L. Glaeser