- Remember how I said that monetary instability could become part of the institutional framework of even advanced economies? Read on.
- Anyone care to bite the bullet on child smoking in Indonesia (starting as early as age two!)?
- Napping advice from the “incidental economist”. (H/T Ezra Klein)
- My post regarding the partisan divide between Matthew Yglesias and myself sparked a discussion at the MySpace US Politics Forum. Should you click through?
- Nobel laureate and “father of supply side economics”, Robert Mundell speaks about the causes of the crisis.
Part Two of Mundell’s analysis is the most intriguing and least understood aspect. He argues that, as the real-estate bubble burst, large quantities of fresh liquidity were demanded by the public and banks. In summer 2007, the world’s central banks supplied it and no liquidity crunch developed. But by summer 2008, spooked by rising inflation, the U.S. Federal Reserve failed to provide adequate cash, leading to dollar scarcity. Four key symptoms of tight money appeared within months: the dollar rose 30 percent against the euro; gold fell 30 percent; oil fell 80 percent; and the inflation rate dropped from 5.5 percent to negative levels. As a result, Mundell believes, Lehman Brothers collapsed, the stock market went into free fall, and a near-panic ensued. This phase was entirely preventable and constitutes one of the worst mistakes in Fed history, Mundell says. The crisis eased in early 2009, as the Fed upped the money supply, but the damage was done.
- Pre-order Minus the Bear’s new album, OMNI. It’s good.