Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
- This was the most easing Draghi could get and still achieve unanimity (Edward Harrison, Credit Writedowns) Just reviewing what the ECB has done here, we see them taking four out of the five easing measures I outlined in May. See also GEI News.
- Mexican makes surprise half-point rate cut as growth flags (Jude Webber, Financial Times) The Bank of Mexico cut its benchmark interest rate to a record low 3% in an effort to provide a spark for a slowing economy. Follow up on this and all other central bank actions early every week at GEI News with the weekly review article from Central Bank News.
- Lawrence Summers on ‘House of Debt’ (Lawrence Summers, Financial Times) Summers says House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again, by Atif Mian and Amir Sufi, University of Chicago Press, "could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession". The thesis of the book is that the mistake in addressing the GFC (Great Financial Crisis) was that the debt produced insolvency of the household sector was substantially ignored while the financial system was being bailed out. This is an amazing review to read as Summers alternates between criticizing the authors' "lack of understanding of policy choices" and calling them "naive on policy" while letting "their indignation get the better of them" and praising the thoroughness of their data analysis and logic. Perhaps the most encouraging part of this excellent review is the last paragraph where Summers indicates a recognition that money ("balance sheets") is (are) a critical part of modeling any economic situation. This is a long way from the pre-2008 days when debt, credit and money were not considered macroeconomic variables by the mainstream.
The reality that the post-crisis policy challenges were more complex than they recognise detracts only slightly from Mian and Sufi's accomplishment in House of Debt. All future work on financial crises will have to reckon with the household balance sheet effects they stress. After their work, we can still believe in the necessity of financial rescues; however, we can no longer believe in their sufficiency. And after their work, we have an important new agenda of reforms to consider if future crises are to be prevented.
- An intellectual storming of the beaches is required in Europe (Bill Mitchell, billy blog) Europe is occupied by "fiscal policy bolted down by the neo-liberal ideology [and] there is no room to grow". Bill Mitchell says it is time for an economic policy D-Day, "an intellectual storming of the beaches". Mitchell revisits some of the history of the Great Depression and finds the same mistakes are being made again. He suggests a frontal assault on employment and thrusting of monetary policy attempts at managing the economy into the background. His first submission of evidence is the 6-year record of fiscal austerity on employment in Europe.
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