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Sunday, May 26

26th May - Weekender: Best of the Week

The best articles from the ending week. Last week’s ‘best’ here.

Previously on MoreLiver’s:

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Foreign Borrowing in the Euro Area Periphery: The End Is NearN.Y. FED
Periphery countries have suffered painful contractions weaning themselves from foreign borrowing. The hope now is that the restoration of external balance in these countries will set the stage for meaningful recoveries. The debt burden from past borrowing remains, however, and argues for caution about the periphery outlook. Much will depend on the behavior of external investors.

The Eurozone's FTT plan is vicious, unfair and counter-productiveTradingFloor
Lars Seier Christensen: The idea of transaction taxes is credited to the economist James Tobin, who first suggested a currency transaction tax in the 1970s. But even Tobin renounced the theory as unfeasible later in his career, a fact rarely mentioned in the debate today.

The Commission utterly fails to address flaws in the financial transaction taxOpen Europe
"If you had kept quiet, you would have remained a philosopher" -

Blogs review: Dealing with an impaired monetary transmission mechanismBruegel
Dealing with the fragmentation of capital markets along national borders and the resulting lack of funding for SMEs in the countries of the periphery has been a central issue for the ECB for some time already. But the prospect of a prolonged double-dip has rendered it even more urgent. In this review, I document the extent to which the transmission mechanism of monetary policy within the eurozone is broken and discuss several proposals – such as a negative lending deposit rate and the creation of a new program targeted to SMEs – designed to increase the flow of credit in the periphery.

 “Built to Last”: The New Euro Area FrameworkECB
Speech by Yves Mersch, Member of the Executive Board of the ECB, Barclays Research Conference, London, 17 May 2013

Der Elefant im RaumFree exchange / The Economist
Higher inflation in Germany would alleviate substantial suffering around the periphery at fairly minimal cost to Germans (for their suffering, as we've seen, they get more holidays in Portugal and a nice Mediterranean real estate portfolio). Many Germans might prefer not to accept that trade-off,

Helicopter money as a policy
With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.

The ECB can't substitute for periphery financial reformFree exchange / The Economist
Huw Pill / Goldman Sachs: While there is certainly a risk in doing nothing to support credit creation in the periphery, aggressive credit easing policies do not appear to offer a good trade-off. Rather, more structural policies supporting efforts to undertake the painful but necessary re-booting of the peripheral financial system are to be preferred.

Can it be inflated away?Buttonwood / The Economist
Marco Valli, the euro zone economist of Unicredit, the Italian bank, has produced a very interesting 27-page note on the issue. To give the game away, the title is "Inflating away the debt overhang? Not an option". Mr Valli argues that a central bank trying to achieve this aim would face three challenges

The ECB Should Act to Avert the Risk of Deflation in the Euro Area PIIE
When price stability is assured, there is no need to change policy. When price stability is at risk, policy should be changed to fulfill the mandate.

The Two Charts That Keep Draghi Up At NightZH
From BNP: non-performing loans, interest rates on loans to corporations

Confidence Boom?Tim Duy’s Fed Watch

Japan Is Back: A Conversation With Shinzo AbeForeign Affairs
Japan's prime minister speaks openly about the mistakes he made in his first term, Abenomics, Japan's wartime record (and his own controversial statements on that history), and the bitter Senkaku/Diaoyu Island dispute with China.

Assessing Abenomicsalphaville / FT
There’s evidence that the JGB price rises are motivated by positive factors — inflation rate expectations — and not just dumping JGBs…there is a big element of timing here. And it’s too early to assess Abenomics.

Why Japan? Because That’s Where the Profits WereWSJ
The problem is not that such markets are overvalued per se; it’s that they become the go-to place to take profits when investors get jittery.

Richard Koo Warns Of "Beginning Of The End" For Japanese EconomyZH
Everyone’s scared of somethingalphaville / FT
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.

Elementary, My Dear Watanabe-sanKrugman / NYT
So to the extent that this wasn’t just markets doing their occasional panic thing, it looks like a sudden outbreak of concern about whether the Bank of Japan has really changed as much as it seems.

The deeper agenda behind 'Abenomics'Reuters
Prime Minister Shinzo Abe is riding a wave of popularity, spurred by voters' hopes that his prescription for fixing Japan's economy will end two decades of stagnation. But interviews with some two dozen allies and insiders show "Abenomics" was a late addition to his platform. 

Market turbulence poses first serious test for AbenomicsReuters
This week's turbulence in Tokyo markets exposes a key risk of Prime Minister Shinzo Abe's all-in strategy to revive Japan's economy - if investor confidence falters, the government and the Bank of Japan may be left with few options to turn the tide.

Who Invented TBTF (Too Big to Fail)?Minyanville
Aaron Brown: So TBTF is a myth. It is the monster under the bed, the dragon on the edge of the map. We never had it, and we certainly do not have it now.

The Rules, Part XXXVIII The Aleph Blog
What errors do most money managers make today?