A roundup of economic news from around the Web.
- Too Big to Fail: The New Yorker’s James Surowiecki looks at Treasury’s reluctance to designate specific companies as too big to fail. “The simple reason why [Assistant Treasury Secretary Herbert] Allison refused to say whether Citibank is systemically significant, then, is because he had no legal authority to do so. On top of that, though, it also makes economic sense for the government to refuse to answer the question, because doing so gives it far more bargaining power in the event that another big financial institution gets into trouble. The problem with having the government say publicly that it has a TBTF policy is that this would effectively commit the government to guaranteeing the debts of the countrys major financial institutions. If it did so, and, say, Citibank were to get in trouble again, it would be much harder for the government to make creditors take a haircut, because they would be able to point to Treasurys public guarantee. Given that one of the sharpest criticisms of the governments actions during the crisis was that, in the case of companies like AIG, it failed to leverage its bargaining power, its peculiar to attack Allison for not giving away the store in advance.
- 4% Inflation: Writing for voxeu Daniel Leigh supports the idea of a 4% inflation target. “Olivier Blanchard, the IMFs Chief Economist, recently broached the idea that central banks should target an inflation rate of 4% during the good times to leave more room for nominal rate cutting during bad times. This column supports this view, presenting new research showing that a higher inflation target could have halved the output loss of Japan during its Lost Decade.”
- Commercial Real Estate: Paul Kedrosky quotes Michael Cembalest on commercial real estate. “One CEO panelist whose company runs 20 mm sq ft of retail also owns 30 mm sq ft of office space. Hes optimistic: he notes the smaller oversupply problem compared to prior recessions, and faster speed of price adjustments. For the most part, I agree Compared to two prior cycles, less commercial property was added, and that the pipeline as a % of the existing stock is low (exception: Madrid) [There is a] rapid speed of price declines this time around, compared to the 1991 real estate recession. So both arguments are supported empirically.”
Compiled by Phil Izzo