My morning reads:

• Gold’s Great Unraveling Had a Few Harbingers (WSJ) see also Traders See Shades of 1980s in Gold’s Record Slide (WSJ)
• The First Black Friday (Crossing Wall Street)
• Europe Car Sales Heading for 20-Year Low on German Slide (Bloomberg) see also GOLDMAN: The US Consumer Has Suffered A Setback (Business Insider)
• FDA Let Drugs Approved on Fraudulent Research Stay on the Market (ProPublica)
• Jeremy Grantham, environmental philanthropist: ‘We’re trying to buy time for the world to wake up’ (theguardian) see also Grantham: Capitalism Is Great, But It Assigns No Value To Your Grandchildren (Business Insider)
• What People Think About Taxes (NYT)
• Could Hillary Clinton Be America’s Thatcher? (Bloomberg)
• Gold’s fall costs Paulson $1.5bn this year (
• Have Americans become complacent in the face of terrorism? (Washington Post)
• Who’s Winning, iOS or Android? All the Numbers, All in One Place (Time)

Special Reinhart & Rogoff brouhaha section:
…..-A Study That Set the Tone for Austerity Is Challenged (NYT)
…..-Q&A: Carmen Reinhart on Greece, U.S. Debt and Other ‘Scary Scenarios’ (WSJ)
…..-Elementary misuse of spreadsheet data leaves millions unemployed (billy blog)
…..-Sloppy Research and No Understanding of Sovereign Currency (EconoMonitor)
…..-Whoops! Turns out debt doesn’t ruin economies (Salon)
…..-Microsoft Excel, Ruiner of global economies? (arstechnica)
…..-R&R:’ We Made A Blunder In Our Debt Study,+It Makes A Difference (Business Insider)
…..-Debt to GDP & Future Economic Growth (owenzidar)
…..-What if all those times really were different? (Noahpinion)
…..-Is the evidence for austerity based on an Excel spreadsheet error? (Wonkblog)
…..-How Much Unemployment Was Caused by Reinhart and Rogoff’s Arithmetic Mistake? (CEPR)
…..-The spreadsheet error in Reinhart & Rogoff’s famous paper on debt sustainability (MarketWatch)
…..-Raining on Reinhart and Rogoff (FT Alphaville)

What are you reading?

Gold VIX Spike

Source: FT Alphaville

Category: Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “10 Wednesday AM Reads”

  1. hue says:

    More Reinhart & Rogoff, please! R&R went viral probably for the politics. R&R will need some R&R.

    We Be Illin’: Why Half the US Population Has Mental Illness (Slate) Is the DSM-5 46% number too low?

    Gone with the Wind Farms: Why Is the Mafia Investing in Renewable Energy (CS Monitor)

    True Belieber: Justin’s Thoughts on 10 Other Historical Figures (Fun or Die)

    • hue says:

      Last week, BR put up a federal spending graphic and some complained about the misleading size of defense spending.

      Today’s NYT link to Bruce Bartlett has another spending pie chart. We can slice and dice the pie in many ways. This pie chart shows a higher slice for defense, partly because it doesn’t include Social Security, which is taxed separately and has a trust fund, which David Stockman claimed doesn’t exist. Where is the lock box?

      Make the Pie Higher: “The government practice of combining trust and federal funds began during the Vietnam War, thus making the human needs portion of the budget seem larger and the military portion smaller.”

  2. AHodge says:

    my (edited) comment on the original FT Rogoff Reinhart critisism on the FT yeaterday
    it was ” too” simple but all theories are.

    its the banking crisis aftermath that they were correlating to weak recovery as much as 90% govt debt to GDP, but its a useful fule of thumb. however
    1I think that total debt and the interest burden may matter more. than the govt debt ratio
    that 90% govt debt GDP just very rough rule amended with other drivers.
    2 if excess domestic savings and low private debt keep the total debt down, a reduces the interest rate the total debt and the debt service burden
    3 If a country has a long history of excess private savings and low rates you are generally less vulnerable even with over 90% govt debt (eg japan)
    4 if a country used the debt for clearly productive investments like australia in the middle of a resouce proce boom, less vulnerble

    by contrast high EXTERNAL debt, public or private, may produce threats or a run on the currrency at the same time.
    but as R&R find,, a mostly debt driven boom and bubble,
    has high chances of taking a long time to recover after the bust
    Dalio elaborates that “financial” debt the worst

    While i respect R&R i think their implied “finding” that you just will have to bear it for 4 yearsor more with a weak recovery, is wrong
    This tends to preclude the alternate good delevering model
    and reforming finance if its half brole
    Which it is,
    mostly broke in europe
    Also if the bad debt is mostly private
    also if you go bailouts ad not writing it down
    including banks
    as we have bizarrely decided the last 4 years, compared to past history
    means no delevering by writedown

    then the Ray Dalio good delevering
    with care taking to how the downcyle workout is managed and resolved, including writedowns and haircut, and the writedown wealth effect counterbalanced with stimulus or direct credi supply.

    is just better than frown and bear it.

  3. rd says:

    Jim Grant has said that the Ph.D. Standard replaced the Gold Standard over the past few decades. He says it in connection with central bankers and their fiat money supply, but it can also apply to the application of academic economic theory to the real world.

    It appears the Reinhart-Rogoff study is another example of the frailness of the Ph.D. Standard. It appears that its arguments justifying austerity are likely to join the same junk heap as the Laffer curve trickle-down or supply side economics that has helped to create high levels of wealth and income inequality in the US.

    Modelling is simple, but not easy. You create a model based on theory and make predictions of it. The difficulties usually arise when it encounters the real world. An example is basic entry-level physics where calculations are done in a frictionless world – that works pretty well in outer space but not so well when you have an atmosphere which creates a terminal velocity despite the basic calculation that says the object should keep increasing its speed. Milton Friedman’s models tend towards needing a frictionless world to work well.

    Calibrating your model to achieve the desired results is relatively easy when you can cherry pick your calibration data. Making fundamental calculation errors does lead to a certain randomness of results, but if the result. matches what you expect the model to predict then there isn’t quite as much a need to focus on the quality checking.

    Past results are not a prediction of future performance – the basic mantra of all investors should be branded onto economists world-wide.

  4. VennData says:

    Stay open to the Cyclic Model.

    Steinhardt likens the odds of the Higgs field initially being perched in the precarious metastable state as [low] once inflation began, the quantum fluctuations generated would have quickly knocked the Higgs field off the metaphorical cliff’s edge of metastability and down to an extremely low-energy state. In some of the old inflationary scenarios, this would not have been an issue. But in the presence of a plateau inflat[i]on, the falling of the Higgs from its perch would cause inflation to cease too soon, cutting off the Universe’s growth. The young Universe would have been more likely to curl up into black hole than to grow into a fully-fledged cosmos, Steinhardt says. Steinhardt emphasizes that his analysis holds only because, so far, the LHC has not found any discrepancies with the standard model of particle physics. If future runs of the LHC discover exotic particles, then the energy profile of the Higgs will be recalculated accordingly. “But if you take the data we’ve been given and just follow your nose, then inflation and the whole Big Bang paradigm seem to be in big trouble…”

    “…implying the universe ends tomorrow.”

  5. rd says:

    Here are a couple of examples of the insanity of the US health care system:

    1. Apparently hospitals and doctors make much greater profits if they screw up and their patients have complications:

    2. Screening for cancer is free but your insurer may bill you the full cost of the screening and removal if you actually do something about it when the screening detects it:

  6. AHodge says:

    Further on the attacks on Rogoff reinhardt
    there are huge resources leaping on this from the debt doesnt matter crowd- strange bedfellows from Krugman to the Cheney crowd
    having studied this for 30 years and done LDC risk
    there are no good metrics for WHEN you have a debt crisis
    other than signs your creditors actually starting to run away and pull the plug
    which may be too late.
    no debtor no matter how extreme his debt
    who is getting the finance it needs
    will EVER go broke

    but you can say a lot whether going to have a debt crisis
    including if you have a lot of debt or a little. Duhh

    otherwise, confidence type measurements are better to model near term debt crises timing once you get up to a a high debt level. Especially of total debt and foreign debt.. like interest rate spikes, asset market selloff.
    i do think, with the caveats above, the R&R conclusions hold. (conditionally like all science)
    Even with some data sloppiness or shortfalls from perfection.
    after all markets and debt aint a science like physics or rocket science..lts nearly 100% guesswork and tendancies.

  7. VennData says:

    ​You can count on Rupert Murdock, depend on him to uphold the integrity of the Fourth Estate.

    Pulitzer for Rupert Murdock!​ And all you GOP voters who depend on him for your news. Good job.

  8. VennData says:

    Europe faces threat of full-fledged depression

    Austerity now!

    Awryhart & Wrongoff & Paul Ryan & The GOP

  9. mad97123 says:

    The PHD saviours of the world lose $560 billion on their greater fools bet…..

  10. RW says:

    Peter Dorman makes several points in sequence of posts at Econospeak that deserve mention WRT a key difference between research science and applied science generally, and science and economics more specifically with Reinhart and Rogoff being a case in point.

    Annals of Unscientific Economics: “….is consistent with….”

    Opera, Einstein, and Why Economics Is Not a Real Science

    Ken Rogoff and Carmen Reinhart, Meet Marc Hauser

    Short version: Science has very little if any tolerance for Type I errors, accepting an hypothesis as true when it is actually false (AKA a false positive); Type II errors, rejecting an hypothesis as false when it is actually true, is certainly to be avoided if possible but better by far to err on this than a Type I. Handling of Type II errors can vary and they can even be rewarded — sometimes a rejection leads to a more productive question after all — but Type I errors lead down an false path and any discipline that does not rather systematically punish them cannot be a science.

    Reinhart and Rogoff didn’t just spin off some Op-Eds, they committed a Type I error in their research. That is actually a separate issue from the fact that their error helped forge a foundation for the cruel and destructive fiscal policies widely known as Austerianism — if R&R’s paper hadn’t come along the elites and their policy wonks would have found alternative excuses to do what they wanted to do anyway — but it is a good illustration of the kind of damage a Type I error can do none-the-less.

  11. ilsm says:

    R&R get too much credit, their logic is invalid, premises and conclusions suspect.

    Without validity there are no error “risks”