On Creativity

I love this clip of the great jazz pianist, Bill Evans. His advice on creativity is about the best I can imagine: deal with reality and essences, not appearances. This applies to serious work in any field, including finance, of course. He was a very special artist and this is a great interview.

Best Economic Chart of the Year

And it's good. From Donald Marron (the younger).

Gloomy but Worthwhile: Kyle Bass Interview

If you want to hear someone make a pretty thoughtful bearish case for Europe, Japan and the U.S., this is worthwhile.

Italy Can Save Itself and the Euro

So says Martin Feldstein, here.

European Banks as US "Shadow" Banks

Recent paper by Shin of Princeton, highlighted and linked by Krugman, arguing that the European banking system is acting as a gigantic boom-bust amplifier for the US.

Non-US bank branches that conduct business in dollars act as an element, a very big one, of the shadow banking system.

The paper is detailed. Shin draws this conclusion: "The global flow of funds perspective suggests that the European crisis of 2011 and the associated deleveraging of the European global banks will have far reaching implications not only for the eurozone, but also for credit supply conditions in the United States and capital flows to the emerging economies." Why? In the end the most important thing is that "dollar-denominated assets of banks outside the U.S. are comparable in size to the total assets of the US commercial bank sector."

On the Limits of Ratiocination

"If you have any fact which you think is really sinister...forget it, man, because you can never on your own think up all the non-sinister, perfectly valid explanations for that fact."

Errol Morris's short video at the NYT site on The Umbrella Man. HT Kedrosky.

Household Debt is What is Costing Jobs

Great article by Mian and Sufi explaining that debt levels are what is depressing demand, and costing 65% of the jobs lost in the current mini-Depression. Key point, which they reach by examining county-by-county variations in housing price declines:

"Our research suggests that 65 percent of the job losses from 2007 to 2009 came from the drop in household spending induced by the collapse in home prices and its effect on a highly levered household sector."

A related presentation of some of their details is here. Not a surprising conclusion, but the way they prove it is clever.