The Bull 'n Bear on Irrelevant Debates, Commodity Index Funds
Yesterday, I referred to the dysfunctional approach our leaders are adopting regarding the federal debt ceiling. Glenn Hubbard, the (fomer?) dean of Columbia Business School has an interesting piece in the FT, Forget the Debt Ceiling, Focus on Debt, that highlights how this squabbling has nothing to do with the problem we must solve.The zinger that sums up the absurdity of the situation:
That the US has an unsustainable fiscal trajectory is clear, but the problem is not the debt ceiling per se. My wife and I don’t vote on whether we will pay our bills. Rather, we discuss whether our spending or income needs adjustment.
I continue to believe that a combination of spending cuts and tax increases will be necessary to resolving the problem, but it's worth noting Hubbard's reference to academic research according to which spending cuts dominate tax cuts in terms of their positive effect on stabilizing debt levels (and stimulating growth).
There is another interesting article by Gillian Tett on the effect of commodity index funds (which now represent $200 billion) on commodity prices. The bottom line: It is likely that the growth in these funds has contributed to the rise in correlations between different commodities and between commodities as a group and other asset classes. I've always been slightly uncomfortable with the notion of including commodities into one's asset allocation, and this rise in correlations suggests it has become less useful anyway.
Finally, as someone who was born on European soil, it was with sadness (and some measure of shame) that I read How We Dined with Mladic and Failed our Duty concerning the way in which European politicians coddled the Bosnian Serb war criminal Ratko Mladic. What an catastrophic error in judgement, with tragic consequences.
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