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This week in Outside the Box I strive to address an issue that I have been meditating on for quite some time. Precisely, how have we arrived at the current credit crisis that now threatens the domestic and global economy. I believe one of the underlying reasons is what is termed the "Minsky Moment," the topic of this weeks Outside the Box. If we understand how we have arrived at this crisis, we may get some clues as to how it will unfold. I am going to take up other thoughts on this topic next Friday. Charles Whalen has written a very clear essay. He is from the The Levy Economics Institute of Bard College which is a nonprofit, nonpartisan public policy research organization. I have quoted from papers from the Levy Institute on many occasions. The Institute is independent of any political or other affiliation, and encourages diversity of opinion in the examination of economic policy issues while striving to transform ideological arguments into informed debate. I have often f...

U.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong Whenever critics of globalization complain about the loss of American jobs to low-cost countries such as China and India, supporters point to the powerful performance of the U.S. economy. And with good reason. Despite the latest slow quarter, official statistics show that America's economic output has grown at a solid 3.3% annual rate since 2003, a period when imports from low-cost countries have soared. Similarly, domestic manufacturing output has expanded at a decent pace. On the face of it, offshoring doesn't seem to be having much of an effect at all. But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge tha...

China’s great leap into private equity will revolutionise the world’s markets 23/05/2007 The Chinese will eventually act like Arab states and royal families, taking stakes in blue chip companies IT IS a shame that Deng Xiaoping, the Chinese leader who reconciled China with capitalism, is no longer with us to savour the moment. You can hardly get more capitalist an institution than Blackstone, the American private equity giant run by Stephen Schwarzman, the bombastic billionaire who has made his name organising massive leverage buy-outs. So the news this week that China would take a major stake in the company, a first step towards creating what amounts to its own activist investment fund, is truly a milestone in the development of socialism with Chinese characteristics. It is also a hugely significant moment for the world’s financial markets. As a result of China’s decision to start to manage its massive foreign exchange reserves more rationally, hundreds of billions of dollars could u...

European property crash could bring the euro down with it By : Matthew Lynn 09/05/2007 "The European Central Bank didn't worry about prices on the way up so there is no reason to imagine it will worry about them going down" In the eight years since the euro was launched, soaring, runaway property markets in Spain, France, and, most of all, Ireland have been seen as one of the greatest threats to the stability of the currency. Now it turns out that precisely the opposite might be true. It is not rising house prices that are a threat to the euro. It is falling prices. Why? Because as property markets in those three countries start to collapse – as they now appear to be on the edge of doing – the European Central Bank (ECB) will be able to do nothing about it. Economies may be plunged into recession, financial systems hit, and people's wealth wiped out. And the central bank will be able to do nothing except sit on its hands and fret. In the past few years, a small num...

From Inverstorsinsight.com Meaty Beaty Big and Bouncy by James Montier No, not a description of my stomach... although thinking about it, it could be. Nor does it purely reflect my love of The Who. Rather the chosen title is meant to reflect upon the opportunity created by recent performance of small caps. But before dealing with the tactical outlook for small caps, I want to examine the strategic arguments used for small cap investing. A popular (well at least popular with me) TV show concerns two 'mad' scientists who love nothing more than to explode urban myths. For instance they have investigated the possibility of death by urinating on a live railway line! We could do with something similar in finance. We have a bad habit of accepting theories as fact within finance, of accepting statements as if they were truths. Even when we do bother checking the data we rarely seem to update our prior beliefs in anything other than a biased fashion. The myth of the size effect Way ...