Notes on Social Security Reform Strange logic to expectations James Hamilton at econbrowser has a fascinating post titled, “Why isn’t inflation lower?” He presents a paper titled, Is The Phillips Curve Alive and Well After All? Inflation Expectations and the Missing Disinflation, written by Olivier Coibion at UT Austin and NBER and Yuriy Gorodnichenko at UC Berkeley and NBER. It would not be easy to summarize the post, so I will just take a snip-it from the abstract of the paper to give you an idea. “If firms’ inflation expectations track those of households, then the missing disinflation can be explained by the rise in their inflation expectations between 2009 and 2011.” The logic is that we did not have as much “disinflation or deflation” as might have been predicted between 2009 and 2011, because households were expecting inflation due to oil price increases. In addition, they give a model of the Phillip’s curve that is consistent through the decades. 1. It seems that people do not connect with “Fed-speak”. 2. 3. Strange logic we are in nowadays…
How Do We Force Cash Hoarders to Invest? Tax Them Truthout needs your support to publish grassroots journalism and share new visions for a just and sustainable future. Contribute now by clicking here! (Image: Tax words via Shutterstock)The supply-side economists of the 1980s famously emphasized how government policies (especially taxes) affect incentives. Today, it’s clear that incentives are badly misaligned, but not because of excessive taxation. The investment shortfall is at the core of the sluggish “recovery” and chronically high unemployment. There’s an obvious response—a tax on this idle cash that would light a fire under corporations to spend it now. Mihir Desai, a professor at Harvard Business School, proposed a tax on “excess cash reserves” in a 2010 Washington Post op-ed and alluded to it again in congressional testimony the following year. Desai views a cash-reserves tax as a solution to a “coordination problem.” To work right, a cash-reserves tax should come along with other changes to the corporate tax code.
Wall Street's Commodities Profit Threatened As Federal Reserve Launches Review The Federal Reserve said late Friday it is revisiting a landmark ruling that allowed big banks to enter the lucrative commodities business, raising the specter that banks may be banned from the highly profitable activity. Goldman Sachs, Morgan Stanley, JPMorgan Chase and other large financial institutions have the most to lose, given their revenues from investing in and trading commodities, such as oil and aluminum. Representatives for the three banks declined to comment. The Fed's statement follows a Huffington Post story this week that detailed how a coalition of beer brewers, automakers, Boeing and Coca-Cola has accused big banks, including Goldman and JPMorgan, of anti-competitive behavior in the aluminum market, fueling regulatory concerns on both sides of the Atlantic. In the following years, bank revenues from trading commodities soared, fueled by increasing global demand led by emerging markets such as China and India that required more oil, metal and other raw materials. Sen.
Anonymous Monetarist A “weird” case for a higher interest rate Is there a case for raising interest rates by the Fed? Even a weird one? In the previous post, I explained the reasoning behind the current lower level of real GDP. The explanation is that real GDP declines to an equilibrium with the low interest rate in the money market for labor income. So if a lower interest rate lowers equilibrium real GDP, then would a rise in the interest rate raise real GDP? First I want to show a graph posted by Nick Rowe back in August of 2011. In his post, Mr. “Where we want to be” is a natural rate of interest that is positive. Mr. “1. I agree with Mr. So how does he explain the up-sloping IS curve? “3. He is describing a mechanism by which a sustained increase in demand for goods would be accompanied by not only a rise in desired investment, but also a rise in interest rates. I don’t want to get into the LM curve in this post, but my view is that the LM curve is flat now. As Mr. “The LM curve does not have a fixed slope. Just as Mr. Also, Mr.
Run-up in mortgage rates raises questions about housing recovery Mortgage rates have zoomed a full percentage point above their recent record lows, raising costs for borrowers and questions about the housing recovery. A standard 30-year fixed-rate home loan hit an average of 4.63% on Monday before backing off just slightly Tuesday, according to HSH Associates. That's up from 3.49% on May 3 and an all-time average low of 3.44% during a week in December. Although still low by historic standards, the increased rates have put a damper on a home refinancing boom and will make buying a home noticeably more expensive for borrowers. "This stuff does feed back into the real economy," said Russ Koesterich, global chief investment strategist at money management giant BlackRock Inc. Mortgage rates already had been rising gradually before last week, when Federal Reserve Chairman Ben S. The yield on the 10-year Treasury note, generally a benchmark for fixed mortgage rates, rose for the seventh straight trading session Tuesday to close at 2.59%.
Janet Yellen for Fed Chair by Bill McBride on 7/19/2013 09:11:00 AM I've been an admirer of Dr. Janet Yellen for a number of years (In 2009 I suggested her as an alternative to reappointing Ben Bernanke). " ...there are downside risks to economic growth relating to the housing market. And in 2006 she was talking about "ghost towns" in the West: According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. What was Larry Summers saying about housing in 2005 and 2006? In August 2005, Raghuram Rajan, an economist at the University of Chicago’s Booth School of Business, predicted the financial crisis. Note: I started this blog in January 2005, and I was writing frequently about the housing bubble - the coming housing bust - and the impact on the U.S. economy. Where Yellen and Summers may differ most is in their leadership style.
Antonio Fatas and Ilian Mihov on the Global Economy A study in the dynamics of international flows… #4 Part 1, Part 2, Part3 Yesterday I criticized Mr. Krugman for saying that savings were in excess. I said that personal savings is down, and domestic savings are not enough to cover investment such that the US has to borrow from abroad. This post will explore the relationship between domestic savings, domestic demand and the Current Account balance. I start with a story yesterday from Spiegel Online International that pointed to Germany’s very large trade surplus, which is higher than China’s. “The Treasury’s semiannual currency report criticized Germany’s over-reliance on exports, a high current-account surplus and weak domestic demand. Why is Germany’s high Current Account surplus a problem? To answer these questions, I refer to an article written by Michael Pettis back on May 21st, 2013. National Savings vs. Here is a statement from his article, which is long, and should be read. So I criticized Mr. One can also use the % of total consumption to GDP to assess national savings.
Nathan Tankus: Krugman von Hayek By Nathan Tankus, a student and research assistant at the University of Ottawa. He is currently a Visiting Researcher at the Fields Institute. You can follow him on Twitter at @NathanTankus Mainstream economic discussions employ a false dichotomy. At one “extreme” you have Austrian economists who believe the current Federal Reserve policy is (or should be) causing inflation, malinvestment, and all sorts of other maladies. They think the nominal interest rate set by the Fed is too low and should be raised (For this post I will take the “Austrian position” as the one argued by Hayek in the early 1930s. Let us begin with what they agree on: A central bank that sets a short term interest rate In contrast with monetarists of many stripes, both camps argue that the short term interest rate (the “Fed funds” rate in the United States) is set by the central bank (In the U.S., the Federal Reserve). Money is an endogenous, not an exogenous variable Krugman on the other hand, is often less clear.