Tag: Monetary Policy

Poverty Is ‘Scarce’ In Venezuela (The Guardian 7 Years Ago)


The Guardian published an article about Venezuela’s “success” in 2013. It is still up and now titled, “Sorry, Venezuela haters: This economy is not the Greece of Latin America: Predicting a Venezuelan apocalypse won’t make it happen.” (Of course, they’d gladly trade places with Greece today.)

For more than a decade people opposed to the government of Venezuela have argued that its economy would implode. Like communists in the 1930s rooting for the final crisis of capitalism, they saw economic collapse just around the corner. How frustrating it has been for them to witness only two recessions: one directly caused by the opposition’s oil strike (December 2002-May 2003) and one brought on by the world recession (2009 and the first half of 2010). However, the government got control of the national oil company in 2003, and the whole decade’s economic performance turned out quite well, with average annual growth of real income per person of 2.7% and poverty reduced by over half, and large gains for the majority in employment, access to health care, pensions and education.

Now Venezuela is facing economic problems that are warming the cockles of the haters’ hearts…

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Here are highlights from his interview with Russ Roberts in 2006: I’ve always felt that the big defect politically of the Federal Reserve is precisely that so much depends on unelected representatives. The central bank is treated as if it were the Supreme Court. That’s why during the Depression, there was no effective controls on […]

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The state of the US economy in two words: “getting better.” That’s the learned opinion of John Taylor, the Hoover Institution’s George P. Shultz Senior Fellow in Economics and the Mary and Robert Raymond Professor of Economics at Stanford University. He forecasts continued growth thanks to the latest round of tax cuts and regulatory reform – and wishes Washington would address another of his proscribed principles of economic well-being: budget reform.

Who Wore It Better: Obamanomics or the Bernanke Fed?


The other day I asked, “So did Obamanomics work or not?” It is a complicated question, one that cannot be satisfactorily answered just by comparing today’s jobless rate or GDP growth rate to what they were when Barack Obama took office in 2008.

Now there’s one specific complication I mentioned in passing, but deserved more emphasis: monetary policy. How much credit does the Bernanke Fed deserve for staunching the bleeding, strengthening the recovery, and offsetting austerity? For instance: Some economists credit the third round of the Fed’s quantitative easing program in 2012 for offsetting 2013 tax hikes and sequester budget cuts — and avoiding a double-dip recession.

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Who is more arrogant and annoying, Donald Trump or Paul Krugman? A Hobbesian choice to be sure, but I’d say Krugman every time. Of course, the media would uniformly disagree, as can be seen in the reaction to Trump’s economic ideas, The bizarre optimism in Donald Trump’s theory of the economy.  Like Krugman, much of what Trump talks […]

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Slash Corporate Taxes First, Then Yellen Can Normalize


Janet-YellenSpeaking before a packed audience at the prestigious Economic Club of New York, Fed chair Janet Yellen basically announced that there would be no rate hikes for quite some time — maybe once before year end, maybe not. Her key point was that the global economy is worse today than it was in December, back when the Fed took its target rate up a quarter point. I think she’s right.

I also think she is paying more attention to forward-looking, inflation-sensitive financial and commodity-market prices. This is good. Very good.

Yellen cited shrinking inflation spreads in the Treasury bond market, declining commodities (until recently), a flattening of the Treasury yield curve, and a stronger dollar. The sum total of these market-price indicators is stagnant growth and virtually no inflation. Hence, there’s no need for the Fed to militantly raise its policy rates.

Another Look at What Caused the Great Recession


Federal ReserveDavid Beckworth and Ramesh Ponnuru take to the pages of the New York Times to explain concisely why it was a tight-money error by the Fed, not the burst housing bubble, that deserves ultimate blame for the Great Recession. If an op-ed isn’t concise enough for you, here is Beckworth from a chart-laden blog post:

To summarize, our argument is that the Fed was doing a decent job responding to the housing bust up until 2008. After that point it tightened monetary policy and catalyzed the reaction that lead to the Great Recession. By the time the Fed changed course in late 2008 it was too late. Interest rates had already cross the zero lower bound (ZLB). Once that happens monetary policy as it is currently practiced cannot do much.

I have blogged quite a bit about this. Of course one doesn’t have to fully buy this market-monetarist take to accept the idea that a more aggressive Fed, earlier, might have at least prevented the worst of the downturn. A bad recession, perhaps, instead of a Great Recession and Financial Crisis. Active monetary policy has a role in dealing with economic shocks — say, a simultaneous surge in oil prices and bursting of a subprime mortgage bubble. Here B&P sum up:

Hello, Fed? It’s Me, America.


shutterstock_273355862My pal David Beckworth writes the post I’ve been eager for him or some other market monetarist to write. Beckworth asks (and answers): Has Fed policy been overly tight?

Given the continued sluggish pace of the recovery and the start of the Fed’s tightening cycle, this seems like a legit question. But it is even more so now given weakening global growth, plunging oil prices, and stock market rout. As Beckworth sees it,  “… macroeconomic policy has not been very supportive of a robust recovery over the past few years.” Among his reasons are that inflation has “consistently fallen below the Fed’s two percent inflation target for the past seven years” and “household portfolios still inordinately weighted toward safe assets.”

So should the Fed be doing more? Well, sure — but that assumes a greater tolerance for inflation. And Beckworth is skeptical:

Flying into an Economic Coffin Corner



When a U-2 spy plane flies very high, the air gets very thin. This causes the the amount of air going over the wing to fall, so the wing thinks it is flying slower and therefore will stall (lose all lift) and fall out of the sky at much higher real speeds. The U-2 has another limit, its critical Mach number. This is the highest speed before the airplane will begin to tuck under and lose control due to transonic effects on the wing and tail.

Normally, there is a huge gap between the stall speed of the airplane and its critical Mach number. But as you climb higher, these numbers begin to converge. At the U-2’s highest operational altitude, the difference between the stall speed and the critical Mach number can be as little as five knots. This is known to U-2 pilots as the “coffin corner.” In the coffin corner, if you fly any faster, you lose control. Fly any slower … and you lose control. It’s extremely dangerous, and normally the plane would only be flown on autopilot in this region.

For the Fed, One-Eighth of a Point and Done


One-EighthAs stocks endure their worst correction since 2011, and the battle between Fed doves and hawks rages on over a quarter-of-a-percentage-point rate liftoff, the much-anticipated August employment numbers made for a surprisingly mediocre report.

Nonfarm payrolls came in below consensus at 173,000. But private payrolls increased only 140,000, the smallest gain in five months. Compared with the average post-1960 recoveries, private-sector jobs are nearly 6 million below that long-run trend line.

The unemployment rate fell to 5.1 percent. But the labor-force participation rate remained low at 62.6 percent, as did the 59.4 percent employment-to-population ratio.

August Jobs Report Won’t Change Minds at the Fed


shutterstock_111386480I tend to divide folks who talk about economics publicly into two camps: Those that comment after watching the news, and those that read actual reports about the data they’re discussing. If you just watched the news this morning what did you hear? This. If you actually read the report, you’re my kind of people.

This morning’s jobs report has a headline number that will tell you the job market was weaker than expected, rising 173,000, about 50,000 below what was anticipated. Now you’d think that alone would strengthen the argument that the Fed will not raise interest rates at its September 16-17 meeting. But the market swooned at the open, meaning market participants see this report as positive. And it was.

  1. Data revisions to June and July leave the last three months averaging 221,000, about where you would expect. There is substantial discussion of the likelihood of sharp revisions that tend to happen in August, too, so there was some discounting of a low payroll number in advance of the announcement.
  2. We not only got lower unemployment — a 5.1% reading — but we got it for the right reasons. The employment-to-population ratio ticked up, the number of people unemployed fell, and so did the number of discouraged workers. The U-6 rate was down to 10.3%, the lowest in 7 years.
  3. Private sector wages moved up 8 cents, continuing a good run. They’re up 2.1% from a year ago and weekly earnings are up 2.5%.  Average weekly hours ticked up a tenth too.

Shortly after the report, Richmond Federal Reserve president Jeffrey Lacker spoke to a group of retailers to explain why he thinks we still have to lift rates. While he did not directly comment on this morning’s report in those remarks, he said later that the report did not change his mind. I expect this report not to change anyone’s mind, though it will be used in the statements to justify whatever they had already decided to do. I will be very surprised if anyone says “this report made me change from hike to no hike,” or vice versa. There’s not enough here.

Move at the Pace of an Injured Snail


shutterstock_76996180Pretty much everyone in the world wants the Federal Reserve to begin its “rate liftoff.” September is the latest target date for this market consensus. But permit me one dissenting question: Are you sure?

Or as the saying goes: Be careful what you wish for.

Take a look at a bunch of forward-looking, inflation-sensitive market indicators. They’re flashing deflation, not inflation. In the past year or so, gold has dropped from $1,300 to $1,100, spot commodities have fallen 16 percent on the CRB index and commodity futures are off 22 percent. Of course, oil has plunged to $42 a barrel, which amounts to a 56 percent price drop.

Economic Debate: Kasich, Rubio, Bush Up — But Trump’s Protectionism is the Real Downer


DebateWith a record 24 million people watching the GOP debate, you’d think there would have been a lot more time spent on the most important issue of the day: the economy. Look at any poll. Jobs and the economy are always at the top of the list. But there was barely a mention of this on Thursday night.

The Republican party is not going to win this election unless it persuades the electorate that its primary principles of low marginal tax rates, lighter regulation, free trade, and a sound dollar are the best path to growth. Call it free-market capitalism. Call it supply-side. Call it entrepreneurship. Call it take-home pay. But the endgame is growth and prosperity.

So let’s make this very simple. Like almost every election in American history, 2016 is going to be about growth versus redistribution, private-sector markets and competition versus government planning, and a hard reliable dollar versus a protectionist collapse of the greenback.

June Jobs Report: 6 Years Into Economic Recovery, Is This The Best We Can Do?



Nothing in the June jobs report to suggest any approaching US economic acceleration or surging inflation — or reason for the Fed to raise interest rates. The top line numbers were decent: 223,000 net new jobs, the unemployment rate fell to 5.3% from 5.5%. Also a big drop in the U-6 unemployment-underemployment rate.

The internals were less decent: The participation rate fell, the employment rate fell, the labor force fell by 432,000, April and May jobs were revised lower by 60,000, nominal wage growth was flat. What’s more, 2015 job growth of 208,000 a month is markedly lower than the 260,000 monthly average for all of last year. And if the participation rate had merely held steady from last month, that big jobless rate drop would have turned into a jump to 5.7%. Maybe this chart best sums up where we are six years into economic recovery (June was the anniversary month):

Bear Week Begins


grizzlyIf you’re just waking up, chances are you’re waking up to the news that you’ve lost money.

The Greece crisis is being likened to an economic Sarajevo. The markets are sinking faster than I can type. Asian stocks began tanking hours ago. (Last I checked, the Shanghai Composite Index was down 3.7%; the Nikkei 225 down 2.4%; Hang Seng down 2.7%; Sydney’s S&P ASX-200 down 2.3%; Seoul’s Kospi … well, you get the drift. By the time I hit “publish” these numbers are sure to be down further.) The European markets opened a few hours ago and … wow. Stampede city.

Yesterday, Puerto Rico — well, I’m sure you heard:

The Essential King Dollar/Low-Energy Nexus


The strong May jobs report — including a 280,000 jump in non-farm payrolls — reminds me of the big debate over the harmful effects of a strong dollar and falling oil prices. But where’s the harm? King Dollar, along with the supply benefits of the oil-fracking revolution, may actually be propping up a subpar economy facing headwinds from heavy business taxes and overregulation.

The entire cost structure of American business benefits from lower-cost imports and the cheaper purchase price of anything when the dollar is king and energy costs sink.

Janet Yellen’s Back-to-the-’50s Interest Rates


Janet Yellen told us last week that the fed funds target rate will be raised slightly later this year. But after that, future rate hikes will be small and gradual over the next several years. In fact, we may never have true normalization (4 percent). In my view, Yellen is offering a back-to-the-’50s approach to interest rates. And she’s right, though for many wrong reasons.

For average folks, what might this policy mean? I’ll take a guess: No boom and no bust. No inflation and no recession. All the post-war recessions were preceded by an inverted Treasury yield curve, where short rates are higher than long rates. That won’t happen for many years. Plus, upward oil-price spikes lead recessions, but we’re now in a downward energy-price cycle.

Again, the 1980s Boom Was About More Than Just the Reagan Tax Cuts


Until I started reading the new issue of the Economist magazine, I was unaware that a new Ronald Reagan biography — “Reagan: The Life” by H.W. Brands — would soon hit the market. (“Mr Brands recounts Reagan’s triumphs and the scandals even-handedly, and concludes that the Gipper’s achievements were comparable to those of Franklin D. Roosevelt, the president who led America most of the way towards winning the second world war.”)

But maybe I telepathically sensed the book’s impending arrival and that explains why I have been blogging so much lately about the Gipper. Or, more likely, I have felt compelled to throw a penalty flag on the improper use of Reaganomics by some current GOP presidential candidates. I don’t have a whole lot to add to what I’ve written previously, except to tie up a few loose ends on issues suggested by readers.

The Fed’s Failed — And That’s a Good Thing


shutterstock_236267482Don’t expect any miracles from the economy. But don’t expect a collapse either.

In political terms, it’s kind of a Mexican standoff. Team Obama says they saved us from another Great Depression. And they point out that 3.1 million jobs have been created in the last 12 months. Republicans counter that this is the slowest post-WWII recovery on record and that real GDP is roughly $2 trillion below potential. They add that the labor-force participation rate is 62.7 percent, a 39-year low, and that there are at least 15 million people who work but can’t get jobs.

Yet both sides may actually come together for a major pro-growth initiative: an Asia-Pacific free-trade deal that will lower tariffs and other barriers. Lower tariffs are lower taxes.