September 2018

Ten years later, they still have the wrong perspective on the 2008 crisis

BEN S. BERNANKE, TIMOTHY F. GEITHNER and HENRY M. PAULSON Jr, remember the 10-yr anniversary of Lehman: Although we and other financial regulators did not foresee the crisis, we moved aggressively to stop it. Acting in its traditional role as lender of last resort, the Federal Reserve provided massive quantities of short-term loans to financial institutions facing runs, while cutting interest rates nearly to zero. The Treasury Department stopped a run on money market funds by providing a backstop for investors. The Treasury also managed the takeover of the mortgage giants Fannie Mae and Freddie Mac, and worked with the… Read More

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I was but an earnest graduate in public policy school, hip-deep in academic tomes and pondering worldly thoughts, when a grizzled John Gronouski, WWII vet, former postmaster general and Ambassador to Poland, gave me that advice. Funny what one remembers from years past and classes gone by, and disco nights better not had. But through the decades that sage wisdom stuck.  Maybe I did learn something in school. Of course, newspapers have declined, but the online world is alive with classified-site Craigslist and several national job websites, such as Indeed.com. The New York Times took a page from Gronouski’s book… Read More

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The employment report was not “solid”, but had “toxic” elements

According to the BLS: The Civilian Labor Force dropped by 469 thousand The number of employed people dropped by 423 thousand Those not in the labor force rose by 692 thousand The unemployment rate stood pat at 3.9% because the Labor Force Participation & the Employment-Population Ratio dropped by the same amount, 0.2 percentage points (if only the LFPR had dropped, pundits would be “worried” by another drop in the unemployment rate). It´s interesting to note that since early 2014, the “narrative” has changed. While in 2014-15 the average monthly increase in non-farm (NFP) employment was 237 thousand, we heard… Read More

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Has The Fed Drawn Precisely and Exactly the Wrong Lessons From 2008?

One might think so from reading the buzz-causing Some Implications of Uncertainty and Misperception for Monetary Policy just issued by the US Federal Reserve. Briefly, the Fed staffers posit, “because monetary policy acts with a lag, waiting for inflation to materialize before reacting is undesirable, particularly when economic conditions are such that outsized deviations of inflation from its target are a plausible outcome.” “Outsized deviations”!  We are but fleeting moments from that old standby, “runaway inflation.” I rather suspect this new Fed study is but a sophisticated version of the Inflation Boogeyman, and another paean to the usual central-banker tight-money… Read More

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Is the US Economy really “Booming”?

Bloomberg’s Noah Smith, while rarely worth reading, is usually among the least-bad writers at what once was a serious financial news outlet. However, his post on Bloomberg last week: “Why the US economy is having a boom” is wrong enough to call for a response. In this post, Smith makes the case that the US economy is having a boom, and then goes on to detail what lies behind this boom. Before going through his case, let’s start by asking the question: “Is the US economy in a boom?” The word “boom” evokes some temporary period of above-average economic growth. The Roaring… Read More

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“Foggy Recollections”

Cecchetti & Shoenholtz remember the 10th anniversary of Lehman: The most intense period of the broadest and deepest disruption of U.S. and European finance since the Great Depression began with the failure of Lehman Brothers on September 15, 2008… In our view, three, interrelated policy responses proved critical in arresting the crisis and promoting recovery. First was the Fed’s aggressive monetary stimulus(!), including the introduction of unconventional policy tools, such as quantitative easing, targeted asset purchases, and forward guidance, at the effective lower bound for interest rates. After Lehman, within its mandate, the Fed did “whatever it took” to end… Read More

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