2019

In monetary-policy circles, hardly a day passes without somebody somewhere declaring, sometimes in the form of a florid proclamation, that a central bank must have “credibility.” Otherwise, it is ominously posited, we slide soon into the Weimar Republic, although some later variants suggest the modern-day Japan scenario. That is, no one trusts the central bank to inflate enough. If this version of monetary policy is true, then at the end of the day the long-faced serious monetary-policy community slides into bed and embraces (this is the G-rated version) the much-ridiculed behavioral economists. An economy will or will not have inflation… Read More

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Chronic and large US current-account trade deficits lead to vulnerable and bloated domestic asset values—no, that it is not the proposition of Trump Administration China-bashers, but rather the conclusion of the globalist International Monetary Fund. The short story: Big and sustained current-account trade deficits axiomatically produce large capital inflows to the US. That Niagara of inflowing capital seeks a home in stocks and bonds, and moreover, can leverage up to buy real estate. But the resulting lofty asset values are unstable, and risk a “Hyman Minsky moment.” That type of moment is economist-talk for when the investment-market decides Fat City… Read More

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NGDP Outlook Update – February 2019 A look at the Treasury Market

Let’s do a recap of the recent history of NGDP expectations. At the End of Q3 2018, the NGDP outlook was nearly fantastic. Throughout Q3, year-ahead expected NGDP, as interpreted by out market-driven forecast engine was holding around 5%. When Q4 began, there was a small dip in the year-ahead expectation, arising from the shift to a new four-quarter window in our calculation of YoY growth, not data.  The quarter started out fine, with expectations hitting 4.6% on November 7, 2018. Things went south from there; following a series bearish Fed actions and non-actions, in the face of flailing markets… Read More

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Call me “something”

The three charts below depict some alternative situations. The first illustrates the effect on real output and prices of a positive (productivity) supply shock with unchanged (constant AD) monetary policy. The second shows the effect on real output and price of an AD shock, flowing from an expansionary monetary policy that pushes AD up, while the third chart illustrates what has been a frequently used simplifying textbook assumption, to wit, that supply is demand determined. The next charts show the real-world counterparts. They all come from the last quarter of the 19th century when the economy was on a gold… Read More

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Blogger Kevin Erdmann has issued a rarity: an important book that should re-shape the macroeconomic and monetary-policy debates and policies. The book is— “Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy” published by Rowman & Littlefield. In a nutshell, Erdmann argues that the West Coast of the US, New York City and Boston have become powerful generators of jobs, but those same regions have suffocated new housing production through endless regulation, NIMBYism, crony-development schemes, and property zoning. The predictable result is an explosion of housing prices and rents. It was this choking off of… Read More

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Two Labor Markets: The “Strong” & the “Weak”

“We need the concept of a natural rate of unemployment … we need to have some sense of whether unemployment is high, low or just right,” Jay Powell says (at AEA). Keep on looking Mr. Powell, you won´t find it. As the panel indicates, a “low” unemployment rate can be a feature of both a “strong” and a “weak” labor market. In all other dimensions, this labor market is relatively weak. Employment has grown much less. Wage growth has been much more subdued. Meanwhile, on average, inflation is similar (1.6% yoy now versus 1.7% then). The participation rate well reflects… Read More

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