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Bitcoin seems on an unstoppable tear. Rising from about USD 700 in January 2017, to about USD 11,000 in early December and now to about USD 15,000 as of mid-December, the cryptocurrency has ‘crushed its enemies, and seen them driven before it’. Many commentators claim Bitcoin is a bubble, after all, so the thinking goes, what do markets do but arbitrarily rise, and then randomly crash, causing havoc? Of course, Market Monetarists see things differently. We respect markets, fear them too, and completely reject the concept of a “bubble”. If the participants in the market decide Bitcoin is worth USD… Read More

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Stronger imports, a good sign for Q4 NGDP

You may have seen headlines on Tuesday, about how US imports for October jumped to “record highs”. For the month of October, nominal US imports increased to $45.2 billion, seasonally adjusted, up 5.8% year-over-year. The financial press are keen to write about trade reports, but almost without exception miss the implications of a widening or narrowing US trade deficit. The financial press, even prestigious outlets with expensive subscription fees, will claim that greater imports mean lower GDP. Witness, the Wall Street Journal on December 5th: “The U.S. trade deficit widened in October largely because of a slowdown in exports and… Read More

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Faster NGDP Growth, what does it mean?

NGDP growth has accelerated in recent quarters. When we average NGDP and NGDI (Nominal Gross Domestic Income), we get, at a yearly pace, 5% for Q3, 3.7% for Q2 and 4% for Q1. Not jaw-dropping numbers, but the best run we’ve seen since 2014. It’s also worth looking at the figures in quarterly form, rather than just year-over-year, as inconvenient as it may be. It turns outs that the best way to predict NGDP growth, is to simply look at recent quarterly growth. In developing our forecast models, we found that sub-models that rely on only a single quarter of… Read More

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Macroeconomics is an eternally fruitful field for debate, as no one is ever wrong. There is always another calculus-strewn, opaque “serious” study to cite, or another country to praise or condemn, or an irrefutable theory to which to genuflect. When all else fails, there is resort to, “Just you wait. There will be consequences.” And so we have prominent macroeconomist Martin Feldstein this mid-November warning investors of a potential 38% plunge in equity values, when stock-market price-earnings ratio return to historic norms. And that $9.5 trillion reduction in wealth will savage US spending, which will cut overall GDP growth by… Read More

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What does the Fed really want?

It wants to establish a new monetary policy framework. Recently, several presentations have hammered on this point. In a recent speech, Chicago’s Charles Evans explains: Specifically, I will talk about Delphic communications as those associated with a well-functioning, well-understood monetary policy framework. A foundation for these communications is a variety of state-contingent responses to economic developments that are well understood and well expected by the public. I’ll refer to Odyssean communications as those arising when unexpected events expose weaknesses and shortcomings in a Delphic framework. In such times, the need for outcome-based policies is paramount, and policymakers may be compelled… Read More

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Faulty, but dangerous, reasoning

From “Fed-watcher” Tim Duy: The Federal Reserve believes the economy currently operates close to if not a little beyond full employment. The unemployment rate fell to 4.1% in October, well below the Fed’s longer run estimate and the 4.4% low of the last cycle. And note the broader U-6 unemployment rate, which includes measures of underemployment, fell to 7.9%, the low of the last cycle. By these metrics, conditions are fast approaching those the late-90’s. I believe the economy will sustain enough momentum to hit that point within the next six months. We do not have much experience with an… Read More

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The Fed´s “doom machine”

Tim Duy “terrorizes” in his “Fed will keep rate hikes coming”: Lots of news from last week, most of which supported the Fed’s current anticipated rate path of one 25bp hike in December followed by three more in 2018. The only potential obstacle on that path is the persistent weakness of inflation. But the ongoing decline in the unemployment rate, along with the promise of further declines in the months ahead, will dominate lingering concerns at the Fed regarding the inflation numbers. That´s exactly Yellen´s thinking: It’s important to try to estimate the unemployment rate that is equivalent to maximum… Read More

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Anticipating disaster

A new Fed Chair is always required to show his anti-inflation credentials: Booming Labor Market Could Pose Challenge for Powell and the Fed – Janet Yellen’s prospective successor may find himself needing to restrain an economy that is too vibrant: The hardest job in central banking is to take the punch bowl away from the party just when people are starting to have fun. Jerome Powell, the Federal Reserve’s prospective chairman, could soon have to assume the role of sober killjoy as he is confronted with an economy and markets that are heating up. That could put Mr. Powell in… Read More

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As I reported in this space recently, the U.S. Federal Reserve has been in sustained catatonic hysterics about “spreading labor shortages” in the United States, going back several years, as evidenced by Beige Book passages nearly too numerous to catalogue. This week, the U.S. Labor Department reported third-quarter unit labor costs were down 0.1% year-over-year. As noted by many, the Fed long ago ossified and since at least 2008 has chronically projected inflation, interest rates and economic growth higher than is obtained. Perhaps underlying this petrified bias has been an acute squeamishness about labor markets, especially as advanced by regional… Read More

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The UK central bank raised interest rates by 25bps today. Big deal. Because GBP fell and stock markets rose, we have just witnessed a dovish rate rise. In achieving this feat, the BoE has had the same success as Draghi on the expected tapering of the ECB’s QE announced late last month. Hats off to both the ECB and the BoE How is a dovish rate rise or QE taper achieved? By convincing markets that their expectations of further rate rises or faster tapering of QE or reductions in central bank balance sheets were too hawkish. The key to this particular dovish rise was not Carney, He is… Read More

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