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Unit Labor Costs Falling Again In US

The Bureau of Labor Statistics reported Wednesday that unit labor costs fell 0.9% in Q2, and are up 1.9% from a year earlier. Unit labor costs are a drag on the Federal Reserve’s 2.0% PCE inflation target. Not only that, but unit labor costs are now up only 7.8% from nearly 10 years ago. The 2010s are not the 1990s, that now-forgotten Alan Greenspan-epic of low inflation and high productivity growth. However, it makes sense that the captains of industry invest in new plant and equipment when they think sales are forthcoming to validate the risk. True, the last 10… Read More

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The Fed´s unending search for “ammunition”

From Brad DeLong, who doesn´t think the economy is “solid”: Economic developments over the past 20 years have taught – or ought to have taught – the US Federal Reserve four lessons. Yet the Fed’s current policy posture raises the question of whether it has internalized any of them. The first lesson is that, at least as long as the current interest-rate configuration is sustained, the proper inflation target for the Fed should be 4% per year, rather than 2%. A higher target is essential in order to have enough room to make the cuts in short-term safe nominal interest… Read More

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Sunday remininses: John Taylor on NGDP Level Targeting

In the first edition of his Macroeconomics textbook (1986), on page 137, we read: The underlying objective of policy is to maintain a steady or stable level of aggregate demand. The importance of a stable aggregate demand is one that has been recognized by most economists since the 1930s. Even economists who normally differ on other issues agree on the principle that it is desirable to maintain a stable growth of aggregate demand. The chart below is a replica of his chart (pg 136), discussing the appropriate response to an aggregate demand shock, induced by a rise in money demand… Read More

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As reported here, recently the IMF posited a “Minsky Moment” is pending in the US, due to current-account trade deficits. The foreign-capital inflows are bloating US asset values into a towering house of cards which could soon tumble on the next windy day. In this regard, the IMF links arms with the tenacious tight-money crowd, which has a default position that loose money has bloated US asset values into a skyscraper anchored in quicksand. After the Pending Financial Debacle Having hunkered down in my hardened financial bunker, I read with interest a N. Gregory Mankiw New York Times op-ed regarding… Read More

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FOMC Statement: the key change

Contrary to Trump, Fed selected words are carefully screened. Therefore, this change in wording could be significant: The June Statement said: …economic activity has been rising at a solid rate. In July that changed to: …economic activity has been rising at a strong rate. In one of the next meetings this year, will the wording change to …the rise in economic activity has continued to strengthen. If it does, (Trump-style) BEWARE! The Fed can say what it wants, and as the charts show, their “foundation” can be very shaky. If over the last 12 years the economy has been “promoted”… Read More

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The International Monetary Fund just issued a tome written in the indecipherable international-ese favored by global economic organizations, but warning darkly about “imbalances.” Here is the latest view from the IMF: “Large and sustained excess external imbalances in the world’s key economies—amid policy actions detrimental to external balances—pose risks to global stability.” Over the medium term, sustained [current account trade] deficits, leading to widening debtor positions in key economies, could constrain global growth and possibly result in sharp and disruptive currency and asset price adjustments.” In English, for American readers, this translates as: “Dudes, the US is running huge and… Read More

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The unending search for what´s behind the paltry, but long, expansion.

At this time, we are plodding along what has become the second longest expansion in available history. By this time next year, the length of this expansion will beat the record held by the 120-month expansion of 1991-01. Several attempts at an explanation have been made. Two years ago, for example, Greg Mankiw wrote “One Economic Sickness, Five Diagnoses” that have been further elaborated since: It may be tempting to blame the Great Recession of 2008-9 for the paltry 10- year growth rate. Indeed, this recession was a deep one. Yet the explanation for the poor long-run performance is not… Read More

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When President Reagan Trumped Trump

Long forgotten, and un-remembered especially by hagiographers, are the proposals of the Reagan Administration, advanced by President Ronald Reagan himself, that the Federal Reserve be placed into the Treasury Department. When the central bank was established, Reagan told reporters in 1982, the Secretary of Treasury was its head, and he asked whether we should reconsider whether such a system might work better than the current one. Nor was Reagan’s covetous eyeballing of the Fed a one-off musing. Rather it was a constant refrain. In 1984 Reagan’s Treasury Secretary Don Regan reiterated the Reagan proposal, as reports circulated there was a… Read More

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When the mind plays tricks!

Edward Leamer, famous for his 1983 article in the American Economic Review, “Let´s take the con out of econometrics”, in January 2007, published an essay “Is a Recession Ahead? The Models Say Yes, but the Mind Says No”.  To him, “Housing is the business cycle”, so he syas: Any model built on housing starts is sure to say a recession is coming soon. But, the curmudgeon jokes: “Economists are like artists. They tend to fall in love with their models.” With considerably less pleasure, I would add. Further on, he writes: Thus, when your mind tells you that your model… Read More

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The Incredible Falling Copper Price         

Copper futures have been tanking of late, sinking from of $3.32 per pound on June 8th, to $2.7 per pound on July 19th, a 19% drop. This drop has largely undone the prices gains the commodity had accrued following the general rise in asset prices in November 2016. Predictably, the financial press have raised the alarm about “Dr.Copper” foretelling a slowing US economy. Unlike, say, oil, where new capacity is readily pulled online, copper supply is largely fixed, with mines slow to open or even change production volume, which helps narrow down the range of causes in price changes. In… Read More

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