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Mark Carney, "a special one"?

Mark Carney has continued to behave poorly over the terms of his employment as Governor of the Bank of England. The UK went to a lot of trouble to create eight year terms for the head of its central bank as part of a plan to boost its independence. Straight up from the start Carney was negotiating something personal for himself. He only wanted to serve five years for sure, and would think about serving the full eight in due course. He thus guaranteed there would be speculation about his term after three years, and so it proved. Odd behaviour for someone who is… Read More

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“There were 77 countries under consideration, and 49 of them were in recession in 2009. Economists—as reflected in the averages published in a report called Consensus Forecasts—had not called a single one of these recessions by April 2008.”—Financial Times. One can rely on Western macroeconomists and central banks annually serving up forecasts of economic growth and higher interest rates, often with a side-dish of inflation-sermonizing. The Fed’s outlook as of September is for 1.9% to 2.2% real GDP growth in 2017 and that PCE-core inflation will budge up 30 to 40 basis points or so, possibly hitting the Fed’s 2.0%… Read More

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Monetary Policy is blocking the Portfolio Channel

In August David Beckworth posted an excellent chart illustrating the monetary tightening that had been underway since mid-2014. We knew that the end of QE3 had resulted in a passive monetary tightening: from that moment, the USD rose strongly and NGDP growth slowed. Also, Base Money turned flat from a strongly positive growth. He illustrated these tight money trends by showing the Fed’s holdings of marketable Treasury securities as a percent of all marketable Treasury securities. The chart showed up well the warning signs flashing in late 2007 and early 2008 as the liquidity squeeze gathered pace prior to Fed causing the… Read More

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When Sweden almost did it!

This adage applies perfectly to the Riksbank: Even if you are “free”, nothing stops you from being “stupid”. In 2008, piggybacking on what most central banks did, the Riksbank allowed the economy to “freeze”. By that, I mean the Riksbank let nominal spending (NGDP) growth to turn negative. In level terms, as the chart indicates, the level of spending dropped. So did the real output. However, differently from other central banks, the Riksbank soon began “thawing” the economy at a rapid clip. Nevertheless, shortly before the economy reached its “natural”, “thawed-off” state, the Riksbank, maybe because it felt it was… Read More

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Run the economy warm, not hot, not cold

Janet Yellen in her recent speech floated the idea of allowing the US economy to run hot for a while to see if it can promote higher real growth, a “high-pressure economy”. Although I suspect she may just be talking this way in an attempt to offset the negative effects of a December rate rise it is an interesting way of looking at things and certainly worth moving towards given the low level of both RGDP and NGDP growth. I have argued elsewhere that the best way of promoting productivity growth is to see labor bid away from existing jobs to higher paying jobs.… Read More

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Of the last five Federal Reserve Chairpersons (excluding William Miller who headed the Fed for just a few quarters), three were academics and two were pragmatists. The academics: Arthur Burns, Ben Bernanke, Janet Yellen The pragmatists: Paul Volcker, Alan Greenspan Arthur Burns led the Fed to promote the “Great Inflation”, mostly by thinking the Fed was powerless to combat inflation: Burns – to whom inflation was a real phenomenon A few months after becoming Chairman in 1970, Burns thought the country was not willing to accept rates of unemployment in the range of six percent as a means of quelling inflation. From… Read More

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The "Great Moderation" Transformed

In “Was the Great Moderation Simply on Vacation?” Christopher Waller of the St Louis Fed writes: From around 1984 to the mid-2000s, U.S. macroeconomic volatility dropped to unusually low levels. Economists dubbed the period the “Great Moderation.” With the arrival of the Great Recession, many declared the Great Moderation over. However, data indicate that the increased volatility in 2007-09 may have been a temporary blip instead of a reversion back to the days of high volatility. And concludes: Therefore, while good luck likely played a role, a lot of credit should probably be given to a more structurally stable economy… Read More

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The mis-guided Fed

As a faithful Phillips Curver, Yellen believes the labor market is central do the inflation outcome. That´s why we read in the FOMC statements that: Inflation is expected to rise to 2 percent over the medium term as the labor market strengthens further. That´s a false premise. But even if it were true, the labor market doesn´t show a fraction of the strength the Fed is imputing to it. In fact, the unemployment rate is a meaningless indicator. It needs to be contextualized. For example, a 5% unemployment rate in 2016 has a very different meaning from the same 5%… Read More

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In my last post, I paraphrased Milton Friedman, and said that “disinflation and deflation are always and everywhere a monetary phenomenon.” The fact that global central banks do not agree, and think they are “overburdened” and wildly hyper-accommodative, is a worrisome development for investors. It means more monetary suffocation ahead. In yet another warning flag for investors, U.S. Federal Reserve staffers recently issued a report entitled, Understanding the New Normal: The Role of Demographics The Fed staffers conclude that demographics caused the feeble U.S. recovery since 2008, and that dead prices and interest rates are not connected to the central… Read More

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Feldstein Lives, breaths & eats inflation

And his routine and diet hasn´t changed one iota in more than 7 years! May 2009 The US last week showed its first signs of deflation for 55 years, prompting inevitable fears of further deflation in the future. Yet the primary reason for the negative rate of US inflation is the dramatic 30 per cent fall of commodity prices. That will not happen again. Moreover, excluding food and energy, consumer prices are up 1.8 per cent from a year ago. That is the good news: the outlook for the longer term is more ominous. The unprecedented explosion of the US… Read More

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