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A Bitcoin Story

The model, or imaginary world, I use to state what bitcoin is in an informative, but also simple way, goes like this: You have an endless space of mail boxes. Not literally endless, but so big that you never explore it. There’s money in some of the boxes, unlocked, but you don’t bother “checking mail boxes”, you’ll never find anything as there are too many to search. You have a limited token money unit that can be moved to the boxes, in theory, cheaply and fast. You never get to hold your money as physical bank notes, just move it… Read More

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If the Choice Is Between Ever-Mounting National Debts Or Central-Bank Helicopter Drops….

The EconLog website recently ran a post by Alberto Mingardi, the thrust of which is that Western democracies are inevitably prone to mounting national debts, as voting populations want government services or handouts, but do not want to pay for them. It is hard to dispute Mingardi, and indeed the United States is diligently building its national debt, funding both welfare and warfare states by borrowing. Notably, the recent Trump tax cuts are not matched by spending cuts. The phrase “Deficits Don’t Matter” is evidently stitched on the Stars-and-Stripes, judging by the fervent salutes. Curiously, a result of the spate… Read More

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The Fed Wants Higher Unemployment - NAIRU: On the Road to the Weimar Republic

The US Federal Reserve appears to be targeting a recession, posits the ever-observant Tim Duy, University of Washington prof, blogger and Bloomberg commentator. Why? NAIRU, or the great bogeyman, aka the “non-accelerating inflation rate of unemployment.” Readers might have thought NAIRU had been tossed out of the macroeconomic analytic tool-kit along with the Phillips Curve, and long ago, but no. After all, the 1990s did not result in runaway inflation, with relatively low unemployment and lots of prosperity. So what?  The US central bank still shudders at the thought of NAIRU, which it places now at about 4.6% or 4.7%.… Read More

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The Fed is “internally inconsistent”

We hear loud and clear from Yellen and several other participants that the rationale for hiking rates now and in the future, according to projections, is given by the Phillips Curve. According to the FOMC´s latest projections, unemployment is and will remain below its long-run sustainable rate and this should put pressure on inflation. That, however, is not what happens. Unemployment remains below the sustainable, or natural, rate for the next three years while inflation reaches target in 2019 and remains there. Maybe a 4% unemployment rate is consistent with inflation on target, so that the current and projected rate… Read More

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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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