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“Panic”

In Bernanke´s response to Krugman´s comments on his paper presented at the Brookings Conference on 10 years after Lehman, Bernanke begins: Why was the Great Recession so deep? Certainly, the collapse of the housing bubble was the key precipitating event; falling house prices depressed consumer wealth and spending while leading to sharp reductions in residential construction. Was the collapse of the housing bubble the key precipitating event? Apparently not. Sweden, for example also experienced a similar rise in house prices, but there was no “collapsing bubble”. However, the recession in Sweden was “greater” (or deeper) than in the US. Bernanke… Read More

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David Beckworth: The Fed Is Loading Torpedo Tubes, USS Economy in Sight

When the yield curve inverts, the US economy capsizes, sure as—well, sure as running some torpedoes into the hull of the USS Economy. David Beckworth’s latest and worthy post regards the rather cavalier attitude at the US Federal Reserve as the central bank, seemingly on automatic pilot, targets rate hikes through next year. The above chart is not comforting. Yet, notes Beckworth, “the FOMC’s own summary of economic projections implies a yield curve inversion over the next year or so.” Oh, is that all? Already, various Fed FOMC members have mumbled something along the lines that “this time is different.… Read More

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Yellen is confused & confuses

She made two apparently contradictory statements on Friday (Sept 14). In one: Former Federal Reserve Chairwoman Janet Yellen said Friday that she is concerned the economy might overheat. “At a time like this, I would be worried that the economy is in a situation where it could overheat,” Yellen told reporters on the sidelines of a conference at The Brookings Institution. “I don’t think it would be very rapid but I think it could occur,” she said. Yellen said her view is based on the empirical relationship between inflation and unemployment — known as the Phillips curve, a closely watched… Read More

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I was but an earnest graduate in public policy school, hip-deep in academic tomes and pondering worldly thoughts, when a grizzled John Gronouski, WWII vet, former postmaster general and Ambassador to Poland, gave me that advice. Funny what one remembers from years past and classes gone by, and disco nights better not had. But through the decades that sage wisdom stuck.  Maybe I did learn something in school. Of course, newspapers have declined, but the online world is alive with classified-site Craigslist and several national job websites, such as Indeed.com. The New York Times took a page from Gronouski’s book… Read More

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Has The Fed Drawn Precisely and Exactly the Wrong Lessons From 2008?

One might think so from reading the buzz-causing Some Implications of Uncertainty and Misperception for Monetary Policy just issued by the US Federal Reserve. Briefly, the Fed staffers posit, “because monetary policy acts with a lag, waiting for inflation to materialize before reacting is undesirable, particularly when economic conditions are such that outsized deviations of inflation from its target are a plausible outcome.” “Outsized deviations”!  We are but fleeting moments from that old standby, “runaway inflation.” I rather suspect this new Fed study is but a sophisticated version of the Inflation Boogeyman, and another paean to the usual central-banker tight-money… Read More

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Is the US Economy really “Booming”?

Bloomberg’s Noah Smith, while rarely worth reading, is usually among the least-bad writers at what once was a serious financial news outlet. However, his post on Bloomberg last week: “Why the US economy is having a boom” is wrong enough to call for a response. In this post, Smith makes the case that the US economy is having a boom, and then goes on to detail what lies behind this boom. Before going through his case, let’s start by asking the question: “Is the US economy in a boom?” The word “boom” evokes some temporary period of above-average economic growth. The Roaring… Read More

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“Foggy Recollections”

Cecchetti & Shoenholtz remember the 10th anniversary of Lehman: The most intense period of the broadest and deepest disruption of U.S. and European finance since the Great Depression began with the failure of Lehman Brothers on September 15, 2008… In our view, three, interrelated policy responses proved critical in arresting the crisis and promoting recovery. First was the Fed’s aggressive monetary stimulus(!), including the introduction of unconventional policy tools, such as quantitative easing, targeted asset purchases, and forward guidance, at the effective lower bound for interest rates. After Lehman, within its mandate, the Fed did “whatever it took” to end… Read More

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The importance of (nominal stability) locking in full employment for the long haul

Josh Bivens and Ben Zipperer just released a paper with the title above, minus “nominal stability”. The point I want to make is that if the Fed focuses on nominal stability (instead of any other target), the economy will likely operate much closer to “full employment”. The second point of the paper´s summary is: Equitable wage growth is linked with extended low unemployment. Since 1979, the only period of strong across-the-board wage growth occurred in the late 1990s and early 2000s, which was also the only period of extended low unemployment in recent decades. This coincidence of extended labor market… Read More

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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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