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Putting Construction Spending into Perspective

You may have seen the recent headlines about the stronger than expected construction spending report for November. One of the points certain outlets made about the report was the frankly banal observation that spending is now at an “all time high”. Spending-linked variables, in an economy with some sort of persistent inflation rate and population growth (that is to say, not Japan) should always be near all-time highs and breaking new highs frequently. Think stocks/corporate earnings, personal income or any other subcomponent of GDP. It might not be completely useless information, to know that construction spending finally passed the old… Read More

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Monetary straitjackets are not easy to take off

Faster inflation is expected given the trends in breakeven inflation rates. Bond yields have risen as rate expectations have risen in a sort of arms race between expected inflation and expected rate rises to calm the expected inflation. This is only partly driven by expectations of economic trends, a related part is the expected liquidity impact of higher supply of bonds to fund the fiscal policies themselves. This powerful cocktail drives down bond prices independent of inflation expectations. Our market-influenced NGDP Forecast is not yet showing faster nominal growth. (Please take out a free trial or subscribe to see our proprietary chart… Read More

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Lovely Headline: “The balance of evidence suggests the U.S. is not in a recession.”

That wasn’t a sure bet when the year was young. Over the first half of 2016, various indicators pointed to a possible recession in the not-too-distant future: sharp declines in stock markets and a slowdown in job creation, falling corporate profits and contraction in the factory sector, stalled temp hiring and decelerating car sales. But as 2017 approaches, most—though not all—of those yellow warning lights have turned green again. This alternative headline “The balance of evidence suggests the U.S. is not in a recovery” much better reflects the spirit of the time. It is clearly visible in the chart. Note that “warning lights” move from yellow to green and… Read More

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The PCE Chain-type Price Index Standard

Believe it or not, there are still people worried about inflation, about the US dollar losing its value. It is not hard to find articles where complaints about how the dollar has “lost its value” since 1913, 1936 or 1972, various points where the dollar was gradually shifted toward its modern “fiat” standard. Yes, the dollar is a fiat currency. The US Treasury gives no guarantees to redeem dollars for any commodity. In fact, the US Treasury does not even make dollars anymore! The Fed does. Yet it is manifestly not true that the dollar isn’t in a de facto… Read More

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There´s been no “strongly upward trend”!

Stiglitz: “Trump takes charge of an economy on a strongly upward trend, with third-quarter GDP growing at an impressive annual rate of 3.2%” (!) That´s deceiving. In fact, Trump takes charge of an economy that has been in a “Long Depression” since 2009. That´s courtesy of President Bush and, more significantly, of Bernanke (for some reason named both “Hero” and “Person of the Year”). When Obama took charge, the economy had already been smothered into depression. That has been the status quo since then. Stiglitz is probably right to note that both the incoming president´s character and proposed policies are unlikely to… Read More

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The Fed Plans a Monetary Noose? No one speaks more provocatively on monetary policy—at least no one with big credentials—than Lord Adair Turner, former chairman of the British Financial Services Authority, and now affiliated with George Soros’ Institute For New Economic Thinking. Adair has also authored a book Between Debt and the Devil: Money, Credit, and Fixing Global Finance, Princeton University Press, 2016. To combat feeble global aggregate demand, Turner eschews fiscal policy, with the dead-on analogy that, “So you’re caught in a trap where the only solution to the trap is to make the trap a bit deeper. It… Read More

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There´s been no recovery, just a long depression

Simon Wren-Lewis writes: “When is an economic recovery not a recovery?” What do we mean when we say the economy is recovering from a recession? Do we mean it has started growing again, or do we mean it is returning to its pre-recession trend? Brief research suggests there is no standard definition, but Wikipedia is clear it is the latter. It is clear that to return to the pre-recession trend, growth has to be higher than average, but showing a growth chart as SWL does is not the most clear way to illustrate if the economy is recovering. In his exercise, SWL… Read More

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The UK: a Market Monetarist crucible

Another day another bit of evidence that UK monetary policy eased hugely on Brexit, offsetting longer-term uncertainty on trade arrangements. This time it is the very strong reading, super-ironically, from the super-gloomy, very pro-Remain CBI in its latest Distributive Trades Survey. As I wrote soon after Brexit and after a further easing by the Bank of England, monetary policy in the UK is most definitely set to relative ease. For a short while after Brexit, surveys of business confidence showed large deterioration but the hard economic data did not agree. It was if business people were reading the FT and The Economist for… Read More

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From the WSJ: In steering their economies, central bankers are guided by a mysterious, hidden interest rate that critics say could be a figment of their imagination. At issue is the level of the so-called natural, neutral or Wicksellian rate of interest, which is the rate — adjusted for inflation — that keeps the economy at full employment with stable prices. Since the crisis, central banks in general and the Fed in particular, have used the concept to justify their actions (or non-actions). In their quest to find the ‘natural rate’, the Fed is faced with an “estimation” problem. To… Read More

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Rogoff's Predictions

Now: After years of hibernation, will the US economy rouse itself for a big comeback over the next couple of years? With an incoming Republican administration, hell-bent on reflating an economy already near full employment, and with promised trade restrictions driving up the price of import-competing goods, and with central-bank independence likely to come under attack, higher inflation – likely exceeding 3% at times – is a near-certainty. And output growth could surprise as well, possibly reaching 4%, at least temporarily. July 2008: Of course, today’s mess was many years in the making and there is no easy, painless exit… Read More

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