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Haruhiko Kuroda is the Governor of the Bank of Japan, and probably the best central banker on the planet, or at least the most pioneering. And do not present circumstances call for some monetary pioneering? As Marcus Nunes has pointed out, central bankers left to their own devices never beat the Great Depression and have turned the Great Recession into the Long Depression. Global output today is down at least 10% from where it could be, thanks to the lingering aftermath of the 2008 downturn. Kuroda is at least trying to repair the damage. In late September, while the U.S.… Read More

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Of late there has been gasping in the econosphere that President Elect Don Trump’s “huge” $1 trillion infrastructure spending bonanza will boost inflation and interest rates. Why, the U.S. Federal Reserve will have to man the ramparts, offsetting against the price-surging tsunamis! Trump’s plan is for tax-credit-induced and privately-financed infrastructure spending that might add up to $1 trillion, if Trump is office for eight years. It is not a bad plan, at least in theory. Who knows what will happen in practice? But macroeconomically is where the innumeracy comes in, and that in regards the relatively puny size of Trump’s… Read More

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The view that monetary policy is interest rate policy must cease. Otherwise bad arguments and bad policy will continue to fester. A case in point is the exchange between Sebastian Mallaby – who wrote a Greenspan Biography – The man who knew – and Ben Bernanke, who served under Greenspan and later replaced him at the Fed. Neither Mallaby nor Bernanke ‘know’ the Man who knew! One paragraph in Mallaby´s answer to Bernanke´s comments caught my eye: In his comments on my book, Bernanke stresses the experience starting in 2004, writing that “the tightening cycle that began in June 2004 was… Read More

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Are we reading the market right?

The redoubtable Zero Hedge informs us that contrary to a superficial analysis of higher yields and a stronger dollar, financial markets are actually sending a signal that the economy may be headed for trouble. The core of this argument lies in the Goldman Sachs Financial Conditions Index. The Goldman index is essentially the first principal component from a basket of 44 financial assets traded on markets. A sort of summary statistic or compressed signal from that basket. This really isn’t a bad idea and it mirrors the approach developed for our NGDP forecast. We have a much smaller, more focused… Read More

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NGDP targeting proposals are sometimes unfairly attacked. One of the main lines of attack is to strawman the proposal into some monomaniacal obsession by the monetary authority. In this attack strategy, the NGDP targeter is accused of wanting to undertake wild swings in the monetary base to move NGDP up or down enough to get it on target for the current or coming quarter. This is recently exemplified in Nathan Lewis screed which was referenced by Judy Shelton, one of Trump´s economic advisors. Rather than go through all the errors in that post, I’m going to undercut all attacks by… Read More

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A component of the NGDP Advisers’ analysis tool kit that lets us stand out amongst other shops is our adherence to the principle: “never reason from a price change”. We’re never going to get into the game of tracing out the Rube-Goldberg effects of single asset price changes (think yields, oil prices, or currencies).  If we come back from a camping trip in Idaho, a week with no internet, and you tell us “Oil fell 5% since you left” we’ll ask “supply or demand side?” and your reply will make all the difference in helping us get up to speed… Read More

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More Worries For Investors While all eyes are deservedly on Donald Trump, and evidently the country has elected a President who has no monetary policy (oh that?), there is plenty going on in the world of central banking. Or maybe it has become the “same old, same old.” To wit, why have global interest rates and inflation in developed nations largely trended down for more than 30 years, the signal and defining monetary secular trend of modern times? A straightforward explanation is that major central bankers have generally tightened the screws over the decades, first cutting off rising inflation, then… Read More

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If the market is right and Trump believes in Nixonomics, who is his Arthur Burns?

In a post The Origins of The “Great Inflation” Marcus Nunes illustrated very clearly how it was possible to ignite inflation by having fiscal and monetary policy aligned. It does not produce growth. In the early 1970s the combination of new free-spending Republican President Nixon and his own newly appointed Fed Chair, Arthur Burns, was very powerful. Burns did not understand the role of money in creating inflation. He thought it was due to mysterious forces pushing up costs. The background In the 1960s things went well with the Phillips Curve well-behaved, and the theory appeared true. However, wise heads… Read More

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NGDP Advisers is not a political campaigner. We like to analyze monetary policy and its interaction with the economy and central banks as expressed by markets. We do not hold back on offering monetary policy advice to central bankers or politicians. Economists are almost as bad at politics as political “scientists” We certainly didn’t take a position on Trump or Clinton unlike 370 rather foolish looking US economists (or maybe 790 at the last count) including at least eight Nobel laureates. Well, we know just how useless modern macro has been over the last ten years so it is a bit surprising they… Read More

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As the economy "shrinks", so do imports

Liberty Street, the blog of the New York Fed, takes a stab in figuring why imports have slumped of late. They conclude: This analysis suggests that the recent slump in import growth is primarily a reflection of weakness in other parts of the U.S. economy rather than specific factors relating to the cost of international trade.  It´s not complicated. The main determinant of imports is domestic real growth. So, when domestic growth is faltering imports will contract, despite the large change in the terms of trade due to the strong dollar appreciation. In short, the income effect “trumps” the terms of trade effect. In… Read More

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