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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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The power of the unstoppable force (QE) was re-armed, mostly as expected. Slightly less per month but spread out over a slightly longer period with a couple of tweaks that will mean more purchases at the short end and less at the long end – artificially steepening the yield curve. The reiteration that the QE is still state-contingent is helpful, as always. But the state of the “state-contingent” of “close to but below 2% inflation” is pathetically unambitious and will always act as a huge immovable object in the way of the unstoppable force. Such confrontations usually end in a… Read More

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ECB needs to and will do more QE but should change targets

Several quarters ago I was more optimistic about Euro Area growth than US growth. This optimism proved correct . The Euro Area did better for a while and the US did slow. The ECB was loosening with aggressive QE .The US is tightening with rate rises and projected rate rises. As we reach the end of 2016 Euro Area growth is slowing. It is only on the 6th December that we finally get the first official estimates for Euro Area NGDP growth. They have come in a little below my earlier estimates based on the figures from the biggest and earliest-reporting Euro Area countries (there… Read More

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The Fed Has Been Getting (Mostly) Tighter For 40 Years

Well, that’s the conclusion of three U.S. Federal Reserve-Richmond economists in one of the most interesting papers of the year, or maybe any year, on monetary policy. Investors take note—this explains why bonds have had an epic bull run. In a paper provocatively entitled The Burns Disinflation of 1974, the authors, Thomas A. Lubik, Christian Matthes and Tim Sablik examine Fed policy, particularly the Fed funds rate, viewed through the lens of a measure similar to a “Taylor Rule.” This is what they found: The Fed has been generally tightening the screws—that is, running a higher Fed funds rate in… Read More

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For example: Indeed, Alex Tabarrok, an economist at George Mason University, argues that it’s “crazy” to believe that a lack of demand explains the slow (in fact, absence of) recovery. “The time period in which monetary policy would have been effective is long over,” he says. Once an economy reaches full employment, he argues, there’s no way for increased spending to boost economic output — you’d just get more inflation instead. And the US unemployment rate is currently 4.9 percent, near historic lows, a sign that a shortage of demand might not be a problem right now. Or Mark Zandi, chief… Read More

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