the entire debt structure however is level is more or less fixed in many cases
as are other contracted obligations
like union contracts
with or without indexation etc
suggests the perfect pass thru of level changes does not exist
leaving real effects
Wednesday, July 31, 2013
PK hawks believe in immaculate inflation but there are other forms of belief in price voodoo
" Abenomics, an effort to boost the economy by fundamentally changing inflation expectations"
that is price voodoo too
lets dig in here
the hawks believe in
" immaculate inflation immaculate inflation immaculate inflation "
"a large Fed balance sheet can translate into an inflation surge even with the economy depressed."
"It’s not clear how they think this would work;
who, exactly, is going to raise prices in the face of all that economic slack? "
hawks view what we’re going through as a supply-side phenomenon;
don’t believe that we are suffering from a demand shortfall,
don’t think the zero lower bound makes any difference.
this is essentially demand pull
in a scarce credit ration system changes in net expansion of ration rate
as here
"the inflation we experience is from a rise in demand caused by cheap financing."
cheap here suggests rationing by rate which is faulty modeling but
we'll get by with this:
" cheap financing is a result of the Federal Reserve printing more money."
"However, as this money works its way through various markets
we should see them respond as markets respond to increased demand,
through an increase in both output and prices."
.
"We can take a step back and interpret these events as saying liquidity demand is being satiated. Or, we can take a micro perspective and say that the demand for goods and services in these markets is increasing. Either way we look at it, however, demand driven inflation should be drive a rise in production."
"In an economy with little unemployment we would expect this to bid up wages as employers competed for scarce labor."
" The result would simply be higher prices and wages and a distortion of long term contracts like mortgages. "
"However, in an economy with high unemployment we should expect some of this to result in an increase in hiring. "
then there's supply contraction inflation
"It is always possible that inflation is actually occurring first in commodity markets."
or factor markets
"inflation driven by gasoline prices is “bad.” It almost certainly represents an increase in the price of a commodity – oil and a reduction in the supply of gasoline.
This means that we expect contraction in the gasoline market. In addition through income effects we should expect a contract in the demand in other individual markets."
.
"However, when inflation is coming through the final goods market it means that real resources are being pulled towards US households and firms. the net effect in each individual market will be an increase in output."
but what about this spontaneous spirals
like this
higher wage/ re mark up to maintain margins /higher products /prices
this can be a self perpetuating process
and it may require credit ration increases to sustain itself
these processes become embedded in expectations
at any rate
now can we get inflation rate changes
by "the source of credit"
managing to " change price and wage setters inflation expectations" ?
enter voodoo macro
that is price voodoo too
lets dig in here
the hawks believe in
" immaculate inflation immaculate inflation immaculate inflation "
"a large Fed balance sheet can translate into an inflation surge even with the economy depressed."
"It’s not clear how they think this would work;
who, exactly, is going to raise prices in the face of all that economic slack? "
hawks view what we’re going through as a supply-side phenomenon;
don’t believe that we are suffering from a demand shortfall,
don’t think the zero lower bound makes any difference.
this is essentially demand pull
in a scarce credit ration system changes in net expansion of ration rate
as here
"the inflation we experience is from a rise in demand caused by cheap financing."
cheap here suggests rationing by rate which is faulty modeling but
we'll get by with this:
" cheap financing is a result of the Federal Reserve printing more money."
"However, as this money works its way through various markets
we should see them respond as markets respond to increased demand,
through an increase in both output and prices."
.
"We can take a step back and interpret these events as saying liquidity demand is being satiated. Or, we can take a micro perspective and say that the demand for goods and services in these markets is increasing. Either way we look at it, however, demand driven inflation should be drive a rise in production."
"In an economy with little unemployment we would expect this to bid up wages as employers competed for scarce labor."
" The result would simply be higher prices and wages and a distortion of long term contracts like mortgages. "
"However, in an economy with high unemployment we should expect some of this to result in an increase in hiring. "
then there's supply contraction inflation
"It is always possible that inflation is actually occurring first in commodity markets."
or factor markets
"inflation driven by gasoline prices is “bad.” It almost certainly represents an increase in the price of a commodity – oil and a reduction in the supply of gasoline.
This means that we expect contraction in the gasoline market. In addition through income effects we should expect a contract in the demand in other individual markets."
.
"However, when inflation is coming through the final goods market it means that real resources are being pulled towards US households and firms. the net effect in each individual market will be an increase in output."
but what about this spontaneous spirals
like this
higher wage/ re mark up to maintain margins /higher products /prices
this can be a self perpetuating process
and it may require credit ration increases to sustain itself
these processes become embedded in expectations
at any rate
now can we get inflation rate changes
by "the source of credit"
managing to " change price and wage setters inflation expectations" ?
enter voodoo macro
Tuesday, July 30, 2013
estimating the head winds tail winds and the net winds
measuring policy impacts on the course of the market mediated society wide production system
requires estimates of spontaneous spending dynamics
often
by arrogating enough of the policy impacts to the spontaneous spending
or visa versa
the spontaneous spending to the policy impacts
an analyst can change a pass to a flunk ora flunk to a pass
in grading policy makers and implementers
requires estimates of spontaneous spending dynamics
often
by arrogating enough of the policy impacts to the spontaneous spending
or visa versa
the spontaneous spending to the policy impacts
an analyst can change a pass to a flunk ora flunk to a pass
in grading policy makers and implementers
Taylor's rule for Fed chair selection
"...who will implement
a more predictable
, less interventionist,
more rules-based monetary policy"
" strategy of the kind that has worked well
when tried
as in the 1980s,
1990s
and until recently "
what about recently johnny ?
never mind
janet yellen concurs..sort of
"Many studies have shown
in normal times, when the economy is buffeted by typical shocks
—not the extraordinary shock resulting from the financial crisis—
simple rules can come pretty close to approximating optimal policies.
In fact, empirical research suggests
a modified version of the original Taylor rule
fits the behavior of the Fed reasonably well
from the late 1980s until the financial crisis" !!!!!!!1
financial crisis ?
"why shouldn’t the FOMC adopt such a rule as a guidepost to policy? "
" The answer is that times are by no means normal now"
"the simple rules that perform well under ordinary circumstances
just won’t perform well with persistently strong headwinds restraining recovery"
" and with the federal funds rate constrained by the zero bound"
its those damn "head winds " eh ?
a more predictable
, less interventionist,
more rules-based monetary policy"
" strategy of the kind that has worked well
when tried
as in the 1980s,
1990s
and until recently "
what about recently johnny ?
never mind
janet yellen concurs..sort of
"Many studies have shown
in normal times, when the economy is buffeted by typical shocks
—not the extraordinary shock resulting from the financial crisis—
simple rules can come pretty close to approximating optimal policies.
In fact, empirical research suggests
a modified version of the original Taylor rule
fits the behavior of the Fed reasonably well
from the late 1980s until the financial crisis" !!!!!!!1
financial crisis ?
"why shouldn’t the FOMC adopt such a rule as a guidepost to policy? "
" The answer is that times are by no means normal now"
"the simple rules that perform well under ordinary circumstances
just won’t perform well with persistently strong headwinds restraining recovery"
" and with the federal funds rate constrained by the zero bound"
its those damn "head winds " eh ?
Monday, July 29, 2013
slowing BRICS .......just plain ....BAD NEWS for market earth ?.. hey wait ...what about the recovery accceleration of america and japan ?
"expansion of the BRICS economies
has made them so much larger
even if the pace of growth is somewhat slower,
they add more to world demand than the earlier faster growth did."
"the emerging economies had their best period in the four years leading up to the 2008 crisis
: they grew at an annual rate of around 8%, accounting for just over half of global growth."
emergence of duel track recovery
" When growth collapsed in most advanced countries in 2008,
the emerging economies slowed but still recorded rapid growth:"
" they averaged 5.5% during 2008-2011."
" In a limp world, this kept global expansion going:
the emerging economies accounted for three quarters of world growth."
" Since then, they have slowed a touch more, to around 5%."
" China is growing at 7% rather than 10%-plus and Brazil and India have reverted to their traditional lacklustre performance."
"But in the meantime, the cumulative expansion of these emerging economies means
that they have more heft."
" The emerging countries are two-thirds bigger than they were in 2006:
thus 5% growth now adds more to the world economy than 8% did back in 2006."
.
". Winding back unemployment in the two countries with room to ease austerity
(the US and the UK) would, in itself, deliver a substantial growth spurt. "
"Sentiment in Japan is much improved,
even if Abenomics has been more talk than substance so far."
perspective :
"Thanks to the sustained performance of the emerging economies,
the IMF's forecast for global growth during this year and next
is around the same pace as was achieved in the first half of the 2000s, "
"which in turn was a bit faster than growth in the previous decade."
"The policy message here is to spend less time fretting about the emerging economies and focus instead on sorting out the pathetic economic performance in most of the advanced world."
has made them so much larger
even if the pace of growth is somewhat slower,
they add more to world demand than the earlier faster growth did."
"the emerging economies had their best period in the four years leading up to the 2008 crisis
: they grew at an annual rate of around 8%, accounting for just over half of global growth."
emergence of duel track recovery
" When growth collapsed in most advanced countries in 2008,
the emerging economies slowed but still recorded rapid growth:"
" they averaged 5.5% during 2008-2011."
" In a limp world, this kept global expansion going:
the emerging economies accounted for three quarters of world growth."
" Since then, they have slowed a touch more, to around 5%."
" China is growing at 7% rather than 10%-plus and Brazil and India have reverted to their traditional lacklustre performance."
"But in the meantime, the cumulative expansion of these emerging economies means
that they have more heft."
" The emerging countries are two-thirds bigger than they were in 2006:
thus 5% growth now adds more to the world economy than 8% did back in 2006."
.
". Winding back unemployment in the two countries with room to ease austerity
(the US and the UK) would, in itself, deliver a substantial growth spurt. "
"Sentiment in Japan is much improved,
even if Abenomics has been more talk than substance so far."
perspective :
"Thanks to the sustained performance of the emerging economies,
the IMF's forecast for global growth during this year and next
is around the same pace as was achieved in the first half of the 2000s, "
"which in turn was a bit faster than growth in the previous decade."
"The policy message here is to spend less time fretting about the emerging economies and focus instead on sorting out the pathetic economic performance in most of the advanced world."
two speed global economy coming to an end ?...converging to one the hard way...north still slow but south slowing way down .....
one view
"THIS year will be the first in which emerging markets account for more than half of world GDP on the basis of purchasing power, according to the International Monetary Fund (IMF). "
"In 1990 they accounted for less than a third of a much smaller total."
" From 2003 to 2011 the share of world output provided by the emerging economies grew at more than a percentage point a year (see chart 1). "
"According to a recent study by Arvind Subramanian and Martin Kessler, of the Peterson Institute, a think-tank, from 1960 to the late 1990s just 30% of countries in the developing world for which figures are available managed to increase their output per person faster than America did, thus achieving what is called “catch-up growth”."
" That catching up was somewhat lackadaisical: the gap closed at just 1.5% a year. "
"From the late 1990s, however, the tables were turned. The researchers found 73% of developing countries managing to outpace America, and doing so on average by 3.3% a year. Some of this was due to slower growth in America; most was not."
"The remarkable growth of emerging markets in general and the BRICs in particular transformed the global economy in many ways, some wrenching. Commodity prices soared and the cost of manufactures and labour sank. Global poverty rates tumbled."
" Gaping economic imbalances fuelled an era of financial vulnerability and laid the groundwork for global crisis"
". A growing and vastly more accessible pool of labour in emerging economies played a part in both wage stagnation and rising income inequality in rich ones."
"The shift towards the emerging economies will continue. But its most tumultuous phase seems to have more or less reached its end."
" Growth rates in all the BRICs have dropped."
" The nature of their growth is in the process of changing, too, and its new mode will have fewer direct effects on the rest of the world. "
"The BRIC era arrived at the end of a century in which global living standards had diverged remarkably. Towards the end of the 19th century America’s economy overtook China’s to become the largest on the planet. By 1992 China and India—home to 38% of the world’s population—were producing just 7% of the world’s output, while six rich countries which accounted for just 12% of the world’s population produced half of it. In 1890 an average American was about six times better off than the average Chinese or Indian. By the early 1990s he was doing 25 times better."
Riding the whirlwind
"The fruits of this cheap labour were huge steps forward in global trade."
" Merchandise exports soared from 16% of global GDP in the mid-1990s to 27% in 2008."
" The Chinese share of global exports topped 11%, with trade accounting for more than half of the country’s GDP."
.
"The growth in trade was matched by a growth in demand for commodities as China and the nations supplying it soaked up energy and raw materials such as iron ore, copper and lead (see chart 3). Prices surged, generating a bonanza for the emerging world’s commodity producers and contributing to a broad-based boom, to the great benefit both of fellow-BRICs Russia and Brazil and of smaller economies, including many in Africa."
"From 1993 to 2007 China averaged growth of 10.5% a year. India, with less reliance on trade, managed an average of 6.5%, more than twice America’s average growth rate. The two countries’ combined share of global output more than doubled to nearly 16%."
" Global financial imbalances ballooned. "
"From 1999 advanced economies ran a current-account deficit which peaked at nearly 1.2% of rich-world GDP in 2006."
" Emerging economies’ combined current-account surplus peaked in the same year at 4.9% of GDP."
". China sits atop a $3.5 trillion hoard, more or less all of it piled up since 2000. All told the BRICs have reserves of about $4.6 trillion."
.
"The emerging economies’ share of output is no longer rising as fast as it did in the 2000s. In 2009 the year-on-year increase in that share was almost one and a half percentage points (see chart 1). Now it is back below one percentage point."
" This tallies with a striking slowdown in BRIC growth rates."
" In 2007 China’s economy expanded by an eye-popping 14.2%. India managed 10.1% growth, Russia 8.5%, and Brazil 6.1%. The IMF now reckons China will grow by just 7.8% in 2013, India by 5.6%, and Russia and Brazil by 2.5%."
"Unsurprisingly, this means that the BRIC economies are contributing less to global growth. In 2008 they accounted for two-thirds of world GDP growth. In 2011 they accounted for half of it, in 2012 a bit less than that. "
"The IMF sees them staying at about that level for the next five years. Goldman Sachs predicts that, based on an analysis of fundamentals, the BRICs share will decline further over the long term. Other emerging markets will pick up some of the slack. Yet those markets are not expected to add enough to prevent a general easing of the pace of world growth"
.
". Bleeding-edge innovation is harder than catching up."
" the “Next 11”
Bangladesh, Indonesia, Mexico, Nigeria and Turkey.
.
" The N11 has a population of just over 1.3 billion. That is less than half that of the BRICs. "
"When the BRIC economies began their economic surge their population-weighted output per person was just 7% of America’s
the N11 is already 14% of that in America. "
"in India, where population has risen fast, that its figure today is still just 8%."
". Two decades of BRIC-led growth mean that there are far fewer people earning very little. In 1993 about half the world lived at below 5% of American GDP per person, according to an analysis of IMF figures by The Economist (see chart 5). In 2012 the equivalent figure was 18% of American GDP per person."
". The world economy is much larger than it used to be: twice as big in real terms as it was in 1992, according to IMF figures. "
"That means that emerging markets—whether the BRIC economies or the N11 or both—must deliver larger absolute increases in output to generate a marginal economic boost matching that seen in the 1990s and 2000s."
"The same maths apply to labour markets. New additions to the workforce will henceforward have a harder time disrupting the global economy."
" The billion jobs that the McKinsey Global Institute sees as having been added to non-farm employment from 1980 to 2010 boosted it by 115%. If the world were to put on another billion jobs from 2010 to 2040 that would represent just a 51% increase in world employment: impressive but much less dramatic."
". China’s working-age population began shrinking in 2012."
" India, with more favourable demographics, is struggling to create enough employment;"
" it added no net new jobs between 2004-05 and 2009-10, according to a recent survey."
" Big demographic booms are brewing elsewhere: Nigeria, for example, may be more populous than America in less than 40 years."
". Emerging-world reserve accumulation has diminished along with current-account imbalances. "
"Since 2011 Chinese reserves have been mostly flat."
". The transition need not be painful. In China a slower overall growth rate may feel fine to workers if the share of consumption in the economy rises relative to investment."
" In India, though, the picture is not so pretty."
". If central banks fail to stem capital outflows then slower growth could give way to outright contraction."
Many countries will find that commodities no longer provide a crutch. David Jacks, an economist at Simon Fraser University in British Columbia who studies
" long-run commodity-price movements may have already begun a sustained period of below-trend price growth."
". A slowdown could bring new focus to global trade talks. A deal that addressed non-tariff trade barriers, and especially those on trade in services, could yield big benefits."
". A century ago the world’s last great era of trade integration ended with a war and ushered in a generation of economic nationalism and international conflict."
" The recent proliferation of regional trade agreements could signal a move towards fractionalisation of the global economy."
" And slowed growth in the now-large BRICs could lead to the sort of internal tensions that countries can displace by picking external fights."
Sunday, July 28, 2013
lucas December 23, 2008
"The Federal Reserve's lowering of interest rates last Tuesday was welcome, but it was also received with skepticism. Once the federal-funds rate is reduced to zero, or near zero, doesn't this mean that monetary policy has gone as far as it can go? "
"This widely held view was appealed to in the 1930s to rationalize the Fed's passive role as the U.S. economy slid into deep depression."
"It was used again by the Bank of Japan to rationalize its unwillingness to counteract the deflation and recession of the 1990s."
" In both cases, constructive monetary policies were in fact available but remained unused."
" Fed Chairman Ben Bernanke's statement last Tuesday made it clear that he does not share this view and intends to continue to take actions to stimulate spending."
"There should be no mystery about what he has in mind. Over the past four months the Fed has put more than $600 billion of new reserves into the private sector, using them to discount -- lend against -- a wide variety of securities held by a variety of financial institutions. (The addition is to be weighed against September 2007's total outstanding level of reserves of about $50 billion.)"
.
"Why do I describe this as an action to stimulate spending? "
"Financial markets are in the grip of a "flight to quality" that is very much analogous to the "flight to currency" that crippled the economy in the 1930s."
" Everyone wants to get into government-issued and government-insured assets, for reasons of both liquidity and safety. "
"Individuals have tried to do this by selling other securities, but without an increase in the supply of "quality" securities these attempts do nothing but drive down the prices of other assets."
" The only other action people can take as individuals is to build up their stock of cash and government-issued claims to cash by reducing spending."
" This reduction is a main factor in inducing or worsening the recession."
" Adding directly to reserves -- the ultimate liquid, safe asset -- adds to supply of "quality" and relieves the perceived need to reduce spending."
"When the Fed wants to stimulate spending in normal times, it uses reserves to buy Treasury bills in the federal-funds market, reducing the funds' rate. "
"But as the rate nears zero, Treasury bills become equivalent to cash, and such open-market operations have no more effect than trading a $20 bill for two $10s."
" There is no effect on the total supply of "quality" assets."
"A dead end? Not at all. The Fed can satisfy the demand for quality by using reserves -- or "printing money" -- to buy securities other than Treasury bills."
" This is the way the $600 billion got out into the private sector"
"This expansion of Fed lending has not violated the constraint that "the" interest rate cannot be less than zero, nor will it do so in the future. "
"There are thousands of different interest rates out there and the yield differences among them have grown dramatically in recent months."
" The yield on short-term governments is now about the same as the yield on cash: zero."
" But the spreads between governments and privately-issued bonds are large at all maturities."
" The flight to quality means exactly that many are eager to trade private paper for non-interest bearing (or low-interest bearing) reserves and with the Fed's help they are doing so every day."
"Could the $600 billion in new reserves be called a bailout? "
"In a sense, yes"
" The Fed is lending on terms that private banks are not willing to offer."
" They are not searching for underpriced "bargains" on behalf of the public, nor is it their mission to do so. "
"Their mission is to provide liquidity to the system by acting as lender-of-last-resort. "
"We don't care about the quality of the assets the Fed acquires in doing this. We care about the quantity of its liabilities."
"There are many ways to stimulate spending, and many of these methods are now under serious consideration. "
"How could it be otherwise?"
" But monetary policy as Mr. Bernanke implements it has been the most helpful counter-recession action taken to date, in my opinion, and it will continue to have many advantages in future months."
" It is fast and flexible."
" There is no other way that so much cash could have been put into the system as fast as this $600 billion was, and if necessary it can be taken out just as quickly."
" The cash comes in the form of loans."
" It entails no new government enterprises
no government equity positions in private enterprises
no price fixing or other controls on the operation of individual businesses,
and no government role in the allocation of capital across different activities. "
"These seem to me important virtues."
Mr. Lucas, a professor of economics at the University of Chicago, received the Nobel Prize in Economic Sciences in 1995.
"This widely held view was appealed to in the 1930s to rationalize the Fed's passive role as the U.S. economy slid into deep depression."
"It was used again by the Bank of Japan to rationalize its unwillingness to counteract the deflation and recession of the 1990s."
" In both cases, constructive monetary policies were in fact available but remained unused."
" Fed Chairman Ben Bernanke's statement last Tuesday made it clear that he does not share this view and intends to continue to take actions to stimulate spending."
"There should be no mystery about what he has in mind. Over the past four months the Fed has put more than $600 billion of new reserves into the private sector, using them to discount -- lend against -- a wide variety of securities held by a variety of financial institutions. (The addition is to be weighed against September 2007's total outstanding level of reserves of about $50 billion.)"
.
"This action has been the boldest exercise of the Fed's lender-of-last-resort function in the history of the Federal Reserve System. "
"Mr. Bernanke said that he is prepared to continue or expand this discounting activity as long as the situation dictates."
"Financial markets are in the grip of a "flight to quality" that is very much analogous to the "flight to currency" that crippled the economy in the 1930s."
" Everyone wants to get into government-issued and government-insured assets, for reasons of both liquidity and safety. "
"Individuals have tried to do this by selling other securities, but without an increase in the supply of "quality" securities these attempts do nothing but drive down the prices of other assets."
" The only other action people can take as individuals is to build up their stock of cash and government-issued claims to cash by reducing spending."
" This reduction is a main factor in inducing or worsening the recession."
" Adding directly to reserves -- the ultimate liquid, safe asset -- adds to supply of "quality" and relieves the perceived need to reduce spending."
"When the Fed wants to stimulate spending in normal times, it uses reserves to buy Treasury bills in the federal-funds market, reducing the funds' rate. "
"But as the rate nears zero, Treasury bills become equivalent to cash, and such open-market operations have no more effect than trading a $20 bill for two $10s."
" There is no effect on the total supply of "quality" assets."
"A dead end? Not at all. The Fed can satisfy the demand for quality by using reserves -- or "printing money" -- to buy securities other than Treasury bills."
" This is the way the $600 billion got out into the private sector"
"There are thousands of different interest rates out there and the yield differences among them have grown dramatically in recent months."
" The yield on short-term governments is now about the same as the yield on cash: zero."
" But the spreads between governments and privately-issued bonds are large at all maturities."
" The flight to quality means exactly that many are eager to trade private paper for non-interest bearing (or low-interest bearing) reserves and with the Fed's help they are doing so every day."
"Could the $600 billion in new reserves be called a bailout? "
"In a sense, yes"
" The Fed is lending on terms that private banks are not willing to offer."
" They are not searching for underpriced "bargains" on behalf of the public, nor is it their mission to do so. "
"Their mission is to provide liquidity to the system by acting as lender-of-last-resort. "
"We don't care about the quality of the assets the Fed acquires in doing this. We care about the quantity of its liabilities."
"There are many ways to stimulate spending, and many of these methods are now under serious consideration. "
"How could it be otherwise?"
" But monetary policy as Mr. Bernanke implements it has been the most helpful counter-recession action taken to date, in my opinion, and it will continue to have many advantages in future months."
" It is fast and flexible."
" There is no other way that so much cash could have been put into the system as fast as this $600 billion was, and if necessary it can be taken out just as quickly."
" The cash comes in the form of loans."
" It entails no new government enterprises
no government equity positions in private enterprises
no price fixing or other controls on the operation of individual businesses,
and no government role in the allocation of capital across different activities. "
"These seem to me important virtues."
Mr. Lucas, a professor of economics at the University of Chicago, received the Nobel Prize in Economic Sciences in 1995.
Saturday, July 27, 2013
lovely mankiw mayhem
"A sizable body of work in public finance suggests that consumption taxes
are preferable to income taxes. "
" Completely replacing our tax system with a better one is, however, hard. "
" Retirement accounts, such as IRAs and 401k plans, are one way our tax code
has gradually evolved from an income tax toward a consumption tax."
" The use of these accounts should be encouraged, not discouraged"
doctor greg
here's
the redoubtable gentleman goblin
doctor greg
apparently seducing a well intended lady hedge hog
madame crissy
(Romer )
are preferable to income taxes. "
" Completely replacing our tax system with a better one is, however, hard. "
" Retirement accounts, such as IRAs and 401k plans, are one way our tax code
has gradually evolved from an income tax toward a consumption tax."
" The use of these accounts should be encouraged, not discouraged"
doctor greg
here's
the redoubtable gentleman goblin
doctor greg
apparently seducing a well intended lady hedge hog
madame crissy
(Romer )
give us a calc of the VICKREY GAP ..or the gap NAITU estimated GAp is way way too small ...
this is the NAIRU gap
bouncing around 6%
the vickrey gap ?
twice that ?
old PGL boner
calling a tax holiday
"pushing taxes back"
as in
"we did not get a tax cut – only a tax shift.
Yes, government spending did not decline
so somebody will have to pay more in taxes someday."
this is half truth NK ism
at its most foul
the good old
foresight horizon
uncle sam budget constraint assumption
again
not recognizing
the power of Ponzi as sovereign
plus
the ever present option
of a sovereign
controlled real debt burn
thru
a managed acceleration
of
nominal wage and output price
inflation
plus
the FED's
total control
of
the array of nominal safe interest rates
ie
the time structure of safe rates
plus
the implicit
welfare enhancement theorem
when the production economies' default risk
is fully socialized
plus .......
"pushing taxes back"
as in
"we did not get a tax cut – only a tax shift.
Yes, government spending did not decline
so somebody will have to pay more in taxes someday."
this is half truth NK ism
at its most foul
the good old
foresight horizon
uncle sam budget constraint assumption
again
not recognizing
the power of Ponzi as sovereign
plus
the ever present option
of a sovereign
controlled real debt burn
thru
a managed acceleration
of
nominal wage and output price
inflation
plus
the FED's
total control
of
the array of nominal safe interest rates
ie
the time structure of safe rates
plus
the implicit
welfare enhancement theorem
when the production economies' default risk
is fully socialized
plus .......
Thursday, July 25, 2013
the victorian demolition of the labor theory of relative "value "
some one needs to write up a detailed account
Wednesday, July 24, 2013
Tuesday, July 23, 2013
simon lewis remains well hinged on product price inflation hysterics
jerry simon lewis has become my model techno macronomist
here's a recent ....careful meditation :
----------------------------------
---------------------------------------------
here's a recent ....careful meditation :
" I think inflation expectations are really important."
harmless assertion as is
but its never used " as is" now is it ?
-------------------------------------
" I largely believe the great moderation story."
yikes
"As a result of setting inflation targets (explicitly or implicitly), and acting to achieve them, central banks did succeed in stabilising inflation expectations at low levels"
succeed ? was it hard once the target was set ?
" and this has made the job of stabilising the economy as a whole rather easier."
hmmmm
if price change reduction acts indirectly to curb wage growth
yes fed clinching is less frequent and less severe
----------------------------
" I think it is more than likely that if inflation stays above/below target for some time, inflation expectations will adjust. "
okay if expectations were static what in hell would that mean anyway ?
agents are idiots ?
--------------------------
now we get to the meaty bits
"But I would not call this expectations becoming unhinged"
" Whether intentional or not, the use of the term unhinged
is designed to create an impression.
The impression is of disastrous uncontrollability."
unconscious designing aside
this is a plain truth eh ?
and makes the post worth something
"It is as if inflation expectations can be in one of two states:
either
low variance with mean reversion to the inflation target
or
highly volatile and could go anywhere. "
exactly the taboo story's motivator and he works thru with some clarity too
"In this second imagined state,
as expectations of inflation drive actual inflation,
we could have ‘inflation bubbles’,
which would become very costly for the central bank to prick."
" As we really do not want to go to that second state,
we have to do everything we can
to stay in the first state. "
" this view of the world I find it absurd. "
get it ? ..got it ...good !
-----------------------------------
"Why would inflation expectations become so unanchored
from a central bank’s inflation target?"
" the only circumstances in which inflation expectations might become unhinged
are when the central bank itself became unhinged."
-------------------------------------------
but now he plays scare master himself:
ya sure unhinged it might get
" if the central bank was ordered to permanently monetise growing budget deficits"
that is the climactic coup
delivered by system bound liberal macronics
when we rads talk of protracted primary deficits
----------------------------------
some back drop:
"When central bankers talk about unhinged expectations,
they nearly always mention the 1970s and early 1980s."
" that was a period, in the US and UK, when it was very unclear
what the central bank’s inflation target was, or indeed whether it had one. "
hmmm ?? if burns and miller had announced targets ....
as in
" the lesson of that time is that inflation targets are important,"
" but not that they should never be changed or missed. "
changed how often ?
one might suggest often as wanted
so long as you don't miss too often by too much for too long
changed here gets undermined by missed
unless the missed is an implicit change
"I would draw a very different lesson from that period.
It is important not to have taboos in macro.
If there was a taboo at that time,
it was that rising unemployment would mean a return to the 1930s."
odd that
a taboo on the use of the reserve army of the unemployed
or as jerry calls it using
" variations in unemployment
as a means of stabilising inflation"
did this taboo prevent central bankers from " seeing "
that
"variations in unemployment
as a means of stabilising inflation. " ???
higher rates of unemployment
induced by credit policy
ie policy rates
"raised in a premeditated ... way"
higher enough
to curb a wage price spiral ?
perhaps the central bankers just
had not " stomach enough "
for that draft call at that time under those conditions
---------------------------------------------
"... today, roles have become reversed"
" nominal rates at the zero lower bound,
and doubts over unconventional monetary policy,"
" we could use higher inflation"
for sure
"raised in a premeditated and controlled way"
yes
" as a means of getting unemployment down"
yes
" and look at alternatives (like fiscal policy) that may be less costly."
yes
less costly or more beneficial
" But if raising inflation is taboo "
we will not have that discussion. In this context,
talk of expectations becoming unhinged reinforces that taboo."
MIT's autor(david ) onimport impact on high wage low wage
"American factory workers with high wages generally took an initial sharp financial hit
when the “trade shock” of Chinese goods hit their industry
between 1992 and the beginning of the recent financial crisis"
"Yet those high-earning workers tended to migrate successfully to different jobs
and suffered less financial harm over the years
than low-wage U.S. workers,
who generally faced reduced pay and higher unemployment for years"
when the “trade shock” of Chinese goods hit their industry
between 1992 and the beginning of the recent financial crisis"
"Yet those high-earning workers tended to migrate successfully to different jobs
and suffered less financial harm over the years
than low-wage U.S. workers,
who generally faced reduced pay and higher unemployment for years"
if you won't bust the land lords .....
"It wasn't long after the PT acquired power at the national level in 2003 that cracks in its political economic model began to show, however. Agrarian reform, the key demand of one of its most important early allies, the Brazilian Landless Workers’ Movement (MST), was effectively dropped from the PT's program. More accurately, the PT re-articulated the MST's demand of agrarian reform by strengthening the productive capacities of existing MST lands, rather than addressing Brazil's highly unequal land ownership structure, in which the top 1 per cent own 50 per cent of the land. In other words, of the three key elements of the MST's program, namely “occupy, resist, produce,” the PT opted to act only on the last point. It did so by, for example, opening avenues for the sale of products produced by MST run cooperatives, as in the case of Cooperdotchi, an agricultural cooperative in the state of Santa Catarina. This re-articulation of the MST's goals has created ongoing conflict between the government and the MST who has itself re-articulated its demand for agrarian reform "
pk beat post modern recessions private-sector overreach...
" Long before Reinhart and Rogoff..."
it was already obvious to many
" we were looking at a “postmodern” recession like 1990-91 or 2001"
", which was likely to be followed by an extended jobless recovery."
" That is, this was not going to be a Fed-generated slump like 1981-82"
", which would be followed by a quick rebound once the Fed relented"
" it was a case of private-sector overreach,
and was likely to go on for a long time "
it was already obvious to many
" we were looking at a “postmodern” recession like 1990-91 or 2001"
", which was likely to be followed by an extended jobless recovery."
" That is, this was not going to be a Fed-generated slump like 1981-82"
", which would be followed by a quick rebound once the Fed relented"
" it was a case of private-sector overreach,
and was likely to go on for a long time "
a lesson the great fork in the various national paths ..pilgrimage or a darkening ... europe east and west circa 1500
the east went deeper into a serf based system the west ...
ya ya we know what happened in the west
but that turn backwards in essence
east of what ?
the Rhine the Vistula ?
the what where and why might instruct us about " systemic regressions"
ya ya we know what happened in the west
but that turn backwards in essence
east of what ?
the Rhine the Vistula ?
the what where and why might instruct us about " systemic regressions"
smart markets ...from firm design to market and market systems design
markets are "social contrivances" for facilitating circulation of goods and services
thru exchange
we as good Hegelians want these institutions to evolve till
the essence of the market "has sublated its relation to its schein
and in its determination is no longer external but subjective
that is free self subsistent and self determining"
ie
the subject itself of itself
translation all markets are self consciously designed by society
the mechanism design/'gosplan complexity
is the fetal form
of this sublation
thru exchange
we as good Hegelians want these institutions to evolve till
the essence of the market "has sublated its relation to its schein
and in its determination is no longer external but subjective
that is free self subsistent and self determining"
ie
the subject itself of itself
translation all markets are self consciously designed by society
the mechanism design/'gosplan complexity
is the fetal form
of this sublation
Monday, July 22, 2013
models that might suggest real market systems have fast restoration of equilibrium is a quest for legitimacy
equilibrium pricing rewards factors on an objectively unimpeachable nash basis
the urgency of this quest was clarified back in the 1890's by p h wicksteed
why the quest ?
to blot out the infernal residue problem
the unearned portion of firm net revenues
otherwise only guarded by" an armory of paradoxes
that can not be understood because they are not true
that everyone uses as weapons
while no one grasps them as principles "
the urgency of this quest was clarified back in the 1890's by p h wicksteed
why the quest ?
to blot out the infernal residue problem
the unearned portion of firm net revenues
otherwise only guarded by" an armory of paradoxes
that can not be understood because they are not true
that everyone uses as weapons
while no one grasps them as principles "
trashing china
".. note the numerous indicators of financial fragility, including excessive credit growth; moral hazard arising from the belief that the state has underwritten all financial risk; related-party lending between state-controlled banks and state-owned enterprises; loan-loss forbearance; de facto financial liberalisation (accompanying the growth of the shadow banking system); extreme asset-liability mismatches created by WMPs [wealth management products] and interbank lending; elevated bank leverage hidden by off-balance sheet exposures; contagion risk posed by undercapitalised credit guarantee networks; and a financial system plaguedby Ponzi finance practices and contaminated with corruption and fraud."
bark e bark hedges out of a caution born of his mystical
suspicion
".. Chinese system is different from others and has many powers. "
" So, they may be able to overcome all this."
" But the situation seems much more dangerous than previously,
with this being beyond the control of the Chinese government authorities."
yuan debt piles "beyond the control "
of the possessor of a limitless yuan mine ?
bark e bark hedges out of a caution born of his mystical
suspicion
".. Chinese system is different from others and has many powers. "
" So, they may be able to overcome all this."
" But the situation seems much more dangerous than previously,
with this being beyond the control of the Chinese government authorities."
yuan debt piles "beyond the control "
of the possessor of a limitless yuan mine ?
massive impact effect: GLOBAL INFRARED PULSE
"the most plausible model for global mayhem caused by a massive impact in the Yucatan
: its debris lit all the world's forests on fire at once"
the means ?
"a global infrared pulse."
" an intense pulse, estimates are that there were as much as 10kg of debris that fell back through
the Earth's atmosphere for every square meter of the Earth's surface"
". Preliminary calculations suggested that the resulting infrared pulse
would be enough to set every piece of vegetation on the planet ablaze"
. "No non-aquatic vertebrate much larger than a squirrel survived
All the survivors could have plausibly burrowed underground to survive the conflagration."
think of the soot that fire produced eh
black out the sky ?
"To a certain extent, this calculation zooms right past a rather important point: regardless of what, precisely, put the soot there, there was a whole lot of it in the atmosphere"
". So much, in fact, that modern climate models aren't even built with the capacity to model it. "
"However, one attempt has been made to load a model atmosphere with 0.2 percent of the soot expected to have been put into the atmosphere. "
"Even at that level, the global temperatures were predicted to have dropped to ice-age conditions quickly and stayed low for over a decade afterwards."
" Attempts to calculate the impact of the full atmospheric load suggest, at least initially, that no sunlight would have reached the surface of the Earth at all."
: its debris lit all the world's forests on fire at once"
the means ?
"a global infrared pulse."
" an intense pulse, estimates are that there were as much as 10kg of debris that fell back through
the Earth's atmosphere for every square meter of the Earth's surface"
". Preliminary calculations suggested that the resulting infrared pulse
would be enough to set every piece of vegetation on the planet ablaze"
. "No non-aquatic vertebrate much larger than a squirrel survived
All the survivors could have plausibly burrowed underground to survive the conflagration."
think of the soot that fire produced eh
black out the sky ?
"To a certain extent, this calculation zooms right past a rather important point: regardless of what, precisely, put the soot there, there was a whole lot of it in the atmosphere"
". So much, in fact, that modern climate models aren't even built with the capacity to model it. "
"However, one attempt has been made to load a model atmosphere with 0.2 percent of the soot expected to have been put into the atmosphere. "
"Even at that level, the global temperatures were predicted to have dropped to ice-age conditions quickly and stayed low for over a decade afterwards."
" Attempts to calculate the impact of the full atmospheric load suggest, at least initially, that no sunlight would have reached the surface of the Earth at all."
china advanced service exports out perform india
Modern and traditional services export growth, 2000–2009
Source: IMF Balance of Payments 2009.
Note: Modern services include exports in telecommunications, computer and information services, other business services, financial services, insurance, royalties, and license fees. Traditional services include travel, transportation, construction and personal, cultural, and recreational services exports.
"So what is a middle-income trap? What should policymakers do about it?"
hmmmmm ??
"little is known about why so few countries succeed in making the transition
from middle-income to high-income status"
middle income systems in a pickle :
"sandwiched between low-wage economies on one side
and more innovative advanced economies on the other"
"Caught between these two groups, many middle-income countries
are without a viable high-growth strategy"
"Many middle-income countries tend to make two common mistakes: either they cling to past successful policies for too long, or they exit prematurely from the industries that could have served as the basis for their specialisation process "
either too fast or too slow
"process of structural reform can be tricky:
structural reforms can be
slow and complex,
or fast and easy,
depending on the ownership of the programme,
implementation capabilities,
and a macroeconomic stance
that provides fiscal and political space
to implement the program"
MCF:---massive concluding fatuity---:
"Timing and smooth transition are the two keys to success"
"little is known about why so few countries succeed in making the transition
from middle-income to high-income status"
middle income systems in a pickle :
"sandwiched between low-wage economies on one side
and more innovative advanced economies on the other"
"Caught between these two groups, many middle-income countries
are without a viable high-growth strategy"
"Many middle-income countries tend to make two common mistakes: either they cling to past successful policies for too long, or they exit prematurely from the industries that could have served as the basis for their specialisation process "
either too fast or too slow
"process of structural reform can be tricky:
structural reforms can be
slow and complex,
or fast and easy,
depending on the ownership of the programme,
implementation capabilities,
and a macroeconomic stance
that provides fiscal and political space
to implement the program"
MCF:---massive concluding fatuity---:
"Timing and smooth transition are the two keys to success"
goldman sex can move a metal price
"The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum."
"Goldman bought Metro International Trade Services, one of the country’s biggest storers
More than a quarter of the supply of aluminum available on the marke
t is kept in the company’s Detroit-area warehouses"
" Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again."
"This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange"
" The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal."
" warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records."
punch line :
" this increases prices paid by manufacturers and consumers across the country"
i'd say can move the prices
GS if it can move prices can make money
going short or long
ie
by moving prices up or down
---------------------------------------------
background :
" Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle."
"Goldman bought Metro International Trade Services, one of the country’s biggest storers
More than a quarter of the supply of aluminum available on the marke
t is kept in the company’s Detroit-area warehouses"
" Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again."
"This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange"
" The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal."
" warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records."
punch line :
" this increases prices paid by manufacturers and consumers across the country"
i'd say can move the prices
GS if it can move prices can make money
going short or long
ie
by moving prices up or down
---------------------------------------------
background :
" Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle."
Sunday, July 21, 2013
ace on congo micro economy
"perhaps the main economic activity in Kananga involves trying to insert oneself in a chain of transactions between two parties. To change money you don’t go to the bank or an official moneylender. You go to a person on the street. The rate is a little worse, but convenience greater, you give him or her the dollars, they exchange these for Congolese francs at a slightly better rate than they give you. That person exchanges with another person who gives a slightly better rate etc. Eventually the money ends up in the bank and 4 or 5 people got enough to eat that day.
Even an apparently simple transaction like renting a vehicle to drive to Mushenge, the Kuba capital, turns into a long relay. Say, you want to rent a car. Someone owns the car. A simple deal should result but it doesn’t, because somehow 3 or 4 people manage to insert themselves into the transaction, relaying the deal from one to another, and thus make enough to eat that day.
At some level, the relay economy is “institutionalized”. Nobody does things themselves, you ask someone to do it for you, they ask someone else, who asks someone else and eventually the word gets to the person who has the thing you want. This delivers great convenience, like beer or food delivered to your front door, at just a little extra cost and it keeps people fed."
Even an apparently simple transaction like renting a vehicle to drive to Mushenge, the Kuba capital, turns into a long relay. Say, you want to rent a car. Someone owns the car. A simple deal should result but it doesn’t, because somehow 3 or 4 people manage to insert themselves into the transaction, relaying the deal from one to another, and thus make enough to eat that day.
At some level, the relay economy is “institutionalized”. Nobody does things themselves, you ask someone to do it for you, they ask someone else, who asks someone else and eventually the word gets to the person who has the thing you want. This delivers great convenience, like beer or food delivered to your front door, at just a little extra cost and it keeps people fed."
july is the month of lenin's courtship of leon
much marks the great Vlad's
exceptional industry focus insight and powers
nothing more so
then the recruiting of Trotsky that summer of '17
exceptional industry focus insight and powers
nothing more so
then the recruiting of Trotsky that summer of '17
taylor on his mother country's recent macro management
UK actual path and counterfactual path without austerity
nice graphs of US and UK show relative macro policy flops
The US and UK, 2007–12: actual versus predicted paths
"The pink range indicates the expected recovery path. As we noted in our original column, the US exceeds expectations here. The US growth path manages to emerge from and stay above the predicted range by years 3-4-5 (i.e. 2010–12). In contrast, the UK path is disappointing, and can’t really be called a recovery yet"
"The pink range indicates the expected recovery path. As we noted in our original column, the US exceeds expectations here. The US growth path manages to emerge from and stay above the predicted range by years 3-4-5 (i.e. 2010–12). In contrast, the UK path is disappointing, and can’t really be called a recovery yet"
more A taylor and friends:mission CB apres WWII :save the banksand let the production system contract as usual pre WWII and snail back
" In post-1945 crises, central banks have strongly supported money growth, and crises have not been accompanied by a collapse of broad money. Whereas financial crisis led to a "deleveraging" of the economy in earlier times, policy actions in the postwar period have effectively prevented episodes of marked balance sheet shrinkage, as Figure 2 illustrates. The bottom line is that the lessons of the Great Depression, once learned, were put into practice. After 1945, financial crises were fought with more aggressive monetary policy responses, banking systems imploded neither so frequently (at least before 1980) nor as dramatically, and deflation was avoided. In the previous era, financial crises led to contractions of the money supply and deflationary pressures, relative to trend, but this is no longer true (this result is not driven by the particular episode of the Great Depression)."
great eh ?
. Response of aggregates after financial crises
.jpg)
However
"..., on the real economic side,"
" a striking result is that the economic impact of financial crises is no more muted in the postwar era than in the prewar era."!!!!!!!!!!!
"It seems that postwar policy activism was “successful” in preventing financial deleveraging but not in reducing the output costs."
" A cynic might conclude that central banks were successful in bailing out finance but failed to protect the real economy"
". Of course the obvious caveat here is the nature of the counterfactual – given the much larger financial system we have today (the first stylised fact above), the real effects of the postwar regime could take the form of preventing the potentially even larger real output losses that could be realised in today’s more heavily financialised economies without such policies."
" And yet it may be plausibly argued that the postwar ascent (especially since the 1970s) of a regime of fiat-money-plus-lender-of-last-resort could have also encouraged the expansion of credit to occur."
" Aiming to cushion the real economic effects of financial crises, policymakers have effectively prevented the periodic deleveraging of the financial sector seen in the olden days, resulting in the virtually uninterrupted growth of leverage we saw up until 2008."
" Scholars such as Minsky (1977) and Kindleberger (1978) have argued that the financial system itself is prone to generate economic instability through endogenous credit booms"
". In their view, the credit system was not merely a propagator of shocks hitting the economy as in the standard financial accelerator model – it often was the shock."
" Our empirical analysis lends considerable support to the Minsky-Kindleberger view of financial crises as "credit booms gone wrong"
"The credit system seems all too capable of creating its very own shocks, judged by how successful past credit growth performs as a predictor of financial crises."
" Past credit growth spectacularly improves the forecasting power of an early warning banking crisis model in our data. "
"Using long-run historical data, the growth rate of lending emerges as the single best predictor of future financial instability, a result which is robust to the inclusion of various other nominal and real variables. "
"Moreover, credit outperforms other possible measures such as broad money by some margin. "
" Long-run historical evidence therefore suggests that credit has an important role to play in central bank policy."
" After their recent misjudgements, central banks should clearly pay attention
to credit aggregates and not confine themselves simply to following targeting rules
based on output and inflation. "
a history of bank leverage in one take
.jpg)
"The first era runs from 1870 to 1939. Our gold-standard ancestors lived in an age where aggregate credit was closely tied to aggregate money. In this era, money and credit were volatile but, over the long run, they maintained a roughly stable relationship with each other and with the size of the economy measured by GDP"
"The only exception to this rule was the Great Depression period; in the 1930s, money and credit aggregates collapsed relative to GDP. This stable relationship between money and credit broke down after the Great Depression and WW2, as a new secular trend took hold that carried on until today’s crisis. But prior to 1930, broad money and loans had been stable at about 50%–60% of GDP for decades, and bank assets stood at about 80%–90% of GDP."
"In this second era, money and credit began a long postwar recovery, trending up rapidly and eventually surpassing their pre-1940 levels compared to GDP by the 1970s. This could be seen as a secular recovery by the financial system from the massive destruction suffered in the 1930s. But the process did not end there. In addition, credit itself then started to decouple from broad money and grew rapidly, via a combination of increased leverage and augmented funding via nonmonetary liabilities of banks. In recent decades, we have been living in a different world, where financial innovation and regulatory ease have permitted the credit system to increasingly delink from monetary aggregates, resulting in an unprecedented expansion in the role of credit in the macroeconomy. By 2007, the typical level of broad money had risen to about 70% of GDP, but bank loans exceeded 100% and bank assets were over 200%"
optimal boom time tax ..macro prudentially speaking
Jeanne:
".. the existence of collateralised borrowing gives rise to an externality, i.e. a market imperfection that explains why the free-market equilibrium exhibits too much volatility and why government regulation is in fact desirable and can make everybody in the economy better off"
". When credit is collateralised, the interaction between debt accumulation and asset prices contributes to magnify the impact of booms and busts."
" Increases in borrowing and in collateral prices feed each other during booms.
In busts, the feedback turns negative, with credit constraints leading to
fire sales of assets and further tightening of credit."
". When credit is collateralised, the interaction between debt accumulation and asset prices contributes to magnify the impact of booms and busts."
" Increases in borrowing and in collateral prices feed each other during booms.
In busts, the feedback turns negative, with credit constraints leading to
fire sales of assets and further tightening of credit."
".. when borrowers in a given sector use an asset as collateral, then their borrowing capacity is an increasing function of the price of the asset. The price of the asset, in turn, is driven by the sector's demand for assets, which depends on their borrowing capacity. This introduces a mutual feedback loop between asset prices and credit flows: small financial shocks to the sector can lead to large simultaneous booms or busts in asset prices and credit flows "
Figure 1. Feedback loops
.gif)
".. the asset-debt loop entails systemic externalities that lead borrowers to undervalue the benefits of conserving liquidity as a precaution against busts. A borrower who holds more liquidity (or equivalently less debt) when the economy experiences a bust, relaxes not only his private collateral constraint but also the collateral constraints of all other borrowers because he does not have to fire-sell his asset holdings, thereby supporting the asset price."
"Since individual borrowers do not internalise this spill-over effect, they take on too much debt during good times. We find that it would be optimal for policymakers to impose countercyclical regulatory measures on leveraged borrowing to prevent borrowers from taking on socially excessive levels of debt"
". Macroprudential regulation should be tightened in booms as borrowers increase their leverage and as the vulnerability of the economy to a bust grows – and reduced in busts, when lenders recall their loans and leverage in the economy declines."
"The objective of such regulatory measures is to raise the private cost of borrowing to the social cost, i.e. to induce borrowers to internalise the negative externalities that they impose on the economy by borrowing excessively."
" It is therefore convenient to express the magnitude of the measure as a “Pigouvian tax,” i.e. a tax that captures the external costs that borrowers impose on the economy."
The optimal Pigouvian tax on debt in the US small and medium enterprise sector
". Macroprudential regulation should be tightened in booms as borrowers increase their leverage and as the vulnerability of the economy to a bust grows – and reduced in busts, when lenders recall their loans and leverage in the economy declines."
"The objective of such regulatory measures is to raise the private cost of borrowing to the social cost, i.e. to induce borrowers to internalise the negative externalities that they impose on the economy by borrowing excessively."
" It is therefore convenient to express the magnitude of the measure as a “Pigouvian tax,” i.e. a tax that captures the external costs that borrowers impose on the economy."
The optimal Pigouvian tax on debt in the US small and medium enterprise sector
sailing right along till ...
"In the calibration of our model to the US small-and-medium-sized enterprise sector, we found that the optimal macroprudential tax (or equivalent measure) on debt converges to 0.56% of the amount of debt outstanding over the course of a boom"
okay... but ........." By contrast"
", US Flow of Funds data over the past decade"
suggest that "..
large corporations large corporations large corporations large corporations
with
" access to corporate bond markets"
were less subject to systemic externalities
and did not require
the same type of macro-prudential measures."
boing !!!! not like the little among us eh
corporate bond markets versus what ...collateralized demand loans from banks ?
the playing field has a tilt
corporate bond markets won't implode ...is that can't or just ...likely won't
err based on a ten year look back from the great credit shock of fall 08
famous last words ?
"In the calibration of our model to the US small-and-medium-sized enterprise sector, we found that the optimal macroprudential tax (or equivalent measure) on debt converges to 0.56% of the amount of debt outstanding over the course of a boom"
okay... but ........." By contrast"
", US Flow of Funds data over the past decade"
suggest that "..
large corporations large corporations large corporations large corporations
with
" access to corporate bond markets"
were less subject to systemic externalities
and did not require
the same type of macro-prudential measures."
boing !!!! not like the little among us eh
corporate bond markets versus what ...collateralized demand loans from banks ?
the playing field has a tilt
corporate bond markets won't implode ...is that can't or just ...likely won't
err based on a ten year look back from the great credit shock of fall 08
famous last words ?
"The optimal tax should also be adapted to the maturity of debt.
Long-term debt makes the economy less vulnerable to busts than short-term debt,
lenders cannot immediately recall their loans when the value of collateral assets declines. "
"An important benefit of ex-ante prudential taxation during booms is that it avoids the moral hazard problems associated with bailouts. When borrowers expect to receive bailouts in the event of systemic crises, they have additional incentives to take on debt."
too big to fail throws a spanner in these works no ?
" If the financial regulators accumulate a bailout fund,
borrowers may increase their indebtedness in equal measure,
leading to a form of “bailout neutrality”"
===============================================
elsewhere a side kick writestoo big to fail throws a spanner in these works no ?
" If the financial regulators accumulate a bailout fund,
borrowers may increase their indebtedness in equal measure,
leading to a form of “bailout neutrality”"
===============================================
"individual market participants rationally take the prevailing level of asset prices
as given
and do not internalize that their fire sales in aggregate contribute to the asset price declines.
As a result of this externality, individual market participants take on excessive systemic risks.
Even though they may have access to a complete market to insure against systemic risk,
they insure to a socially inefficient extent
because when they trade off the costs and benefits of insurance,
they do not internalize the social benefits of insurance
in the form of mitigating the economy-wide fire sales."
By contrast, a policymaker has the capacity to internalize this externality
and make everybody better off
by inducing financial market participants to reduce their systemic risk-taking.
This in turn will lead to lower fire sales, smaller price declines and greater macroeconomic stability."
bail outs are off set
a bailout neutrality result, i.e.
market participants who have access to complete financial markets will employ these markets
to fully undo any expected government bailout"
" by simply increasing their exposure to those risks that they expect to be bailed out."
side light on reserve accumulation
O and T
"Japan’s behavior in the last decade
and China’s since 2004 cannot be explained
entirely by financial stability motives and trade "
forex games
"Japan’s behavior in the last decade
and China’s since 2004 cannot be explained
entirely by financial stability motives and trade "
forex games
reseve ratios north and south :two rates diverge after a screwing ..acceleratedly so after a second screwing
"In the 1980s, monetary authorities in both industrial and developing countries maintained fairly steady and consistent levels of foreign reserves, about 4% of GDP. After 1990, the trends in the two groups of countries diverged, and a great accumulation of reserves began in the emerging market countries. By 2005, they had accumulated reserves in excess of $2 trillion representing more than 20% of their collective GDP." obsfeldt and a taylor
more O and T ...and better still
"Our research suggests that financial development has played a major role in stimulating precautionary reserve accumulation in emerging markets. But we argue that the precaution is not to have a buffer against the inability of domestic residents to issue new external liabilities, the typical “sudden stop” argument. Rather, the buffer is also a safeguard against the sudden wish of domestic residents to acquire new external assets – that is, “sudden flight”"
flight of the compradors !!
"three crucial factors have forcefully coincided since 1990 to expose emerging markets to a much greater risk of crises that take the form of a classic “double drain” from bank deposits to cash, and then from cash to hard currency"
MORAL OF THE STORY
Southies listen up :
Under a managed exchange rate
ADD
CAPITAL MOBILITY !!!!!
and
", there is no space
for monetary policy autonomy."
NO SPACE !
" this applies to interest rate policy
and reserve cushions needed to weather banking crises"
more O and T ...and better still
"Our research suggests that financial development has played a major role in stimulating precautionary reserve accumulation in emerging markets. But we argue that the precaution is not to have a buffer against the inability of domestic residents to issue new external liabilities, the typical “sudden stop” argument. Rather, the buffer is also a safeguard against the sudden wish of domestic residents to acquire new external assets – that is, “sudden flight”"
flight of the compradors !!
"three crucial factors have forcefully coincided since 1990 to expose emerging markets to a much greater risk of crises that take the form of a classic “double drain” from bank deposits to cash, and then from cash to hard currency"
- A continuing desire to maintain a policy of fixed (or tightly managed) exchange rates, or a “fear of floating” whether to provide a transparent and credible nominal anchor, to boost trade or to avert destabilising balance sheet shocks when liabilities are dollarised.
- An ongoing trend, related to economic development, toward an increasingly monetised economy with a larger domestic banking and financial system relative to GDP
- A new inclination to shift policy so as to.......
LIBERALIZE external financial flows.
This liberalizing trend is complementary with a deepening of domestic financial markets"
that last point
ie
merging national financial markets into global capital flows
is the big new looming Gorilla
MORAL OF THE STORY
Southies listen up :
Under a managed exchange rate
ADD
CAPITAL MOBILITY !!!!!
and
", there is no space
for monetary policy autonomy."
NO SPACE !
" this applies to interest rate policy
and reserve cushions needed to weather banking crises"
Subscribe to:
Posts (Atom)