Wednesday, July 31, 2013

relative prices and wages tell us nothing about price levels

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

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

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

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 "

John Taylor 
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

of course the rate of exploitation is uneven...... across economies and between economies ...and from period to period

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."

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."

the 45 year path of housing construction --- when the FED uses residential mortgage policy to" stablize " aggregate household spending--- ends up looking like this .....

Screenshot 7 28 13 6 45 AM

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.)"

.

 
"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."
 
 
 
"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.

Saturday, July 27, 2013

hegel and the pobel dynamic

the lesser evil

Janet yellen.jpg

market model systems..... like an Orrery : rational motion ?

File:FranekerPlanetarium.JPG

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 )

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 .......

korporate kash ??? 'look at the ratio to STLs


Thursday, July 25, 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 :





" 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"

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 "

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"

Abba L ....patron saint .... of Gosplan II 's plansmart paradigm

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 

Monday, July 22, 2013

natural -wirt- schaft or geldwirtschaft ..that is not the question

Mindmap: Definition von Naturalwirtschaft steht in Beziehung mit: Arbeitsentgelt, Arbeit, klassische Lehre, Sachbez├╝ge, Geldwirtschaft, Trucksystem, Naturallohn, Naturalzins

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 "



 

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 ?

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."

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.

International comparisons, shares of sector contributions to output per worker, 1990–2007


"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"

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."

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."

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

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"



 

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
 
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

  


"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%"

hyperglobalization: tub timmy goes global by citation of submariner

 

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 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


".. 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
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 ?

 
 

"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 writes







"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

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"


  • 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"

Saturday, July 20, 2013

jerry simon lewis



-----------------------------------------------------


assumptions please !

"Start with an economy with a zero output gap  and no involuntary unemployment. "


no modern market economy has ever been" there" at the zero output gap  in reality .

.not a small gainsay comrades


"Everything in the economy is  efficient. "

i'll leave that to stand as is


"Then a ‘crisis’ happens that leads consumers
 to consume less and save more, so aggregate demand falls."

 consume less or spend less ?

a crisis ?
 the fabled  external shock mayhaps ?

or endogenously generated convulsion
like a minsky moment ?


 "Normally in these situations the central bank
cuts nominal and thus reduces real interest rates sufficiently
 to restore aggregate demand."

ie reduce nominal  rates more then price inflation  falls

 "Once this has happened, call everything in this economy ‘natural’,"


" the real interest rate that restores natural full demand is the natural rate of interest."
'



" The new  natural level of output may not be the same as the pre-crisis level
'
note  given this caveat
the use of the word  "restores " above is not general enough


"  the new natural rate of interest can have knock on effects
 on how much people want to work. "(and invest )

" this new  natural level is the level of output that policymakers should aim for. "

"In the Great Recession this mechanism did not work
because nominal interest rates hit zero"

,
" maybe also  monetary policy put a cap on inflation expectations."

" As a result, actual real interest rates are above the natural level."

" In addition, fiscal policy is in the hands of people
who know nothing about macroeconomics
 so there is no help from there."

" However monetary policymakers still think
 they could do something ‘unconventional’,
so they want to know what to aim for. "


"The answer is that, as long as what they do does not seriously distort the economy,
 they should try to get to the natural level of output,
 because that produces an efficient economy."

we circle here from assumption to assumption ... but no great harm

"The difference between the actual level of output
and the hypothetical natural level is called the output gap. "


comes now a digression :

"The traditional way of defining the output gap
was the difference between actual output
 and

‘productive potential:"
"the amount that could be produced
 if all factors of production were fully utilized. "



"The problem at a conceptual level is that this approach
 downplays considerations of optimality, "

much lies buried under that fudge bridge

"so nowadays theoretical macroeconomics uses
 the natural level of output to define the output gap. "

"This has the advantage that we know what policy should be aiming to do:
 achieving the natural level of output. "


I have an incipient  mad tea party reeling here

"Now imagine three almost identical economies
 where an output gap exists because nominal interest rates have hit zero."



three ?


there are two  categories

 wage rates and product prices

three moves
up , down and  stay put
2 x 3 => 6 cells


jerry s-l 
 looks at three of those

and even if neither prices or wage rates rise by assumption
there should be
 four cells to look at

1) wage rates  stay put /  prices fall

2) wages rates  fall  /   prices fall

3) wage rates fall /  prices stay put

4)  wages stay put /  prices stay put

at any rate
------------------------------------------------------

" The level of real interest rates that would eliminate the output gap
 is the same in all three economies
thus . they have the same natural levels of output."


" In the first economy, workers resist nominal wage cuts, so this puts a floor on how much unemployment reduces real wages. "
wages stay put  prices....?

" If nominal wages stop falling, at some point firms will stop cutting prices
to protect their profits. "

ahh prices fall then stay put  so this is cell four ...right ?

"We settle down to a new lower level of demand deficient output,
 high unemployment, but stable wages and prices. "

"There is plenty for unconventional monetary policy to do,
even though inflation is not falling".


 
"In the two other economies nominal wages carry on falling."

wages fall in both cells two and three

" In the second economy prices get cut pari passu, so real wages remain unchanged,"
prices fall
"while in the third they do not, so real wages fall."
prices stay put

missing cell

wages stay put prices fall
cell one


"  in the second economy inflation is lower than in the first, but real wages are the same. "

"Does this lower rate of inflation increase or decrease the output gap? "

"That depends only on whether actual output falls or increases because of lower inflation:"

" the natural level of output involves a hypothetical economy
which is unaffected by whether nominal wages fall or not in the actual economy"

". Actual output may fall if negative inflation makes debtors spend a lot less but creditors not much more "

a likelihood no ?


"however, if monetary policymakers have been inhibited from doing much because inflation was not falling .. lower inflation may raise actual output by encouraging expansionary unconventional monetary policy."

this implies the best strategy for job class solidarity
 is cut wage rates in exchange for increased CB  action...

yes the policy actions matter

'How about the third economy, where real wages have fallen?"

" Suppose firms respond to lower real wages by substituting labour for capital"

what in hell does this mean in the short run ?

idling machines not hands ?

", and this process continues until all those who want to work can find a job. "

without building new machines !

"So in the third economy involuntary unemployment goes away."

" But is the output gap any lower? "

"Once again, the natural level of output has not changed"

". (It was set in our hypothetical economy
where real interest rates fell to their natural level.) "

so by CB action increasing AD we get a burst in prices a raise in profits for owners
of  active machine owners of inactive  machines get profits as machines get  re activated
to fill orders ?


"So the key question becomes whether lower real wages and lower unemployment reduces or increases aggregate demand"

", and therefore actual output. "

"It could go either way."

" So it is perfectly possible that both actual output and therefore the output gap
 is exactly the same in all three economies "

" even though unemployment has returned to its natural rate in one, and the other two have very different inflation rates". 

"(I would) that the third economy is better off than the other two
 because the pain of deficient demand is evenly spread
(everyone has lower real wages)"

i'm wobbly

----------------------------------------------------------------------
,"But the first best solution is to raise aggregate demand, because that gets rid of the pain".

by restoring real wages in economy three and full utilization of machines

and by restoring full utilization of hands  in economies  one and two

????????
-----------------------------------------
now we get two real economies in motion over an interval
which of our three types is each ?

Unemployment in the US and UK: Source ONS and BLS


Growth in compensation per employee less GDP deflator: OECD Economic Outlook

"for the factor substitution story to explain most of what we have seen in the UK,
 investment should have completely collapsed, which it has not. "
 
so UK isn't a type three economy must be a type two
 
"However most seem to agree that some  factor substitution is going on in the UK."


errrr its a little like a type three though
 if so 
" by spreading the pain of deficient aggregate demand further,
" this ‘real wage flexibility’ in the UK has been a good thing"

class solidarity forever !

", but it does not mean the aggregate demand problem has decreased"

". If anything, it suggests that looking at unemployment underestimates
the size of the output gap."
because the machine to hands ratio has changed and machine idleness is under counted if you use the old ratio

" Monetary policy makers please note."