"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Friday, February 08, 2013

Vanity Fair article on film producer Megan Ellison.
Is Megan Ellison an independent financier with vision or just funding the cool kids’ movies to hang out with them? After producing Zero Dark Thirty, the young daughter of the country’s third-richest man can afford to ignore her critics....
After long shoot days, Ellison and Chastain would watch old episodes of Breaking Bad and Game of Thrones. “We’d order food, pig out, watch Game of Thrones together, and relax,” the actress recalls.
Sounds like an ideal evening. (see masthead) I liked True Grit, Zero Dark Thirty, The Master, and Killing Them Softly. 

I'd recommend people see Zero Dark Thirty. It's moving, entertaining and thought-provoking if troubling. Many stupid people who see it will believe the torture was justified since it provided intel. But it's questionable that it did. Torture doesn't work. And it will backfire as it has many a time. See for instance the Sha's torture regime in Iran. See Argo. Plus it's morally reprehensible. However after seeing the film, I don't believe it's as straight up of an endorsement of torture as I was led to believe. It's seem to just say it happened. (Which is a scandal for the Senators who were responsible at the time and is a scandal for the Obama administration which wanted to look forward.*) But I don't have any doubt that stupid people will see it as they want to. I don't know if you can blame Bigelow and Ellison and the screenwriter for that. It's a complicated movie which is partly why it's entertaining, if troubling.

Some common themes or elements in these films. True Grit and Zero Dark Thirty both are stories of young women on a manhunt. Killing Them Softly and Zero Dark Thirty both have images of Obama proclaiming high ideals via the television while those ideals are being betrayed in the rest of the film. It's interesting how Philip Seymour Hoffman's L. Ron Hubbard-type "Master" and Osama bin Laden both have cultish-followings - see the detainees and Joaquin Phoenix - and both are being hunted by authorities.

*Something that struck me about The Americans: Keri Russel's Soviet spy takes it for granted that they would be brutally tortured if caught. I was 20 when the Cold War ended and I guess I naively never considered the fact our country tortures as a matter of policy until the War on Terrorism arrived.  It just wasn't discussed or I was too young to think about it.

Stabilize Nominal GDP, Don't "Pop Bubbles" by Yglesias

Overheating and the Fed by Carola Blinder
In the New York Times, Binyamin Applebaum writes that Stein's speech "underscored that the Fed increasingly regards bubbles, rather than inflation, as the most likely negative consequence of its efforts to reduce unemployment by stimulating growth." In fact, the Fed's concern about bubbles is not so new. After the Great Depression, it was widely believed that the stock market overheated in the 1920s, leading to the Great Crash in 1929 and the onset of the Depression. In those days, the word for bubbles or overheating was speculation, and it became a dirty word indeed. After the Great Depression, speculation remained a major concern of the Fed. The Fed very explicitly regarded bubbles as the most likely negative consequence of its efforts to reduce unemployment by stimulating growth.

For example, the United States economy was in a recession in 1953-54. In 1955, as the economy was recovering, the minutes from the Federal Open Market Committee refer multiple times to concerns about "speculative developments" or "speculative excesses." The March 2 minutes note:

The critical problem for credit and monetary policy in the United States, the review [from the Board's Division of Research and Statistics and Division of International Finance] said, was how to thread its way along the narrow ledge that encourages sound economic growth and high employment and, at the same time, limits speculative developments and discourages financial over commitments by businesses and consumers.
Minutes from May 10, 1955 say:
Business, financial, and consumer confidence is extraordinarily high--possibly too high for sound growth. At this stage, the task of monetary and credit policy is to foster stable growth in line with expanding manpower and industrial resources, at the same time restraining financial over-commitments and dampening speculative excesses. 
In 1958, William Phillips published "The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom." This really kicked off the now-common idea that inflation is the most likely negative consequence of the Fed's efforts to reduce unemployment. If the Fed is now starting to regard bubbles, rather than inflation, as the most likely negative consequence of its efforts to reduce unemployment, this is not a new trend. It is history of thought repeating itself.
Okay, Grace Van Pelt on "The Mentalist" is the most attractive woman on basic or non-basic cable. That is all.

From Blinder's "After the Music Stopped," BNP Paribas was the real beginning in August 2007. LIBOR went up 30 bps over Treasuries. And yet the FOMC inflationistas still had inflation on their minds. St. Louis's Poole. Dallas's Fisher.

Corporate Hoarding and the Slow Recovery by Krugman

I'm currently reading Alan Blinder's "After the Music Stopped" and it struck me again how the Fed was facing deflation in 2003. And yet a short time later we had an epic housing bubble. He credits Dean Baker with the first written call of the bubble, but it seems to me that he disagrees with Baker in that Blinder argues that housing is only 4 percent of GDP.

Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory by Thomas Palley

As DeLong says, it's a tautology.

(via Thoma)

Wednesday, February 06, 2013

'Bailout': Neil Barofsky's Adventures in Groupthink City by Matt Taibbi
There is an interesting moment when Barofsky and his deputy Kevin Puvalowski realize that, over a year into the bailout, Treasury official Herb Allison, a close confidant of Geithner, has made a subtle change to the language describing the aims of the ill-fated HAMP mortgage modification program. Allison ends up claiming that the goal of the program was only to make 3 to 4 million offers of trial modifications, as opposed to actually helping 3 to 4 million people stay in their homes, which is what the president and the Treasury originally announced. 
By the end of 2009, only 70,000 permanent modifications had been completed, a long way from the stated goal. When Barofsky confronts Allison about the problem, he says only that there's a "moral hazard" issue with giving out too many modifications, that expanding the program it isn't fair to people who made their mortgage payments all along.
AV Club review of "Kin" from "Justified" by Noel Murray

Whoever steps into Shirakawa’s shoes is likely to be an Abe’er and more ready to really open up the printing press, go for the new 2 per cent inflation target and subject the BoJ to greater amounts of fiscal dominance. 
Significantly, Shirakawa’s departure moves forward the date of the first really significant BoJ meeting to April 4. Nifty political calendar courtesy of Nomura:

Koo says Japan has gone from trade surplus to deficit, so that the weakening of the Yen is justified. A currency war is justified in the context of a depressed global economy. Germany and China have surpluses.

At Odds With the Government, Japan’s Central Bank Chief Offers an Early Exit
Since late last year, Mr. Abe has taken the bank to task, singling out its tepid monetary policies as the root of Japan’s economic woes. He successfully campaigned on a bolder monetary agenda ahead of nationwide elections in December, arguing that the central bank needed to set an inflation target of 2 to 3 percent. The strategy resulted in a decisive victory for his Liberal Democratic Party.

Markets cheered Mr. Abe’s monetary drive. The Nikkei 225-share index has surged almost 30 percent since mid-November, and the yen has weakened by 15 percent, an advantage for Japanese exporters.

Tuesday, February 05, 2013


Demand-pull inflation
Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises andunemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods". More accurately, it should be described as involving "too much money spent chasing too few goods", since only money that is spent on goods and services can cause inflation. This would not be expected to happen, unless the economy is already at a full employment level.
Cost-push inflation
Keynesians argue that in a modern industrial economy, many prices are sticky downward or downward inflexible, so that instead of prices for non-oil-related goods falling in this story, a supply shock would cause a recession, i.e., rising unemployment and falling gross domestic product. It is the costs of such a recession that likely causes governments and central banks to allow a supply shock to result in inflation. They also note that though there was no deflation in the 1980s, there was a definite fall in the inflation rate during this period. Actual deflation was prevented because supply shocks are not the only cause of inflation; in terms of the modern triangle model of inflation, supply-driven deflation was counteracted bydemand-pull inflation and built-in inflation resulting from adaptive expectations and the price/wage spiral.
Built-in inflation
The built-in inflation originates from either persistent demand-pull or large cost-push (supply-shock) inflation in the past. It then becomes a "normal" aspect of the economy, via inflationary expectations and the price/wage spiral. 
Inflationary expectations play a role because if workers and employers expect inflation to persist in the future, they will increase their (nominal) wages and prices now. (See real vs. nominal in economics.) This means that inflation happens now simply because of subjective views about what may happen in the future. Of course, following the generally accepted theory of adaptive expectations, such inflationary expectations arise because of persistent past experience with inflation. 
The price/wage spiral refers to the adversarial nature of the wage bargain in modern capitalism. (It is part of the conflict theory of inflation, referring to the objective side of the inflationary process.) Workers and employers usually do not get together to agree on the value of real wages. Instead, workers attempt to protect their real wages (or to attain a target real wage) by pushing for higher money (or nominal) wages. Thus, if they expect price inflation - or have experienced price inflation in the past - they push for higher money wages. If they are successful, this raises the costs faced by their employers. To protect the real value of their profits (or to attain a target profit rate or rate of return on investment), employers then pass the higher costs on to consumers in the form of higher prices. This encourages workers to push for higher money wages.

December 2007, part 2: Mishkin explains how the Fed caused the Great Recession. By Scott Sumner

December 2007, Part 1: Yellen was right By Scott Sumner

It's weird that people were saying that there was nothing in the 2007 transcripts. Mishkin and Yellen were right. Bernanke comes off badly (so Obama comes off badly???). 

The inflationistas should be embarrassed:
Voting for the FOMC monetary policy action were:  Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh.  Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.
I assume Evans and Mishkin just went along so that Bernanke would get consensus. Rosengren comes out looking prescient although as Sumner discusses, Mishkin and Yellen were correct in their analysis and how it played out.

...Here's the budget math. Between 1946 and 1974, debt-to-GDP fell from 121 to 32 percent, even though the government only ran surpluses in eight of those years (and the surpluses were generally much smaller than the deficits). That's because nominal GDP -- just the cash size of the economy -- grew much faster than debt did. As Greg Ip of The Economist points out, fast nominal GDP growth, and the easy monetary policy that requires, is the only way governments have ever successfully reduced debt ratios in the past. Austerity alone will fail. (See Europe).
...Well, as Mike Konczal of the Roosevelt Institute points out, the oft-cited Rogoff-Reinhart 90 percent debt-to-GDP threshold, after which growth supposedly slows, hasn't been proven. It's just a correlation. If anything, it probably gets the causation backwards, with low growth driving deficits and debt, not vice versa. Now, high deficits during high growth could crowd out private investment, and raise interest rates -- the fabled bond vigilantes -- but it couldn't bankrupt us a là Greece. We borrow in a currency we control, so we can never run out of it; we can always inflate as a last resort. This money-printing escape hatch protects us from the kind of self-fulfilling run -- where markets push up borrowing costs on fear of default, which, perversely, makes default more likely -- that had plagued Europe before ECB chief Mario Draghi promised to do "whatever it takes" to save the euro. The worst we have to fear is some kind of replay of 1992, with rising interest payments forcing some combination of tax hikes and/or spending cuts. There's a little bit more to fear than fear itself, but not too much more. 
That leaves us with one last reason to worry, and one not to. Long-term healthcare spending is on an unsustainable trajectory ... but there are some signs it might already be slowing to more sustainable levels. That's the worry. The reason not to is the world's insatiable appetite for our debt. Treasury bonds are a kind of money for the financial system -- shadow banks in particular use them as collateral to fund day-to-day operations -- and they're a kind of money the financial system desperately needs more of now. This brave, new financial world was in embryonic form just 30 years ago, but is so developed today that demand for our debt is much less elastic than you might think. 
In other words, don't think of the children. The government should keep borrowing today, and tomorrow, and every day after that. Being a government means you can borrow forever.

Optimal Path

No, there probably isn’t a bond bubble by Neil Irwin
Fed vice chairman Janet Yellen even gave a speech in November where she uses a slide show to explain her view of what the “optimal path for monetary policy” would look like. The chart shows the Fed starting to raise rates at the start of 2016 and shows short-term interest rates crossing the 2 percent line in late 2017.
This chart, from a slide accompanying a speech by Fed vice-chair Janet Yellen in November, shows in blue her view of what an "optimal monetary policy" might look like.
This chart, from a slide accompanying a speech by Fed vice-chair Janet Yellen in November, shows in blue her view of what an “optimal monetary policy” might look like.
Now, Yellen’s chart could turn out to be wrong. Perhaps economic growth or inflation will take off before 2016, and the Fed will tighten policy earlier. Conversely, there could be a new recession, prompting an even longer wait before rates rise. Another uncertainty is that when Ben Bernanke’s term as Fed chairman ends less than a year from now, his replacement might push the Fed toward a different set of policies.
But investors buying longer-term Treasury bonds know more than they ever did before about what Fed leaders themselves expect interest rate policy to be for the years ahead, and so the prices they pay reflect that. If bond prices fall (and yields rise) because the economy is doing a lot better, that’s a good thing overall, even if it means the value of bonds bought in 2012 fall in value.
(via Mark Thoma)

Monday, February 04, 2013

Sticky Bun Come Soon

I've been watching HBO's "Enlightened" this season with Laura Dern, Mike White, Dermot Mulroney Luke Wilson, Molly Shannon and Diane Ladd. Dern's character is kind of like this guy, that is sort of positive in soul-crushing, corporate office conditions.

Sunday, February 03, 2013

The thing about the "pushing on a string" metaphor is this. If monetary policy is ineffective in countering deflationary pressures, who doesn't inflation continue to decline until we get deflation. Does the economy settle into a lower equilibrium?