"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

Thursday, March 28, 2013

Let it Bleed? by Brad DeLong
BERKELEY – In the 12 years of the Great Depression – between the stock-market crash of 1929 and America’s mobilization for World War II – production in the United States averaged roughly 15% below the pre-depression trend, implying a total output shortfall equal to 1.8 years of GDP. Today, even if US production returns to its stable-inflation output potential by 2017 – a huge “if” – the US will have incurred an output shortfall equivalent to 60% of a year’s GDP.

When I talk to my friends in the Obama administration, they defend themselves and the long-term macroeconomic outcome in the US by pointing out that the rest of the developed world is doing far worse. They are correct. Europe wishes desperately that it had America’s problems. 
Nevertheless, my conclusion is that I should stop calling the current episode the Lesser Depression. Yes, its shape is different from that of the Great Depression; but, so far at least, there is no reason to rank it any lower in the hierarchy of macroeconomic disasters.
 Another version.

The Greatest Show That Ever Was or Will Be

Game of Thrones show Executive Story Editor Bryan Cogman's interview with Rolling Stone.
I wouldn't say a lot of time is spent consciously using other series as templates. Subconciously, well, I suppose The Wire, in that in my opinion it's the greatest TV show of all time and it dealt with its own complex mythology, dozens of characters, very specific "worlds", and intricate plots. References to Deadwood come up in the writers room from time to time.
In another Rolling Stones piece - which I can't find a link to - showrunner Weiss mentions The Wire in the context of a broad range and number of compelling characters like Snoop and Omar. The piece also says the Brave Companions will make an appearance. But will Vargo Hoat, the Goat of Qohor?

Twins No More by Krugman
Back in the Reagan years two unprecedented things began happening to the US economy. For the first time ever, we began running large peacetime budget deficits; and for the first time ever we began running large trade deficits. In a famous analysis, Martin Feldstein pronounced them “twin deficits”, linking the external deficit to the budget deficit, a proposition that made sense at the time: the budget deficit was helping to drive up interest rates, and high rates led to an overvalued dollar. 
It’s occurred to me recently that much discussion of deficits these days implicitly assumes that something similar applies in today’s world — that by running budget deficits we’re indebting ourselves, as a nation, to foreigners (especially China). So it’s worth pointing out that this isn’t remotely true.
Triffin dilemma?

Wednesday, March 27, 2013


Brad, by mid-2008 the size of the shadow banking sector exceeded 12 trillion. Much of this was short term financing (via repo, money market mutual funds, asset backed commercial paper, etc.) of long dated but highly rated asset backed securities. Once these securities started to look risky, they had to be funded in the capital market since they were no longer acceptable as collateral in the money market. Money market investors wanted cash or genuinely safe collateral, that is, Treasuries. There simply wasn't enough cash to satisfy the demand for redemptions, so the Fed intervened with cash injections (via the Primary Dealer Credit Facility) and exchanges of Treasuries for ABS (via the Term Securities Lending Facility). 
The newly issued Treasuries have just replaced the formerly highly rated ABS as collateral in the money market. From this perspective, one way to ask the debt capacity question is to ask how much long dated, highly rated debt the money markets were funding in mid-2008? The answer is about 12 trillion. So we may be reaching the limits of debt capacity.
Makes sense to me. Money left the shadow banking system and moved into Treasuries.

My half-baked response:
This makes sense to me as a non-economist. Money moved out of the shadow banking system into Treasuries. Some of the money in the shadow banking system winked out of existence too after the housing bubble, right? And the economy has grown slightly since 2008. 
"and we are on track to have $10.7 trillion early 2014," According to graph $4 trillion securities in 2008 plus 12 trillion in shadow banking system in 2008. So $16 trillion is the "monetary base"? And interst rates are lower now than in 2008.
and of course the Fed pumped money into the financial sector via cash injections etc.

"Who I wondered back in 2008 would buy these things? [Treasuries]
-- Brad DeLong 
[ What we do not know from the data given is what the duration of the Treasury securities that are being bought by the public as opposed to the Federal Reserve are. Judging from Vanguard which is either the largest or next to the largest American bond investor, there has been no meaningful demand for Treasuries apart from inflation protected and mortgage or GNMA bonds since 2011. Other than for speculation, the idea of buying a relatively long duration Treasury has made no sense since 2011, but from 2008 through 2010 there was every reason to buy relatively long duration Treasuries to take advantage of a profound bull market in bonds as longer term yields declined closer to the near zero short term yields. ]
Banks Borrow Way Too Much: A great new book argues that the finance industry’s love of debt endangers the whole economy. by Yglesias

Will Republicans come to regret the payroll tax hikes and Sequestration, electorally speaking.

'A Serious Warning That Consumers May Be Tightening Their Belts' by Mark Thoma

Consumer Confidence Index (the one that matters) Declines by Dean Baker


Tuesday, March 26, 2013

Zombie Marxism

Fedwatch: Fedspeak on Both Sides of the Atlantic by Tim Duy
The implication for policy [from Dudley's speech]:
Currently we are falling well short of our employment objective and the restrictive stance of federal fiscal policy is a factor. On inflation, we are also falling short, but by a considerably smaller margin. As a consequence, we need to keep monetary policy very accommodative. 
I do not claim that there are no costs or risks associated with our unconventional monetary policy regime. But I see greater cost and risk in moving prematurely to a policy setting that might not prove sufficiently accommodative to ensure a sustainable, strengthening recovery... 
Seems to be a clear indication that he is not inclined to alter the pace of asset purchases in the near future. At a minimum, Dudley is looking for evidence that the recent acceleration in job growth is sustainable (in concert with improvement across a broad range of indicators), and I think that will come only after another six months of nfp numbers consistently 200k+.
(emphasis added.)

The uncoordinated abandonment of the gold standard in the early 1930s gave rise to the idea of "beggar-thy-neighbor" policies. According to this analysis, as put forth by important contemporary economists like Joan Robinson, exchange rate depreciations helped the economy whose currency had weakened by making the country more competitive internationally.5 Indeed, the decline in the value of the pound after 1931 was associated with a relatively early recovery from the Depression by the United Kingdom, in part because of some rebound in exports. However, according to this view, the gains to the depreciating country were equaled or exceeded by the losses to its trading partners, which became less internationally competitive--hence, "beggar thy neighbor." Over time, so-called competitive depreciations became associated in the minds of historians with the tariff wars that followed the passage of the Smoot-Hawley tariff in the United States. Both types of policies were decried--and in some textbooks, still are--as having prolonged the Depression by disrupting trade patterns while leading to an ultimately fruitless and destructive battle over shrinking international markets.

Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression. However, modern research on the Depression, beginning with the seminal 1985 paper by Barry Eichengreen and Jeffrey Sachs, has changed our view of the effects of the abandonment of the gold standard.6 Although it is true that leaving the gold standard and the resulting currency depreciation conferred a temporary competitive advantage in some cases, modern research shows that the primary benefit of leaving gold was that it freed countries to use appropriately expansionary monetary policies. By 1935 or 1936, when essentially all major countries had left the gold standard and exchange rates were market-determined, the net trade effects of the changes in currency values were certainly small. Yet the global economy as a whole was much stronger than it had been in 1931. The reason was that, in shedding the strait jacket of the gold standard, each country became free to use monetary policy in a way that was more commensurate with achieving full employment at home. Moreover, and critically, countries also benefited from stronger growth in trading partners that purchased their exports. In sharp contrast to the tariff wars, monetary reflation in the 1930s was a positive-sum exercise, whose benefits came mainly from higher domestic demand in all countries, not from trade diversion arising from changes in exchange rates.
(my hyperlink emphasis. "At least two students who studied under her have won the Nobel Prize in Economic Sciences: Amartya Sen and Joseph Stiglitz. In his autobiographical notes for the Nobel Foundation, Stiglitz described their relationship as "tumultuous" and Robinson as unused to "the kind of questioning stance of a brash American student"; after a term, Stiglitz therefore "switched to Frank Hahn".[2] In his own autobiography notes, Sen described Robinson as "totally brilliant but vigorously intolerant".[3]")
But what I found striking was Hiatt’s offhand explanation of why his never-changing, never-right prediction keeps not happening; it’s because
the Federal Reserve is gobbling up U.S. debt to keep interest rates low
Clearly, this has become part of the CW. And once again we see how a highly dubious economic idea can become part of what Everyone knows and Nobody disagrees with, even if in this case Nobody includes a fellow by the name of Ben Bernanke, who gave a speech on this very topic just a few weeks ago. 
In fact, the notion that rates are low just because the Fed is buying up debt is wrong on at least three levels. 
First, as Bernanke stressed, long-term interest rates have moved very similarly across a wide range of countries, including countries where the central bank is buying up lots of bonds and countries where it isn’t. Here, for example, is a comparison of the US and France:

Monetary Policy and the Global Economy by Ben Bernanke

The London Whale and the real link between the US economy and Cyprus by Dean Baker

LAWRENCE SUMMERS, AXEL WEBER, MERVYN KING, BEN BERNANKE, OLIVIER BLANCHARD AT THE LSE: "I DO NOT BELIEVE THE LONG RUN CAN BE CEDED TO THE AVATARS OF AUSTERITY" WEBLOGGING by DeLong


Monday, March 25, 2013

Unconventional policy forever by Ryan Avent
THE Federal Open Market Committee concluded its two-day meeting today with a nothing-burger of a statement. Very little changed in its wording on the state of the economy, and both asset purchases and interest-rate guidance remain as they were before. Things continue on as they have. New economic projections released with the statement suggest the Fed expects a bit less output growth and a bit less inflation than it previously did over the next few years, with the unemployment rate moving toward its long run range (between 5.2% and 6.0%) a little bit faster. Nothing to see here. 
That's a problem. It's easy to lose perspective on the state of the labour market, given that our expectations slowly adjust over time and that relative to other large economies America doesn't look so bad. But the recovery is nearly four years old, and the unemployment rate remains well above the pre-recession level. And the Fed doesn't anticipate unemployment returning to its natural level until 2015 at the earliest. It should go without saying that seven full years with unemployment above normal is a sign of a pretty lousy monetary-policy performance. 
A good part of the explanation for that miserable showing can be summed up in three words: zero lower bound (ZLB). Since December of 2008, when the Fed cut the fed funds rate target to roughly zero, the FOMC has been scrapping to try and boost recovery without its favoured tool. It has had some success. But the recovery has obviously been much, much weaker than anyone would have preferred. And one can conclude, from this performance and from Fed statements, that the weak recovery is rooted in the fact that the Fed is less convinced of the benefits of the unconventional tools it has been deploying and more concerned about their risks, relative to normal interest-rate policy. 
Surely, then, the Fed is looking ahead and trying to make sure that in the future it doesn't have to use unconventional tools. Right? Not exactly. If recovery proceeds as the Fed anticipates, its interest-rate target will remain at near zero until at least 2015. Perhaps more worrying, the FOMC's best guess at the appropriate, long-run value of the fed funds rate is about 4%. That is strikingly low. In each of the past three recessions the Fed has responded by cutting the fed funds rate more than 4 percentage points. A fed funds rate at that level virtually guarantees that the next downturn will result in a relapse into ZLB territory. Unless the Fed suddenly becomes much more comfortable with unconventional policy, the unemployment rate will rise more than it otherwise would and recovery will be weaker as a result. And that's assuming that growth over the next few years actually is robust enough to allow the Fed to get rates back to 4%, which is not at all guaranteed. 
At today's post-meeting press conference, I attempted to ask Ben Bernanke whether the FOMC was concerned about the lack of a cushion between the fed funds rate and the ZLB and whether the FOMC had considered adjusting policy to address the issue—by raising the long-run inflation target, for instance. His answer, essentially, was that the Fed had only just announced its 2% inflation target and had no plans to change it. And he reckoned that weighing the costs and benefits of ZLB events with an eye toward computing the optimal inflation target was a matter for academic debate. Some research suggests that at low inflation rates an economy will hit the ZLB more often than was previously assumed, he noted, which might make the cost-benefit trade-off of a higher target more attractive. 
Fair enough; monetary economists have and will continue to debate these points. But the issue is not merely academic. Most of the other questions at the press conference concerned the problem of continued high unemployment and the Fed's assessment of the risks of unconventional policy. We are living the consequences of the ZLB and the Fed's best estimates have America right back in the same hole when the next recession hits. If the Fed is simply waiting for academia to sort things out, that's really disconcerting. Alternatively, if the Fed is actually pretty comfortable using unconventional policy and not particularly worried about rolling it out again during the next downturn then one has to ask why it isn't doing much more now to address unemployment. 
The answer doesn't have to be a higher inflation target. It can be a commitment to treat the current target more symmetrically (that is, to err above as often as it errs below). Or it could be a switch to an NGDP level target. But right now, the Fed's answer seems to be: get used to nasty recessions and insufficient monetary responses, suckers. At least until academics tell us its safe to try something new.
Robert Samuelson is Optimistic About the Economy by Dean Baker
In short, some of the factors that Samuelson cites at the end of his piece, like the sequester and the end of the payroll tax cut, are likely to prevent much of an economic takeoff. It is worth noting that we probably don't have to share his concern about:

"Obamacare’s disincentives for job creation (example: Because firms with fewer than 50 workers aren’t required to provide health insurance, the temptation is to stop hiring at 49)"

There are few firms in this situation. (Some small firms already offer health care coverage.) The impact of firms struggling with the 50 employee problem is likely to be invisible in the data.

AV Club reviews "This Sorrowful Life" from "The Walking Dead"

commenter "lionofdharma":
I was just saying last week that all will be forgiven if the TWD writers give me the sweet Easter Sunday gift of a zombie dressed like Jesus staggering around in the background at some point during the finale. Talk about a fucking Easter egg.