"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
Saturday, December 21, 2013
30 Rock, The Americans, Arrow and other CW shows, Borgen, Breaking Bad, The Bridge, Continuum, The Daily Show/Colbert Report, Eastbound & Down, Elementary, Enlightened, Game of Thrones, Homeland, Justified, Lost Girl, Masters of Sex, New Girl, Orphan Black, Parks & Recreation, Person of Interest, The Returned, Spartacus, True Blood, The Walking Dead.
Grateful to have a DVR.
Yglesias notes GDI was 1.8 percent.
Friday, December 20, 2013
But what will have most pleased Bernanke is the reaction in the bond markets, where the yield on ten-year Treasuries barely moved at all. Most mortgage rates are tied to these yields. If they had jumped sharply—as they did earlier this year when Bernanke first raised the prospect of a taper—the recovery in the housing market, a key element of the broader recovery, could have been threatened. As things turned out, the bond market had already anticipated the taper, and, at least for now, the housing market is safe.
In fact, things are going pretty much as the Fed chairman had hoped. The markets are calm, and growth and hiring are finally picking up, a development for which the Fed deserves some credit. As Bernanke pointed out, fiscal policy—set by Congress and the White House—has been working in the opposite direction to monetary policy, knocking perhaps one and a half percentage points off G.D.P. growth this year. But we’ve still managed to struggle through with growth of about two per cent. That’s far from great. But without the Fed’s offsetting policy moves, the economy would have been much weaker.
The Bureau of Economic Analysis released its latest revision to third quarter gross domestic product numbers and the news is ... really good. It says that the economy's nominal output rose 6.2 percent in the third quarter and that 4.8 of those percentage points were real output.
If true, this is three kinds of good news. The first is that nominal output growth of above 5 percent is the kind of "catch-up" demand that the country needs after a prolonged funk. The second kind of good news is that in the context of that kind of rapid nominal growth, the low inflation number (and therefore the high real growth number) is great news that the economy still has lots of running room. Our workers and our capital goods haven't become useless, there simply hasn't been enough demand for their output. The third piece of good news is that while the previous revision to this figure was basically just a big bump in inventories, today's revision was about final demand so it means the growth is sustainable.
The bad news is ... I'm not entirely persuaded this data is correct. Real gross domestic income, which longtime national accounting fans will recall is an alternative way of estimating the same quantity that RGDP is supposed to measure, rose by a fairly anemic 1.8 percent.
Well 7 percent unemployment is much worse than 4 percent.Given enough time, GDP and GDI estimates usually converge ,which is good because GDP=GDI by definition. And in recent years the convergence has usually taken the form of meeting closer to the GDI number than to the GDP number. So this could all be a kind of statistical mirage. I'd say Barack Obama's sagging poll numbers are also an indication that the more pessimistic GDI estimate may be the more accurate one. The conventional wisdom says it's all about the healthcare.gov mishaps, but we all remember from Bill Clinton's second term that robust economic growth leads to a lot of forgiveness. I tend to think that if the economy were really accelerating, we'd see indication of that in a brighter public mood.
I RECOMMEND you read my colleague's assessment of yesterday's Federal Reserve statement. I think he's spot on in his comments, with one small exception. I'm not sure I agree with this:
Mr Bernanke indicated he thought the drop in inflation was due to transitory factors, such as a slowing rise in health costs,* and that it would drift back to 2%. Whether a failure to do so would cause QE to be ramped up again is unclear, but it would certainly result in a much longer period of zero interest rates. The bottom line is that an improving path for growth figured more prominently in the Fed’s thinking than the declining path of inflation.That certainly seems like the right interpretation. Indeed, I wrote that the Fed was unlikely to taper because inflation is so low; the choice to go ahead and taper anyway certainly looks like evidence that they're not that worried about prices.
But it has also been clear that the Fed is trying to rely more heavily on forward guidance so as to free themselves from the need to continue with QE. And guidance about inflation changed yesterday in what looks to me like a subtle but important way. The first change comes at the top of the statement, where in October the FOMC said:
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.Yesterday this became:
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.The newer version (to my eyes, at least) implies that policy may change in the future specifically in order to raise inflation. The Fed has acted before to halt disinflation, but it has been reluctant to take positive steps to raise inflation that is low but stable. This suggests a slight change in tone in that direction.
That would be a thin reed to hang on if it were the only suggestive change in the statement, but later there is a change in interest-rate guidance:
The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.This is very close to adoption of an interest-rate threshold for an inflation minimum, something this newspaper has supported as a means to strengthen forward guidance. The taper provides one signal, yes, and had the Fed opted not to taper and explicitly linked that decision to these changes in guidance, that would have been a more powerful policy combination. But it is much harder to argue today that the Fed is not concerned about inflation below target and willing to work to raise it than it was on Tuesday. Unsurprisingly, expectations for future inflation, as measured by breakevens, jumped on the statement.
As always, one is torn between what looks like a positive evolution in Fed communication and overall timidity in policy. I'm glad the Fed is worried about too-low inflation, but then: why taper? But given central bank conservatism and an imminent change in leadership, I'm surprised the December meeting was this eventful. Perhaps—hopefully—there will be more fireworks in the New Year.
*"Mr Bernanke indicated he thought the drop in inflation was due to transitory factors, such as a slowing rise in health costs, and that it would drift back to 2%."
He may be right. "Consumer spending on health care services grew at an annual pace of 2.7 percent last quarter, instead of 0.9 percent, as the Commerce Department had previously reported."
Joe Gagnon Responds to Michael Woodford, Ben Bernanke, and Others on the Risks and Power of Quantitative Easing by DeLong
Enlightened was the best TV show of 2013
How is Abenomics Doing? by David Beckworth
He links to Ambrose Evans-Pritchard who writes:
Japan, too, has grasped the nettle, breaking free of its deflation trap with the most radical policy experiment of modern era...After two decades of monetary tinkering the Bank of Japan is mopping up 7.5 trillion yen worth of bonds each month, almost as much as the Fed in an economy barely more than a third the size. It is buying long-term debt for the first time...
Japan was the fastest growing economy in the OECD bloc in the first half of this year. There was a hiccup in the third quarter, causing the faint-of-heart to write off Abenomics. Yet Nomura's Shuichi Obata says the December Tankan survey of business shows that confidence is at last spreading from big companies to small firms, with the services index rising above zero for the first time since 1991.
Thursday, December 19, 2013
But then the tide, almost miraculously, began to turn. The pace of job growth increased, the unemployment rate declined (albeit in part due to a shrinking labour force), retail sales and manufacturing activity picked up. Congress declared a truce and passed a budget agreement that for the first time loosens the fiscal vise, albeit modestly, and foreign economies showed signs of momentum. Even housing, which wavered as mortgage rates shot up in anticipation of tapering, did not crumble, and indeed housing starts in November hit a post-recession high.
More important, tapered QE was coupled with a stronger commitment to keep the short-term interest rate target at zero. The Federal Open Market Committee (FOMC) had previously said it would stay at zero at least until unemployment had fallen below 6.5%. On Wednesday it said it would stay there “well past the time” that unemployment drops below 6.5%, “especially if projected inflation continues to run below” its 2% target. That, according to FOMC members’ projections, means until 2015 or later.
Mr. Bernanke indicated he thought the drop in inflation was due to transitory factors, such as a slowing rise in health costs, and that it would drift back to 2%. Whether a failure to do so would cause QE to be ramped up again is unclear, but it would certainly result in a much longer period of zero interest rates. The bottom line is that an improving path for growth figured more prominently in the Fed’s thinking than the declining path of inflation.
Wednesday, December 18, 2013
Alan Greenspan Is Still Trying to Justify His Bad Decisions What the maestro doesn't understand by Robert M. Solow
Why I want Bitcoin to die in a fire by Charles Stross
"Mining BtC has a carbon footprint from hell (as they get more computationally expensive to generate, electricity consumption soars).... Bitcoin mining software is now being distributed as malware because using someone else's computer to mine BitCoins is easier than buying a farm of your own mining hardware.... Bitcoin violates Gresham's law: Stolen electricity will drive out honest mining.... Bitcoin's utter lack of regulation permits really hideous markets to emerge.... It's also inherently damaging to the fabric of civil society. You think our wonderful investment bankers aren't paying their fair share of taxes? Bitcoin is pretty much designed for tax evasion. Moreover, The Gini coefficient of the Bitcoin economy is ghastly, and getting worse, to an extent that makes a sub-Saharan African kleptocracy look like a socialist utopia.... BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind.... Which is fine if you're a Libertarian, but I tend to take the stance that Libertarianism is like Leninism: a fascinating, internally consistent political theory with some good underlying points that, regrettably, makes prescriptions about how to run human society that can only work if we replace real messy human beings with frictionless spherical humanoids of uniform density.... The current banking industry and late-period capitalism may suck, but replacing it with Bitcoin would be like swapping out a hangnail for Fournier's gangrene."------------------------------
*Also known as Dunning-Kruegerrands
Assessing Neil Irwin's Assessment of Ben Bernanke by Dean Baker
This is how history should judge Ben Bernanke by Neil Irwin
What Did the Fed Do? And Is Ben Bernanke a Genius or a Fool? by John Cassidy
It’s taper-time, as the Fed just announced that starting next month they’ll be reducing their bond purchases from $85 billion to $75 billion. A change of that magnitude would not show up in the real economy–there are those who question whether QE shows up at all; I’d beg to differ–look at mortgage rates and housing activity, for one–but for its impact on expectations regarding the Fed’s future plans.
And here, paradoxically, I’d say today’s move is probably stimulative (that was certainly the market’s reaction). First, tapering isn’t tightening; they’re simply reducing the amount of punch they’re adding to the bowl by a few tablespoons. Second, there’s this new language from the statement today (my bold):
The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.So from the perspective of monetary stimulus, the Fed giveth in terms of forward guidance and
More to come…
Fed Pairs Slight Taper With Dovish Forward Guidance by Yglesias
The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
Last Sunday, when Paul Ryan announced on Fox News Sunday that Republicans would again demand policy concessions in return for lifting the debt ceiling, I paid little attention, in part because the host, Chris Wallace, appeared to push Ryan into it (WALLACE: Sir, I understand, but the question is, are you going to demand more in return for raising the deficit? RYAN: We as a caucus, along with our Senate counterparts, are going to meet and discuss what it is we want to get out of the debt limit. We don't want nothing out of this debt limit.) But now Mitch McConnell, too, says he “can’t imagine” passing a clean debt-ceiling hike.
Are the Republicans really going to try this again?
Unlike the last debt-ceiling hostage crisis, which resulted from explicable (though disturbing) internal party dynamics, the prospect of a new round of threats seems bizarre. We tested this threat a couple of months ago. Republicans swore up and down they would refuse to lift the debt ceiling unless they got concessions, and President Obama swore up and down he wouldn’t give concessions.
The result was in no way ambiguous. There were no concessions. Not a future commission, not a show vote, not handwritten letters. Zip. Obama tested the Republican willingness to trigger a worldwide economic meltdown to obtain concessions, and it turned out, they won’t pull the trigger. How on Earth they think they can try this bluff again, I can’t imagine.
Indeed, political conditions for the threat are even less favorable now that the two parties have agreed to a budget. Republicans used to have the substantively crazy but popular-sounding justification that they didn’t want to “write Obama a blank check.” But now the two parties agree on the level of spending this year. Raising the debt limit is needed to authorize the spending Republicans want. (Of course, we could avoid a debt limit hike by jacking up taxes, but obviously they don’t want to do that.)
Clearly, they’re not going to win. The question is why they’re making a threat when Obama knows they can’t carry it out. Why wind up conservative activists for a new fight that’s doomed to failure? Nothing about this threat makes any sense.
Update: In a conservative talk radio interview, Ryan elaborates. Ryan really brings the crazy here:
With respect to the debt limit, you and I and our colleagues are going to have to meet early after the holidays to decide what’s the right course going forward in that. We’ve never just done nothing."We've never just done nothing"? Never? How about, I don't know, the last time you raised the debt ceiling?
We want to make sure that we’re taking steps in the direction of fiscal conservatism, of fiscal responsibility. I, for one, think we need to do more in the energy sector. I believe we need to approve Keystone Pipeline.So your steps toward fiscal responsibility involve approving a pipeline? A pipeline with no measurable budgetary impact.
Tuesday, December 17, 2013
Monday, December 16, 2013
9. John Podesta, the Bill Clinton alum who is widely expected to run Hillary’s campaign, just took a job at the White House, where he will serve as a senior adviser to President Obama. If Podesta can wait another eighteen months before jumping onto into action for 2016, surely the rest of us can afford a similar time-out.
More Paleo-Keynesianism (Slightly Wonkish) by Krugman
This matters, a lot. The belief that the economy fluctuates around potential output, that it can’t be persistently below potential, is based ultimately on the natural rate hypothesis, which in turn took over economic thinking during the era of stagflation. This belief, in turn, underlies official estimates of potential output, which as Simon Wren-Lewis notes, causes any sustained slump to get built into official estimates of potential. Hence the official EU view that Spain is near full employment, the notion that Britain in 2007 was a hugely overheated economy with a huge structural budget deficit, and so on. If stagflation-era macro is wrong, so are all of these conclusions.
Sunday, December 15, 2013
It is likely that many readers thought these numbers are annual growth rates. As such, these would be indeed be low. However, they are in fact quarterly growth rates. Even after the downward revision Japan's economy would still have been growing at a 1.2 percent annual rate in the third quarter. Since Japan's population is shrinking at a 0.1 percent annual rate, while the U.S. population is growing at a 0.7 percent rate, this means that even in this relatively weak quarter (which followed two quarters of strong growth), Japan's per capita growth rate exceeded the U.S. growth rate over the last three years. Readers who thought these numbers referred to annual growth rates would not be aware of that fact.