"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, March 15, 2014

The founding of the Federal Reserve brought the possibility of an elastic currency, and of avoiding the great liquidity catastrophes that afflicted the U.S. in the late nineteenth century. The silver-agitation crises of the 1890s, the great crash of 1873 when British investors grew nervous about the "crony capitalism" of America (a crisis with remarkable similarities to the 1997-1998 East Asian crisis), the Panic of 1907 (mitigated by J.P. Morgan's getting the New York Clearing House to expand the effective money supply via printing Clearing House Loan Certificates, and then cramming them down the throats by telling banks that they would incur his permanent displeasure if they did not accept them as valid and liquid instruments). 
Second, let me underscore Antonio Fraga's point. Any interpretation of recent events that points to a smaller magnitude of shocks to the world economy has to explain why things have looked so different from a developing-country standpoint. Looking back at my career, I see many local analytical low points. But my personal global analytical nadir came in early 1994, when I wrote a memo for my Treasury boss saying that yes, the Bank of Mexico's policy was inappropriate and overstimulative, but that the magnitude of the policy mistake was small and there was no reason to expect it to generate a serious problem.

Thursday, March 13, 2014

Stanley Fischer

The Root of Many U.S. Economic Problems Lie In Stanley Fischer's East Asian Bailout by Dean Baker
Morning Edition engaged in ritualistic praise of Stanley Fischer, in discussing his prospects for approval as President Obama's pick to be vice-chair of the Federal Reserve Board. It accurately reported that economists on both the left and right of the political mainstream respect Fischer and see him as central to shaping the current state of macroeconomics. 
The small point left out of this discussion is that this macroeconomics led us into the worst economic downturn since the Great Depression, giving the country and the world a slump from which we have not yet recovered. Tens of millions of people have seen their lives ruined as a result of failed economic management. 
Fischer personally played a direct role in creating the imbalances that led to the crisis. As first managing director at the I.M.F., he played a central role in directing the bailout from the East Asian financial crisis. The harsh conditions imposed by the I.M.F. led the countries of the region, along with countries throughout the developing world, to begin to accumulate massive amounts of reserves (dollars) in order to avoid ever being in the same situation as the East Asian countries. 
This led to a huge rise in the value of the dollar and an explosion in the size of the U.S. trade deficit. The trade deficit created a huge gap in demand. This gap in demand was filled in the late 1990s with the demand generated by the stock bubble. The demand gap was filled in the last decade by the housing bubble. This is not a stable mechanism for generating demand. 
In standard textbook economics capital is supposed to flow from rich countries to poor countries where in principle it will derive a higher rate of return. Fischer's policies at the I.M.F. led to a reversal of this pattern in a very big way. The consequences for the world economy have been disastrous. This point could have been made to NPR's audience if it had spoken to anyone who was not complicit in this momentous mistake.


Debate: How Much Slack? by DeLong
Me? I would say that “normal” monetary policy would call for the first rate increases when the JOLTS quit rate crosses 2% heading north. But I would also say that right now and for the foreseeable future “normal” monetary policy is not appropriate: the inflation rate was clearly too low going into the financial crisis to give monetary policy enough room to maneuver–an inflation target of 3% or 4%/year is clearly much more appropriate than a symmetric inflation target of 2%/year, let alone the asymmetric inflation target of 2%/year that we have. And I would say that right now the benefits of a high-pressure economy before our current cyclical unemployment has completed its transformation into structural unemployment are unusually large.
So, yes, I would say that pretty much any sensible cost-benefit analysis would postpone the first rate increases on the current track until 2016 or 2017…
The Fed Absolutely Shouldn't Give Up on the Long-Term Unemployed by Matt O'Brien

Wednesday, March 12, 2014

Tuesday, March 11, 2014

Game On!

my idiosyncrasies

The Five Minutes Hate of Chait by Robert Waldmann

I agree more with Chait. Antiwar lefties were against doing anything about Bosnia.

The old rules still apply (What the rest of the profession could learn from Ben Bernanke) by Scott Sumner

I agree more with Sumner and Yglesias than with the supposed lefties who say "loose monetary policy" helps bondholders.

What is at stake in Crimea?

"A key factor behind the Russian aggression is that Putin is strongly determined to make the February revolution in Ukraine a failure. For the second time in less than ten years, Ukrainians have mobilised to oppose corrupt and authoritarian governments. There is a strong determination among a large majority of Ukrainians to live under democratic institutions of high quality, similar to those in the West."

Sunday, March 09, 2014

trade deficit

Baker unlike Krugman and others emphasizes the trade deficit.

In the Real World the Trade Deficit Is More Important Than the Budget Deficit by Dean Baker