QE

Why Death Matters for Central Bank Policy by Roger Farmer

Farmer doesn't believe Dodd-Frank is enough. New shadow banks will emerge and there will be another crisis.

Financial Stability and the Role of the Financial Policy Committee by Roger Farmer

If the unborn could trade in the markets, they would short stocks that are overvalued, and buy those that are undervalued. Markets can remain irrational longer than you or I can remain solvent. They can remain irrational for longer than George Soros can remain solvent. They cannot remain irrational for longer than the Treasury can remain solvent. The Bank of England, backed by the Treasury, has an advantage precisely because it has the power to tax and transfer not just from you and I, not just from our children and our grandchildren, but from our children’s children’s grandchildren.

Steampunk - The Knick

AV Club reviews The Knick: “Method And Madness”

metal in the science oven

Or broken windows

American Hustle was pretty good. I liked how they started it off with Steely Dan's "Dirty Work."



It has the broken windows idea from economics.

Jeremy Renner's mayor just wanted a fiscal stimulus for his community and Christian Bale's con man felt really, really bad about entrapping him. They had become good friends during the operation. The movie was based the true Abscam scandal.

You're The Worst

AV Club reviews You’re The Worst: “What Normal People Do”

I love that Sam is an architecture nerd: ““The Craftsmen movement was a protest against the dehumanizing aspects of the Industrial Revolution. Irony is, building these shits was so expensive couldn’t no laborers dream of living in one.”

Reason and CATO are not on the level

No, America Is Not Turning Libertarian by Jonathan Chait

MAP: Your State Lost Billions by Refusing to Expand Medicaid by Jonathan Cohn

Black Jesus

Black Jesus on tonight on Adult Swim.

You might expect McGruder, given his Boondocks history, to be out for pointed religious satire, but Black Jesus is really more of a stoner hangout comedy with a heart. In the pilot, Jesus chills with his well-meaning slacker friends, who bust his chops for smoking weed he never pays for and ask him to give them a ride to a business deal (also weed-related), plus “a miracle, just in case we need it–which we won’t!” 

But the joke here is not really on Jesus so much as people who don’t want to hear the modern version of his message. Johnson, despite his Sunday-School-pageant getup, plays Jesus as an expansive, wide-armed fountain of love, who exudes goodness even when he gets pissed off, because that’s who he is: “I still love your bitch ass! By default, too!” It’s the unbelievers who get laughed at, like cynical landlord Vic (Charlie Murphy), who believes Jesus is a hustler and a fake. (The series, by the way, is pretty clear that Jesus is the real deal–at least, we see him read minds and heal by touch, though he insists, “I ain’t in charge of miracles. That’s Pops!”) Black Jesus may be crude and irreverent, but it’s most interested in mocking a world in which Jesus’ message perpetually won’t fly.

The Bridge

"The government couldn't win the war on drugs — so they're using it to fund the war on terror."

-- Reese from Person of Interest

AV Club reviews The Bridge: "Eye of the Deep"

why we can't have nice things

Another one on the austerity meme, after Piketty's K21, Floor System, macro wars, German trade, etc. (Need to clean up and link).

Neil Irwin sparked this discussion.

Ritholtz

Kevin Drum

Ritholtz and Biven mostly blame the Republicans and they do deserve the lion's share. But we must also remember Geithner saying stimulus gives a "sugary high" and Orzag saying we must cut the deficit so we can spend money on what we want. Obama even gave in to "sound finance" rhetoric when he said the government needs to tighten its belt like households are doing.

the economy

OVER AT EQUITABLE GROWTH: WHY IS EMPLOYMENT TODAY SO MUCH LOWER THAN WE EXPECTED SEVEN YEARS AGO?: (LATE) MONDAY FOCUS FOR AUGUST 5, 2014 by DeLong

What's Holding the Economy Back: Revised Version by Dean Baker

Another Reminder About the Stupidity of Austerity by Josh Bivens

inequality

A New Report Argues Inequality Is Causing Slower Growth. Here’s Why It Matters. by Neil Irwin

Sumner on Abenomics

What markets are telling us about Japan by Scott Sumner

Japan is a perfect case study. Asset markets took off after mid-November 2012, when then candidate Abe first indicated he was going to push for a 2% inflation target. The yen fell from about 80 to the dollar to 103 today, while the Nikkei rose from under 8700 to over 15,300 today. So the asset price gains have been sustained. And we did see a rise in the Japanese price level, RGDP and NGDP. So in one sense Abenomics “worked.” 

On the other hand the Japanese 10 year bond yield is 0.51%, vs. 2.50% in the US, and the 30 year bond yield is 1.67%, vs. 3.30% in the US. That tells me that the bond market probably expects Japanese inflation to remain well below US levels in the long run, perhaps close to zero. And that suggests that Japanese asset markets believe that the political obstacles remain formidable. After all, Abe won’t be the prime minister forever. 

So my overall views on Japan are mixed. I view the depreciation of the yen and the huge stock market rally as signals that the Abe government overcame formidable political odds. Good for them. I view the low bond yields as a sign that the markets now expect the BOJ to rest on its laurels, and not try to push the price level even higher. That’s not so good. The labor market is no longer the biggest problem in Japan; it’s the debt situation. As long as nominal interest rates are near-zero the BOJ is needlessly worsening Japan’s long term fiscal situation. 

Don’t pay any attention to GDP, which soared in Q1 and will plunge in Q2. The forex rate and stock prices are the best short term indicator of how the BOJ is doing. If the yen moves into the 110 to 120 range, that would suggest my political forecast was too pessimistic. If it moves below 95, I was too optimistic. 

PS. Matt Yglesias points out the absurdity of Obama touting the strong jobs market. But Yglesias’s post is marred by an unwillingness to mock Obama for saying this while also arguing for bringing back the emergency unemployment insurance program–intended for lousy job markets.

Andolfatto interviews Woodford

Then Woodford suggests that the relationship between long-term rates and the economy is not as clear as with traditional tools. We agree that it’s not at all clear (never reason from a price change), but we think that’s also true of traditional tools. One cannot assume that lower interest rates produced by the Fed will lead to strong growth in AD. It depends on the relative strength of the liquidity, income and Fisher effects. 

In the final paragraph I quote, Woodford points out that most people think that Fed purchases “obviously” boost the price of the asset being purchased. They misuse the S&D model. Some commenters are outraged that the Fed is helping group X, because group X owns lots of the assets that the Fed is buying. They see dark conspiracies. But the purchase of bonds is also the sale of cash. And more cash boosts inflation, which reduces bond prices. During the 1964-81 period the Fed radically increased the amount of bonds it was buying, this led to rapid growth in the monetary base, higher inflation, and much lower bond prices. So much for Cantillon effects.

Yes, there are cases where large asset purchases are associated with low inflation (such as recently); my point is that there is no consistent relationship between Fed asset purchases and the price of that asset.

Olivia Wilde

Wilde referenced The Leopard last night on Letterman which was cool. She's also casually sex positive which is nice, telling David how the Italians are more comfortable with nudity. They were discussing her nude scene in her upcoming film which was shot in Italy. Talk about a plug!

Whenever I see her I always think of her uncle Alexander Cockburn. As a clueless American from the suburbs I didn't know much about the European left (or even the American left) so it was interesting to discover that England had class traitors like Cockburn and his father who was Communist royalty. Claude Cockburn was also literary, being the second cousin, once removed, of novelists Alec Waugh and Evelyn Waugh.

Cockburn moved to Northern California early on, and was prescient about environmentalism (climate change) and marijuana legalization. In person I found him to be extremely courteous, polite and hyper-articulate if a little strange and alien (it might have just been how his manners and accent struck a provincial Mid-westerner). His encyclopedic knowledge was insane but he always appeared to be wanting to be a regular guy and sympathized with conservative, members of the lower classes like gun nuts. Obviously many people knew him better and have more accurate impressions them me.

Also, I once gave Rick Perlstein a ride in my car.

get real wages up

Adam Posen on Japan’s Recovery: Going Right, Just Not Going Well

A lot of us came out early in 2013 and tried to tell the public and the government that they had to get wages up … And the government tried. It didn’t happen. So of course things are worse than they would have been if they had … There has to be renewed pressure on corporate Japan to give decent wage increases in the next year.

(via Thoma)

Bundesbank shifts stance and backs unions’ push for big pay rises

Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent. 

In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official.

Janet Yellen: The Sixteen Trillion Dollar Woman

"I'd like to see real wages going up," Yellen says, adding that the average American male worker's inflation-adjusted wages have been flat or down for the past 20 years."

reverse repurchase agreement facility

The ON RRP Facility and Post-Liftoff Fed Policy by Stephen Williamson

(via Thoma)

The Leftovers

AV Club reviews The Leftovers: “Guest”

No starring Gael García Bernal

Sort of like what's going on in Tyrant.

Simon Wren-Lewis and Nick Rowe Annoy Each Other…: Friday Focus for August 1, 2014 by DeLong

...In the case of (2), the key shortage is not of the stock of the liquid medium exchange per se or an elevation of the entire risk spectrum of real interest rates above the Wicksellian natural rate because of the zero lower bound, but rather the inability of financial intermediaries to raise enough capital and trust to do the risk transformation. The consequence is safe interest rates at or below their first-best Wicksellian natural values and risky interest rates well above their first-best Wicksellian natural values. In this case a resort to monetary expansion–even if the economy is away from its zero interest-rate lower bound–provides incentives to invest too much of society’s wealth in long-duration assets, with the added complication that the financial sector has a difficult time distinguishing A valid long-duration asset from a Ponzi scheme because neither requires the investors be shown the money in any serious way.

inequality and Democrats; Strange Defeat

Inequality: Don't Blame the Market by Dean Baker

Goldfarb:

Jason Furman, the chairman of the Council of Economic Advisers, has estimated that overall, the health care programs and Obama's tax policies should undo years of growing inequality. 

"Just the tax changes we made in this administration undid about half a decade of the increase in inequality," he said in a press briefing last week on an unrelated topic. "If you add in the Affordable Care Act, it’s more than a decade of inequality that was undone. " 

He said future work must tackle the pre-tax inequality, by doing things like raising the minimum wage, which would immediately increase the income of the poor, and improving educational attainment, which could reduce inequality over the long run.

First off: defeat the Republicans. Secondly, purge the Democrats of the Rubinites. We need the Democrats to not bother talking about supply side policies to fix pre-tax inequality like improving education. They need to focus on full employment and rising real wages. They need to take to heart Kalecki's point that the economy should not depend upon the whims of investors and business managers. The base line should be set by the government and government spending. Then who cares when an asset bubble pops.

The "strange defeat" of the Democratic Party - to take the title of J.W. Mason's blog post - happened when Bill Clinton dropped his campaign pledge for a middle class spending bill in the face of Greenspan's threats to raise interest rates. As James Carville quipped "I want to be reincarnated as the bond market. Everyone's afraid of you." Greenspan did deliver 4 percent unemployment, but it was unsustainable and led to increasing inequality as the tech boom busted and morphed into the housing bubble. Clinton's deficit reduction was squandered by Bush's tax cuts for the rich which Greenspan endorsed.

Mason's post a response to his article where the conservative writer mentions India. They wish America, Japan and Europe were more like developing nations and were more vulnerable to bond vigiliantes. But they have their own printing presses.

macro wars

more Mason's Strange Defeat

"In particular, while demand matters in the short run in New Keynesian models, it can have no effect in the long run; no matter what, the economy always eventually returns to its full-employment growth path."

But there is hysteresis and reverse-hysteresis. In the long run we're all dead.

Abba Lerner and "functional finance" as opposed to Obama's "sound finance."

Commitment to ‘Sound Finance’ 

The term “sound finance” was adopted in the 1940s by the pioneering American Keynesian Abba Lerner, to describe the view that governments are subject to the same kind of budget constraints as businesses and households, and should therefore guide their fiscal choices by the dangers of excessive debt. He contrasted this view with his own preferred approach, "functional finance," which held that government budget decisions should be taken with an eye only on the state of the macroeconomy. High unemployment means higher spending and lower taxes are needed, high inflation the opposite; the government's financial position is irrelevant.