Treasuries, TIPS, and Gold (Wonkish) by Krugman


Currency Wars Could Save the World by Yglesias

When the moon is round and full, gonna teach you tricks that will blow your mind

Rosenberg on True Blood:

I did actually think that moment in the show was handled well, with some real emotional grounding and force. Alcide’s efforts to stay with Debbie have been one of the most consistently-rendered storylines this season, each time bringing Alcide closer and closer to his limits. First, he’s joining a new pack, even if he’s not particularly comfortable with the people in it, as a way to try to help Debbie stay clean. He’s resisting Sookie, even though she might be an easier partner. And he’s stood by Marcus up to the point when it became clear that his packmaster wasn’t man enough to do his own fighting, much less enough wolf. But Debbie’s infidelity, her role in stealing someone else’s child, are too much, and True Blood made us feel the force of Alcide’s ritual without explaining it into the ground.

Meredith Woerner:

Pro: In spite of Debbie's GIGANTIC flaws and mistakes, she insists that she loves Alcide. I know I'm a Debbie sympathizer, but out of all the incredibly unrealistic turns and twists a show about vampires having sex inflicts on its audience week after week, Debbie does appear to act like an actual human being. She's an addict, she makes horrible decisions, she plagued by her past, and hounded (GET IT?!?) by Alcide's obvious infatuation with Sookie. Yes, OF COURSE she was going to fuck this all up. I'm not making excuses for her, I'm just happy that out of all the jumbled plots on this show, Debbie's continues to be the most surprisingly realistic (again, for a show about vampires that have sex with each other). Of course she's not going to run away with Mr. He-who-pauses-awkwardly-in-speeches, Marcus. She's in love with Alcide. Debbie is going to do everything in her power to try and fix their relationship, which probably means burning whatever little bits of happiness they have left to the ground and then pissing on the embers. As messed up as she is, everything she does makes sense for her character.

Two Views of Fiscal Headwinds by Jared Bernstein

True Blood recap (last show before season finale) by Meredith Woerner

Krugman: the beatings will continue until morale improves

When the recession officially ended, [government] spending was rising at an annual rate of around $60 billion; now it’s declining at an annual rate of $60 billion. That difference is around 1 percent of GDP, and maybe 1.5 percent once you take the multiplier into account. That makes the turn toward austerity a major factor in our growth slowdown.

Debt, Deleveraging and the Liquidity Trap

LIBOR

What's in a number?

Team Debbie

Not wonkish, but too-much-information-ish ... I ran across a bad-ass ex-girlfriend at the local Starbucks this morning. Hadn't seen her in years. She sort of reminds me of Debbie Pelt and vicey versey. Since we broke up, she had gone to rehab and hooked up with one of her bad-ass ex-boyfriends that she used to date before we had met. He's her age whereas I'm 8 years older.

On True Blood, Alcide seems more interested in Sookie and helping other people like Sam, than in Debbie. With me, I'm too interested in the things I blog about, like True Blood, politics and economics, things which didn't interest my ex. Plus she ran with the pack who work bars and restaurants and stay out all night, while I had a 9-5 office job.

DeLong on Gauss (wonkish)

Johann Carl Friedrich Gauss said that when you are analyzing variability, you should measure it by squaring deviations from the average and then averaging those squared deviations.

Jonathan Chait on FDR and Reagan's re-elections.

... That caveat aside, this sounds like pure delusion. Roosevelt in 1936 and Reagan in 1984 had high unemployment, yes. But they also had very rapid economic growth. Here's the picture in 1936:

And 1984:

These were situations where the public could discern rapid improvement from a bad situation. No such thing is likely to be the case next year. 1936 and 1984 are not good lessons. They're counter-examples, like learning how to handle a drought by studying what happened during Hurricane Katrina.

Dennis Lockhart, President and CEO of the Atlanta Fed discusses the structural adjustment of deleveraging

Men and Women to Avoid

Match them up

Bank of England's Adam Posen backs more QE

(via Yglesias)

Part 1 of CNBC interview with Charles Evans, President of the Chicago Fed

Part 2

This summary is not available. Please click here to view the post.

Charles Evans of the Chicago Fed is a Mensch, and He Sees the Situation Clearly by DeLong

Martin Wolf on the "second great contraction"

(via Krugman)

Yes, We Can Do Stimulus Without Adding Debt. Here’s How. by Robert Shiller

Dean Baker has a new book

True Blood recap by Meredith Woerner, complete with Zoolander clip

Give Marx a Chance to Save the World Economy by Geoge Magnus

(via Yglesias)

Alan Krueger picked to lead the Council of Economic Advisers by Jackie Calmes

The cooler reception came from some on the left, who said the moment called for a big-picture macroeconomist who would push for more ambitious initiatives to reduce unemployment. "The kind of action he’s an aggressive and creative thinker about is relatively small bore, supply-side changes rather than big-picture efforts to fill the gap," Matthew Yglesias, a senior fellow at the liberal Center for American Progress, wrote in a blog.

Mark Thoma, Jared Bernstein, DeLong and Krugman are happy with the choice.

Brief Hiatus by Tim Duy

The failure of Bernanke to push for more aggressive action is even more puzzling in the wake of this speech. According to the Fed chair, the situation is becoming urgent:

Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

I suppose I should be happy that someone in Washington considers unemployment to be a crisis, both near and long term. That said, Bernanke follows up with this:

Notwithstanding this observation, which adds urgency to the need to achieve a cyclical recovery in employment, most of the economic policies that support robust economic growth in the long run are outside the province of the central bank. We have heard a great deal lately about federal fiscal policy in the United States, so I will close with some thoughts on that topic, focusing on the role of fiscal policy in promoting stability and growth.

So he passes the ball to fiscal policy. With good reason, to be sure. Congress and the Administration are failing miserably at macroeconomic policy.

(via Mark Thoma)

Five Trillion Dollars by Krugman

A couple of notes on the most recent Congressional Budget Office Projections:

1. They offer a portrait of an economic catastrophe. Here’s the CBO estimates of potential real GDP — the amount the economy could produce without causing inflationary pressure — and actual GDP, in trillions of 2005 dollars per year:

 

No, I don’t know where that recovery in 2015 is supposed to come from; my guess is that it’s basically the CBO unwilling to project a depressed economy more or less forever. But even with that bounceback assumed, the projection says that we’ll have a cumulative output gap of $5.1 trillion, with $2.8 trillion of that having already happened.

Surely it would have been worth making an extraordinary effort to avoid this outcome[....]

Dissecting the Mind of the Fed by David Leonhardt

But you would also find a sizable group of economists who thought the Fed could and should do far more than it was doing. This group, known as doves, tilts liberal, though it includes conservatives as well. If anything, it can probably claim a larger number of big-name economists -- J. Bradford DeLong, Paul Krugman (an Op-Ed columnist for The New York Times), Christina D. Romer, Scott Sumner and Mark Thoma, among others -- than the camp that believes the Fed has done too much.

...

David Levey, a former managing director at Moody’s and another critic of Fed inaction, points out that banks often have more to lose from inflation than from unemployment. Inflation reduces the future value of the money that their debtors — homeowners, car buyers, small businesses and the like — will repay them.

...

"The Fed regional banks represent, in essence, the banking community, which tends to be very conservative and hawkish," Mr. Levey says. "Creditors don’t like inflation -- it’s good for debtors." Indeed, the three recent dissents all came from regional bank presidents: Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis and Charles I. Plosser of Philadelphia.

The Crimes of Col. Qaddafi: In the euphoria of the current celebrations, we must not lose sight of the former leader's foul deeds. by Hitchens

Krugman on QE

Well, here we are: Ben Bernanke is now Master of the Universe Fed chairman, and he has just conducted an experiment — QE2 — in asset purchases. That experiment is now widely viewed as a disappointment; to the extent it worked, it did so mainly by changing expectations, and once markets realized that the Fed wasn’t actually going to sustain expansion, the expectational effects wore off.

So now we have Woodford (not a household name, but one of our leading, perhaps the leading, macro theorist working now) arguing in the FT that Bernanke needs to stop fiddling with balance sheets and start making explicit announcements about future policy. The key thing to understand, reading Woodford, is that this isn’t some shoot-from-the-hip piece, it’s the culmination of a debate that goes back more than a decade.

Meanwhile, Cullen Roche makes much the same argument, although he insists that you need MMT to make it, which would be news to Woodford (and me).

I’ve labeled this post wonkish, because it is. But this is really important. And as FT Alphaville says, all the fears about QE have been misplaced. The danger isn’t that it’s wildly inflationary; it is that it’s symbolic rather than real, at a time when we desperately need substance.

A New York Times editorial:

A Lifeline for Underwater Homeowners

The basic notion is to ease refinancing rules for borrowers who are current in their payments but can’t qualify for new lower-rate loans because their home values have declined. The looser loan standards would not increase the risk of default. By lowering the borrowers’ monthly payments, refinancing would make default less likely. It would also free up potentially tens of billions of dollars for consumer spending, helping to ensure that today’s low interest rates stimulate the economy as intended. It could even help underwater borrowers restore equity in their homes if borrowers used some of their savings to pay down their loan principal.

The Truth about Bank of America by Henry Blodget

Mass Mortgage Refinancing Is A Good Idea by Yglesias

Housing and Arithmetic: Why Do They Never Appear Together by Dean Baker

book review on Arthur Rimbaud by Carlin Romano

The Iraq Effect: If Saddam Hussein were still in power, this year's Arab uprisings could never have happened. by Hitchens

What Should We Have Known About Fiscal Stimulus? by Krugman

I’ve noticed a number of people arguing that the original Obama stimulus was underpowered because at the time nobody realized how deep a hole the economy was in. And it’s true that revised GDP numbers have shown that the 2007-2009 recession was even deeper than we thought. But the basic line of thought here is wrong: there was plenty of information in January 2009 indicating that the economy needed a lot more help than it was about to get.

First, even in January 2009 the CBO was forecasting an “output gap” — a shortfall of the economy’s actual production over what it could and should be producing — of more than $2 trillion over 2009-2010. That told you right there that an $800 billion stimulus, much of it consisting of tax cuts of dubious effectiveness, was likely to fall short.

There were also good reasons to believe that the slump would be prolonged, that the economy would need help over a protracted period.

After all, the two previous recessions had been followed by long periods of jobless recovery, and there was every reason to expect a repeat. Moreover, we had international evidence showing that the aftermath of financial crises is a long period of high unemployment.

The point is that even in January 2009 it should have been obvious that the economy probably needed a really major push. Maybe that wasn’t possible politically; but it’s clear that there was a complacency in the White House that remains very hard to understand.

Brad DeLong on what Obama could have done:

1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
3. Have a real HAMP to refinance mortgages.
4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
5. Announce that a weaker dollar is in America's interest.
6. Nominate a Fed Chair who takes the Fed's dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
7. Appoint Fed governors who take the Fed's dual mandate seriously and support policies to stabilize the growth of nominal GDP.
8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
9. Use Reconciliation to pass an infrastructure bank.
10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.

David Leonhardt's time machine

David Leonhardt: This time machine would start its magic by taking us back almost a decade, to the days when everyone from senior Washington officials to ordinary Americans believed that house prices could never drop. We'd then have a chance to persuade Alan Greenspan and Ben Bernanke, the last two Federal Reserve chairmen, to stop saying that nationwide housing bubbles could not happen and to start cracking down on the wishful-thinking mortgages that were making that bubble possible.

We would also stop by the Treasury Department and Congress and ask them to give some more attention to the fact that incomes were stagnating and many Americans were using their credit cards to pay for higher living standards. Finally, we'd pay a visit Wall Street. We'd go to Lehman Brothers and explain to the bigwigs there why they might not want to be borrowing $33 for every $1 in assets they held. If they didn't listen to us, we'd go see a gentleman named Timothy Geithner, then overseeing the regulators at the New York Fed.

In every case, we would issue an urgent message: The United States economy is in the midst of creating the worst economic excesses since the 1920s. If allowed to continue, those excesses will do enormous damage -- damage that you won't be able to stop once it starts.

This damage, of course, is what we are living through right now. And as much as we all may wish they were an easy fix, there isn't. Financial crises cause spending to be depressed and unemployment to be high -- for years.

Are there steps we can take to mitigate the damage? Absolutely. An aggressive policy response in 2008 and 2009 helped prevent another depression. And a more timid response in 2011 has aggravated the problems.

But the economy was never going to recover quickly from the bubbles. That's why sales -- not just of houses, but of appliances, vehicles and even services like entertainment, are all still far below their pre-crisis levels. They will be for a long to come.

It's too late to prevent the last great financial bubble. It's not too late to ask whether we are taking substantial steps to keep the next bubble from being nearly so bad. Remember: there's always a next bubble.

Michael Shur of Parks and Recreation recently acquired film right to "Infinite Jest."

Team Debbie

Meredith Woerner recaps True Blood

Dean Baker on double-dip talk from reporters

The misplaced obsession with a double-dip has consequences because it creates a situation in which the slow growth that the economy is now experiencing appears to be good. For example, the July jobs report, which showed 117,000 new jobs, was widely seen as good news. However, this pace of job growth is only slightly faster than the 90,000 rate needed just to keep pace with the growth of the labor force. At the July rate of job growth it would take close to 30 years to replace the jobs lost in the downturn.

It would be helpful if reporters would try to discuss what the data show and not frame their story on misplaced optimism or pessimism from ill-informed commentators.

Hitchens on UK riots

Recap: True Blood trips balls on a V-juice hump-hump-fest by Meredith Woerner

The Hope that Flows from History: From World War II, Economic Lessons by Christina Romer

Krugman comments on it

Sometimes Inflation is Not Evil by Floyd Norris

The chaos that has engulfed financial markets, with new rumors of European bank failures, arose as it became apparent that recovery was unlikely until something was done to write down bad debts, whether American mortgages or Greek government loans, or to make them good again by raising asset values and thus increasing the ability to repay.

And yet the anti-inflation warriors continue to fight old battles. There were three dissents from regional Fed presidents when the Fed promised this week to hold down rates for at least two more years. The European Central Bank has been raising rates on the belief that it must vigorously fight any sign of inflation.

In the future, central banks will have to realize that debt-financed expansions in asset prices can be a threat. For now, it would be nice if they would at least recognize that major deflations in asset prices can be much more important than the relatively small gains in commodities that show up in the Consumer Price Index.

Steamroller Ben by Doug Henwood

Comment on today’s Federal Reserve policy decision today, which among other things, included the extremely unusual statement that they’re likely to leave interest rates close to 0 through mid-2013, from Ricardo Perli of ISI, a very mainstream Wall Street research operation:

For the first time in a long time, there were three dissents – Fisher (Dallas), Kocherlakota (Minneapolis), and Plosser (Philadelphia).  Up to now, FOMC chairmen strived to avoid more than two dissents.  The fact that this long-standing practice was disregarded means that Bernanke is becoming more determined to push through what in his view are the appropriate policy moves.  We would expect the influence of the hawkish minority to diminish as a result.

Bernanke is very concerned about economic weakness and wants the Fed to do everything it can to stimulate a return to growth. The release is full of unusual mentions of their "dual mandate," meaning boosting employment as well as keeping down inflation. This is not William Greider’s Fed.

John Burns and Alan Cowell on the UK riots.

Mr. Cameron had hesitated for two days to abandon his summer break at a villa in Tuscany as the looting and arson spread across London, and then to other cities, from its start in the Tottenham area in northeast London after Mark Duggan, 29, who was said by the police to have been a local gang member, was shot and killed by an officer last week.

On Tuesday, a police oversight body said that forensic tests had shown that both shots fired at the scene had come from a police officer’s Heckler and Koch submachine gun, and that the tests had so far shown no evidence that the loaded Italian-made BBM pistol carried by Mr. Duggan had been fired in the confrontation.

...

For the moment, though, the circumstances of Mr. Duggan’s death appeared to be remote from the forces driving the riots, at least in the assessment of many of those who are most familiar with the neighborhoods affected. Community organizers, neighborhood residents and members of Parliament who represent the districts, including several who, like Mr. Duggan, were of Afro-Caribbean descent, have said, overwhelmingly, that his death, while providing the original trigger for the violence, has had little or nothing to do with the looting and arson. 

The Keynes-Hicks Model by Krugman

FRED Excels! by Krugman

Half-measures from the Fed

For starters, the Fed could take modest steps, like shifting its portfolio toward bonds with longer maturities, which would help to keep long-term rates low and nudge investors into riskier investments. It could reduce the interest it pays on the banks’ huge reserves or even tax the reserves to try to encourage more lending. It could also resume buying Treasuries or other securities to provide additional monetary stimulus. A more aggressive strategy would be letting inflation rise above the Fed’s comfort level of 2 percent or so to, say, 4 percent. That could help the economy by easing the repayment of debt.

London Burning

White Riot


I Fought The Law

Career Opportunities

Team Debbie 

Meredith Woerner recaps True Blood.

Gateways to Geekery: Ween

state of the union by Krugman

The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix. It’s true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

The real question facing America, even in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.

Fun with Thomas Friedman by Dean Baker

Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is

Obama Turns 50 Despite Republican Opposition

WASHINGTON—After months of heated negotiations and failed attempts to achieve any kind of consensus, President Obama turned 50 years old Thursday, drawing strong criticism from Republicans in Congress.

What Caused The Deficit? A Reply to Megan McArdle by Jonathan Chait

Hitchens on Oslo

David Leonhardt will be Washington bureau chief

Dean Baker on Obama's speech

Jared Bernstein blogs:

Also, we should implement this work sharing idea that Dean Baker’s been pushing for awhile.  What’s important about Dean’s take here is that he’s thought through some of the implementation challenges that keep employers from taking advantage of the option.  Remember, this is the main reason why German unemployment is back to pre-recession levels, even while their GDP losses were comparable to our own.

Larry Summers on the current predicament

(via Felix Salmon and Yglesias)

 
3 Men and a Trash Baby

Meredith Woerner recaps True Blood at io9.

Hitchens applauds the Guardian.

Corey Robin drops some names

Presumably because they are, in Yglesias’ eyes, the real movers and shakers of the economy, as opposed to the vast majority of middle- and working-class people or the government that represents them.

Presumably? Again it's no surprise that the left doesn't advance their/our policy goals. They're too busy calling people sellouts.

Dana Jennings reviews "A Dance with Dragons."

Best of all, "Dragons" puts us back in the company of Tyrion Lannister, a bitter but brilliant dwarf whose humor, swagger and utter humanity make him the (often drunken) star of the series. When Tyrion is present, "Song of Ice and Fire" becomes "A Rogue’s Progress, or the Further Ribald Adventures of Tyrion Lannister."

Mr. Martin is a literary dervish, enthralled by complicated characters and vivid language, and bursting with the wild vision of the very best tale tellers. And Tyrion is his grandest creation. A kin slayer and fugitive, Tyrion assumes manifold roles in "Dragons": mummer, soldier, paymaster, slave, river rat and captive. He’s in on the cosmic joke of being a "high-born dwarf" and is quick to give practical Westeros wisdom: "Trust no one. And keep your dragon close." He also notes that “a small man with a big shield will drive the archers mad"

Alyssa Rosenberg's review of "A Dance with Dragons" complete with spoilers.

NYTimes on the Debt Ceiling Clown Show*

Recounting how the 1995 government shutdown helped President Bill Clinton win re-election the following year, Mr. McConnell said any impasse that drove down the nation’s credit rating and led to government checks being delayed could have the same result for Mr. Obama.

"He will say Republicans are making the economy worse," Mr. McConnell said in an interview with the conservative radio host Laura Ingraham. "It is an argument that he could have a good chance of winning, and all of the sudden we have co-ownership of the economy. That is a very bad position going into the election."

Kristof Perpetuates the Clinton Budget Myth by Dean Baker

Nicholas Kristof is mostly on the mark in his column this morning, but he does repeat the Clinton fiscal responsibility balanced the budget myth. This is not true.

An examination of the Congressional Budget Office's (CBO) projections from the 1990s shows that in 1996 CBO still projected a deficit of 2.7 percent of GDP for fiscal year 2000. Instead, we had a surplus of 2.4 percent of GDP, a shift of 5.1 percentage points of GDP (@$750 billion in today's economy).

This shift did not come about from tax increases or spending cuts. CBO estimates that the tax and spending changes between 1996 and 2000 added $10 billion to the year 2000 deficit. The shift was entirely attributable to faster than expected economic growth and especially the decision by Federal Reserve Board chairman to allow the unemployment rate to fall to 4.0 percent.

CBO had projected an unemployment rate of 6.0 percent for 2000. This was the conventional estimate of the NAIRU (non-accelerating inflation rate of unemployment) at the time. It was only because Greenspan ignored this nearly universally held view in the economics profession (and the Clinton appointees to the Fed) that the economy was able to grow enough to get the unemployment rate down to 4.0 percent and to bring the budget from deficit to surplus.

This is an important piece of history that is routinely buried.

------------------
*"debt ceiling clown show" is Baker's coinage.

Owen Jones's Chavs: The Demonization of the Working Class reviewed by Dwight Garner

Here’s how Mr. Jones sets the scene. "Sitting around the table were people from more than one ethnic group. The gender split was 50-50, and not everyone was straight. All would have placed themselves somewhere left of center politically." Each guest "would have bristled at being labeled a snob." Disaster arrived, as it always seems to, with the black currant cheesecake. That’s when the talk turned to the economic crisis. One of the party’s hosts joked: "It’s sad that Woolworth’s is closing. Where will all the chavs buy their Christmas presents?" The other guests tittered. Mr. Jones stewed.

... 

The word chav, if your subscriptions to British periodicals have lapsed, is a noun that essentially means "ugly prole": loutish, tacky, probably drunken and possibly violent. The stereotypical chav is a hormonal 20-something lad in an Adidas tracksuit, sideways Burberry baseball cap and bling, but women can be chavs, too. Think of Snooki with a cockney accent.

...

Mr. Jones is very young (he’s 26) and hideously talented. Reading "Chavs," I often cursed aloud as if I’d banged my thumb with a mallet, which is how I express keen literary pleasure until I can arrive at something more coherent to say.

... 

The author notes how demonizing the lower classes makes it easier to make policy against them. "To admit that some people are poorer than others because of the social injustice inherent in our society would require government action," he writes. "Claiming that people are largely responsible for their circumstances facilitates the opposite conclusion."

...

The front half of "Chavs" is vastly superior to its back half...

This book could have been a rippling, rock-hard classic at 150 pages -- the book you’d see peeking out of every college student’s back pocket and rucksack during the summer of 2011. At nearly twice that length, it is still something to behold, a work of passion, sympathy and moral grace.

Recently, I've also came across the new verb (to me) "glassed" a couple times. "Game of Throne" actors Sean Bean (Ned Stark) and Jason Momoa (Drago) were both cut with broken bottles at bars, Bean recently in London and Momoa a while back in Hawaii.

Interview with Amy Poehler, Matt Besser, and Matt Walsh of Upright Citizens Brigade

David Brooks Says All We Can Do Is Sit Back and Throw People Off Medicare by Dean Baker

Joe Nocera exit-interview with Sheila Blair.

As she thinks back on it, Bair views her disagreements with her fellow regulators as a kind of high-stakes philosophical debate about the role of bondholders. Her perspective is that bondholders should take losses when an institution fails. When the F.D.I.C. shuts down a failing bank, the unsecured bondholders always absorb some of the losses. That is the essence of market discipline: if shareholders and bondholders know they are on the hook, they are far more likely to keep a close watch on management’s risk-taking.

During the crisis, however, Treasury and the Fed were adamant about protecting debt holders, fearing that if they had to absorb losses, the markets would be destabilized and a bad situation would get even worse. "What was it James Carville used to say?" Bair said. "'When I die I want to come back as the bond market.'"

Jared Bernstein on the exit interview.

Dean Baker on Clinton

The Armageddon Caucus by Krugman

article on Elizabeth Warren and the Consumer Financial Protection Bureau

It goes online July 21st.

(via Alyssa Rosenberg)

Michele Bachmann's Holy War by Matt Taibbi

But don't laugh. Don't do it. And don't look her in the eyes; don't let her smile at you. Michele Bachmann, when she turns her head toward the cameras and brandishes her pearls and her ageless, unblemished neckline and her perfect suburban orthodontics in an attempt to reassure the unbeliever of her non-threateningness, is one of the scariest sights in the entire American cultural tableau. She's trying to look like June Cleaver, but she actually looks like the T2 skeleton posing for a passport photo. You will want to laugh, but don't, because the secret of Bachmann's success is that every time you laugh at her, she gets stronger.

George Will Spreads Some Lies About the Economic Crisis by Dean Baker

Says Will,

In 1994, Bill Clinton proposed increasing homeownership through a "partnership" between government and the private sector, principally orchestrated by Fannie Mae, a "government-sponsored enterprise" (GSE). It became a perfect specimen of what such "partnerships" (e.g., General Motors) usually involve: Profits are private, losses are socialized.

Does Will agree that if losses weren't socialized that we would have had another Great Depression? (Next time there won't be bailouts so we'll find out.)

Should profits not be private then? Is that what he's saying?  I'm confused.

The Busts Keep Getting Bigger: Why? by Kruman and Robin Wells

Video of Krugman's Keynes talk with Q&A session

Interview with the cast and creators of Party Down

A Song of Ice and Fire saga's fifth book "A Dance with Dragons" to be published on July 12.

(via Charlie Jane Anders and i09)

payroll tax needs a vacation by Robert H. Frank

article on John Carpenter

A GREAT romance ended for the director John Carpenter 10 years ago on the set of his movie "Ghosts of Mars."

 His star Courtney Love was replaced one week before principal photography began, and after writing the script and the music as well as directing, Mr. Carpenter was bone tired. It was right in the middle of a scene when it hit him: "I don’t love her anymore."

Her is The Movies....

...

And while Mr. Carpenter likes to bring up the shellacking he received from critics after his remake of "The Thing" opened in 1982, the film is now regarded as one of the best horror remakes ever. There is also a revival of interest in his Reagan-era alien movie They Live, with rumors of a remake and a recent book about it by the novelist Jonathan Lethem, the winner of a MacArthur grant.

This seems to make Mr. Carpenter somewhat uncomfortable. After listening to a passage from Mr. Lethem’s book praising one famously long fight scene involving Keith David and the wrestler Roddy Piper, Mr. Carpenter scoffs. "Dude, he was a wrestler,"  he says. "I cast a wrestler. We just wanted to put on a show, because this was a wrestler. I like what this genius writer says."

The Feel Bad Movie of Christmas

trailer of David Fincher's Girl with the Dragon Tattoo

Lisbeth Salander will be played by Rooney Mara who played the girlfriend who dumped Jesse Eisenberg in The Social Network. Daniel Craig will play Blomkvist.

Hitchens's review of the book.

Profiles in Fed Cowardice by Krugman

Not really a surprise, but still shocking. The Fed predicts disastrously high unemployment as far as the eye can see (pdf):

Fed forecast of the unemployment rate 

And in response to this dire prospect, it declares its work done.

Notice that the Fed does not buy into the notion that there has been a large rise in the structural rate of unemployment, that 9 percent is the new normal. That stuff off to the right, labeled "longer run", is in effect the Fed’s estimate of how low unemployment could and should go without causing inflation problems. So the Fed agrees that something should be done to greatly increase demand.

But it washes its hands of the problem, even though Bernanke and his colleagues are well aware that nobody else will act.

I’m aware that there are doubts about how much the Fed could accomplish; I share those doubts. But that’s no reason not to try.

This display of passivity is awesome. And it’s shameful.

Krugman lecture on Keynes

How the Repo Market Ate Wall Street by Kevin Drum

PIMCO Founder To Deficit-Obsessed Congress: Get Back To Reality by Brian Beutler

Bill Gross is saying what Bernanke and other are arguing: stimulus now, mid-term deficit reduction later. Hopefully if the economy continues in the doldrums Bernanke will do QE3.

(via Krugman)


Maybe Gross is admitting he was wrong about rates shooting up once QE2 ends.

Dean Baker on Clinton

Dean Baker on Robert Samuelson

Greg Mankiw:

Democratic critics of the [Ryan] plan suggest that enacting it would be akin to pushing Grandma over a cliff. But they rarely point out that the premium-support model is in some ways similar to the system set up under President Obama’s health care law. If choosing among competing private plans on a government-regulated exchange is a good idea for someone at age 50, why is it so horrific for someone who is 70?

Obamacare was a political compromise. It's better than nothing and Medicare is better than Obamacare.*

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*My theory is that after winning in 2008, Obama's people decided Romney was their most likely opponent in 2012. After passing the ARRA, they went to work to pass Romneycare and drew out the process (town halls, lengthy committee debates) so that it would really sink in with the conservative base that they hate Romneycare and therefore Obama's strongest opponent in 2012 would be tainted by the association and have a more difficult time in the primaries. But man that Mankiw really is a hack, isn't he?

Joe Nocera on Glass-Steagall:

The first thing I realized is that all the horse-trading over the bill’s provision was done by Democrats. The Republicans, having been badly defeated in the 1932 election, had no ability to block it or even amend it. For instance, Republicans tended to view the creation of deposit insurance as "socialism." (Sound familiar?) But it didn’t matter: Steagall cared deeply about deposit insurance. Many community bankers -- as strong a force back then as today -- also supported the idea because they believed it would renew customers’ faith in the banks, and bring back deposits. (This turned out to be true.) Glass, though skeptical, went along so he could get things he cared about, mainly a stronger Federal Reserve with more power over the banks.

The second thing I realized was that, the Sisson speech notwithstanding, there was surprisingly little controversy over what we now think of as the law’s primary achievement: splitting commercial and investment banking. The fights were all over issues that seem inconsequential by today’s lights. It’s as if the notion of breaking the banking business into two was always a foregone conclusion.

David Brooks Discovers That It Was All Fannie Mae's Fault by Dean Baker

collection of macro readings by Krugman

Rule by Rentiers by Krugman

The Decline of PIMCO Macro by Krugman

I first talked to the Pimco people in, I think, 1991, when I was asked (and paid) to talk to them about economic issues; don’t remember the subject. It was a striking experience, sartorially: I showed up in Newport Beach in my gray business suit, and they were all in casual shirts and slacks, some (as I remember it) with fashionable stubble.

Since then, of course, Pimco has continued to be a huge success; Bill Gross is without doubt a great investor. I have often found the economic analyses coming out of Pimco deeply enlightening. And in 2009-2010 the firm won big by betting, correctly, on interest rates staying low.

For the past year or so, however, Pimco seems to me to have been making less and less sense. Gross bet big on the idea that rates would spike when quantitative easing ends; I guess he has three weeks to be vindicated, but it sure doesn’t look like it. And the economic logic was all wrong. Now Mohamed El-Erian is claiming that inflation in China and Brazil is Bernanke’s fault; again, the economic logic is all wrong.

What’s strange about this is that nobody was better at laying out the logic of deleveraging and its consequences than Pimco’s Paul McCulley. But maybe that’s the explanation: McCulley has moved on.

Anyway, El-Erian’s latest sort of shocked me; it sounds as if he’s making up his own version of macroeconomics. And that’s not something you should do unless the existing models have failed -- which they haven’t.

Krugman, Jared Bernstein, Kenneth Rogoff and David Walker on Charlie Rose

David Leonhardt on Germany's economic successes

Woody Allen's new movie Midnight in Paris is really good. It was easy for me to identify with Owen Wilson's character. Back in 1999 when I was 29 I went on a fund-raising cruise for The Nation magazine and had the chance to hang out with some of my favorite writers and editors at that time like Hitchens, Cockburn, Pollit, Navasky and Vanden Heuvel. It wasn't exactly like Midnight in Paris, but they were charming and friendly like Hemingway and Fitzgerald are to Wilson in the movie and I was blown away.

Krugman on Fatal Fatalism

Our current economic discourse is pervaded by fatalism. Leave aside the people who insist that somehow Obama has destroyed capitalist incentives by passing Mitt Romney’s health care plan and threatening to raise tax rates to Clinton-era levels. Even among people who should be sensible, you hear many assertions that run something like this: historically, recovery from financial crisis is usually slow, so we have to accept a slow recovery this time around too. Actually, that’s more or less what Obama has been saying.

Gavyn Davies* writes in the Financial Times about Robert Lucas and the classical view of the global recession.

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*Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004.
     He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.

Ratko Mladic caught

Jared Bernstein has a blog.

Single-payer health care in Vermont

Needed: Plain Talk About the Dollar by Christina Romer