More on missing downward price pressure (hint, blame corporate profits) by Josh Bivens

But, I’d also note something else holding up prices—the determination of the corporate sector to earn historically high profit margins. The Bureau of Economic Analysis (BEA) has a great table on prices and unit labor and profit costs for the non-financial corporate sector, which accounts for just about half of the U.S. economy. In the NFC sector, prices per unit of output since the end of the recession are up just 4.1 percent. But labor costs per unit of output are down by 1.1 percent. Given that labor costs are more than 60 percent of overall prices in the NFC sector and that they’re falling, this must mean some other cost component in the production process with a much smaller share is rising a lot to drive prices up.

Meet corporate profits per unit—up 63 percent (60 percent after-tax) since the recession’s end. In fact, the growth in after-tax corporate profits can explain all of the 4.1 percent price increase between the end of the recession in the middle of 2009 and the end of 2012 (see the figure below for a breakdown).

There are many good reasons to think that upward pressure on prices is a useful thing in the U.S. economy right now, but I’m not sure that rising profits is one of them.

(via Thoma)

AV Club reviews "Covert War" from "The Americans."

Highgarden!

Don't Believe The Hype—House Tyrell is Richer Than House Lannister by Yglesias

How central banks beat deflation by Martin Wolf

(via Thoma)

What  about Japan?

The Bear and the Maiden

The Hold Steady Cover George RR Martin.

No Logo

On Game of Thrones I liked Anguy the archer who's in the Brotherhood Without Banners with Thoros of Myr. Tywin called it a pretentious name but that's often what authoritarian conservatives do to anything that opposes them, like liberals. Locke found Jaime pretentious as well.

And Lady Oleanna, the Queen of Thorns, reminds me of Gore Vidal!*



------------------------
*And Hitchens! The way she ordered about the help. "You'll bring the cheese when I want it and I want it now." Hitchens could be bitchy and demanding at a rude waiter or cab driver. Her confidence and articulateness, speaking in paragraphs;  the way she showed no fear and understated her reaction to the revelation that the rumors are true and Joffrey's a monster. "Well that's a pity."

The Thomas Amendment and monetary policy

'This is Bad Economics ... But it is Excellent Preaching' by Thoma

The Thomas Amendment

Attached as Title III to the Act, the Thomas Amendment became the "third horse" in the New Deal's farm relief bill. Drafted by Senator Elmer Thomas of Oklahoma, the amendment blended populist easy-money views with the theories of the new economics. Thomas wanted a stabilized “honest dollar”; one that would be fair to debtor and creditor. 

The Amendment said that whenever the President desired currency expansion, he must first authorize the Federal Open Market Committee of the Federal Reserve to purchase up to $300 billion of federal obligations. Should open market operations prove insufficient the President had several options. He could have the U.S. Treasury issue up to $3 billion in greenbacks, reduce the gold content of the dollar by as much as 50 percent, or accept 100 million dollars in silver at a price not to exceed fifty cents per ounce in payment of World War I debts owed by European nations. 

The Thomas Amendment was used sparingly. The treasury received limited amounts of silver in payment for war debts from World War I. Armed with the Amendment, Roosevelt ratified the Pittman London Silver Amendment on December 21, 1933, ordering the United States mints to buy the entire domestic production of newly mined silver at 64.5¢ per ounce. Roosevelt’s most dramatic use of the Thomas amendment came on January 31, 1934, when he decreased the gold content of the dollar to 40.94 percent. However, wholesale prices still continued to climb. Possibly the most significant expansion brought on by the Thomas Amendment may have been the growth of governmental power over monetary policy. 

The impact of this amendment was to reduce the amount of silver that was being held by private citizens (presumably as a hedge against inflation or collapse of the financial system) and increase the amount of circulating currency.

Blackfish

Dean Baker, Doug Henwood and Duncan Black. To the Edumures of Krugman, DeLong and Yglesias. Thoma is an honorable polymath giving respectable hearing to a variety of views.

Baker, Henwood and (I believe) Black keep the eye on the ball about the war against organized labor. Baker and Henwood especially. DeLong and Krugman are trained academics who for instance didn't discuss how Thatcher attacked labor. Yglesias has learned much from DeLong and Krugman and tends to kick teachers' unions and troll about the subject. Baker and Henwood are outside the academy, although Baker does get quoted in the New York Times and Baker's EPI gave Krugman an award recently. Baker and Henwood will often post how they aren't given due credit for getting things right and I think they are justified in their complaints.

Graeber was right

Continuing this line of thought.

DELONG SMACKDOWN WATCH: MONDAY HOISTED FROM COMMENTS WEBLOGGING

Commenter Blissex:

But safer jobs and better wages are "inflationary", and booming speculative asset prices are not, so hurrah for the policy of a flood of cash.

Then Ronald Reagan came in, said what the US economy really needs is tax cuts, and that pushed the debt up by a lot.»

That was the beginning of the application of Jensenism (as Henwood, the author of "Wall Street The Book" calls it), but applied to whole countries: loading a company or a government with debt leads it to be constant pressure so it will squeeze its suppliers and employees harder and harder to repay the debt. 

And loading a company or government with debt offers the fantastic opportunity of asset stripping: taking out as much debt as possible to pay out large dividends. Which is what happened when the USA government borrowed from the OASDI trust fund to pay for massive tax cuts on high income or high wealth taxpayers.

My reply:

"That was the beginning of the application of Jensenism"*
Also known as the Littlefinger/Lord Baelish strategy.
Maybe Graeber had the right idea but was poor on execution. See Mexico/Brady bonds/Cold War.

In last night's episode Tyrion was made the new master of coin. He went through Littlefinger's books and discovered all he did was borrow, from Tywin Lannister and the Iron Bank of Bravos.

Yglesias references Game of Thrones.

Slate reviews last night's episode. My response:

"Tyrion was quick to see the problem of owing the Lannisters was one thing, but that owing the Iron Bank of Braavos was an entirely different problem, especially in a land that is being claimed by several other kings. I am fully looking forward to the episode where he singlehandedly implements an austerity model for the Red Keep."

Lord Baelish's strategy is basically "Jensenism" i.e. political conservatives' modus operandi regarding both companies and governments: load up on debt and loot. With companies it also puts pressures on workers to bargain away compensation gains. With governments (see Reagan and W.) it puts pressures on services and entitlements.

What Tyrion found out last night is in the books as is the basic fact that Robert Baratheon did nothing to oversee what Littlefinger was doing, dismissing it as "counting coppers."

But coincidently, Benioff's father ran Goldman Sachs for a while.

As far as new austerity measures goes, King's Landing is already under Greek-like conditions as we saw last season when the starving common people rioted. Lady Margaery and Highgarden are doing a little to mitigate things.

---------------------------
* Theories of Michael Jensen. A commenter here mentions "Jensenism" also. On a sidenote, "Game of Thrones" co-creator David Benioff's father is Stephen Friedman, former head of Goldman Sachs.

AV Club reviews Game of Thrones "Walk of Punishment" (newbies)

AV Club reviews Game of Thrones "Walk of Punishment" (experts)

Status Quo - Pictures of Matchstick Men

Missing Deflation by Krugman

Three points here: 

1. This does say that there is little risk of accelerating inflation. Indeed, Hobijn and Daly suggest that there’s a “pent-up demand for wage cuts” that will probably push inflation lower even if the economy is recovering. 

2. Central banks and other policy makers will be making a terrible mistake if they look at low, stable inflation and pat themselves on the back for a job well done. Low, stable inflation, it turns out, is entirely consistent with catastrophic economic mismanagement. 

3. Notice how Keynesians responded to the partial failure of a prediction: by asking what they got wrong, and how their model of the world needed to be adjusted. This, of course, shows what fools we are: everyone on the other side of these debates knows that you respond to mistakes by never acknowledging them, and doubling down on whatever you originally claimed.

This is sort of in agreement with a point Dean Baker has been pushing over the years: low inflation is just as bad as deflation.

Its cock rages on!

AV Club reviews Spartacus series finale "Victory."

The mystery of stable prices by Ryan Avent

#slatepitch

Does Obama's Positition on Chained CPI Make Any Sense? by Yglesias

That said it's perfectly coherent to think that the Chained CPI gives a more accurate read of the actual trends in consumer prices without being enthusiastic about using it to reduce Social Security benefits. I can speak from experience since I think the CPI-W overstates inflation, but I'm not excited about switching to the C-CPI-U. That's because to say that the CPI-W slightly overstates inflation is simply to say that the real value of Social Security benefits increases slightly from year to year. But is that such a bad thing? On the contrary, I'd say it's an excellent thing.

Correction for NYT Budget Piece: Economists Do Not Believe that a Chained CPI is a More Accurate Measure of the Cost of Living for the Elderly by Dean Baker

This comment is misleading since the issue with Social Security benefits is whether the chained CPI better reflects the cost of living of the population drawing Social Security checks. That is actually distinct from the rate of growth of out of pocket health care expenses, which would show that the cost of living for seniors as they age rises much more rapidly than the CPI.

There is good reason to believe that it does not. The Bureau of Labor Statistics (BLS) has an experimental elderly index that has consistently shown that the elderly experience a rate of inflation that is somewhat higher than the CPI that currently provides the basis for the annual cost of living adjustment. The main reason is that seniors spend a larger share of their income on health care and housing than the population as whole. Since these items tend to rise more rapidly in price, their cost of living rises somewhat more rapidly than what is shown by the current CPI.

It is also not clear that seniors substitute to the same extent as is assumed by the chained CPI.

This would mean that a switch to a chained CPI would overstate the extent to which seniors benefit by substituting to goods that are rising less rapidly in price.

For this reason, many economists have advocated having the BLS construct a full elderly index which would track the rate of inflation in the specific items purchased by seniors at the stores at which they shop. This would provide a more accurate measure of the rate inflation seen by seniors. 

It would have been useful if the NYT had made this point in its budget article. The comment about the views of economists on the accuracy of the chained CPI for the general population is at best misleading. It is not an issue that is relevant for the current debate.

AV Club reviews The Americans "Only You"

Cersei is reactionary

In the third season, Cersei actually referred to Renly as a "degenerate" to Joffrey before he said it to Margaery. And she told Joffrey that Margaery's concern for the common people is "interesting." Obviously she is badmouthing Margaery because she's afraid Margaery will turn Joffrey against her. He already talks back to his mother.

Iron Lady? Rust in Peace. The Witch is Dead blogging continued

Parliament Debates Thatcher Legacy, as Vitriol Flows Online and in Streets by John Burns and Alan Cowell

Her death has been received in many quarters with a vituperation that was notably absent in the United States with the passing of former President Ronald Reagan, her ideological counterpart and cold-war wingman, and much of that criticism has played out on Britain’s streets. “Death parties” have been held in cities including London, Belfast and Glasgow, with banners reading “Rejoice, Rejoice,” graffiti declaring “Rot in Hell, Maggie” and celebrants “dancing on the grave” of the former prime minister. 

Nor has the vitriol been confined to the streets. An arch-advocate of modernizing Britain, Mrs. Thatcher has effectively been put into the stocks of the Internet age, with a blizzard of hostile Facebook posts, Twitter feeds, blogs on leftist Web sites and comments on online newspaper articles about her death. 

A Facebook campaign was under way to drive the street protesters’ anthem, “Ding Dong! The Witch Is Dead,” to No. 1 in Britain’s popular music charts.

Fareed Zakaria Fails to Appreciate the Fruits of Thatcherism by Dean Baker

Actually, the problems that Zakaria identifies are largely the result of Thatcherism. A main reason that workers have to struggle to keep their wages up is that central banks have deliberately raised unemployment in order to keep inflation low. This weakens the bargaining power of workers, especially those in the bottom half of the wage distribution.

The high unemployment of recent years can be attributed to a policy of financial regulation that allowed for banks to grow large with the implicit subsidy of a government granted too big to fail guarantee. It also required central banks to conduct monetary and regulatory policy without regard to asset bubbles. 

Thatcher and her kindred spirits in the United States and elsewhere worked to weaken labor unions. This has also reduced the ability of workers to secure their share of gains from productivity growth.

The split between winners and losers in the current economy does not fit Zakaria's description. The median wage for college graduates has been virtually flat since the 1990s. This group includes many people who have very high skills.

The comment about globalization is bizarre. The fact that other countries have become wealthier should help the rich countries, not hurt them. It only poses a problem in a context of bad macroeconomic policy, like having an over-valued currency. It also can be a problem with selective protectionism of the sort used in the United States. Trade policy has deliberately put less-educated workers in direct competition with low-paid workers in the developing world. By contrast, highly educated professionals like doctors and lawyers, are largely protected from such competition.

It is remarkable that Zakaria somehow fails to recognize the extent to which the factors that he identifies as problems were the direct result of Thatcherism. In many cases, such as the weakening of workers bargaining power, this was an explicitly stated goal of many of her supporters.

Matt Damon occupies the ultimate in gated communities.

The Witch is Dead Blogging

On the economic achievements and failures of Margaret Thatcher by Simon Wren-Lewis

Myths and Realities of the 1970s by Simon Wren-Lewis

The Use and Abuse of Monetary History by Barry Eichengreen

Can There Be a Left Thatcher? by Chris Dillow

Aporia blind spot

Krugman on Thatcher

He and Bartlett fail to mention why conservatives love Reagan/Thatcher. They broke the unions. Reagan broke the air traffic controllers signalling an all-out war, Thatcher broke the miners.

DeLong, Krugman, and Ygleisas are bad on the subject of unions and organized labor, a symptom of the weakness of the left which has retreated to the academy and wealthy independent thinkers on the Net.

Dean Baker and Doug Henwood are better. Thoma is in the middle wondering why politicians don't stand up for the working class.

DeLong on Hitchens

DeLong on Saddam Hussein is like Sartre, Althusser, Hobsbawm, and Perry Anderson on Joseph Stalin. And then he's partisan donkey-elephant about Afghanistan and Libya.

From Mexico, Some Lessons for Europe by Eduardo Porter

In 1990, the deal was concluded by the Mexican government of President Carlos Salinas de Gortari. Strong-armed by the Treasury Department and the monetary fund, banks swapped old Mexican debt for Brady bonds backed by United States Treasuries that offered a reduction in principal, below-market interest rates or new money. Mexico’s economy expanded by 4 percent, the strongest growth since 1981. The Brady plan became the template for debt reduction across Latin America and beyond. 

What can Europe learn from this experience? Proponents of austerity will probably note that the harsh years planted some of the seeds of Mexico’s recovery. Bankers will remark that Mexico’s absolute debt reduction package was small — much less than the 50 percent or so already granted to Greece. Economists will note that Mexico had a degree of freedom that no member of the euro area has: it could devalue its currency to gain export competitiveness. 

Nonetheless, the Brady plan was a crucial ingredient. It not only reduced Mexico’s interest costs, it also produced a jolt of confidence that pushed down domestic interest rates and buoyed the peso — reducing the burden of foreign debt. It prompted flight capital to return to the country and set off an investment boom. 

Yet perhaps the most important lesson to be had about the dynamics of economic crises and relief is about what it takes to motivate the political will to act. 

To some extent, we owe the Brady plan to the cold war. Political unrest simmered across Latin America. In 1988, Mexican voters almost ousted the party that had ruled the country since 1929. The region, Washington feared, risked falling into Soviet clutches. Arizona’s governor, Bruce Babbitt, even called Mexico “the ultimate domino.” 

Lt. Col. John C. Mangels, studying at the Air War College in 1988, caught the flavor of thinking at the time. “A financially devastated and chaotic Mexico would strongly interfere with our ability to maintain an East-West balance,” he wrote. “The long-term security threat from Mexico thus hinges on economics.”

So maybe Graeber is right and DeLong* with his red baiting is wrong. It is largely about debt and control.

Thoros of Myr played by Paul Kaye.

Jojen Reed played by Thomas Brodie-Sangster.

-------------------
From memory probably not exact.

[setting: outside Robert Baratheon's bedroom]

Jory Cassel: We met before you know. We fought side by side at the battle of Pyke.

Jamie Lannister: That's where you got the scar? 

Jory Cassel: Aye.

Jamie Lannister: That was a proper battle, wasn't it? Do you remember when Thoros of Myr charged first through the breach with his flaming sword.

Jory Cassel: I'll remember that until the day I die.

 -----------------------
[setting: traveling the countryside with Bran, Hodor, Rickon, Osha and Meera.]

Jojen Reed (to Bran): When I told my father about your father it was the first time in my life I saw him cry.

Julie Benz plays Amanda Rosewater the mayor of Defiance. I'd vote for her!

The Witch is Dead

Good photo bad piece

From Times obituary

In the summer of 1981 — the same one in which Charles, the Prince of Wales, married Lady Diana Spencer — discontent boiled over into days of rioting in the London district of Brixton; the inner cities of Liverpool, Manchester and Bristol; and many other areas. Televised reports of rioting, arson and looting shocked the nation. The prime minister, resisting advisers who counseled more social spending and jobs programs, called for greater police powers. Yet, in the face of national shame over the violence, she was forced to give way.

The Clash - Guns of Brixton from Renan Godoy on Vimeo.

Margaret Thatcher: the villain of political pop

Even before Thatcher entered Number 10 she was being personally singled out. "Maggi Tatcha on di go wid a racist show," intoned Linton Kwesi Johnson in 1978's It Dread Inna Inglan. Joe Strummer originally wanted to illustrate the Clash's The Cost of Living EP, released on election day 1979, with a collage including Thatcher's face and a swastika. Just a year into office and the Beat were singing Stand Down Margaret ("please," they added politely).

Human Rights

Thatcher's Divided Isle by A.C. Grayling

Her attitude on how people should live could be described as either Samuel Smiles (“Self-Help”) or Gordon Gekko (“greed... is good”). Despite being a woman who had shattered the political glass ceiling by becoming leader of her party and then prime minister, she did little to advance the cause of women generally, and would not publicly support the feminist movement. She was also unfriendly toward homosexuals, suggesting in her 1987 speech at the Conservative Party Conference that no one had a “right” to be gay.

Very much the Conservative mind set. Pro-greed, anti-gay and anti- human rights. Authoritarian.

The gay issue is on my mind because of the recent US Supreme Court hearings on gay marriage.

One of my favorite actresses Annasophia Robb - I know- is on a new show The Carrie Diaries which had a young man come out of the closet. (And stars my favorite Dr. Who sidekick Freema Agyeman.)

At the expert review of Game of Thrones a (gay) commenter wrote:

By the way, since i brought it up in Newbies...

WHAT THE FUCK IS WITH THE AFTERSCHOOL SPECIAL "OUTLAWING HOMOSEXUALITY IS MORALLY WRONG, BECAUSE THATS WHAT JOFFREY WOULD DO, AND EVEN THE KINGSLAYER UNDERSTANDS THAT LOVE IS BLAH BLAH BLAH....

At first glance I thought the same thing. The writers were adding something that wasn't in the books. (We have the U.S. Supreme court ruling on gay marriage and human rights in the background.)  With the Kingslayer, Jaime loves his sister, which Joffrey and many others would consider degenerate. So like Republican Senator Rob Portman, he can have evolved views because it effects him and his family.

On second consideration it works. Authoritarians are against human rights. They are countervailing force against their "natural rights," or say Joffrey's unlimited rights as a king. That's why you have conservatives like Margaret Thatcher and the Republican judges on the Supreme court coming out against human rights for gays. Joffrey believes women should know their place and homosexuality is "degenerate." It's who he is. He's certainly not dumb, constantly inveighing against peasant superstitions like the taboo about killing people on your name day or convincingly arguing that the realm needs a standing army not each lord and kingdom with its own private army. But Joffrey's an authoritarian and a sadist and sadists M.O. is to deny others their humanity as we'll see with Ramsay Snow.

AV Club review Game of Thrones “Dark Wings, Dark Words” (for newbies)

AV Club review Game of Thrones “Dark Wings, Dark Words” (for experts)

Some followups on capital taxation by Steve Randy Waldman

We Get Results, Japan Edition by Krugman

Abenomics Takes Off: Can Japan Un-Doom Itself? by Matt O'Brian

Roger Ebert Hails Human Existence as a Triumph

(via DeLong)

The Urge to Purge by Krugman

The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight. Disguise it with a bit of political cross-dressing, and even liberals can fall for it.

Noah Smith admits he was wrong. 

Scott Sumner pretends he wasn't skeptical about Abe.

Janet Yellen: A Keynesian Woman at the Fed by John Cassidy

With Ben Bernanke’s term as chairman of the Federal Reserve up at the end of January, 2014, the speculation about the identity of his successor is starting in earnest. Two recent articles in The Economist and at the Washington Post’s Wonkblog have both made Janet Yellen, who is currently Bernanke’s number two on the Fed’s board of governors, the firm favorite for the job. Slate’s Matt Yglesias reckons her accession isn’t even in doubt, saying bluntly, “it’ll be Janet Yellen.”

(via Thoma)

Only God Forgives trailer. Ryan Gosling and Nicholas Winding Refn team up again. I recently saw Drive once again this time on video and it was just as good.

Japan Initiates a Bold Bid to End Years of Falling Prices

In a statement detailing the new measures, the central bank said it would buy longer-term government bonds, lengthening the average maturity of its holdings to seven years from three years and expanding Japan’s monetary base to ¥270 trillion by March 2015. Under that plan, the bank will buy ¥7 trillion of bonds each month, equivalent to over 1 percent of its gross domestic product — almost twice the pace of the U.S. Federal Reserve.

BOJ's Kuroda Vows To Use "Every Means Available" To Fight Deflation by Yglesias

I'm starting to come around to Baker's way of thinking. Given our lost decade, in hindsight, we should have purged the system.

Robert Samuelson Calls Me Nobody by Dean Baker.

I disagreed with Krugman's calls for temporary nationalization of banks given the fragile state of the economy at the time, but turns out he was exactly right as usual. Turns out supposedly Obama wanted to nationalize Citigroup but Geithner slow-walked it into not happening. Big mistake.

My guess is that next time there won't be bailouts. The Democrats who voted for TARP were bait-and-switched over mortgage loan forgiveness. Geithner again, and Summers. Probably reacting to the original Teabagger Rick Santelli's rant.

AV Club reviews "Ghost" from Justified. 

Cranky Old Men by Krugman

Actually, I was disappointed in Stockman’s piece. I thought there would be some kind of real argument, some presentation, however tendentious, of evidence. Instead it’s just a series of gee-whiz, context- and model-free numbers embedded in a rant — and not even an interesting rant. It’s cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge. 

Sad.

Emphasis added.

Deep thoughts from Sansa, "Because the truth is always either terrible or boring."

AV Club reviews "Valar Dohaeris" (for experts) from Game of Thrones

AV Club reviews "Valar Dohaeris" (for newbies) from Game of Thrones

AV Club reviews "Welcome to the Tombs" from The Walking Dead

Print Money. Mail Everybody a Check: Fight unemployment by giving money directly to American families. by Yglesias

Financing the Deficit (More Feldstein) by Krugman

Now, this is almost an accounting identity, so by itself the figure doesn’t tell you which side is driving the action. But we know the answer to that question from other evidence. For one thing, we know that most of that surge in the private sector surplus reflects the collapse of the housing bubble, and that most of the surge in the public deficit reflected automatic stabilizers. For another, we know that if government deficits were crowding out private spending, we should have seen rising interest rates; what we actually saw was falling rates. 

So there isn’t any puzzle here, except the puzzle of people who are puzzled. I really don’t understand how Marty Feldstein can look at these facts and conclude that the only way to explain low interest rates is to imagine that the Fed is imposing massive market distortions.

Heaven’s Gate: Frame for frame, the restored version rivals any motion picture for sheer cinematic beauty. by Dana Stevens

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?

THE ASTONISHING INCREASE IN HOLDINGS OF U.S. TREASURY DEBT: YET MORE "YES, SIR JOHN HICKS TOLD ME SO" WEBLOGGING by DeLong

commenter Rajiv Sethi:

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.

Anne responds:

"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

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.)

Monetary Policy and the Global Economy by Ben Bernanke

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]")

The Unnatural Rate Hypothesis by Krugman

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

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.

Agron, Gannicus, Crixus, and Spartacus. Martin and Malcolm. Crixus and Agron march on Rome. Spartacus and Gannicus lead the former slaves to the mountain.

AV Club review of "Separate Paths" from "Spartacus."

Round Trips to Cyprus by Krugman

Still trying to wrap my head around the Cyprus situation; what makes it so interesting (as in “may you live in interesting times”) is the role of the island as a tax, regulation, and law enforcement haven. 

It’s not just about the Russian connection, but that connection is really huge. Here’s another metric: Cyprus is, according to official figures, the largest single foreign direct investor in Russia — this from an economy roughly the same size as metropolitan Scranton PA. What’s that about? The FT explained it a while back:

This link occurs through CIS [Commonwealth of Independent States] commodity-based shell companies that deposit transactional balances of their CIS-based legal subsidiaries engaged in oil, mineral, and metals exports, often involving transfer pricing and other tax minimization strategies. The Central Bank of Russia classifies Cyprus as the largest single source of FDI in the Russian Federation, with a total of $41.7 billion in cumulative inbound FDI into Russia’s non-financial sector between 2007 and 2010 (over 2.7x German levels)… Cyprus is also counted among the top FDI investing nations in several Central Asian countries (likely Russian capital reinvested via Cyprus, a process known informally as “round-tripping”).

Stannis! Daario? And Theon on the flaying rack.

Game of Thones' women on the red carpet.

Wow each and everyone one is awesome. Credit Benioff and Weiss. Where are Osha, Shae, Ros, Yara Greyjoy, Lysa Arryn, Gilly, The Queen of Thorns and Quaithe? The actress who played Old Nan passed away.

"Oh my sweet summer child..."

Iraq: What I Got Wrong, and What I Still Believe by Jonathan Chait

The biggest single conceptual failure of my argument for war is that I gave absurdly little thought to the post-invasion phase. I was aware that the Bush administration was deploying far too few troops to the front for a workable occupation while blatantly lying about the war’s likely costs. I assumed that its real plan was to decapitate the Iraqi leadership, install a more pliant and less brutal military figure in Saddam’s place, and call it democracy. 

In other words, I deemed the administration’s rhetoric about democracy to be a pack of lies. Now, I could accept this, because I assumed the successor regime would be less brutal than the psychotically cruel one that was being deposed. The quality of the regime was an important predicate for my support of the war — I would not have supported it had I believed it would make life harder for Iraqis, on the whole — but not the necessary rationale. I assumed these things because at the time Bush appeared — from the 2000 campaign through Florida through his push to cut taxes — to be a dishonest but ruthlessly effective figure. A messy, undermanned occupation would be politically fatal, I reasoned, therefore Bush wouldn’t actually undertake one. 

But my view of the postwar was facile. I really focused nearly all my attention to the legitimacy of the war, and almost none to its advisability. Indeed, I essentially mistook one for the other: In my mind, establishing that the United States had a moral right to enforce the truce terms of the Gulf War closed the case. 

Now, why didn’t I think very hard about the occupation? I think I was probably influenced by the recent history. And here is where I depart most sharply from most other liberals, especially the younger ones, who have responded to the war by adopting dramatically more anti-interventionist views on foreign policy.

Saddam Hussein should have complied with the weapon inspectors. Instead he ended up in a spider hole and then lynched.

Cyprus bank run

Bank holiday ends Thursday morning.

From Lehman to Cyprus by Floyd Norris

The European decision not to honor deposit insurance in Cyprus, by making all depositors contribute to the cost of a bailout, reminds me of the decision to let Lehman Brothers go under. Moral hazard is being avoided. The question is what that will cost. 

In the case of Lehman, the cost turned out to be far greater than anyone expected. Suddenly the crisis was affecting money market funds. We learned to our discomfort just how interrelated the world’s markets were. I doubt anyone involved in making the decision thought about money market funds until they learned one had just blown up, thanks to the Lehman failure.

 Andrew Ross Sorkin says not to worry:

There is very little chance that politicians would ever choose to use the model they developed in Cyprus in a country like Italy or Spain, where a run on the banks would have such profound implications. By the way, if you’re wondering why investors left so much money in troubled Cypriot banks, here’s a trivia question: Would you have been better off leaving your money in a bank in the United States or in Cyprus over the last five years? 

The answer: You would have been better off in Cyprus, even after the bailout, when your money was “confiscated.” If you had 100,000 euros in a Cypriot bank account over the last five years, where the interest rate has averaged about 5 percent, you would have about 127,600 euros today. Even after the bailout, which would require you to give up 10 percent of your deposit — 12,760 euros — you would be left with 114,840 euros. The American bank? The $100,000 you deposited at Bank of America five years ago is about $105,100, at the going rate of about 1 percent interest a year.

Germans wouldn't risk a run in Italy or Spain? Investors might not want to risk it if Cyprus gets messy.

 Cyprus Set to Reject Bailout

Cypriot banks were closed Monday for a bank holiday that has been extended through Wednesday. 

The governor of the Cypriot central bank, Panicos Demetriades, warned lawmakers on Tuesday that as much as 10 percent of the €65 billion in deposits placed in Cypriot banks would flee the country as soon as banks’ doors open Thursday morning, should Parliament approve the deposit tax.

Cyprus Bailout Incites Turmoil as Blame Flies

What happened next sealed the deal, which now appears to be coming apart amid strong protests from ordinary Cypriots. Jörg Asmussen, a German member of the executive board of the European Central Bank, told Michalis Sarris, the Cypriot finance minister, that stopgap financing for Cyprus would be cut off this week if no agreement was reached. 

Mr. Asmussen’s message “really did sharpen the thinking of Mr. Anastasiades,” said a European official with knowledge of what happened during the talks but who spoke on condition of anonymity because they were conducted in private. 

“The Cypriot president understood clearly he faced the collapse of his banking system and disorderly exit from the euro area,” said the official. 

What emerged was a deal that took a bite out of average savers, one that made sense in the wee hours between the dealmakers. In the light of day, as Cypriots tried desperately to pull their savings out of A.T.M.’s, it looked like a threshold that many experts say should never have been crossed.

Taxing Savers in Cyprus

Any tax on smaller accounts would set a terrible precedent. Savers in other troubled economies like Italy, Spain and Greece are now justifiably worried that their deposits may someday also be stripped of protection. 

European leaders have said that taking money from Cypriot bank deposits is a singular event, but this assurance will ring hollow in light of their poor track record in dealing with the euro crisis. The plan has now given savers in Spain, Italy and other countries incentive to withdraw money from their national banks or move it out of the country if they have offshore accounts. 

Imposing a bigger tax on deposits of more than 100,000 euros would not have the same ripple effect on confidence. A large percentage of those deposits belong to Russian businessmen, some of whom have reportedly laundered money through the island’s banks. These sophisticated investors were well aware of the risks they were taking by putting their money in offshore accounts, and Cyprus should not try to protect them at the expense of local depositors. 

Cypriot officials created this catastrophe by relying on a lightly regulated banking industry to drive up its growth rate while encouraging foreigners to use the island as a tax haven. European officials also deserve blame for not requiring more capital in euro-zone banks and for not anticipating the consequences of lowering the value of Greek bonds. They should not add to those mistakes with a punitive package that is disastrously counterproductive.

K is not capital, L is not labor by Stever Randy Waldman

Bank Holiday in Cyprus

What happens when it's lifted? A bank run?

Things to be grateful for (#slatepitch)

Haven't read about Mickey Kaus in a while. Yes Clinton's 1996 welfare reform increased poverty and was a disaster.

William Saleton sucks. Yglesias had a great column about "Miss America Conservatism."

AV Club revies "Prey" from "The Walking Dead." 

The Governor and his loyalists are conservatives with their lizard brains. Authoritarian. Fascist. Dishonest about the Marathon Man chair and pit o' zombies (The War on Terror's dark side, "enhanced interrogation," "Zero Dark Thirty.")

Andrea, Milton, Tyrese and the Prison Gang (Rick, Herschel, Michonne, etc.) are the liberals with their notions of solidarity and "social insurance."

Echoes of 1933: the Cyprus Heist by David Beckworth

The Cypriot Haircut by Krugman

You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character. (I think it’s interesting thatMohamed El-Erian manages to write about this thing, fairly reasonably, without so much as mentioning the Russian thing.) 

The big problem, however, is that it’s not just large foreign deposits that are taking a haircut; the haircut on small domestic deposits is a bit smaller, but still substantial. It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”

Why some people are concerned. What is Krugman implying about El-Erian?

Bubbles, Gorton, Krugman and Cyprius-Iceland-Ireland.

The Яussians Are Coming! The Яussians Are Coming! by Krugman

...
As long as you haven’t bought into the Barney-Frank-did-it school of thought, you realize that the global crisis of 2008 was in a fundamental sense made possible by the erosion of effective bank regulation. As Gary Gorton (pdf) has documented, we had a 70-year “quiet period” after the Great Depression in which advanced countries had very few major financial flare-ups; Gorton argues, and most of us agree, that the key to this quietness was a constrained, regulated financial system that also limited the opportunities for excessive non-bank leverage. 

But this regulation in turn depended, to an important extent, on limited international capital flows; otherwise regulations made in Washington or elsewhere would have been bypassed via havens like, well, Cyprus. And once capital controls began to be lifted in the 1970s we entered an era of ever-bigger financial crises, starting in Latin America, then moving to Asia, and finally striking the whole world. 

So what are we going to do about this? Cyprus, as a euro-zone country, should really be part of a euro-wide safety net buttressed by appropriate regulation; it’s insane to imagine that the euro can be run indefinitely with merely national deposit insurance. But euro-area deposit insurance doesn’t seem to be in the cards — and anyway, there are plenty of other potential Cypruses out there. 

All of which raises the question, is the era of free capital movement just a bubble, fated to end one of these years, maybe soon?