August 12

NYT asks: Should We Brace for Deflation Now?
debate/responses from Brad DeLong, Tyler Cowen, Mark Thoma, Simon Johnson, Heather Boushey.

U.S. using "really stupid strategy" to hide bank losses. interview with Bill Black, Yahoo! tech ticker.

in our current situation, “we’re following a Japanese type strategy of hiding the losses,” he says. “This is a really stupid strategy, and it’s ours."

QE: “the greatest monetary non-event”. The Pragmatic Capitalist.

They’re not “printing money” or dropping money from helicopters as many economists and pundits would have you believe. It is merely an asset swap

quotes the BIS:

In fact, the level of reserves hardly figures in banks’ lending decisions. The amount of credit outstanding is determined by banks’ willingness to supply loans, based on perceived risk-return trade-offs, and by the demand for those loans... an expansion of reserves in excess of any requirement does not give banks more resources to expand lending. It only changes the composition of liquid assets of the banking system. Given the very high substitutability between bank reserves and other government assets held for liquidity purposes, the impact can be marginal at best. This is true in both normal and also in stress conditions. Importantly, excess reserves do not represent idle resources nor should they be viewed as somehow undesired by banks (again, recall that our notion of excess refers to holdings above minimum requirements). When the opportunity cost of excess reserves is zero, either because they are remunerated at the policy rate or the latter reaches the zero lower bound, they simply represent a form of liquid asset for banks

also includes quote from Richard Koo:

Even though QE failed to produce the expected results, the belief that monetary policy is always effective persists among economists in Japan and elsewhere. To these economists, QE did not fail: it simply was not tried hard enough... At the risk of belabouring the obvious, imagine a patient in the hospital who takes a drug prescribed by her doctor, but does not react as the doctor expected and, more importantly, does not get better. When she reports back to the doctor, he tells her to double the dosage. But this does not help either. So he orders her to take four times, eight times, and finally a hundred times the original dosage. All to no avail. Under these circumstances, any normal human being would come to the conclusion that the doctor’s original diagnosis was wrong, and that the patient suffered from a different disease. But today’s macroeconomics assumes that private sector firms are maximizing profits at all times, meaning that given a low enough interest rate, they should be willing to borrow money to invest.. In reality, however, borrowers – not lenders, as argued by academic economists – were the primary bottleneck in Japan’s Great Recession.

Time to rethink Milton Friedman? Rick Ackerman.

so those writers don't think the Fed's policies are effective; does even the Fed think its policies will work???
Money, Reserves and the Transmission of Monetary Policy: Does the Money Multiplier Exist? Federal Reserve Board Divisions of Research & Statistics and Monetary Affairs.

textbook treatments of the money multiplier give the quantity of bank reserves a causal role in determining the quantity of money and bank lending and thus the transmission mechanism of monetary policy. This role results from the assumptions that reserve requirements generate a direct and tight linkage between money and reserves and that the central bank controls the money supply by adjusting the quantity of reserves through open market operations.

Using data from recent decades, we have demonstrated that this simple textbook link is implausible in the United States for a number of reasons.... Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending.

Why US final demand is weak, and why Fed interventions are pointless. TrimTabs, via zerohedge.

TrimTabs does a simple yet elegant analysis that seeks to explain why US final demand is not only sluggish but declining, and is ultimately the reason why the US government needs to consistently pump more and more capital in the economy to keep GDP at best flat.

TrimTabs focuses on the "consumer spendables" indicator - It consists of the sum of three components: 1. After-tax income from wages and salaries; 2. After-tax income from non-wage sources, such as capital gains, dividends, and interest; 3. Cash harvested from home equity when mortgages are refinanced. As TrimTabs shows, and this should come as a surprise to nobody, "much of the economic growth in the middle of the previous decade was fueled by an explosion of consumer debt. Consumers treated their homes like automatic teller machines—cash-out refinancings topped out at $804 billion in the four quarters ended in Q2 2006—and they borrowed freely on low-rate auto loans and credit cards given to almost anyone who could fog a mirror. Now that the era of easy consumer credit is over, the economy is resetting to a lower level of activity. We believe the interventions of the Fed and the government to try to head off this adjustment will do more harm in the long run than the adjustment itself."

U.S. Selected Issues Paper. IMF.

The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.... closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP

to put that in perspective, to raise 14% of GDP would require a doubling of all federal taxes


data:
I've referred to the Consumer Metrics Growth Index and the ECRI WLI to flag growth relapse (i.e. double-dip) concerns; on the other hand:

All signs continue to point to an economy in recovery with the latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management

PCI Climbs in July, Confirming Economy’s Slow but Steady Recovery. Ceridian-UCLA Pulse of Commerce Index.


BP link of the day:
Will BP skip the relief well, declare mission accomplished, and abandon ship without permanently killing the oil leak? Washington's Blog.


other fare:
Robert Gibbs attacks the fringe losers of the left. Glenn Greenwald, Salon.

You may think that the reason you're dissatisfied with the Obama administration is because of substantive objections to their policies: that they've done so little about crisis-level unemployment, foreclosures and widespread economic misery. Or because of the White House's apparently endless devotion to Wall Street. Or because the President has escalated a miserable, pointless and unwinnable war that is entering its ninth year. Or because he has claimed the power to imprison people for life with no charges and to assassinate American citizens without due process, intensified the secrecy weapons and immunity instruments abused by his predecessor, and found all new ways of denying habeas corpus. Or because he granted full-scale legal immunity to those who committed serious crimes in the last administration. Or because he's failed to fulfill -- or affirmatively broken -- promises ranging from transparency to gay rights.

But [White House press secretary] Robert Gibbs -- in one of the most petulant, self-pitying outbursts seen from a top political official in recent memory, half derived from a paranoid Richard Nixon rant and the other half from a Sean Hannity/Sarah Palin caricature of The Far Left -- is here to tell you that the real reason you're dissatisfied with the President is because you're a fringe, ideological, Leftist extremist ingrate who needs drug counseling.

Kill Hugo? Mike Whitney, CounterPunch.

It's hard to believe that a two-year senator from Chicago with a background in 'community organizing' presides over this elaborate and opaque system of imperial rule. He doesn't, of course. The real leaders remain hidden behind the cloak of democratic government and all of Washington's phony institutions. Obama is merely a public relations hologram, a friendly face that conceals the machinations of a global Mafia. Other people--whoever they may be--control the levers of power moving the pieces as needed to assure the best outcome for themselves and their constituents.