So they say; we shall see. I suspect though their model might work well in typical inventory-led recessions, it likely works less well with these balance-sheet recession, debt-deflation thingies.
The Mankiw Rule with QE: Why is the Fed so tight? Andy Harless.
I tried to come up with a simple measure of monetary policy stance that incorporates both the federal funds rate and quantitative easing..... The one conclusion that is robust to reasonable changes in specification is that the composite measure is now moving close to zero again, even as the Mankiw Rule interest rate remains well below negative 3 percent. (It will likely rise slightly above negative 4 percent based on the May data, but I’m waiting for the CPI report before I update.) Quantitative easing is over, but the economic conditions that justified it are still with us – at least if we measure retrospectively..... Once we recognize that QE is an option – and one that is no longer being pursued – we can draw the conclusion that the Fed is much tighter today than what the Mankiw Rule would suggest. Indeed, relative to the Mankiw Rule, the Fed is much tighter than at any time during the Greenspan-Bernanke years.
Here’s one way to think about the situation. Fed policy typically affects output and employment with a lag of less than a year. Over the past year, the Fed has tightened dramatically. The super-duper-easy aggressive quantitative easing policy of 2009 (especially early 2009) has given the US economy enough monetary fuel to get it almost to an employment growth rate (exclusive of the Census) that could stabilize, but not significantly reduce, the unemployment rate. That policy is gone. In order to believe that the economy is going to strengthen from here, you have to believe either (1) that the lag associated with monetary policy is longer than usual or (2) that the underlying strength of the economy, holding monetary policy constant, has improved dramatically. Maybe one (or both) of those things is true. Or maybe not.
Oy, Canada! Paul Krugman, NYT.
Albert Edwards, of SocGen, in recent report:
“It went almost unnoticed this week that core CPI inflation rates in the US and eurozone continue to slip-slide their way down towards zero. Although this is seen as buoying bond prices at the margin, it is a pernicious development that investors will focus on when this cycle starts to fail. Regular readers will know that I believe that in a post-bubble world, recession follows recession with surprising rapidity.
We are now only one cyclical failure away from Japanese-style outright deflation in the US and the eurozone at a time when de-leveraging still has years to run (falling prices bring the risk of a classic debt deflation trap). Impending cyclical failure and a deflation scare will trigger new lows in equities as the valuation bear market finally plays itself out with the S&P falling below 500. We therefore maintain our long-standing target of sub-2% US 10y bond yields – and that is the point when QE will really begin to get serious.”
Flow of Funds report updated, so Q-ratio can be too:
the Q-ratio and market valuation. dshort.com
Other fare:
The importance of unbelief. comedian Stephen Fry
&
Ways to become happier. Tal Ben-Shahar, both at the BigThink.
World Cup calendar. Too cool!
and, also too cool:
Nike Football - write the future. YouTube. I love the part with Rooney.
Another BP spill. BigThink.
Okay, more seriously:
The Gulf Coast oil spill's Dr. Doom. Fortune.
Experts forecast an active hurricane season this year. We know it could disrupt efforts to stop the spill, but how else do you think storms could impact the Gulf Coast?
We've got to stop the gusher first. Then we have to deal with the other issues. There's a lake at the bottom of the Gulf of Mexico that's over 100 miles wide and at least 400 to 500 feet deep of black oil. It's just staying there. And only the lightest of that is what we're seeing hitting the shores so far. If a hurricane comes and blows this to shore, it could paint the Gulf Coast black. We should have been pumping this oil out onto other tankers weeks ago.
How do you think the U.S. government should handle this disaster?
I think the government should ask BP to leave the United States and turn its operation over to the military. Put the U.S. Navy in charge. Have all the contractors report to the Navy -- the cleanup efforts, the whole nine yards. Because as long as it's in BP's hands, they're going to spin the information as long as they can.
What do you think is in store for the future of BP?
They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11.
Speaking of the spill, this decision in May sure looks good in hindsight, doesn't it?
U.S. not accepting foreign help on oil spill. Foreign Policy.
Lets not accept help, lets just let BP do it. Great.
Should this be the last generation? Peter Singer, NYT.
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