Economy Archives - Page 83 of 132 - the patient investor

April 24, 2013

The Grave Evil of Unemployment, Bryan Caplan | EconLog | Library of Economics and Liberty

Bryan Caplan makes the case for a fresh approach from free-market economists:

At the level of high theory, free-market economists love market-clearing models. If there’s surplus wheat, the price of wheat will fall to clear the market. If there’s surplus labor, similarly, the wage will fall to eliminate unemployment. What about nominal wage rigidity? Most free-market economists concede that nominal wage rigidity exists to some degree, but think the problem is mild and short-lived……..The high theory’s wrong: Nominal wage rigidity is both strong and durable.

Rather than treat unemployment as a necessary but temporary affliction, Caplan suggests that free-market economists should be attacking the “vast array of employment-destroying regulations” imposed by government — and tight monetary policy by central banks, where they should be advocating nominal GDP targeting as an alternative.

April 24, 2013

TheMoneyIllusion

TheMoneyIllusion highlights this common mistake by central banks:

Despite the fact that our mainstream textbooks tell us that low rates don’t mean easy money, most central bankers cannot shake the suspicion that low rates do mean easy money, and that the current relatively low rates are a danger to the economy. This irrational bias is driving policy failure in much of the world. Even central banks at the zero bound (like the Fed) are inhibited in their push for unconventional stimulus by this cognitive illusion.

Debunking austerity claims makes no difference to Europe’s monks and zealots | Telegraph Blogs

Ambrose Evans-Pritchard attacks euro-zone austerity:

Britain’s public debt was 260pc of GDP in 1816 at the end of near perma-wars: Seven Years War, American War of Independence, and the Napoleonic Wars. This was whittled down to 24pc over the next century by the magical compound effects of economic growth. The debt reached 220pc in 1945, the price for defeating fascism. This was certainly a drag on the post-War recovery, but it did not stop debt falling to 36pc by the mid-1990s.

Britain twice recovered from massive debt through a combination of growth and inflation — not necessarily in that order — but they had control of their own currency. The states of Europe are strait-jacketed by a currency dominated by the austerity-minded Bundesbank.

April 24, 2013

Paul Krugman: Hot Money Blues | NYTimes.com

Paul Krugman argues for a return of capital controls:

In the last decade America, too, experienced a huge housing bubble fed by foreign money, followed by a nasty hangover after the bubble burst. The damage was mitigated by the fact that we borrowed in our own currency, but it’s still our worst crisis since the 1930s.

Japan and China amassed more than $2 trillion in US Treasuries in their attempt to halt, or at least slow, appreciation of their currencies against the Dollar. US manufacturers suffered, both in domestic and export markets, laboring at a huge competitive disadvantage because of the artificial exchange rate.

Trade agreements should cap capital flows between countries, setting a limit on the net capital in/outflow in any one year and offsetting measures to be taken if the cap is exceeded.

Read more at Hot Money Blues – NYTimes.com.

April 24, 2013April 16, 2018

PIMCO’s Gross: Investing may be more difficult in years ahead

Charles Stein and Alexis Leondis at Bloomberg quote Bill Gross, co-chief investment officer at PIMCO (Pacific Investment Management Co) about the outlook for the next decade:

Recently, Gross has become more reflective in his monthly online commentaries. In the April outlook, called “A Man in the Mirror,” he suggested that the careers of the great investors of the past three or four decades were fueled by an expansion of credit that may be coming to an end, and that investing may become more difficult in years ahead.

“All of us, even the old guys like Buffett, Soros, Fuss, yeah — me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, that an investor could experience,” he wrote. “Perhaps it was the epoch that made the man.”

Central banks have at last awoken to the dangers of rapid credit expansion and are unlikely to allow a repeat of the credit-fueled growth of the last thirty years. Bull markets of the future are therefore likely to be a lot more sedate.
Read more at Pimco’s Rising Stars Pull in Money for Future After Gross – Bloomberg.

April 22, 2013

Fed Watch: Monetary Policy and Financial Stability

Tim Duty quotes Minneapolis Federal Reserve President Narayana Kocherlakota, speaking at the 22nd Annual Hyman P. Minsky conference:

….unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity. All of these financial market outcomes are often interpreted as signifying financial market instability. And this observation brings me to a key conclusion. I’ve suggested that it is likely that, for a number of years to come, the FOMC will only achieve its dual mandate of maximum employment and price stability if it keeps real interest rates unusually low. I’ve also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be to achieve its macroeconomic objectives in association with signs of instability in financial markets.

Unusually low interest rates will only cause an asset price bubble when they encourage excessive borrowing by consumers. In the current environment where increased savings are being channeled into repaying debt, the risks of excessive credit growth are low. But the Fed has to maintain a fine balancing act, reacting quickly to any increase in asset prices which would encourage speculative demand for credit — and raising interest rates in order to discourage this.

April 21, 2013

Richard Koo: Quantitative and Qualitative Easing

Richard Koo in his latest report makes that the point that central banks in the US and UK have not cured their economies of deflationary pressures, they have merely kicked the can down the road:

Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But as I noted in my last report (2 April 2013), the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US. Deflation took root in Japan only after 1997, when the nation fell off the fiscal cliff following the Hashimoto administration’s ill-fated experiment with fiscal consolidation. That was seven to eight years after the bubble burst.

April 20, 2013

“Fragile by design” – the political causes of banking crisis | The Market Monetarist

Lars Christensen discusses a soon-to-be-released book by Charles Calomiris and Stephen Haber: “Fragile by Design: Banking Crises, Scarce Credit,and Political Bargains.”

Calomiris and Haber conclude that the root cause of banking crisis has to be found in what political institutions different countries have. Said in another way the main cause banking crisis is one of “political design”…….The differences between USA and Canada seem to be particularly interesting……..since 1840 the US have had 14 banking crisis, while Canada have had none and this despite the fact that credit has been as abundant in Canada as in the US.

April 19, 2013

Fixing the Banking System for Good

I believe we have a crisis of values that is extremely deep…. because the regulations and legal structures need reform. I meet a lot of these people [from] Wall street on a regular basis. I’m going to put it very bluntly: I regard the moral environment as pathological…… I have never seen anything like it. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to ….counterparties in transactions. They are tough, greedy, aggressive and feel absolutely out of control…… They have gamed the system to a remarkable extent. And they have a docile president, a docile White House and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies……

Professor Jeffrey Sachs of Columbia University speaking at the “Fixing the Banking System for Good” conference on April 17, 2013.

http://youtu.be/7VOWnnEphjI