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'At what point do even the Keynesians toss in the towel and say “By now it is a growth and structural problem, not mainly AD [Aggregate Demand]”?'
http://delong.typepad.com/sdj/2011/09/when-will-it-be-the-long-run.html
http://delong.typepad.com/sdj/2011/09/when-will-it-be-the-long-run.html
Not for a while, I imagine. Most people I know who believe in Keynesian economics
have said that we stopped the stimulus packes too early and too lightly.
"Q. Wasn’t the panic due to subprime mortgages going bad due to house prices falling?
A. No. This cannot be the whole story. Outstanding subprime securitization was not large enough by
itself to have caused the losses that were experienced. Further, the timing is wrong."
"Questions and Answers About the Financial Crisis", http://tinyurl.com/d201109d
A. No. This cannot be the whole story. Outstanding subprime securitization was not large enough by
itself to have caused the losses that were experienced. Further, the timing is wrong."
"Questions and Answers About the Financial Crisis", http://tinyurl.com/d201109d
The "new vs. old keynsian" graph shows the number of hires, quits, and layoffs
over time and makes speculations about equilibrium. It's appropriate that
the topic of Keynesian economics is brought up because I suspect that we have
policy changes being made more frequently than the amount of time it would
take for an equilibrium to establish.
Furthermore, I suspect that we still haven't completely absorbed the changes resulting from globalization.[B[B[B
We know that Keynes was right about why recessions have a cumulative downward spiral effect, but his solution of "priming the pump" has never been proven successful.
Cowen *seems* to be suggesting that equilibrium will be found on its own, eventually.
Furthermore, I suspect that we still haven't completely absorbed the changes resulting from globalization.[B[B[B
We know that Keynes was right about why recessions have a cumulative downward spiral effect, but his solution of "priming the pump" has never been proven successful.
Cowen *seems* to be suggesting that equilibrium will be found on its own, eventually.
[Fisher, 1933] has this to say on the subject of equilibrium:
1. The economic system contains innumerable variables--quantities of
"goods" (physical wealth, property rights, and services), the prives of
these goods, and their values (the quantities multiplied by the
prices). Changes in any or all of this vast array of variables may be
due to many causes. Only in imagination can all of these variables
remain constant and be kept in equilibrium by the balanced forces of
human desires, as manifested through "supply and demand."
---
So this was Fisher's very first postulate. Equilibrium itself is an
imaginary concept; and this includes the law of supply and demand
itself, because the law of supply and demand is merely a special case
of equilibrium.
Moving on to more from Fisher:
---
4. [...] In other words, while a cycle, conceived as a /fact/, or
historical event, is non-existent,
there are always innumerable cycles,
long and short, big and little, conceived as /tendencies/ (as well as
numerous non-cyclical tendencies), any historical event being the
resultant of all the tendencies then at work. Any one cycle, however
perfect and like a sine curve it may tend to be, is sure to be
interfered with by other tendencies.
[...]
8. There may be equilibrium which, though stable, is so delicately
poised that, after departure from it beyond certain limits, instability
ensues, just as, at first, a stick may bend under strain, ready all the
time to bend back, until a certain point is reached, when it breaks.
This simile probably applies when a debtor gets "broke", or when the
breaking of many debtors constitutes a "crash", after which there is no
coming back to the original equilibrium./
---
Generalizing a bit, we need not limit ourselves to discussion of policy
manipulations happening too fast. /News/ -- meaning any and all
economic news -- happens too fast to allow an equilibrium to establish.
1. The economic system contains innumerable variables--quantities of
"goods" (physical wealth, property rights, and services), the prives of
these goods, and their values (the quantities multiplied by the
prices). Changes in any or all of this vast array of variables may be
due to many causes. Only in imagination can all of these variables
remain constant and be kept in equilibrium by the balanced forces of
human desires, as manifested through "supply and demand."
---
So this was Fisher's very first postulate. Equilibrium itself is an
imaginary concept; and this includes the law of supply and demand
itself, because the law of supply and demand is merely a special case
of equilibrium.
Moving on to more from Fisher:
---
4. [...] In other words, while a cycle, conceived as a /fact/, or
historical event, is non-existent,
there are always innumerable cycles,
long and short, big and little, conceived as /tendencies/ (as well as
numerous non-cyclical tendencies), any historical event being the
resultant of all the tendencies then at work. Any one cycle, however
perfect and like a sine curve it may tend to be, is sure to be
interfered with by other tendencies.
[...]
8. There may be equilibrium which, though stable, is so delicately
poised that, after departure from it beyond certain limits, instability
ensues, just as, at first, a stick may bend under strain, ready all the
time to bend back, until a certain point is reached, when it breaks.
This simile probably applies when a debtor gets "broke", or when the
breaking of many debtors constitutes a "crash", after which there is no
coming back to the original equilibrium./
---
Generalizing a bit, we need not limit ourselves to discussion of policy
manipulations happening too fast. /News/ -- meaning any and all
economic news -- happens too fast to allow an equilibrium to establish.
A roundup of economic news from around the web
http://blogs.wsj.com/economics/2011/09/20/secondary-sources-friedman-on-qe-short-term-stimulus-inflation-fears/
http://blogs.wsj.com/economics/2011/09/20/secondary-sources-friedman-on-qe-short-term-stimulus-inflation-fears/
Larry Summers: "Europe can handle its debts and contribute to a stronger
global economy only if it grows."
http://www.ft.com/intl/cms/s/2/5eaa83dc-dfca-11e0-b1db-00144feabdc0.html#axzz1YaXNt3Fn
global economy only if it grows."
http://www.ft.com/intl/cms/s/2/5eaa83dc-dfca-11e0-b1db-00144feabdc0.html#axzz1YaXNt3Fn
Operation Twist is on.
"The forecasting firm Macroeconomic Advisers estimated in advance of the
Fed’s announcement — based on its best guess about the details of such a
program — that the Fed’s efforts could add about 0.4 percentage points
to economic output and create about 350,000 jobs."
http://www.nytimes.com/2011/09/22/business/fed-to-shift-400-billion-in-holdings-to-spur-growth.html?_r=1&hp
"The forecasting firm Macroeconomic Advisers estimated in advance of the
Fed’s announcement — based on its best guess about the details of such a
program — that the Fed’s efforts could add about 0.4 percentage points
to economic output and create about 350,000 jobs."
http://www.nytimes.com/2011/09/22/business/fed-to-shift-400-billion-in-holdings-to-spur-growth.html?_r=1&hp
Krugman on Operation Twist:
"OK, the Fed moved. It was a bit stronger than expected — and BB and company stood up to the GOP.
But seriously, they’re trying to use a water pistol to stop a charging rhino."
http://krugman.blogs.nytimes.com/2011/09/22/meh-and-i-mean-that/
"OK, the Fed moved. It was a bit stronger than expected — and BB and company stood up to the GOP.
But seriously, they’re trying to use a water pistol to stop a charging rhino."
http://krugman.blogs.nytimes.com/2011/09/22/meh-and-i-mean-that/
"The U.S. and world economies are in danger again as financial leaders
gather in Washington for the International Monetary Fund’s annual
meetings. Markets are falling world-wide due to broad economic concerns
that go beyond a hangover from the crisis and extend to policy
dysfunction in the U.S., Europe and developing nations. This live blog
takes a look at the latest dispatches from the annual meetings and the
latest readings on the economy."
http://blogs.wsj.com/economics/2011/09/22/live-blog-broad-economic-concerns-mount-world-wide/
gather in Washington for the International Monetary Fund’s annual
meetings. Markets are falling world-wide due to broad economic concerns
that go beyond a hangover from the crisis and extend to policy
dysfunction in the U.S., Europe and developing nations. This live blog
takes a look at the latest dispatches from the annual meetings and the
latest readings on the economy."
http://blogs.wsj.com/economics/2011/09/22/live-blog-broad-economic-concerns-mount-world-wide/
Brad Delong begs to differ on Operation Twist:
http://delong.typepad.com/sdj/2011/09/risk-return-and-macroeconomics-more-like-trying-to-stop-a-charging-rhinoceros-with-a-deer-rifle.html
"[Given certain assumptions about risk pricing, read the link] Then if
the Fed buys half 10-year and half 30-year bonds it takes risk currently
valued at $60 billion off of the private sector's balance sheet. A
ten-year corporate investment project of about $150 billion carries $60
billion worth of risk with it, so if this works and if the risk-bearing
capacity freed-up by this version of quantitative easing is then
deployed elsewhere, we will have an extra $150 billion of business
investment over the year or so it takes to roll out this program and for
it to have its effect."
http://delong.typepad.com/sdj/2011/09/risk-return-and-macroeconomics-more-like-trying-to-stop-a-charging-rhinoceros-with-a-deer-rifle.html
"[Given certain assumptions about risk pricing, read the link] Then if
the Fed buys half 10-year and half 30-year bonds it takes risk currently
valued at $60 billion off of the private sector's balance sheet. A
ten-year corporate investment project of about $150 billion carries $60
billion worth of risk with it, so if this works and if the risk-bearing
capacity freed-up by this version of quantitative easing is then
deployed elsewhere, we will have an extra $150 billion of business
investment over the year or so it takes to roll out this program and for
it to have its effect."
Freakonomist Keeps Close Eye On GE Stock Versus Height Of Mexican Weightlifters
http://www.theonion.com/articles/freakonomist-keeps-close-eye-on-ge-stock-versus-he,17202/
http://www.theonion.com/articles/freakonomist-keeps-close-eye-on-ge-stock-versus-he,17202/
Operation Twist is on.
Pushing the interest rate on T-bills to a number lower than inflation?
I do understand that they want to make it easier to borrow money, hoping that this will stimulate the economy, but they're also going to have to deal with the effects of diluting the value of the last remaining "safe" investment.
The other issue is that it assumes consumers and businesses are not borrowing and spending because the cost of acquiring capital is too high. On the business side, what I'm seeing a lot of right now is a reluctancy to make any big moves because of an uncertain regulatory environment.
You know that Keynesian Economics is dead when even George Soros can't justify
the gross expenditures......
http://www.spiegel.de/international/europe/0,1518,780189,00.html
http://www.spiegel.de/international/europe/0,1518,780189,00.html
Some raw data on treasury security prices, courtesy of my Fidelity screen.
* Stripped interest pmt securities maturing between 5/15/2021 and
02/15/2022 are yielding anywhere between 1.890 and 2.076%
* Notes expiring 5/15 or 8/15 2021: 1.714-1.775
* Bonds, 5/15-11/15 2021: 1.632-1.725
The yields above are for the secondary market. For comparison: Bank of
America savings accounts pay 0.05%. (If you'd told me a few years ago
that this would come to pass, I'd have laughed.)
Some quick comments: I think you'll see yields tick up a bit soon, as
happened under QE2. Maybe not a heck of a lot.
The bond market is also an index of inflation expectations, and it's
pointing towards low/lower inflation:
http://www.bloomberg.com/apps/quote?ticker=USGGBE05:IND
So demand for treasuries still seems unusually high. In such an
environment, a market incentive to invest in the private sector rather
than treasuries might not be such a bad thing. Whether that incentive
actually exists is far from clear, at a time when banks are simply
sitting on piles of cash, which definitely returns less than inflation.
* Stripped interest pmt securities maturing between 5/15/2021 and
02/15/2022 are yielding anywhere between 1.890 and 2.076%
* Notes expiring 5/15 or 8/15 2021: 1.714-1.775
* Bonds, 5/15-11/15 2021: 1.632-1.725
The yields above are for the secondary market. For comparison: Bank of
America savings accounts pay 0.05%. (If you'd told me a few years ago
that this would come to pass, I'd have laughed.)
Some quick comments: I think you'll see yields tick up a bit soon, as
happened under QE2. Maybe not a heck of a lot.
The bond market is also an index of inflation expectations, and it's
pointing towards low/lower inflation:
http://www.bloomberg.com/apps/quote?ticker=USGGBE05:IND
So demand for treasuries still seems unusually high. In such an
environment, a market incentive to invest in the private sector rather
than treasuries might not be such a bad thing. Whether that incentive
actually exists is far from clear, at a time when banks are simply
sitting on piles of cash, which definitely returns less than inflation.
Sep 23 2011 10:10am from Ragnar Danneskjold
You know that Keynesian Economics is dead when even George Soros can't
justify the gross expenditures......
KInteresting. In terms of pure taxonomy, I'd classify Soros' argument somewhere between Milton Friedman and Keynes, with some characteristics of both. Certainly nowhere near the current state of ECB orthodoxy or anything that would have been argued by likes of Mises.
Treasuries are high (comparitively speaking) right now because people world wide are
flocking back into the US,away from gold, away from China, and away from the Euro.
The dollar continues to be a safe haven, no matter how hard people have tried to take
that away from us.
And even with the Fed buying up longer term bonds, driving interest rates down doesn't
help if the banks are sitting on the money. Try and get a mortgage right now. Good luck!
flocking back into the US,away from gold, away from China, and away from the Euro.
The dollar continues to be a safe haven, no matter how hard people have tried to take
that away from us.
And even with the Fed buying up longer term bonds, driving interest rates down doesn't
help if the banks are sitting on the money. Try and get a mortgage right now. Good luck!
Just last week or so, my emerging-markets fund was up 33% since purchase. Now it's only up something like 14%. I must have bought into that one at a relative low point, but it highlights the volatility. Even the European indexes have fallen much less in that same period.
Energy is dropping faster than Europe (but my measurement for energy stocks includes significant Europe exposure), a seeming indication that recession expectations are pricing themselves into the market.
The big issue right now is how to get people spending.... All these games
by the central banks aren't going to work. Money is basically free right
now. I would propose a few things:
1) Put a hold on Obamacare.
2) Force banks to lend money who are taking money from the Fed, otherwise, they need to lend money based on their deposits.
3) Make the Bush tax cuts PERMANENT.
4) Allow a 5 year period where interest payments are tax deductible.
5) Crack down on illegal immigration, which artificially depresses wages, and takes jobs from the working poor of the nation.
6) Get serious with China. Stop this one way street nonsense. I have no problem with free trade, but make sure that we really are trading freely.
1) Put a hold on Obamacare.
2) Force banks to lend money who are taking money from the Fed, otherwise, they need to lend money based on their deposits.
3) Make the Bush tax cuts PERMANENT.
4) Allow a 5 year period where interest payments are tax deductible.
5) Crack down on illegal immigration, which artificially depresses wages, and takes jobs from the working poor of the nation.
6) Get serious with China. Stop this one way street nonsense. I have no problem with free trade, but make sure that we really are trading freely.