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Recommended economics writing
Link exchange
Dec 14th 2012, 22:07 by M.C.K. | WASHINGTON
TODAY'S recommended economics writing:
• Fed proposes broad guidelines for foreign banks (WSJ)
• San Francisco office costs increase the most in the world (Bloomberg)
• Building a showcase campus, using an I.O.U. (NYT)
• Meet them in St. Louis: Bankers move (WSJ)
• Going, going, wrong: JPMorgan's auction (Tim Harford)
• Iraq boom hands Naimi 2013 oil-supply challenge (Bloomberg)
• TAG you're zero (FT Alphaville)
• Manhattan apartment buying may not be a great deal (WSJ Real Time Economics)
• Californian's $609,000 check shows true retirement cost (Bloomberg)
The Senate tax bill
A dreadful third option
Dec 14th 2012, 19:54 by G.I. | WASHINGTON, D.C.
Negotiations over the fiscal cliff appear to have stalled. A meeting last night between President Barack Obama and John Boehner, the Republican speaker of the House of Representatives, produced no apparent narrowing in their positions.
Since negotiations began, very little progress has been made: Mr Obama initially asked for $1.6 trillion in tax increases over the coming decade, later lowered to $1.4 trillion, and offered $400 billion in spending cuts.
Mr Boehner has, in return, offered $800 billion in higher revenue by eliminating tax expenditures (i.e., no increase in rates), and asking for $600 billion in entitlement cuts.
Reforming macroeconomics
Claudio Borio on the financial cycle
Dec 14th 2012, 12:34 by M.C.K. | WASHINGTON, D.C.
CLAUDIO BORIO is one of the world’s most provocative and interesting monetary economists. Based at the Bank for International Settlements in Basel, Mr Borio was one of a handful of people who warned of the financial system’s fragility back in 2003. Now he is out with a new working paper called “The financial cycle and macroeconomics: What have we learnt?” This important paper summarises what we know about booms and busts, Mr Borio’s own suggestions for the next research agenda in macroeconomics, and the optimal policy responses to financial crises. What follows is a summary and analysis of the most interesting bits. Those who are interested should read the entire paper.
Recommended economics writing
Link exchange
Dec 13th 2012, 22:36 by M.C.K. | WASHINGTON
TODAY'S recommended economics writing:
• UBS said to face fines of more than $1 billion on Libor (Bloomberg)
• Big banks flunk OCC risk tests (American Banker)
• CLO trades surge in hunt for better yield (FT)
• Canadian province eyes "Dim Sum" bond (WSJ)
• Study shows a pattern of risky loans by the F.H.A. (NYT)
• Too big to jail—our banking system's latest disgrace (Neil Barofsky)
• Home seizures rise as banks adjust to foreclosure flow (Bloomberg)
• Should Goldman Sachs stop underwriting debt? (John Carney)
• What have the Romans ever done for us? (FT Alphaville)
Monetary policy
Bernanke's two-footed driving
Dec 13th 2012, 16:36 by R.A. | WASHINGTON
I AM cautiously enthusiastic about the Fed's recent policy evolution. Enthusiastic, because it represents a significant move toward better management of expectations, which is a critical policy tool in a world where the policy interest rate can't be reduced any lower. But cautiously so because, frankly, I'm not sure it will work. Not, however, for the reason my colleague suggests:
A much bigger risk is that for all the theoretical appeal of the Evans rule, it is not at all clear the Fed's tools can deliver the lower unemployment it wants. If the public shares that skepticism, the expectations effect won't work.
Demographics
Nonsense nonsense crisis
Dec 13th 2012, 13:35 by A.C.S. | NEW YORK
AMERICA and Europe face a troubling demographic future. Declining birth rates will probably result in an older population and a smaller share of the population working to pay for their retirement. Does this necessary spell doom and gloom?
Megan Mcardle reckons so, but Dean Baker dismisses such arguments as “nonsense”. He shows that if productivity continues to increase (even at a lower rate than we’ve experienced historically) then we can still expect rising levels of prosperity. But which factor will dominate, aging or productivity, is uncertain. History is on Mr Baker’s side. Since industrialisation, each new cohort was more productive than the last.
The Fed's new thresholds
The mandate is willing but the tools are weak
Dec 13th 2012, 2:00 by G.I. | WASHINGTON, D.C.
Low inflation and full employment have been statutory goals of the Federal Reserve since 1977, but its officials always felt more comfortable with the first than the second. After all, in theory monetary policy can’t alter unemployment in the long run.
But the stubbornly weak economy of recent years prompted some at the Fed to question their historical neglect of the second half of their mandate. “The Fed’s dual mandate … has the force of law behind it,” Charlie Evans, president of the Federal Reserve Bank of Chicago, said in September, 2011. “So, if 5% inflation would have our hair on fire, so should 9% unemployment.”
Continue reading "The mandate is willing but the tools are weak" »
Recommended economics writing
Link exchange
Dec 12th 2012, 22:07 by M.C.K. | WASHINGTON
TODAY'S recommended economics writing:
• Warren assigned to U.S. Senate banking committee (Reuters)
• Deutsche Bank says co-CEO Fitschen subject of CO2 probe (Bloomberg)
• Sweden central bank increases reserves (FT)
• Berkshire's weird buyback (Felix Salmon)
• California pyschiatrists paid $400,000 shows bidding war (Bloomberg)
• Inside the risky bets of central banks (WSJ)
• Research incentives: Milton Friedman and the Fed (Garrett Jones)
• Mario Monti's exit is the only way to save Italy (Ambrose Evans-Pritchard)
• Japan should scare the eurozone (Sebastian Mallaby)
• "Imported from Detroit" is a good idea in China, if only... (WSJ China Real Time)
Monetary policy
Clearer now
Dec 12th 2012, 19:08 by R.A. | WASHINGTON
HAIL Charles Evans:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.
Monetary policy
Straight talk
Dec 12th 2012, 16:29 by R.A. | WASHINGTON
HAIL Mark Carney:
Today, to achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up. Market participants may doubt the willingness of an inflation-targeting central bank to respect this commitment if inflation goes temporarily above target. These doubts reduce the effective stimulus of the commitment and delay the recovery.
To “tie its hands,” a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus.
Recommended economics writing
Link exchange
Dec 11th 2012, 21:59 by M.C.K. | WASHINGTON
TODAY'S recommended economics writing:
• Fed seen pumping up assets to $4 trillion in new buying (Bloomberg)
• Three men arrested in UK Libor inquiry (FT)
• Austria reins in regions after 340 mln-euro gamble (Reuters)
• Watch out for the poor when considering the chained CPI (Matt Yglesias)
• China's banking Weapons of Mass Ponzi problem pops up again (FT Alphaville)
• Americans are moving less than they used to. Don't blame the recession. (NPR Planet Money)
• The Onion's plan for solving the fiscal cliff crisis (The Onion)
The recovery
In search of "natural" velocity
Dec 11th 2012, 17:24 by R.A. | WASHINGTON
I HAD high hopes for the American economy after the Federal Reserve's policy shake-up in September. It looked to me like a shift in framework that signalled increased tolerance for inflation, one that could potentially allow for a shift up in the trajectory of the recovery. Revisions may vindicate this view, but Friday's jobs numbers, for the month of November, show an expansion stuck on course. The economy added 146,000 jobs last month.
Recommended economics writing
Link exchange
Dec 10th 2012, 22:23 by M.C.K. | WASHINGTON
TODAY'S recommended economics writing:
• Mortgage crisis presents a new reckoning to banks (NYT)
• Number of the week: as companies borrow more, where is money going? (WSJ Real Time Economics)
• Homebuilders boom as lending masks uneven U.S. recovery (Bloomberg)
• Goldman's top economist explains the world's most important chart (Business Insider)
• Basel liquidity rule may be watered down amid crisis concerns (Businessweek)
• The robot economy and the new rentier class (FT Alphaville)
Euro crisis spillovers
Reverse contagion
Dec 10th 2012, 17:33 by M.C.K. | WASHINGTON
IN THE old days, banks in the rich world lost money after lending too much to the global South, which then affected their ability to make loans at home and to other poor countries. Now, thanks to the ongoing crisis in the euro zone, we are witnessing a new phenomenon, where banks that lose money in their home markets withdraw from otherwise profitable activities abroad. The latest quarterly review of the Bank of International Settlements (BIS) shows that the turmoil in Europe can be blamed for a significant contraction in cross-border lending to emerging markets since the middle of 2011. The biggest victims are the peoples of Eastern Europe. Call it a case of reverse contagion:
The euro crisis
The political risk
Dec 10th 2012, 16:18 by R.A. | WASHINGTON
JUST over a week ago, I wrote:
But complacency is the enemy, and the crisis remains dangerous. In the first act of the euro crisis, the biggest threat was a financial meltdown due to a spiraling loss of confidence in sovereign bonds and bank solvency. That threat has been greatly diminished, thanks in large part to the actions of the European Central Bank. Beginning with the implementation of the ECB's long-term refinancing operations roughly a year ago, the biggest threat to the euro zone became another nasty feedback loop: that between macroeconomic deterioration and political change.
In this blog, our correspondents consider the fluctuations in the world economy and the policies intended to produce more booms than busts. Adam Smith argued that in a free exchange both parties benefit, and this blog's aim is to encourage a free exchange of views on economic matters.
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