The case for further quantitative easing "goes away" as the U.S. economy improves, Philadelphia Federal Reserve chief Charles Plosser told CNBC Wednesday. read more on CNBC
Keywords: US Economy, Monetary Policy, Quantitative Easing
Menzie Chinn "confronts some views commonly held in certain circles".
Looking at the dramatic debt level in the US, goverment the reduction of government spending has to accelerate much more. What M. Chinn shows in her post seems to be good news. It can only be the beginning of a very long deficit reduction path.
Keywords: US Government Spending, US Deficit
Dr. Steve Horwitz explains the cause and costs of inflation.
Keywords: Monetary Policy, Inflation
Ritholtz points to great analyses of Bloomberg and NY Fed:
Keywords: Household Debt, Deleveraging, Consumer Spending, Capex, Job Growth
Even in areas that have a common currency, economic conditions can vary greatly from one region to another. So a single uniform monetary policy may not be appropriate. For example, a simple monetary policy rule at times recommends different interest rates for different regions of the United States. Among euro-area countries, such a rule typically recommends an even greater divergence in interest rates, partly due to lower labor mobility, and less use of fiscal transfers to help smooth shocks. read more on the SFFed Homepage
Keywords: Monetary Policy, Interest Rate Differences, Labor Mobility
Keywords: BRIC Economies, Emerging Economies
Keywords: Bureaucracy, Centralization, Federalism
Here is an interesting graph from the report. One could expect that the "blue curve" has a lot of upward potential once trust is back in the economy. This not only depends on the US but particularly on potential positive developments in the Euro area. Looking at cash levels hoarded, the rebound potential should be very substantial.
Keywords: US Economy, 2012 Economic Report, US Recovery
Interview with J. Frankel about the heavily discussed issue of economic stimulus during crises and business cycles:
Keywords: Economic Stimulus, GDP Growth
Keywords: Government, Subsidies
"This paper proposes a model of international trade with capital accumulation and financial intermediation. This is achieved by embedding the Melitz (2003) model into an incomplete-markets neoclassical framework with an endogenous credit market. The model preserves the analytical tractability of the original Melitz model despite non-trivial distribution of firms’ net worth and capital stocks. We use the model to examine the differential effects of financial and non-financial shocks on aggregate output and international trade flows. The model predicts that trade volume declines far more sharply and significantly than that of output (with an elasticity larger than 3) under financial shocks than under non-financial shocks. The prediction is consistent with the stylized fact that most countries that experienced major financial crises had significantly larger and sharper contraction in exports than aggregate output (as is also true during the recent financial crisis). In the long run, however, a deeper financial market is a great source of "comparative advantage"— it raises not only the level of aggregate productivity but also the ratio of trade volume to domestic output."
Keywords: Financial Crisis, Output
Cumberland Advisors posted a good article on the current European Crisis and credit spreads. They show that workouts do not have to cause financial collapse but could create new positive forces once executed properly:
"Workouts, however, do not cause total collapse; in fact, they bring out strength. Ask the Scandinavian countries that avoided this financial crisis, having learned from their previous one. Ask Singapore, which has imposed governance standards. If we had Singapore law applied in the US, many in Congress and on Wall Street would be in jail for many years to come.
The biggest threat to financial-market pricing comes from periods of uncertainty, the sequence of ambiguous and conflicting views that alter investor perceptions. Uncertainty is the enemy of market pricing. Once you achieve clarity, markets adjust quickly to the new reality and move on. This will hold true in every city, county, and country. And it will apply to every banking system in the world." Source: Cumberland Advisors
Keywords: Europe, Credit Spreads
Keywords: US, Switzerland, Fiscal Systems
Keywords: Fed, Monetary Policy, Fed Balance Sheet
as shown in a new paper by Gulati (Duke) and Zettelmeyer (EBRD):
Gulati, G. Mitu and Zettelmeyer, Jeromin, Engineering an Orderly Greek Debt Restructuring (January 29, 2012). Available at SSRN: http://ssrn.com/abstract=1993037 or http://dx.doi.org/10.2139/ssrn.1993037
The abstract is here:
"For some months now, discussions over how Greece will restructure its debt have been constrained by the requirement that the deal be “voluntary” – implying that Greece would continue debt service to any creditors that choose retain their old bonds rather than tender them in an exchange offer. In light of Greece’s deep solvency problems and lack of agreement with its creditors so far, the notion of a voluntary debt exchange is increasingly looking like a mirage. In this essay, we describe and compare three alternative approaches that would achieve an orderly restructuring but avoid an outright default: (1) “retrofitting” and using a collective action clause (CAC) that would allow the vast majority of outstanding Greek government bonds to be restructured with the consent of a supermajority of creditors; (2) combining the use of a CAC with an exit exchange, in which consenting bondholders would receive a new English-law bond with standard creditor protections and lower face value; (3) an exit exchange in which a CAC would only be used if participation falls below a specified threshold. All three exchanges are involuntary in the sense that creditors that dissent or hold out are not repaid in full."
Keywords: Greece, Greek Debt Restructuring Scenarios, European Debt Crisis
James Dorn explains why low interest rates over a longer period could distort asset markets. Good article.
"Manipulating interest rates via central bank policy distorts the structure of asset prices and penalizes savers. Low nominal interest rates, even at low rates of inflation, can mean negative real rates. Pension plans are also harmed as promised benefits cannot be fulfilled."
Source: James Dorn
read the article here:
Keywords: Monetary Policy, Interest Rates
C.D. Romer does not think that manufacturing needs special treatment. She would prefer educating more people for jobs in sectors where they are needed or to invest in infrastructure:
Keywords: US Economy, Manufacturing
Inflation in the UK is now more than double that of France, but only one country has had its credit rating downgraded. This column argues that government credit ratings should be aided by a second rating measuring the potential loss of real value, whether by inflation or default. read more on Vox
Keywords: Sovereign Bonds, Credit Ratings, Inflation Risk, Default Risk
We usually don't think of the U.S. as a monetary union, but early in its history it essentially was. Unlike the crisis-wracked euro zone, the dollar zone survived its first few decades without a major crisis, providing the fragile young republic with a period of relative stability during which it began to congeal culturally, economically, politically and militarily. read more on Bloomberg
Keywords: Europe, US, European Crisis, European Monetary Union
The ECB's (in our view intelligently designed) LTRO transaction still did not bring the satisfactory results as December saw a large contraction in the provision of credit to non-financial corporates. The LTRO can only be judged positively once a sustainable rebound of the provision of credit can be observed in the coming months. However, this will also depend a lot on the next steps of EU politicians and whether they are finally able to implement steps which are credible for the real economy and bring back trust into the political institutions. Read more about the LTRO subject in the Telegraph:
Keywords: LTRO Program, Monetary Policy, ECB, European Crisis
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