Economics

September 2012

Keywords: Money, Monetary System, Monetary Policy

Source: Brookings Institution

Keywords: US Income Distribution, US Poverty, US Economy

September 13, 2012

Keywords: Global Economy, European Crisis, Monetary Policy, Fiscal Policy

Mark A. Wynne, Janet Koech, One-Size-Fits-All Monetary Policy: Europe and the U.S., Federal Reserve Bank of Dallas, September 2012

"The ongoing euro-area crisis is seen by many as vindication of skeptics who said that a monetary union encompassing a disparate group of countries is doomed to fail because the countries do not constitute what economists call an optimum currency area. Thus, they argued, a one-size-fits-all monetary policy that goes with participation in an alliance such as the European Economic and Monetary Union (EMU) creates strains that ultimately prove insurmountable.

In the eyes of the skeptics, each country is better off setting its own interest rates at levels appropriate for local economic conditions. Such a contention raises the question: How far apart were the interest rates the European Central Bank (ECB) set for the euro area as a whole from those that would have been more appropriate for individual member states given their local economic conditions?" read more in an Economic Letter of the Dallas Fed

Keywords: European Interest Rates, European Monetary Policy, European Policy, ECB, Fed

Daniel L. Thornton, Greenspan’s Conundrum and the Fed’s Ability to Affect Long-Term Yields, St. Louis Fed, Sept. 2012

Abstract:

"In February 2005 Federal Reserve Chairman Alan Greenspan noticed that the 10-year Treasury yields failed to increase despite a 150-basis-point increase in the federal funds rate as a “conundrum.” This paper shows that the connection between the 10-year yield and the federal funds rate was severed in the late 1980s, well in advance of Greenspan’s observation. The paper hypothesize that the change occurred because the Federal Open Market Committee switched from using the federal funds rate as an operating instrument to using it to implement monetary policy and presents evidence from a variety of sources supporting the hypothesis. The analysis has implications for central banks’ interest rate policies."

Keywords: Long-Term Yields, Fed, Federal Funds Rate

JC of Alhambra has some doubts regarding the capabilities of the Fed to control inflation in the future:

Alhambra Partners: Fed Roots For Falling Dollar, I'm Thinking '87, by Joseph Calhoun, Alhambra, Sept. 2012

..."Currency devaluation is the last refuge of economic scoundrels and is most definitely not a policy implemented by countries with healthy economies"... go to Alhambra's blog here

Keywords: US Monetary Policy, Fed

Hayek's reflections on central planning and non-distorted pricing systems are - of course - highly actual in a world where political central planning has contributed to a huge mess (a.o. thinking about Europe) and where more central planning is applied in the belief the problems can be solved this way.

Samuel Bowles, Alan Kirman, Rajiv Sethi, Markets, Information, and Laissez Faire: Hayek Reconsidered, Columbia University, August 16, 2012

"In his celebrated 1945 essay "The Use of Knowledge in Society," Friedrich Hayek confronted both the advocates of central planning and the economic theory on which their arguments were based. The theory, he observed, was decient because it neglected the fact that information essential tothe ecient functioning of the economic system was decentralized, and needed to be aggregated insome fashion. In comparing markets to planning, therefore, it was important to determine \whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional information as they need in order to enable them to fit their plans in with those of others."
To Hayek, the answer was clear:" read the paper on the Columbia homepage

Keywords: Hayek, Central Planning, Non Distorted Prices

2009

Keywords: Economic Development, Technological Improvement

Keywords: US Economy, US Unemployment Rate

probably a kind of surprising fact for many: it seems that US government jobs were heavily reduced during the past 3 years and that the private sector added approx. 4.5 million jobs since beginning 2010. Carpe Diem Blogspot has the facts:

Keywords: US labor market, US Unemployment, US Government Sector Jobs, US Private Sector Jobs

Interestingly enough, interest paid by government is not that dramatic but wealth transfer to individuals is "impressively high":

Keywords: Government Spending, Wealth Transfer

Related:

Keywords: Government Spending, Debt/GDP, Debt Crisis

All the QE talk by parties who would be profiteers could become a selffulfilling prophecy in both US and Europe

housingwire : The self-fulfilling prophecy of the potential QE3, Sept. 4, 2012

Von den Geistern, die Draghi rief, Sept. 6, 2012

Roger Altman, a former deputy Treasury secretary and a co-founder of the investment firm Evercore partners, thinks the U.S. economy could be on the verge of an unexpected boom. Here’s why:

Washington Post: Five reasons the economy may be about to boom, Sept. 4, 2012

1. The housing sector is improving
2. The breathtaking increase in oil and gas production
3. The U.S. banking system has recovered faster than anyone could have imagined
4. The U.S. has made a huge leap in industrial competitiveness
5. The U.S. may surprise itself and the world by rectifying its deficit and debt problems

read more in the Washington Post

Keywords: US Economy, US Productivity, US Energy

Keywords: Uncertainty, Black Swans

found on Slate:

Slate: Brazil's Central Bank Staff Goes On Strike, August 8, 2012

Keywords: Monetary Policy, Inflation

Hausman, Naomi, University Innovation, Local Economic Growth, and Entrepreneurship (June 1, 2012). US Census Bureau Center for Economic Studies Paper No. CES-WP- 12-10. Available at SSRN: http://ssrn.com/abstract=2097842

Abstract:

"Universities, often situated at the center of innovative clusters, are believed to be important drivers of local economic growth. This paper identifies the extent to which U.S. universities stimulate nearby economic activity using the interaction of a national shock to the spread of innovation from universities - the Bayh-Dole Act of 1980 - with pre-determined variation both within a university in academic strengths and across universities in federal research funding. Using longitudinal establishment-level data from the Census, I find that longrun employment and payroll per worker around universities rise particularly rapidly after Bayh-Dole in industries more closely related to local university innovative strengths. The impact of university innovation increases with geographic proximity to the university. Counties surrounding universities that received more pre-Bayh-Dole federal funding - particularly from the Department of Defense and the National Institutes of Health - experienced faster employment growth after the law. Entering establishments - in particular multi-unit firm expansions - over the period from 1977 to 1997 were especially important in generating long-run employment growth, while incumbents experienced modest declines, consistent with creative destruction. Suggestive of their complementarities with universities, large establishments contributed more substantially to the total 20-year growth effect than did small establishments." Source: SSRN

Keywords: Innovation, Creative Destruction

Find here an opinion on FT Alphaville:

FT Alphaville: More good news. Now what? August 15, 2012

...."Payrolls, the trade deficit, the Fed senior loan officer survey, retail sales, homebuilder confidence, and industrial production all came out better for July than had been anticipated. And all the while it increasingly appears that housing has finally bottomed.

Of course there are exceptions, and the unemployment rate remains stuck at 8.3 per cent. But the recent trend has been enough for some analysts and economists to begin suggesting that QE3 may not happen in September."... read more on FT Alphaville

Keywords: US Economy, Monetary Policy, QE3

Related:

Business Insider: Was June Just A Really Terrible Month? by Joe Weisenthal

Keywords: Business Cycles, Austrian Economics

MSN Money: The Fed's inflation 'solution'; If you think you haven't been paying high enough prices, you're in luck. Some Federal Reserve officials agree with you, by Bill Fleckenstein

..."Prominent articles in The Wall Street Journal and The New York Times on Tuesday discussed interviews given Monday by the head of the Federal Reserve Bank of Boston, Eric Rosengren, and they naturally goosed the market while also getting under my skin.

For one, the articles made it painfully obvious that Rosengren is a central planner at heart. If he had his way, he would unleash as much money as it took to force the economy to deliver the lower job and higher inflation rates he wants:".....

..."What is really disturbing about his views -- albeit not surprising, I'm sorry to say -- is that, once again, we see that no lessons have been learned. The Fed is the epicenter of the financial disaster and ruined lives that have become the America of the past decade or so, and yet no one there can see it."... read more on MSN Money

Keywords: Monetary Policy, Inflation