Keywords: US Government Revenue, Growth of US Government Revenue
June 7, 2011
Keywords: US Economy, Economic Recovery, Fed, Monetary Policy
What effect do interest-rate changes have on economic growth? Most studies suggest that the answer is “not much”. This column points out that a lot of these studies use US data from the early 1980s when monetary policy was under the “Volcker experiment”. When this episode is excluded, this column finds that the implied contribution of policy shocks to historical US business cycle fluctuations is much larger than found in much of the literature. read more on Vox
Keywords: US Monetary Policy, US Economic Growth
A must watch!
Nov. 2010, Cato Institute
Keywords: Carmen Reinhart, Public Debt, Private Debt, Monetary Policy
Larry Summers, which is interviewed here, thinks that the recovery will continue, even though the economy is a bit "softer".
Airtime: Mon 06 Jun 11 | 12:12 PM ET
Keywords: US Economy, Monetary Policy, Larry Summers
Find here an ECB paper about the improvement potential in fiscal data revision in the EU area:
"Public deficit figures are subject to revisions, as most macroeconomic aggregates are. Nevertheless, in the case of Europe, the latter could be particularly worrisome given the role of fiscal data in the functioning of EU’s multilateral surveillance rules. Adherence to such rules is judged upon initial releases of data, in the framework of the so-called Excessive Deficit Procedure (EDP) Notifications. In addition, the lack of reliability of fiscal data may hinder the credibility of fiscal consolidation plans. In this paper we document the empirical properties of revisions to annual government deficit figures in Europe by exploiting the information contained in a pool of real-time vintages of data pertaining to fifteen EU countries over the period 1995-2008. We build up such real-time dataset from official publications. Our main findings are as follows: (i) preliminary deficit data releases are biased and non-efficient predictors of subsequent releases, with later vintages of data tending to show larger deficits on average; (ii) such systematic bias in deficit revisions is a general feature of the sample, and cannot solely be attributed to the behavior of a small number of countries, even though the Greek case is clearly an outlier; (iii) methodological improvements and clarifications stemming from Eurostat’s decisions that may lead to data revisions explain a significant share of the bias, providing some evidence of window dressing on the side of individual countries; (iv) expected real GDP growth, political cycles and the strength of fiscal rules also contribute to explain revision patterns; (v) nevertheless, if the systematic bias is excluded, revisions can be considered rational after two years."
Keywords: Data Revisions, Fiscal Statistics, Rationality
Adam D. Thierer, of George Mason University's Mercatus Center delivers good "food for thought" with his working paper on Internet optimism and how to save the net from its detractors. The paper can also be downloaded from the Social Science Research Networ: Thierer, Adam D., The Case for Internet Optimism, Part 1 - Saving the Net from its Detractors: (December 1, 2010). THE NEXT DIGITAL DECADE: ESSAYS ON THE FUTURE OF THE INTERNET, p. 57, B. Szoka & A. Marcus, TechFreedom, 2010. Available at SSRN: http://ssrn.com/abstract=1751044
Keywords: Internet, Internet Liberalism
Keywords: US Economy, Great Stagnation
Greece’s ballooning public debt is again throwing Europe’s financial markets into turmoil. But why should a debt default by the government of a small, peripheral economy – one which accounts for less than 3% of eurozone GDP – be so significant?
The answer is simple: the financial system’s entire regulatory framework was built on the assumption that government debt is risk-free. Any sovereign default in Europe would shatter this cornerstone of financial regulation, and thus would have profound consequences. read more
Keywords: European Crisis, Greek Crisis
UC San Diego's James Hamilton explains why there are many things to worry about but not the end of QE2: read more on Econbrowser
Keywords: US Economy, Monetary Policy, Quantitative Easing, QE2, End of QE2
Barry Ritholtz had such a great column in the June 5, 2011 Washington Post
that we redistribute here the full text. We did not have the occasion to ask The Washington Post or Barry Ritholtz whether we are allowed to do this. They should tell us to remove it if they do not like it. But the column is just too good not to be posted.
After a recession, the least rational rise (temporarily) to prominence. Ignore them
by Barry Ritholtz, The Washington Post, June 5, 2011
"If you are reading this, the previously scheduled end of the world did not occur. Perhaps the date was wrong — next Saturday night? 1994? October?
Despite millennia of Armageddon forecasts, betting on the end of the world has always been a money-losing wager. Given this oh-fer batting record of 0.000 percent, one wonders why people still regularly make this forecast. Wall Street fund strategists, religious zealots and economists seem strangely drawn to it. Never mind that if it were ever a winning trade, no one would be left for you to collect from. (That is called counterparty risk.)
You humans are a hardy breed. No matter how dire the circumstance, your species has managed to prosper.
You survived the Ice Age, the Dark Ages, the Middle Ages, the Age of Aquarius (as well as Disco and Polyester). Mother Nature has thrown floods, earthquakes, droughts, plagues, pandemics, tornadoes, asteroids, tsunamis, hurricanes, melting glaciers and global warming at you. Not to mention world wars and nuclear proliferation.
Economically, you’ve withstood the Panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1884, 1890, 1893, 1896, 1907, 1929, 1933, 1938, 1973, 1987, 1998, 2000, and 2007-09 — and that is just over the past two centuries. You also saw through the Tulip Bubble, the South Sea Bubble, the Great Depression and the Great Recession, the Nifty-Fifty, the Asian Contagion, the Dot-com Bubble, the subprime fiasco and Bernie Madoff.
What is it going to take to kill this species off — or at least to bankrupt it?
Given this long and storied history of survival, why does anyone pay attention to the dang fools predicting the end of the world?
It turns out there is a very good explanation: the recency effect — the unfortunate tendency to greatly overemphasize our most recent experiences. Our memories of recent events is more vivid than those of older events and can even trump the here and now.
In other words, we tend to concentrate most on what we can see in the rear-view mirror and not what we are looking at through the windshield.
This has enormous consequences for investors. It helps to explain why you buy so much stock at market tops and sell most heavily at panic bottoms. You are looking at the past few days or weeks, versus the bigger, long-term picture.
How does this manifest itself in the world of investing? Traders have a tendency to describe themselves as bullish after they buy stocks. They also are more likely to describe themselves as bearish after they sell them. What happened recently is used as part of a broader self-rationalization process. And it is how you justify your own actions.
The recency effect also helps explain the rise of the cranks, who have enjoyed undeserved credibility in the aftermath of the recession. These are the people who, after a tremendous collapse, only see doom and gloom.
l Crisis rock stars: The collapse made their reputations, and they are reluctant to go back to a more normal footing.
l Hyper-inflationistas, who are convinced we are returning to the days of the Weimar Republic.
l Gold bugs: The yellow metal may have underperformed equities for four decades, but it is their excuse for missing a 100 percent market gain over two years.
l Conspiracy theorists: From Birthers to Truthers to all manner of blithering idiots, these folks would be totally ignored during normal times.
l Austerians: The people who believe the only way forward is through painful spending cuts.
l Thinly veiled partisans who opportunistically grab the crisis as proof the other guy is unfit to govern.
l Analysts trying to turn one good call into a new business model.
l One-sided Web sites that never see anything positive; their URLs tend to have “Doom” or “Collapse” in their titles.
It is no coincidence that negative predictions increase after major recessions or market collapses. They are predicting what just occurred, not what is likely to happen.
And they are not making their followers money.
Listening to their advice, their readership missed the greatest market rally in four generations. They piled into commodities in time for a major collapse; they got frightened out of municipal bonds that have no credit issue or default threat. They have otherwise missed opportunities and lost capital.
I have never been a perma-bull — not only because it is money-losing to be one-sided but also because throughout most of my career, equities have been somewhat overpriced.
This is not a suggestion to abandon risk management and make blindly optimistic bets. Indeed, market risk is now higher than it has been during any time since the rally began in March 2009.
In our tactical accounts, we are carrying only a 50 percent long position, with 30 percent cash and 20 percent short. That is a rather defensive posture. But it is based on data and expectations that we are overdue for a major correction — and not the end of the world."
Ritholtz is chief executive of FusionIQ, a quantitative research firm. He runs a finance blog, The Big Picture.
Europe is in constitutional crisis. No one seems to have the power to impose a sensible resolution of its peripheral countries’ debt crisis. Instead of restructuring the manifestly unsustainable debt burdens of Portugal, Ireland, and Greece (the PIGs), politicians and policymakers are pushing for ever-larger bailout packages with ever-less realistic austerity conditions. Unfortunately, they are not just “kicking the can down the road,” but pushing a snowball down a mountain. read more
Keywords: European Crisis, Decision Making Power in the EU
The Stanford Center for the Study of Poverty and Inequality has just published a comprehensive data set about following facts:
wage inequality, CEO pay, homelessness, education wage premium, gender pay gaps, occupational sex segregation, racial gaps in education, racial discrimination, child poverty, residential segregation, health insurance, inter and intragenerational income mobility, bad jobs, discouraged workers, wealth inequality, labor market deregulation, job losses, immigrants and inequality and productivity and real income
This is definitely an interesting resource to look at! Debate will follow on the web!
Keywords: US Population, Poverty, Inequality
Following website presents the results of a simulation conducted by students at ESCP Europe Business School. The aim was to uncover the amount of interlinked debt between Portugal, Ireland, Italy, Greece, Spain, Britain, France, and Germany; and then see what would happen if they attempted to cross cancel obligations.
The results were astounding:
This is a creative technocratical exercise and unveils some more information on the inter-connectivity of EU countries. It would be difficult to figure out how private banking institutions could be treated in such a "full consolidation exercise".
Keywords: European Crisis, EU Sovereign Debt, Inter-Connectivity of EU Countries
Immigration, currently a heavily debated subject in many countries. Thus, it might be worth to listen to this 1 hour IEA 2010 lecture by Gary S. Becker. This great thinker demonstrates once more that policians dealing with the subject might be well advised to broaden their minds:
2010 IEA Annual Hayek Memorial Leccture
Keywords: Gary S. Becker, Immigration
The German magazine "Der Spiegel" reports today that the Greek bail out could cost an additional Euro 100 billion until the end of 2014. According to Spiegel, experts of the German Finance ministry, the European Central Bank and the IMF regard this a possible scenario. Until as recently as 24 hours ago it was expected that the bailout would be at most Euro 80 billion, with half coming from Greek privatization efforts.
If true, wouldn't an immediate debt restructuring and an end of the "horror" a much more intelligent way?
Keywords: Greek Crisis, Greek Bail Out
Swiss citizens slowly start to learn what their additional IMF money is needed for...
"Ex ante predicted outcomes should be interpreted as counterfactuals (potential histories), with errors as the spread between outcomes. But error rates have error rates. We reapply measurements of uncertainty about the estimation errors of the estimation errors of an estimation treated as branching counterfactuals. Such recursions of epistemic uncertainty have markedly different distributial properties from conventional sampling error, and lead to fatter tails in the projections than in past realizations. Counterfactuals of error rates always lead to fat tails, regardless of the probability distribution used. A mere .01% branching error rate about the STD (itself an error rate), and .01% branching error rate about that error rate, etc. (recursing all the way) results in explosive (and infinite) moments higher than 1. Missing any degree of regress leads to the underestimation of small probabilities and concave payoffs (a standard example of which is Fukushima). The paper states the conditions under which higher order rates of uncertainty (expressed in spreads of counterfactuals) alters the shapes the of final distribution and shows which a priori beliefs about conterfactuals are needed to accept the reliability of conventional probabilistic methods (thin tails or mildly fat tails)."
Keywords: Nassim Taleb, Long Tails, Uncertainty, Rare Events
Ron Paul wants to look at the entire budget, also the military industrial complex, the military empire:
Keywords: US Public Debt, US Debt Ceiling, Raising Debt Ceiling
Gauti Eggertsson makes a good comparison of the economic situation in 1937, where a tightening monetary policy was implemented after the Roosevelt area and the situation today:
Keywords: Monetary Policy, Inflation, Production Growth
Keywords: US Economy, Job Growth, Unemployment
Recommended search items and names(click on terms):
BIS Quarterly Review, Case Shiller Index, IFO Outlook, Institute for Supply Management, Michigan Consumer Sentiment Index, Philadelphia Fed Regional Index,
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George A. Akerlof, Bernanke, Olivier Blanchard, Alan S. Blinder, Buffett, Tyler Cowen, Niall Ferguson, Bruno S. Frey, Milton Friedman, Herb Greenberg, Greenspan, Michael Jensen, L.S. Karp, Charles Kindleberger, Krugman, Gregory Mankiw, Robert C. Merton, Nouriel Roubini, Kenneth Rogoff, Carmen Reinhart, David Rubenstein, Schumpeter, Anna Schwartz, Amartya Sen, Robert J. Shiller, Jeremy Siegel, Hans-Werner Sinn, George Soros, Joseph Stiglitz, Paul Volcker, Martin Wolf, Janet Yellen, Luigi Zingales, _________________________________________________________________________________ ________________________________________________________________________________________________________ _________________________________________________________________________________
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