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he macroeconomic stability purpose mmm i don t like this basel is bis the bank for international settlements it s a friend of the bank sort of thing but why would we trust bankers to solve this problem did we learn nothing from the crisis look what bankers want to do they want to protect banks net worth and foster its accumulation i would rather solve the problem by having governments provide more money and have each dollar of that money turned into fewer dollars of credit than is the case today i want to reduce the reliance on credit and increase reliance on the dollar i want to reduce the demand for credit and in so doing reduce the demand for a financial sector if we do this then boosting banks net worth might help solve the problem if we do not then boosting banks net worth only hastens the day when banks own everything and we are no longer fremen but coloni and slaves posted by the arthurian at 4 00 am 1 comments saturday august 16 2014 oh this is precious i was looking for goldilocks economy dated 22 november 2007 from lawrence kudlow at real clear politics november 22 2007 three more years of goldilocks by lawrence kudlow there was some revealing information in the three year forecast published by the federal reserve this week it looks like ben bernanke co are dissing high oil and gold prices and the sagging dollar as influences on future inflation instead they basically see 2 percent inflation both headline and core in 2008 2009 and 2010 the fed also sees goldilocks type economic growth not too hot not too cold for the next three years for 2008 an election year the fed is looking at 2 1 percent growth their lowest estimate this rises to 2 5 percent in 2009 and 2010 so how did the fed s gdp growth prediction work out one out of three but it gets better kudlow offers his own predictions and analysis i think the election year economy will be stronger than the fed s estimate closer to 3 percent too much is being made of both the sub prime credit problem and the housing downturn a recent bank of england study shows that residential mortgage backed securities in the u s total 5 8 trillion of that only 700 billion or 12 percent are sub prime even when you add in 600 billion of so called alt a mortgage paper most of which will not default the total of these home loans is still less than 20 percent of all mortgage backed paper what s more the entire market in sub prime debt is just 1 4 percent of the global equity markets on any given day a 1 4 percent drop in world stocks would erase the same amount of value as the collective markdown of all sub prime backed bonds to 0 it s just not that big a deal it s just not that big a deal kudlow says you never know posted by the arthurian at 4 00 am 3 comments friday august 15 2014 because people don t spend money at night yesterday i wrote that s a favor policymakers did for banks not counting the sweeps but it makes m1sl an unrealistic number i don t like to say anything so unequivocal without backing it up unless i ve already backed it up several times see i can t even be unequivocal about that sweeps jim said the way i understand it in 1994 the banks were allowed to change the way they figured the data that goes into computing m1 banks were allowed to shift the money from accounts that were less active from checking to savings for reporting purposes doing this lowered their reserve requirements lowering their reserve requirements is the favor that policymakers did for banks as for making m1sl an unrealistic number i turn to the link jim provided sweep programs sweep programs create distortions between reported data on the monetary aggregates and accurate measures of the money stock i would love to quote that whole page it is so good but the whole thing is only three paragraphs so taking one sentence is taking a lot they also provide this reference cynamon barry z donald h dutkowsky and barry e jones redefining the monetary aggregates a clean sweep eastern economic journal 2006 vol 32 issue 4 pages 661 673 barry cynamon s name is one i recognize the site is sweep adjusted monetary aggregates for the united states and i for one don t go there often enough posted by the arthurian at 4 00 am 4 comments thursday august 14 2014 that s what made the economy good in those years interest rates you know rates worked their way uphill from the late 1940s to 1981 and have tended downhill since graph 1 interest rates trended upward from the late 1940s to about 1981 and downward since here s a bit from my second look post take a look at the rate of debt growth since the 1950s graph 2 percent change in the non federal portion of tcmdo blue if i did it right the red line is a hodrick prescott trend of the debt data the first thing that happened after the early 1980s was a slowdown in debt growth a slowdown beginning in the mid 1980s immediately after the early 1980s there was a major downtrend in the growth of debt but by the late 1990s the growth rate of debt was back to normal back to 10 annual give or take back where it was before the neoliberals took over back where it was in the keynesian years what s different is that in the keynesian years excessive debt growth led to inflation in the neoliberal years excessive debt growth led to unemployment that s the main difference the problem is the excessive debt growth the excessive reliance on credit the excessive cost of circulating money it s a cost push problem key concept the excessive cost of circulating money even though interest rates have been declining since 1981 the source of troubles in our economy is the excessive cost of circulating money the cost of interest no not only the cost of interest but also the level of debt if you want to borrow a dollar the cost depends on the rate of interest but at any effective rate of interest the cost of existing debt depends on how much debt exists and we we have lots and lots of debt and that has made all the difference i want to look at the cost of circulating money total cost of interest in the economy divided by the number of dollars of spending money graph 3 interest paid per dollar of m1 money see how it s low there at the start less than 0 5 it is the 0 5 means 0 50 it means 50 cents of interest paid for every dollar of spending money in the u s a the cost of circulating money in 1960 was just about 33 cents for every dollar in circulation that was low it s been up in the neighborhood of 2 on average since 1980 two dollars of interest paid for every dollar we have just to be clear on that every dollar we have refers to the money we have that we expect to spend not the money we have in savings the money we have in savings is the recipient of that interest of course oh and since there is far more money in savings than what we have for spending the interest paid is far less than 2 per dollar in savings you can look at this in terms of income inequality if you like to see who s paying what to whom there is a problem with graph 3 it uses m1sl for the money measure it doesn t count sweeps that s a favor policymakers did for banks not counting the sweeps but it makes m1sl an unrealistic number the more realistic number is m1adj which does count sweeps m1adj is bigger than m1sl so the ratio is lower as graph 4 shows graph 4 interest paid per dollar of m1 money adjusted for sweeps now there is a general downward trend from the early 1980s not sharply down but down but here s what i want you to see the latter 1990s the best years since the 1960s the macroeconomic miracle years on graph 4 the sustained high in the mid to late 1990s is lower than the sustained high of the 1980s and lower than the brief high of the 2000s the cost of money not the rate of interest but the cost of interest per dollar of spending money was lower during the boom years of the 1990s we were paying less to have money to spend in the 1990s so we could spend more on the things we wanted spending money for that s what made the economy good in those years that s what made it a boom posted by the arthurian at 4 00 am 8 comments wednesday august 13 2014 farther back in time ed lambert recently showed this graph at angry bear graph 1 ed lambert s graph goes back to the late 1960s i still don t have a feel for what this graph shows but i notice that the calculation uses capacity utilization i can use the version of cap ut that goes back to 1948 to show more years for lambert s graph it won t be exactly the same because i ll be using cap ut for manufacturing not for total industry but it ll be close graph 2 same calculation different capacity utilization earlier start date the last couple lows on lambert s graph 1 hug the zero line on 2 those lows are a little higher that s because u s manufacturing is dropping off relative to total industry it s a different capacity utilization that s okay at angry bear lambert writes the ut index wants to stay above 0 firms in the aggregate do not increase profits when slack goes negative because firms will pay the increased cost of employing more labor and capital instead of consumers paying that cost as i said i don t have a feel for this calculation but the graph that goes back to 1948 shows lambert s ut index going below 0 a little bit in the 1950s and more in the 1960s the absolute lowest low on the graph occurs in the first quarter of 1966 according to steve keen minsky said 1966 was the end of the golden age economy lambert says things are better for consumers when the line is low like that those things fit together posted by the arthurian at 4 17 am 1 comments tuesday august 12 2014 when you re trying to find something it helps if you actually look the other day i showed capacity utilization for the 1950s from the economic report of the president 1962 i was surprised to find the graph and thought i might try to find something on the missing years of the 1960s gene hayward found some data going back to 1962 which filled the missing years nicely i checked the source link gene provided and found an excel download for the data he found perfect gene sort of inspired me to go back to fred and rummage around there for more data and wouldn t you know it there is a measure of capacity utilization for manufacturing that goes back to 1948 i put it on a graph with the one that only goes back to 1967 and i thought it was a good match then for comparison i added the one for total industry that was a bit off from the manufacturing series but not far off i want to compare capacity utilization and real growth so i put the two series on a graph and adjusted them by eye multiplied the rgdp growth values by 1 75 to get its up and down variation size comparable to capacity utilization and subtracted 75 from the capacity utilization values to move that data down near to the rgdp data if i see anything interesting i can always redo the comparison using a christensen fit meanwhile here s the guestimated version posted by the arthurian at 6 26 am 1 comments monday august 11 2014 their sevens are funny browsing real interest rates found something at quandl i doctored the graph to show the url title and description plus i eyeballed the black trend line and added the red circle the red ellipse click the graph to enlarge it or click this text to visit the source what i noticed sevens aside was that during the macroeconomic miracle years of the latter 1990s real rates reached and sustained a high relative to trend posted by the arthurian at 4 00 am 0 comments sunday august 10 2014 here we go loopty loo the following post was mostly written back in april but not finished till now a look at loops this will be another of those continuing investigations like my recurring look at the hodrick prescott calculation and my recurring look at the christensen fit calculation this time we begin with interpreting deviations from okun s law by mary c daly john fernald òscar jordà and fernanda nechio i looked at it briefly last april let me open by presenting the significance of the loops that appear on their graph as daly fernald jordà and nechio see it figure 1 shows the relation between gdp growth per person and the change in the unemployment rate the gray squares show all of the points using current data as of december 2013 the solid black line reflects the average figure 1 real time and revised loops in okun s relationship using current data the solid blue line traces the path of per capita output growth and changes in the unemployment rate from the fourth quarter of 2007 through the third quarter of 2013 as the arrows show over time these changes result in a clear counterclockwise loop that is when the unemployment rate was rising gdp growth was lower than the average relationship would have predicted when the unemployment rate was falling gdp growth was above the average this path for okun s law is an enduring feature of the u s business cycle whether we analyze okun s law with real time or revised data countercyclical loops tracing the relationship over time are a common feature these loops reveal an underlying characteristic of the u s business cycle changes in employment and likewise unemployment lag behind changes in gdp changes in employment lag behind changes in gdp this is an enduring feature of the u s business cycle that just strikes me as massively important best of all their analysis arises directly from the data from their graph their solid blue line makes a clear counterclockwise loop it shows gdp growth less than okun s law predicts in the recession phase of the cycle and more than okun s law predicts in the growth phase this pattern of offsets from the average also shows up in other business cycles it is an enduring feature of the business cycle the authors write the article is an examination of the validity of okun s law but for me it is an example that clarifies the significance of the loops that appear on many graphs not just graphs of okun s law in the article they do something i never did they put little arrows on the graph to indicate the path of the loop over time without the arrows the loop could be clockwise turns out it s counterclockwise knowing that they can say things like when the unemployment rate was falling gdp growth was above the average that s useful information the article provides a pretty good description of the data they used for their graph i want to see if i can duplicate their graph not today but pretty soon and if i can duplicate it then i want to see if i can duplicate their results i want to go through the motions and see if it all makes sense to me after it makes good sense after i m comfortable thinking in terms of these loops i want to use their method to examine things other than gdp and employment those are both outcome goals we want growing gdp and rising employment i want to compare outputs to inputs specifically i want to compare the output goal gdp to input like debt levels it would be interesting to confirm that gdp grows above average when debt is relatively low but i...
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