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e was deflation people had cut back their borrowing people were paying down debt and the fed was worried about deflation i shouldn t have to write another sentence you should know what i m thinking paying down debt is a way to keep prices from going up policymakers don t have to raise interest rates and choke off growth to fight inflation we just need policies that encourage people to pay down debt rather than accumulating it we can fight inflation by paying down debt everybody and his relentlessly unimaginative brother is focused on interest rates we argue always about how soon to raise rates and how much to raise them but no one ever considers just turning away from interest rate policy rates must go up or they must not we say and say not another word about it relentlessly unimaginative we cannot solve our economic problems by choosing between raising and not raising interest rates we have squeezed the life out of our economy we have raised rates to reduce inflation and lowered rates to get growth then raised again and lowered again and repeated this insanity until until no gap remains between too little growth and too much inflation we squeezed the gap to nothing then squeezed some more and now we try to have inflation and we still don t get adequate growth using interest rates to manage the economy is no longer an acceptable strategy we can no longer rely on this ready made solution we need a different way to fight inflation one that can become the new standard solution to this economic problem i need you to understand the significance of what i m saying i want us to stop doing a thing that everyone thinks is the only way to fight inflation i want to fight inflation a different way i want to change the world posted by the arthurian at 4 00 am 1 comments friday july 15 2016 the promise of vigor not investment advice policy advice in march i wrote we are at the bottom now ready to go up the way to read the debt per dollar ratio is that when the downtrend ends and the uptrend begins the economy for a while is very very good i think the economy is going to be very good pretty soon we re right there right now dpd is ready to go up right now this is not going to be your typical anemic recovery this is going to be the full tilt rapid output growth rapid productivity growth high performance boom i can t promise you it ll last long because the level of debt is already very high but it ll be a good one while it lasts in april i wrote i predict a boom of golden age vigor beginning in 2016 and lasting eight to ten years it has already begun in two years everyone will be predicting it tom hickey observed art goes out on the limb how s things it is now july marcus nunes on the 14th of this month quoted the wall street journal of the same date could the cause of the next u s recession be too much growth that is one risk of an unprecedented environment in which investors are betting heavily on a perpetually weak economic expansion if markets are wrong and the economy surges instead of sputters the bad bets could roil the financial system some economists are increasingly warning ironically one can think of a scenario where a stronger than expected expansion leads to financial trouble which in turn puts into question the expansion itself said former international monetary fund chief economist olivier blanchard mr blanchard is the latest prominent economist to warn that a surprise upturn in growth may force the federal reserve to raise rates faster than investors expect it looks like olivier blanchard is the latest prominent economist to follow me out on the limb but i can t figure out what blanchard sees to make him expect an upturn in growth all i get from the wsj article is hokum the imf s former top economic counselor blanchard said in an interview even before last friday s job numbers the american economy was looking strong wage inflation data suggests the unemployment rate at 4 9 in june is running at near full capacity or the natural rate and growth is slightly higher than the long run ability of the economy to expand he argued all i get from the wsj article is that the economy is looking strong because rising wages suggest the economy is near full capacity our economy is pushing the limits of growth they say and we need to do something about it we need to raise interest rates near full capacity rgdp growth can t see five percent capacity utilization is down to 75 unemployment is low only because the numbers have been doctored to claim that we are pushing the limits of growth is to show that you are out of touch with the economy i m being polite olivier oh and then this if employment wages and inflation rise at a speedier clip than many investors currently forecast it could cause an economic hiccup well hiccup is cute but that remark is class war stuff which reminds me of the archaic definition of the word investment the surrounding of a place by a hostile force in order to besiege or blockade it i m not sure why blanchard expects to see improved economic growth myself i called vigor because financial costs are down graph 4 the fall and rise of household debt service payments financial costs have fallen from 13 to 10 of disposable personal income and now consumers have 3 of dpi to play with look at the extreme right end of the blue line on the graph the line is starting to go up again already that s an unmistakable sign of growth what s more the big downtrend highlighted in red is at least twice the size of the early 1990s downtrend and that one is what made the good years of the latter 1990s possible you remember those good years right do you remember allan greenspan talking about anecdotal evidence here s izabella kaminska at the time the data didn t seem to fit the prevailing reality the incredible and seemingly unstoppable growth greenspan was seeing on the ground was at odds with his economic models which instead were signalling an imminent rebalancing on the back of wage pressures and implied inflation greenspan held off on raising rates because of anecdotal evidence and it paid off we must consider doing something like that again household debt service is now at a low point and ready to go up just like in the 1990s one can see the sharp fall to a bottom the beginning of an upturn and the promise of vigor over and over in the data total public and private debt per circulating dollar nonfederal debt to circulating money total debt to base money private non financial debt to base money and to federal debt and in the one you really need to consider private debt relative to public debt the promise of vigor is everywhere if you look dealing with inflation all the asset inflation we got for the past eight years that was okay i guess but at the slightest hint that wages are going up blanchard wants to bring the hammer down blanchard is right though sooner or later we ll have to do something about inflation the trouble is it makes no sense to wait eight years for stronger economic growth and then raise interest rates to prevent that stronger growth from happening blanchard says we cannot wait when the brexit smoke clears if as i expect it clears then the fed should tighten said mr blanchard and given that it takes roughly a year for interest rates to have a substantial effect on the economy that means the fed can t wait too long to raise the cost of borrowing to temper inflation smoke clears quickly blanchard wants to raise rates soon it s nice that he and i agree on brexit the panic was uncalled for but you can see blanchard is just itching to raise rates he wants to raise rates to constrain growth even before there is inflation a year before there is inflation the wsj suggests therefore i must say to mr blanchard the same that i said to mr summers we need interest rates low to get economic growth so that we can raise interest rates and undermine that growth this is your plan for the economy that s what we do all the time i know that doesn t mean it makes sense and if you stop to think about it you ll see it doesn t make sense but you might have to think about it and you definitely have to stop what i m saying is that some of the fundamental thinking that underlies economic policy is wrong it has become wrong it used to be right but it isn t right any more because the economy is different now what i m saying is that we have to find a new and better way to fight inflation we can no longer rely on ready made solutions that we implement without a thought we have to develop new solutions that we will one day implement without a thought what i m saying is that we have to stop using interest rates to fight inflation we have to fight inflation a different way remember back when the crisis was news one of the things they worried about at the federal reserve was deflation people had cut back their borrowing people were paying down debt so the federal reserve was worried about deflation i shouldn t have to write another sentence you should know what i m thinking paying down debt is a way to fight inflation policymakers don t have to raise interest rates and choke off growth to fight inflation we just need policies that encourage people to pay down debt rather than accumulating it we can fight inflation by paying down debt we can keep interest rates low to encourage growth and pay down debt to fight inflation we can put it in the tax code it could be punitive but it ought not be and if we are willing to create those new policies we can have a permanently low accumulated debt we can find ourselves at a good place on the debt per dollar curve and at a good place on the private debt to public debt curve and all the other curves and then we can achieve the permanent quasi boom posted by the arthurian at 7 20 am 5 comments thursday july 14 2016 boe broad and narrow money fred has been busy fred has added 127 series from the three centuries of macroeconomic data research project published by the bank of england these data cover national accounts and other financial and macroeconomic data in the united kingdom going back to the late 17th century going back to the late 17th century this i love a first look graph 1 broad money blue and narrow money red mostly invisible before the 1970s and pretty much like the us narrow money starts going up like crazy just as broad money starts to fall here is the ratio graph 2 the ratio of broad to narrow quite a hump there beginning around 1960 the ratio runs close to five to one for 80 years suddenly starts going up around 1960 suddenly runs into trouble around 1990 and suddenly starts to drop around 2006 remarkably when it falls it falls right back to where it was for the 80 years before 1960 i wish we could say everything is back to normal now but that s probably just what the boe was thinking when they decided to slow the growth of narrow money it s probably why they picked the five to one level to normalize narrow money growth i wonder how the graph looks if we chop off the big increase and look at what s left graph 3 the ratio of broad to narrow before 1970 at the start zeroes before 1880 at the end tight to the 5 line from the end of 1955 to the end of 1961 then suddenly starts the increase that we saw on graph 2 other than that a high point in 1889 and a low in 1896 a sudden drop in 1914 an increase beginning in 1925 with peaks in 1932 and 1936 and a low point in q1 1946 the highest point occurs in the 1930s where the ratio almost reaches 6 to 1 in 2006 it was more than 32 to 1 posted by the arthurian at 4 00 am 0 comments wednesday july 13 2016 a thing we knew in 62 if you want to get productivity up shoot for full employment hold the presses the posts i have scheduled for wednesday and thursday have to get pushed back 24 hours to make room for this there is a pdf floating around used to be at the cowles foundation at yale but it s not there now got it seven pages potential gnp its measurement and significance by arthur okun first published in 1962 it is the original source of okun s law i love these old studies from back when econ hadn t yet gone bad anyway okun has something on page six something about productivity something too important to get lost in the bitstream okun writes the record clearly shows that manhour productivity is depressed by low levels of utilization and that periods of movement toward full employment yield considerably above average productivity gains if you want to get productivity up shoot for full employment posted by the arthurian at 4 00 am 1 comments tuesday july 12 2016 splashing on populism like aftershave at the financial times voters deserve responsible nationalism not reflex globalism by larry summers the subtitle s a tingler agreements should be judged not by how many barriers are torn down but whether people are empowered larry summers splashing on populism like aftershave the opening gambit it is clear after the brexit vote and donald trump s victory in the republican presidential primaries that voters are revolting against the relatively open economic policies that have been the norm in the us and britain since the second world war relatively open compared to what it s not slightly open or reasonable open policies that people find objectionable trade policies after the second world war were reasonable and somewhat open that is no longer the case what we have now is forced open policy policy to delight the global megacorporation policy to submerge national sovereignty in a flood of claims that expanding free trade will improve the economy whose economy the global megacorporation posted by the arthurian at 4 00 am 0 comments monday july 11 2016 mimesis is the sincerest form of flattery excerpts from d c somervell s two volume abridgement of arnold j toynbee s a study of history in a growing civilization a challenge meets with a successful response which proceeds to generate another and a different challenge which meets with another successful response there is no term to this process of growth unless and until a challenge arises which the civilization in question fails to meet a tragic event which means a cessation of growth and what we have called a breakdown in our civilization the challenge we fail to meet is well one of them was the great depression before the great depression the long depression more recently the so called great recession a repeating almost rhythmical economic challenge toynbee continues here the correlative rhythm begins the challenge has not been met but it nonetheless continues to present itself a second convulsive effort is made to meet it and if this succeeds growth will of course be resumed the great depressions of the capitalist era are the rhythmical challenge which we have failed to meet rather than dealing with the monetary imbalances arising from extreme inequality the dominant minority attempts to solve the problem by imposing globalization on the world this solution fails the nature of the breakdown can be summed up in three...
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