My faves for the day (April 7, 2009)

Tuesday, April 7, 2009

It’s another Fed week!

Tim Duy at Time Duy’s Fed Watch (via Economist’s View) confirms the Fed’s commitment to price stability, but is worried:
Bottom line: The conduct of Fed policy is consistent with a commitment to
the existing inflation target. The increase in the monetary base, in this
framework, was necessary to prevent expectations from shifting in the direction
of deflation. But credibility works both ways; they need to remain ready to
withdraw liquidity should inflation pressures emerge.
And Scott Sumner at TheMoneyIllusion blog is annoyed with the Fed’s tendency to leave their policies unannounced:
So you have one side warning of high inflation if the monetary base remains
at the current high levels, and others saying we won’t get any inflation at all
if the money is pulled out of circulation later. In a sense both sides are
right. So why doesn’t the Fed clearly say that it plans to leave just
enough money in circulation to keep long run price levels 2% or 3% (per year)
higher than current price levels? Isn’t that what the Fed wants?
RW: This is also a nice description of a recent debate among economists regarding the ability of the Fed to create or the possibility create too much inflation (See also Duy’s post earlier in the week)

John Ashkroft at the jka on economics blog notices that the UK manufacturing cycle is comparably bad (this is a great blog, with lots of pretty charts and pictures - I highly recommend it):
UK manufacturing output fell by 13.8% in February compared to prior year, the
largest decline since the manufacturing shut down of 1980/81. Comparing the
cycles, the slow down is clearly surpassing the recession of the 1990’s but is
yet to equal the drastic manufacturing shut down of the 1980’s. It's getting
RW: See what Simon Johnson said about Mandelson being interviewed by Jon Snow.

And the WSJ’s Real Time Economics blog notes the ECB’s insistence that the G-20 IMF aid is helicopter money:
The decision by leaders from the Group of 20 largest economies to boost the
Special Drawing Rights of the International Monetary Fund is like creating
“helicopter money for the globe,” a key member of the European Central Bank
Executive Board was quoted as saying Tuesday.
RW: Of course it is, but this remark just reiterates the ECB’s abhorrence of the inflation monster to a point where it will not ease sufficiently to fight the economic contraction.

This one is all over the blogosphere. Barry Eichengreen and Kevin H. O’Rourke over at VoxEU (via Naked Capitalism) rebuke the fact that the current cycle is less severe than the Great Depression (worth a look for the charts!):

To sum up, globally we are tracking or doing even worse than the Great
Depression, whether the metric is industrial production, exports or equity
valuations. Focusing on the US causes one to minimise this alarming fact. The
“Great Recession” label may turn out to be too optimistic. This is a
Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.

RW: Policy.

This is why Mish Shedlock has 3,416 Google Reader subscribers to his blog, Mish’s Global Economic Trend Analysis: he’s bright and sarcastic, too:
It's earnings season and banks are going to pretend they are making money
(or losing less than they are), and the Treasury does not want to interrupt
those lies with stress test results.
In a trader’s world, this is good news, Tom Petruno at MONEY & CO.:
Today’s sell-off was attributed by some analysts to a further unraveling of
the "fear trade" that briefly helped drive gold above $1,000 in February. In
theory, investors’ growing sense of hope ab
out an economic recovery in the
second half of the year -- as signaled by the stock market’s rebound -- is
reducing the appetite for havens including gold and Treasury securities.
And they’re off. First Western country to declare annual DEFLATION: Switzerland. From the UK Telegraph (hat tip, Reader Steve!):
Watch Switzerland closely. It is tipping into deflation, the first Western
country to succumb to Japan's disease…Swiss consumer prices fell 0.4pc in March
(year-on-year). Swiss CPI will be minus 1pc a
t least by July, nearing the level where
spending psychology changes. By the time you have a self-feeding spiral, it is
too late
RW: Will save commentary about this for perhaps another day. I would like to reiterate how much I enjoyed the discussion today between Mark Thoma and Scott Sumner; a gregarious pair. Thank you for indulging us all. Please see David Beckworth’s blog, Macro and Other Market Musings for a smart analysis.

And FOX presents us with some nice entertainment: The Best TV Jingles Ever

Another brilliant moment by Kerry, from Kerry Hawkins Photography and Design:

Rebecca Wilder


Stevie b. April 8, 2009 at 4:38 PM  

Rebecca - thanks for this useful summary - Mish is increasingly thought-provoking.

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