Results 101–138 of 138 found.
The Effectiveness of QE2 Depends on Quantities, Not Interest Rates or Exchange Rates
The level of U.S Treasury security interest rates or the level of the U.S. dollar foreign-exchange rate are not the correct way to think about the prospective effectiveness of QE2. What transpires with respect to commercial bank credit will determine the effectiveness of QE2 in increasing aggregate demand for U.S. goods and services.
The Real Economic Cost of Government Is Spending - So, What Do You Want to Cut?
Because the private sector generally uses productive resources more efficiently than the government does due to competitive pressures, the economy's long-run potential real economic growth rate is hurt by increases in federal spending. The largest projected increase in spending by an order of magnitude over the next decade is for entitlement programs - Social Security, Medicare and Medicaid. Millions of baby boomers will become eligible for Social Security and Medicare benefits over the next 10 years. Northern Trust also discusses home sales, employment and leading economic indicators.
Michael Boskin?s Summer of Economic History Amnesia
Michael Boskin, former chairman of the President?s Council of Economic Advisers under George H.W. Bush, argues in a recent editorial for the Wall Street Journal that the current economic recovery is so feeble because of economic policies pursued by the current presidential administration. There is another reason for the relative weakness in the first year of this current recovery, however: the unprecedented contraction in nominal and real bank credit in the post-WWII era.
I Renounce Monetarism (with apologies to Mr. Lippman of Pendant Publishing)
Monetarists such as Milton Friedman hold that the M2 money supply is a leading indicator of aggregate demand. Indeed, from 1960 through 1989, the price-adjusted M2 money supply had a relatively high correlation with real aggregate demand for goods and services. As charts presented in this commentary illustrate, however, from 1990 through the second quarter of 2010 the correlation between real M2 and real final sales of domestic product deteriorated dramatically.
Why Hasn't the Stimulus Been More Stimulative?
The $790 billion stimulus package was supposed to put the economy firmly on a trajectory toward recovery. As one Obama administration economic advisor has said, however, the economy is still having trouble reaching 'escape velocity.' This is because fiscal policy must be accompanied by bank financing in order to stimulate aggregate demand. Otherwise, fiscal policy just reallocates total aggregate demand toward government spending and away from private spending. Policymakers should therefore concentrate more on invigorating bank credit if they want faster economic growth.
Bank Credit ? One Month Does Not Make a Trend, But...
U.S. commercial bank total credit increased at an annualized rate of 8.3 percent in July. If this is the beginning of an upward trend in bank credit, then we can feel a lot more confident about the prospects of rising real GDP growth rates in 2011. Subsequently, if bank credit continues to grow on a sustained basis and aggregate demand growth starts to pick up in the first half of 2011, then the Fed would be expected to begin raising policy interest rates around mid-year.
Potholes in the Recovery Road ? Reduce Speed Ahead
The second-half GDP growth forecast has been lowered to 1.8 percent and Q4/Q4 GDP growth in 2011 will be 3.2 percent. This is a business cycle unlike any other in the post-war era. In prior cycles, as the Fed raised the funds rate, growth in bank credit slowed. In the current environment, even with the Fed holding the funds rate at less than 25 basis points, bank credit continues to contract. Thus, we are going to utter the six most dangerous words in economic forecasting: This time it might be different.
When It Comes to Increasing Aggregate Demand, What?s Fiscal Policy Without Monetary Policy?
In order for an increase in government spending to result in an increase in total aggregate demand, the government's spending needs to be financed by the central bank and the commercial banking systems. Although the Fed and the banking system have helped fiscal policy to stimulate total aggregate demand through a cumulative increase in Treasury borrowing of $1,455 billion, the help was not all that spectacular. No wonder the results of the recent fiscal stimulus program were something less than awe-inspiring with regard to increasing aggregate demand.
Recipe for a Lost Decade, or Two
There are legitimate concerns that the U.S. could catch the 'Japanese' disease and endure a lost decade in terms of normal economic growth. As has been the case in Japan, weak U.S. money and bank credit growth is occurring in the context of very low monetary policy interest rates. The private financial system is not transforming the inexpensive credit being offered it by the Fed into credit for the private nonfinancial sector of the U.S. economy. Until this transmission mechanism between the Fed and the economy gets mended, we are unlikely to experience potential economic growth.
Airplane Musings - Part Deux
Although U.S. federal government spending continues to increase, the rate of growth in that spending has slowed enormously. In the 12 months ended May 2010, accumulated spending by the federal government totaled $3.437 trillion, just 2.6 percent higher than the 12-month accumulated total federal spending for May 2009. This is quite a deceleration in growth from the 15.3 percent registered for the 12 months ended 2009 vs. 2008, near the trough of the last recession.
All We Are Sayin' Is Give Free Markets A Chance
Before we can determine whether or notfree markets have failed, we must actually have free markets. Central banks currently create or destroy credit by by holding a key short-term interest rate below or above the unobservable free-market equilibrium. The Securities & Exchange Commission determines which credit rating agencies receive official 'approval.' Lastly, without their debt being implicitly guaranteed by the federal government, Fannie and Freddie would not have been able to have consistently fund themselves at interest rates below other financial institutions.
Gold: Early 1930s vs. Early 2010s
Some argue that gold will outperform general stocks in the early 2010s, as it did in the 1930s. If this is true, then it will be for entirely different reasons. Investors currently gravitate toward gold as a hedge against future inflation, or because of a loss of faith in the fiat currency. U.S. gold mining stocks were strong performers in the 1930s, by contrast, because the U.S. Treasury was guaranteeing gold miners a steady or rising price as production costs were falling.
Greece, Portugal and Spain Are the Least of Our Economic/Financial Challenges
The debt problems that Greece, Portugal and Spain are currently facing have undoubtedly had a negative effect on global financial markets, and will probably have some negative effect on global economic activity. Problems with these countries, however, will not derail the global economic recovery that is currently underway. The biggest threat to the continuation of the global economic recovery would be some policy mistake by the Chinese economic policymakers resulting in a rapid deflation of the Chinese real estate bubble, which, in turn, would reduce Chinese real GDP growth.
A Strategic Proposal to Combat Strategic Residential Mortgage Defaults
More and more we are hearing that occupants of residential real estate with mortgages far in excess of the current market value of their properties are choosing to default on their mortgage agreements. Many of these borrowers have calculated that it would take many years for the value of their properties to rise back to the amount outstanding on their mortgages. One tactic for lenders to stop these strategic defaults may be to write down the principal on the mortgage outstanding to an amount closer to the current actual market value of the property.
ECB Sterilization -Trichet's Maginot Line?
European Central Bank president Jean-Claude Trichet has stated that the ECB will drain by other means the amount of base money it creates through sovereign debt purchases. If Milton Friedman was correct that inflation is everywhere and always a monetary phenomenon, however, then Trichet need not worry about a sustained acceleration in euro area inflation given recent declines in euro area money and credit aggregates. Northern Trust also comments on the Federal Reserve's swap lines with other central banks, and a recent small business survey.
Declines in Bank Loans - Write-Downs or Pay-Downs?
The record decline in commercial bank loans/leases the U.S. experienced in 2009 was dominated by pay-downs (payments on loans) rather than write-downs (reductions in recognized value). Pay-downs have negative implications for new aggregate demand whereas write-downs are irrelevant with regards to new aggregate demand. Declines in capital limit the ability of banks to create new credit. The continued contraction in commercial bank loan/lease balances is cause for caution with regards to near-term growth in economic activity.
It's Been a While
Inflation is forecast to be 1.7%, rather than 2.5% as in Northern's previous forecast. Lack of credit creation in the private sector will result in a muted recovery, with GDP growing 2.8% in 2010. They are are in agreement with the Federal Open Market Committee that ?economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.?
Federal Deficit Reduction - Growth Helps at the Margin
The Congressional Budget Office tell us that we cannot grow our way out of the long-term federal budget deficit. The acceleration in real and nominal economic growth the U.S. economy has experienced in the past two quarters, however, is helping to reduce the deficit in the short-term. When growth picks up, corporate profits and household income do too. Thus, tax revenues pick up, or at least do not contract as much, while expenditures such as unemployment insurance benefits and food stamps slow down, not to mention government capital injections into teetering financial institutions.
Macro Effects of Patient Protection and Affordable Care Act at 30,000 Feet
The macroeconomic effect of the Patient Protection and Affordable Care Act will depend on whether the $900 billion shift of resources from the private sector to the government over the next ten years it brings will adversely affect labor productivity and technical progress, and by how much. On one hand, PPACA could result in a healthier and more productive workforce. On the other hand, increased government spending associated with PPACA may also have been spent by the private sector on health care, only in a less efficient manner: in the emergency room rather than on preventative care.
As Greece Goes, So Goes the U.S.?
Greece's debt crisis may not make much of an impact on U.S. economic growth. In the third and fourth quarters of 2009, total U.S. exports increased at annual rates of 24.6 percent and 28.1 percent, respectively. South America and the Pacific Rim accounted for a combined 31.7 percent of U.S. exports in the fourth quarter of last year, while Europe accounted for just 23.1 percent. Kasriel and Bangalore also comment on the likely prospects for a low federal funds rate in the long term, and record lows for new home sales.
I Am Worried about the Government Debt My Descendants Will Inherit
Each American was responsible for an average of $38,651 in gross federal debt in 2009. That figure will grow to $62,808 by 2020, according to Congressional Budget Office projections. Short of changing Social Security and Medicare, all we can do to alleviate the strain on our descendents is increase our current savings rate. Kasriel and Bangalore also examine slipping consumer confidence figures and a rising home price index.
Hey Big Spender?
The most serious fiscal challenge ahead is spending, not deficits and debt. And the most serious spending challenge the government will face relates to the diversion of productive resources to future retirees, which will build over the next 20 years are more baby boomers retire. The second spending challenge facing government is ballooning interest payments on prior debt issued. Prior federal policies that established retiree entitlement programs and funded rapidly rising spending with the issuance of debt are to blame for these problems.
Not So Fast!
Annualized growth rates over the first three quarters of 2010 will be less than one half of the 5.7 percent growth rate in the fourth quarter of 2009. Consumer inflation showed signs of slowing in January. Other than a costmetic increase in the discount rate, the Fed will probably find no pressing reason to tighten monetary policy this year.
Does Anyone in Washington Know What Needs to Be Done to Create Jobs?
?If what small- and medium-sized businesses need to increase their hiring is increased sales, then it would seem that fiscal stimulus coupled with Fed-created credit is the right medicine.? The current ($787 billion) stimulus has only been partially spent, and policy makers should not push for another stimulus until more of the remaining funds have been spent.
Ballooning Treasure Deficits - It Takes both Outlays and Receipts to Tango
...although high growth in federal spending is contributing mightily to our record federal deficit, the rate of growth in that spending is slowing. What often is forgotten is that the rate of contract
Results 101–138 of 138 found.