Category: Economics

Understanding what a neutral macro-economic policy looks like






This is going to be a quick follow-on to the last post on monetary policy as the only game in town. I feel like the obvious question that post doesn’t answer is this one: what other policy tools we should use? And I want to tee up that question with this post.

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Some thoughts on healthcare, inequality, and Baumol’s disease

Some thoughts on healthcare, inequality, and Baumol’s disease






Baumol was a giant in promoting entrepreneurship. And most importantly here, his theory on rising costs in labor intensive industries is something that the Nobel committee considered in 2003 and should have given him an award for.






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The Fed rate hike and the potential for US recession

The Fed rate hike and the potential for US recession






I am uneasy about where we are in the economic and credit cycle and the accuracy of the Fed’s forward guidance. I think we are above stall speed now. But I also think global policy divergence, slowing earnings growth and poor capex numbers could combine to bring on recession in 2016.






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Internal and external balance






The global economy is an economic system in which any country’s domestic economy is inextricably linked to other economies through the balance of payments mechanisms. The ability to place events within their global context is consequently crucially important in understanding any country’s economic performance, but actually doing so tends more to be the exception than the rule.






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What multiple should we give China’s GDP growth?






By Michael Pettis Last week Derek Scissors, a think tank analysts at the American Enterprise Institute, published an article in which he referred to an October, 2014, studyby Credit Suisse that attempts to measure total household wealth by region and by country. Scissors argues that in the interminable debate about whether or not China will overtake the US as the […]

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Rediscovering old economic models






The point of all this is that models don’t have to model everything, and even “wrong” models can be helpful if used in the right way. And narrative has its uses too.






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Why Understanding Money Matters in Greece

Why Understanding Money Matters in Greece






As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself.






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Why quantitative easing and negative interest rates will fail

Why quantitative easing and negative interest rates will fail






This is going to be a short thought piece. But the takeaway should be that the convergence to zero will continue unabated as the threat of inflation is muted given the combination of excess capacity, high private debt and unfavourable demographics. The subject is monetary policy.






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Why deflationary pressure in China mandates monetary tightening, not loosening

Why deflationary pressure in China mandates monetary tightening, not loosening






Deflationary pressures in China indicates that we probably need monetary tightening, not loosening. I know this sounds extremely counterintuitive, and so violates what we have learned about the world by assuming that the world looks a lot like the US, but there is both a logical argument behind it and what I think is overwhelming historical evidence. The convention that any economic variable that works one way in the US must work the same way in China is one of those assumptions that is implicit in so much that is written about the Chinese economy, and yet is made by foreign and Chinese economists who would indignantly reject the assumption were it ever made explicitly.






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Abenomics 2.0 – Just What Are They Trying To Achieve?

Abenomics 2.0 – Just What Are They Trying To Achieve?






Japan seems to be heading deeper and deeper into a very risky experiment based on a misunderstanding about what the problem facing the country actually is.






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Central banks, inflation, inflation expectations, currency wars and the Japanese experiment

Central banks, inflation, inflation expectations, currency wars and the Japanese experiment






This is going to be a relatively short note focused on what is going on in Japan because of the news that Japan has ramped up its program of quantitative easing to new heights. Coming on the heels of the US Federal Reserve’s announcement that it would stop expanding its balance sheet with large scale asset purchases, the Bank of Japan’s announcement was music to the ears of Japanese equities investors. And shares in Japan promptly rose 4.8% on the news. The larger question, however, is whether QE is effective either at shaping future inflation or inflation expectations or at increasing nominal and real GDP. The evidence is equivocal. And so Japan presents a unique opportunity to see the limits of monetary policy tested.






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Spain PMI at a 84-month high

Spain PMI at a 84-month high






Markit’s June Manufacturing PMIs for the Eurozone came out this morning. And overall, the numbers showed less strength across the board, with France showing particular weakness. You can see that Spain and Ireland were doing well though. Spain was at a 7-year high in fact. This is why I am bullish on Spain. The breakout in the economy is not […]

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