“I already adjusted the steering wheel last year, don’t ask me to do it again.”
Captain Bernanke is piloting the USS Nominal Income through the Mediterranean. Suddenly a stiff wind starts blowing off the coast of Greece, threatening to drive the ship onto a dangerous shoal. The captain adjusts the wheel so that the ship is able to maintain its heading. We are safe. For now.
A year later the strong wind again blows off Greece, once again threatening to drive the ship off course. But this time the captain fails to react. “We’ve already tried doing steering, once is enough.” “Lots of people criticized my steering last time. They pointed out that the path of the ship didn’t change very much.” “Steering is no panacea, we need to do something about the wind and the shoal.”
PS. Krugman haters will enjoy tomorrow’s posts. If you like Krugman, just keep in mind that I’m obsessed with criticizing him because he’s the most articulate voice on the left–so it’s a compliment.
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7. July 2011 at 19:19
In addition to “adjusting the steering wheel” he has to switch on the “Turbo button” and increase the “ships velocity”…
7. July 2011 at 20:00
Scott, we’ve got Ben by the nuts, and you can save him from becoming a castrato!
See, there is a conservative argument for QE3, but an unabashed conservative is going to have to make it.
Just ask yourself what kind of economist could sell the Tea Party on printing money?
You can be that guy, but that guy will to drum beat so many logical pre-conditions, that following his policy IS BY DEFINITION a renunciation of progressive politics.
7. July 2011 at 21:03
Scott as someone who initally followed krugman (i am an economics major at UT so I had to find something) that switched to your blog a year ago I have the utmost respect for your logical style. I wish the profession paid more head to your ideas and I think one day will realize that the puzzle pieces that began with Fisher’s work on debt deflation and recently emerged with Svensson’s advocacy of focusing on NGDP will work it’s way into the mainstream just as ratex did in the 80’s….run on sentence ended.
8. July 2011 at 04:16
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8. July 2011 at 05:10
One thing Captain Bernanke should look at (I’m sure he does, actually) is the table of foreign sovereign demand for US debt seen here.
From April 2010 to April 2011 (a little out of date, but then again, that’s about when we hit the debt limit), other central banks accumulated a net $540 Billion. Brazil (starting to complain loudly about currency appreciation) and Japan account for about $150 Billion. I’ve read elsewhere that China is using UK finance entities as a “waystation” for its purchases (look at the $270B transfer in June 2010) so I guess one has to consider the two together.
Speaking of the Krugman and the Debt Limit – Krugman made much of the lack of movement in the US 10-year bond after the end of QE2, but could some of that has to be due to the timing coinciding with a lack of “expected supply” because of the debt-limit phenomenon?
At any rate, when (if?) the limit’s raised, if the Treasury has to unwind it’s extraordinary measures by September, it would have to issue and auction $600 Billion in new debt supply in just the month of August. Of course, everyone expects this so the market should be pricing it in, but it will be interesting to see how it all plays out.
8. July 2011 at 06:40
[…] -Fed Actions: Scott Sumner thinks the Fed should be doing more. “Captain Bernanke is piloting the USS Nominal Income through the Mediterranean. Suddenly a stiff wind starts blowing off the coast of Greece, threatening to drive the ship onto a dangerous shoal. The captain adjusts the wheel so that the ship is able to maintain its heading. We are safe. For now. A year later the strong wind again blows off Greece, once again threatening to drive the ship off course. But this time the captain fails to react. “We’ve already tried doing steering, once is enough.” “Lots of people criticized my steering last time. They pointed out that the path of the ship didn’t change very much.” “Steering is no panacea, we need to do something about the wind and the shoal.”” […]
8. July 2011 at 08:07
Oh please, oh ye Deities of Lucre, before whom I pray now on bended knee, please let the Grand Satan of Inflation loose upon our land.
For years and years, many have predicted the coming, but always for nought.
Is it the global economy that scares the Grand Satan of Inflation away? Goods and services and labor and capital pour into America from every corner of the Earth. We print more money and we just get more output! No inflation!
Is it falling unit labor costs? Commercial rents that going down?
Tell us Grand Satan, how have we offended thee?
What chants, what sorcery could bring you back, especially in moderate form?
8. July 2011 at 08:29
Marcus, That’s right.
Morgan, Duly noted.
Thanks Daniel.
Indy, Bond yields move on expected NGDP growth. Nothing else really matters.
Benjamin, When all else fails . . . try prayer.
Everyone, I’m always surprised by what gets linked to. This one got a WSJ link!
10. July 2011 at 01:34
The Oz$ is apparently becoming a reserve currency. I note the claim that part of what is driving the move is the expectation of more $US “debasement”.
Which would mean that the currency run by the central bank more tolerant of inflation (the Oz$ and Reserve Bank) is expected to retain its value better than the currency run by the central bank which has been far more inflation-phobic (US$ and the Fed). Another lesson in the difference between appropriate and inappropriate monetary policy?
10. July 2011 at 01:37
And yes, before anyone points it out, I get the point about being a proxy for the renminbi. That does not change the basic point.
10. July 2011 at 06:50
Lorenzo, Good point. But just thinking out loud, how often throughout history has it been a good idea to pour into the currency of a fully developed economy, just when it’s at an all time high?
7. June 2012 at 10:06
[…] estimates on mathematical models or correlations. On the intentions side, Scott Sumner compares the central bank to a captain of a ship – if the course is off, change the steering wheel until you are […]