I’m referring to 1929, 1937, 2008, which all saw severe stock market crashes, accompanied by falling commodity prices.  We can better understand our current crisis if we first step back and look at the two earlier October crashes, which bear some interesting resemblances to recent events.

Although in each case the problem was “monetary” broadly defined, in none of these three episodes can modern monetary economics easily identity the problem.  In contrast, the monetary model sketched out in the previous post will allow us to see the subtle forces that pushed the economy into severe recession.  For instance, in 1929 the problem was central bank hoarding of gold, in 1937 it was private hoarding of gold, and in 2008 it was banks hoarding reserves.

Den ganzen Beitrag lesen…

[Finally spring break!  I will do the Depression piece this weekend, but I am doing this first, as I hope it will give people a better idea of where I am coming from.  To non-economists, it may seem weird and off-topic at first, to economists it may seem simplistic and off-topic, but bear with me, there is a method to my madness.]

Lesson 1.   Nominal GDP measured in apples:

Before playing tennis, you are supposed to stretch your muscles (although I never do), so this is a mental stretching exercise to help you see monetary theory differently.  Let’s take a good with a roughly unit elastic demand, pretend it is apples.  I want to estimate nominal GDP measured in app
Den ganzen Beitrag lesen…

[Before starting this post, a couple of comments.  Some people have been asking for more material on the gold standard in the Great Depression, so I hope to do a long post Saturday on that topic.  I will also try to get to the backlog of comments soon.  BTW, for those too young to remember, the title of this blog refers to the 1980s “let Reagan be Reagan” mantra of true conservatives, after moderate appointees like James Baker tried to move Reagan to the center.  And finally, one of my students told me to be more aggressive, so I take the gloves off toward the end of this post.]

I have to admit that during recent months I haven’t been paying close attention to what has been going on inside the Fed.  As a result I often contrast the views of Bernanke as an academic, with the current stance of Fed policy.  I may regret that oversight someday, as I recently stumbled on a WSJ article from back in January that makes me reappraise my view of Bernanke.

Den ganzen Beitrag lesen…

It seems like I have seen the title phrase of this post in almost every economic report for the last 6 months.  This time it was in a Yahoo article about job losses in February.   Early last October when stocks and commodities crashed, and inflation expectations in the indexed bond market started falling sharply, it was pretty obvious that the markets expected a sharp drop in nominal GDP.  It’s been my impression that the private consensus forecast, and especially the Fed, has trailed far behind the markets in understanding the severity of the crisis.  The private consensus forecast has seemed to fall almost every month for over a year, whereas under Ratex it should be a random walk (or have I misunderstood something here?)

Den ganzen Beitrag lesen…

Thanks for the tips.  If there are any further changes they will probably be tiny, as I want to get this out ASAP.   Those who want to sign, comment below (the actual petition post) from a job email; unfortunately for now I will limit actual names on the document to professional economists and (finance profs) with some job affiliation.  I think it will have more impact, that way.  But anyone who wants to “sign” in the comment section is welcome to do so.  Please pass the actual petition link on to any economists who you think might be willing to sign.   Thank you.

Den ganzen Beitrag lesen…