Excuses, excuses

In 2023, the economics profession preserved its near perfect record in terms of forecasting recessions—it’s always wrong.

Bloomberg discusses some reasons why the forecasts were so inaccurate:

As Holmes would put it, the non-arrival of a recession is a curious episode. What about the assumptions at the beginning of the year can have been wrong to explain this? The key premise was that higher interest rates would slow the economy down. That they didn’t, as summarized by Skylar Montgomery Koning and Andrea Cicione of TS Lombard, was due to “the long duration of US debt as well as to a large positive fiscal impulse and the associated high levels of net wealth.” In less technical language, borrowers didn’t have to start paying the higher rates because they’d locked in lower ones while the going was good. And the US government was spending money and expanding the deficit in a very unusual way for a year when unemployment was low. (Military aid to Ukraine, much of which meant more money for US factories making armaments, had something to do with this.)

These excuses are obviously pretty weak. The war in Ukraine started in early 2022, and forecasters were certainly well aware that the US was providing military aid to Ukraine (in an amount that is trivial as a share of GDP.)

Yes, some people locked into long-term debt at low rates—but that’s always true. In any case, interest costs are a zero sum game; the gain to one side of the contract equals the loss to the other side. If forecasters really believed that higher interest rates don’t matter because there’s lots of long-term debt in the economy, then why did they insist there was a near certainty of recession in 2023?

What makes this theory especially silly is that back in March people were making exactly the opposite argument. Again, here’s Bloomberg:

When longer-term rates are lower than short-term, the traditional banking business model of borrowing short-term and lending long-term stops working. When a rise in 10-year yields in March was instantly followed by news of the insolvency of several large banks, led by Silicon Valley Bank, it appeared that full-blown crisis was inevitable. The fire sale of Credit Suisse Group AG, one of the most systemically important banks on the planet, to rival UBS deepened the expectation of an all-out crisis.

I find all this excuse making to be quite disappointing. You’d think that economists might reconsider their flawed model, which relies on reasoning from a price change—something that every economics textbook says we should never do. High interest rates are neither expansionary nor contractionary. There are cases where the thing that causes high interest rates might be contractionary. But there are even more cases where the thing that causes high interest rates is expansionary.

Economists have no business trying to forecast the business cycle—they just make fools of themselves.

PS. In my book The Money Illusion, I argued that the banking crisis did not cause the Great Recession. Do you think the failure of the March 2023 banking problems to lead to the sort of economic slowdown that economists predicted at the time will cause anyone to give any credence to my argument?

Not a chance. The profession has made up its mind.



36 Responses to “Excuses, excuses”

  1. Gravatar of Carl Futia Carl Futia
    21. December 2023 at 11:54

    God invented the business cycle to teach economists humility.

  2. Gravatar of Sara Sara
    21. December 2023 at 16:29

    The aftermath of the bank failure had nothing to do with the market. It had everything to do with government intervention.

    You only delayed the depression by forcing the U.S. tax payer to bailout the investor, and by forcing other banks to buy bad debt at a discount (sold to them as some sick, twisted, form of patriotism).

    But every savvy investor knows that moving bad eggs to other banks, and onto the tax payer, is not a viable long term strategy.

    Since 2009, we have 27 Trillion of easy money pumped into the system.

    We are now heading for the biggest crash of our lifetime. And that’s not just the view of the good economists, but the view of investors and traders on Wall Street. It feels bearish from top to bottom. The market might climb as short term traders choose to ‘play the game’, expecting the Fed to lower rates. But they know the long term outlook is cloudy.

    If things were so fine and dandy, Walmart wouldn’t be offering buy now pay later for things like toilet paper. We wouldn’t have tent cities where thousands of homeless people live in their own feces. We wouldn’t have thousands of traders seeking refugee in Bitcoin and Gold. We wouldn’t have 30 year olds living with their parents, unable to buy homes.

    Kicking the can down the road has consequences.

  3. Gravatar of Solon of the East Solon of the East
    21. December 2023 at 16:36

    I appear to be in a minority who are glad there is no recession and think that 3% inflation is good enough for now.

    I do wonder why the federal government is so big and has such a large deficit, but on the other hand perhaps the Fed can absorb that debt, and build its balance sheet without much problem. The Japan solution.

  4. Gravatar of Ricardo Ricardo
    21. December 2023 at 21:36

    I read your book. It wasn’t that impressive. Von Mises’s is still the gold standard.

    For people reading this stuff. Ask yourself if the economics department at your university even mentioned the name Ludwig Von Mises or Murray Rothbard. Go through your textbook, and see if there is even one single page dedicated to either one of them.

    And then ask yourself why not? And that goes for every discipline. If they refuse to teach something: look into it. Read it. And then make up your own mind. Don’t let radical left academics brainwash you by omitting information.

    You’d think a $400 textbook would have just one page….one paragraph, one sentence that mentions a view that criticizes their own. But nope. Nothing.

  5. Gravatar of Viennacapitalist Viennacapitalist
    22. December 2023 at 00:16

    I am wondering whether it is even possible to have a recession with budget deficits running between 6-8 percent of GDP and no signs of funding stress.
    Under these circumstances, forecasting a recession effectively means predicting a US government funding crisis…

  6. Gravatar of Michael Sandifer Michael Sandifer
    22. December 2023 at 00:41

    The most curious thing here is that it is just the latest example of so many you’ve highlighted over the years in which the fundamentals are ignored. Your strength as an economist is that you’re careful with the fundamentals, and avoid such silly mistakes that even many elite economists routinely make.

    Your example previous to this was the one in which you corrected me in my choice of baselines for calculating the pre-pandemic NGDP trend growth rate. My approach was one also taken by many professional economists, including the PhD economist at the Treasury Department that I linked to.

    Why doesn’t the economics profession insist that its economists properly learn the fundamentals? Part of the problem with your current example might be the pervasiveness of New Keynesianism, with an over-emphasis on interest rates, but what explains the many other failures?

  7. Gravatar of Michael Sandifer Michael Sandifer
    22. December 2023 at 00:49


    Just look at any number of countries that had high inflation over extended periods of time, and you’ll see plenty of recessions. In fact, the recessions are often deeper, as are the booms, as NGDP becomes more volatile.

    Recessions will occur naturally due to NGDP growth being too high as wages adjust, causing unemployment to return to trend. Countries then have to choose whether to allow the recession to take its course or make the problem worse in the longer-run by lowering real wages again with more stimulus.

    Over time, such countries often have policies that, along with high inflation, tend to grind down potential RGDP, leading to higher unemployment.

  8. Gravatar of spencer spencer
    22. December 2023 at 06:19

    What a lot of people missed was the change in the composition of the money stock, more transaction accounts relative to gated deposits. So, AD increases relative to history.

    That and Powell thinks banks are intermediaries between savers and borrowers. Powell muddied up the definition of the money stock. He eliminated “total checkable deposits”, the definition of money subject to reserve requirements.

    There was also a big shift between bank accounts and nonbank accounts, which increased the velocity of money, activating monetary savings.

    Greenspan discontinued the only valid velocity figure, the G.6 release. It was discontinued for precisely the reason it was used.

    Bernanke: “In response to regulatory changes and technological progress, U.S. banks have created new kinds of accounts and added features to existing accounts. More broadly, payments technologies and practices have changed substantially over the past few decades, and innovations (such as Internet banking) continue. As a result, patterns of usage of different types of transactions accounts have at times shifted rapidly and unpredictably.”

    See: “The Case of the Missing Money”

  9. Gravatar of spencer spencer
    22. December 2023 at 06:30

    Powell sought to destroy deposit classifications when he eliminated the 6 withdrawal restrictions on savings accounts in April 2020.

    #1 “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time”

    #2 “Inflation is not a problem for this time as near as I can figure. Right now, M2 [money supply] does not really have important implications. It is something we have to unlearn.”

    #3 “the correlation between different aggregates [like] M2 and inflation is just very, very low”.

    The transaction’s velocity of money historically fluctuates more than the volume of the money stock.

    See: “Quantity Leads, and Velocity Follows” Cit. Dying of Money -By Jens O. Parson

  10. Gravatar of spencer spencer
    22. December 2023 at 06:46

    Dr. Leland Pritchard’s theory matches Dr. Philip George’s theory: “The Riddle of Money Finally Solved”:

    #1 “The velocity of money is a function of interest rates”

    #2 “Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits.”

    #3 “When the interest rate is zero the velocity of money will tend to zero. This is because there is no incentive to move their accumulated savings out of demand deposits.”

    #4 “When interest rates go up, flows into savings and time deposits increase.”

    #5 “Holding interest rates down does nothing to boost investment because the problem is falling consumption.”

  11. Gravatar of spencer spencer
    22. December 2023 at 06:48

    Remember that in 1978 (when Vi, income velocity fell, but Vt, transactions velocity rose) all economist’s forecasts for inflation were drastically wrong.

    The Federal Reserve Board’s figure, income velocity, Vi, is endogenously and artificially contrived (N-gDp divided by M) whereas Vt, is an “independent” or exogenous force (having “both magnitude and direction, making it a vector quantity”), acting on prices.
    Put into perspective:

    There were 27 price forecasts by individuals and 9 by econometric models for the year 1978 (Business Week). The lowest (Gary Schilling, White Weld), the highest, (Freund, NY, Stock Exch) & (Sprinkel, Harris Trust & Sav.).

    The range CPI, 4.9 – 6.5 percent. For the Econometric models, low (Wharton, U. of Penn) 5.7%; high, 6.6% U. of Ga.). For 1978 inflation based upon the CPI figure was 9.018% [and Leland Prichard, in his Money and Banking class, predicted 9%].

    See: G.6 Debits and Deposit Turnover at Commercial Banks

    And we knew this already:

    In 1931 a commission was established on Member Bank Reserve Requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled
    “Member Bank Reserve Requirements — Analysis of Committee Proposal”
    It’s 2nd proposal: “Requirements against debits to deposits”

    After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a “tax” [sic].

  12. Gravatar of Solon of the East Solon of the East
    22. December 2023 at 07:20

    The core personal consumption expenditures price index, the Federal Reserve’s preferred core inflation metric, increased 0.1% for the month of November, and was up 3.2% from a year ago, the Commerce Department reported Friday.


    Some nations have a 3% inflation target.

  13. Gravatar of spencer spencer
    22. December 2023 at 08:23


    “Reverse repo transactions temporarily reduce the supply of reserve balances in the banking system.”

    So as to establish a floor, O/N RRP volumes were increased by the FED. Their reduction adds to liquidity.

  14. Gravatar of Michael Sandifer Michael Sandifer
    22. December 2023 at 09:06

    YoY core PCE has been trending down now for more than a year, and it’s been down every month over this stretch. This is consistent with my preferred indicator, which is the 5-year breakeven, which has mostly been below the Fed’s 2% mean target in core PCE terms since spring.

    I see no reason to think this trend won’t continue. Forward-looking indicators, and other market-based indicators are superior to government data, particularly when that data is unreliable, as GDP and GDI data have been recently.

  15. Gravatar of ssumner ssumner
    22. December 2023 at 09:17

    Vienna, Yes, a recession is possible even with large deficits. I don’t think fiscal policy has much effect on the business cycle. In any case, economists knew about the deficit when they forecast a recession. We really need to stop looking for excuses and just admit we cannot predict the cycle.

    Michael, My concern is wage inflation, which still needs to slow further. Maybe it will, but in the past it’s been hard to accomplish without an economic slowdown.

  16. Gravatar of Michael Sandifer Michael Sandifer
    22. December 2023 at 10:37


    The measures I see, including the ECI and average hourly earnings, have been trending down with core PCE inflation:


  17. Gravatar of spencer spencer
    22. December 2023 at 14:00

    re: “Economists have no business trying to forecast the business cycle”

    Economic prognostications within a year were infallible. But Powell eliminated reserve requirements. Now the FED is operating by sticking their wet finger in the air to see which way the wind is blowing.

    The FED’s technical staff doesn’t know debit from a credit, money from liquid assets, a bank from a nonbank.

    Take Dr. Daniel L. Thornton:

    Re my comment: “Savings are not a source of “financing” for the commercial bankers”

    Dr. Dan Thornton’s response:
    Thu 3/9, 2:47 PMYou
    See the graph below.

    Not only are the Fed’s econometric models wrong, but their macroeconomic concepts reflect this.

    Never are the banks intermediaries in the savings->investment process. All monetary savings originate within the payment’s system.

  18. Gravatar of Edward Edward
    22. December 2023 at 19:12

    You said:

    “…You’d think that economists might reconsider their flawed model”

    I agree. But your model is not any better.
    Real change requires returning to the Austrian/Neoclassical school of thought. Friedman once said that the Austrian school doesn’t exist, and that they were an extension of the neoclassical school, as if that really matters. I mean, what a stupid remark from an otherwise intelligent man. I don’t care if you want to call them Austrians or Neoclassicals, but a world without Federal Reserves and International Monetary Funds, and Banks of Interntational Settlements, etc., etc., would be a much better world for humanity.

    The world should not be run by banks, MNC’s, or and so-called elites who sit on creepy forums and promulgate their uneducated views (As if we give a damn about what they think). WE THE PEOPLE are in charge, not them.

    And I think we are starting to win this battle. CNN achieved two important milestones this month: lowest profit and lowest rating in ten years. Fox is losing clients, too, although at a slower rate.

    The big winner is independent journalism. Real journalism the way the founders wanted it. Social media has allowed humanity to free itself from “controlled information” and reveal the thugs behind the curtain. And now the so-called ‘mainstream’ is lashing out in desperation, because they know we are winning.

    Potentia ad populum!!

  19. Gravatar of viennacapitalist viennacapitalist
    23. December 2023 at 05:08

    they are probably predicting some sort of mean reversion in the deficits- wont happen 🙂

  20. Gravatar of spencer spencer
    23. December 2023 at 07:49

    “Changes in the target range are implemented via two policy tools—the rate paid on banks’ reserve balances and the rate offered at the overnight reverse repo facility—that influence rates in the federal funds market.”

    “When MMFs invest in the ON RRP, they use their custodian banks, which, in turn, use their reserve balances to make the transfer. The result is an increase in ON RRP take-up and an equal decrease in bank reserves. Importantly, by design, ON RRP take-up can change without any intervention by the Federal Reserve”

    So, any increase in reserves adds liquidity.

    …”These factors have reversed: the Federal Reserve restarted running off its balance sheet after the temporary expansion during the banking turmoil of March 2023; the growth of the banking system waned while the ratio of reserves to asset decreased; the pace of interest-rate hikes slowed down; and the T-bill supply increased again.”

    So, the draining funds the deficits.

  21. Gravatar of Julian Julian
    23. December 2023 at 20:11

    Trivial, you say?
    100B is trivial?
    Prolonging a war is trivial?
    Death is trivial?

    This is why Scott Sumner, and people like him, are hated so much by our generation. This guy actually calls sending 100B worth of ammunition (used to kill other humans) ‘trivial’ in comparison to GDP.

    As if that somehow justifies sending the money. Imagine if we gave 100B to NASA. 100B to clean up our streets, to fix our roads and our border, or just to pay down our debt.

    Wow. Yeah. You, sir, are such humanist. A real winner; a great role model for the world.

    I see that you also tried to sell the conflict with fear. You wrote that Putin would attack Europe.

    What a stupid thing to say.

    Do you know anything about World War II? Do you even know that Russia lost twenty-seven million people in that war?

    Here is a fun fact for the war mongerers: if a country lost 27M people marching from Moscow to Berlin, a 1000 miles, then how many people would it take, considering the technology we have today, to get from Moscow to Paris, about 1500 miles.

    You do realize that they would lose at least three times more people. You do realize that it would require more than their entire population to achieve that goal?

    Putin is not stupid. If he really want to destroy Europe, he’d just use Nuclear weapons. He wouldn’t sacrifice all of his people in some futile mission.

    Use your brain.

  22. Gravatar of ssumner ssumner
    23. December 2023 at 21:09

    Julian, Back in 1940, people like you said we were “prolonging the war” by sending help to those fighting the Nazis.

    Yes, let’s help countries fight against aggression, even though Putin poodles like you wish they would meekly surrender.

  23. Gravatar of Ricardo Ricardo
    23. December 2023 at 23:13

    This tweet from Brett Weinstein summarizes, concisely and accurately, the idiots in academy today.


    He writes:

    “Why does field after field find itself outclassed by lay people, exiled experts, insiders who publicly disagree with the consensus, quickly tossed out under false pretenses? It’s because the academy has become a racket that mints phonies.”

    “A racket that mints phonies.” Just let that sink in for a moment.

    History will determine the winner, but I’m 99% sure that Ron Paul, Ludwig Von Mises, Isabel Paterson, Garett Garrett, Thomas Jefferson, F.H. Hayek, Benjamin Franlin, Andrew Jackson, Henry Hazlitt, Rose Wilder Lane, and Ayn Rand will emerge victorious.

    Instead of trying to manage the supply of money, maybe you should try sweeping floors, or dishwasing. That would be much more productive and beneficial for everyone.

  24. Gravatar of Michael Sandifer Michael Sandifer
    24. December 2023 at 05:08

    Not only are these views on the Russian invasion of Ukraine silly, but they’re disingenuous. So many of these people are supposedly concerned about the cost of the aid to Ukraine and feeding a loss of life, when many of them support Trump’s wasteful spending in the context of tax cuts, blindly, and probably supported invading Iraq when there was no evidence of WMD there.

    There is no way to positively spin what Putin is doing in Ukraine. No matter what the complaints are about Ukraine, how would they justify annexing territory there? What does that solve, other than to feed Putin’s quite mistaken ideas about what will make Russia, and even his own position, stronger?

    If you support Russia’s actions in Ukraine, you oppose self-determination for Ukrainians, period. Even if Ukraine critics were right about the Ukrainian government, and they are not, their support for land grabs by Putin are telling.

  25. Gravatar of Michael Sandifer Michael Sandifer
    24. December 2023 at 05:10

    By the way, notice how selective these Putin supporters are of nationalism. Nationalism is fine for Russia and convervative Americans, but no Ukrainians. They aren’t allowed to be nationalistic.

  26. Gravatar of Lizard Man Lizard Man
    24. December 2023 at 06:05

    Do macro models that have as an output declines in production, wage growth, employment growth, etc. involve reasoning from a price change when they are more or less just formulas fit to data sets from past events? Are those kinds of models even helpful? If it is true that NGDP growth and changes in NGDP growth have big impacts on short term growth, employment, etc., you would expect that the models based on past correlations would in some way incorporate that information, even if not intentionally so. And wouldn’t those models pick up a strong correlation between central bank rate hikes and a slowdown in NGDP growth, and a slowdown in NGDP growth with slower rates of growth in employment and wages? Why wouldn’t the question simply be about the magnitude of the slowdown in NGDP growth and wages, employment growth, etc.? What makes the model of unexpected changes in NGDP growth leading to short run changes in employment, growth, etc., different from reasoning from a price change?

  27. Gravatar of Todd Ramsey Todd Ramsey
    24. December 2023 at 06:25


    The inverted yield curve has predicted some recessions, and been predictive more often than not.

    What do you believe is the mechanism there?

    It seems plausible that short-term rates rise as the Fed, concerned about inflation, raises the Fed Funds rate and otherwise tightens, while long-term rates simultaneously decline because of reduced inflation expectations. Then the recession is (sometimes) caused because it’s difficult to Goldilocks the national economy.

    In this telling, the inverted yield curve (somewhat accurately) predicts recession because it’s indicative of Fed over-tightening?

  28. Gravatar of spencer spencer
    24. December 2023 at 08:04

    re: “What do you believe is the mechanism there?”

    That’s an easy one. It’s disintermediation of the nonbanks.

    The smartest guys in the room don’t get it. Savings are not synonymous with the money supply!

    “Disintermediation is Made in Washington’.

    Contrary to the idiots: there is no “Penalty on Thrift”. The egregious policies are driven by the ABA. See Barron’s:

    1) “Forgotten Man? Washington Again Is Threatening to Penalize the Thrifty” Jun. 6, 1966
    2) “Up the Down Staircase, The New Economics Doesn’t Know Whether It’s Coming or Going” Sept. 26, 1966
    3) “Ceiling Zero. The U.S. Must Take the Lid Off Money Rates” Nov. 26, 1967
    4) “Men and Money, Savers of Modest Means Deserve a Decent Return” Jan. 19, 1970
    5) “Q Marks the Spot. All Ceilings on Interest Rates Should Be Lifted” Dec. 28, 1970
    6) “Maximum Mischief, Ceilings on Interest Rates Must Go” Mar. 13, 1973
    7) “Supreme Interest. The Banking Agencies Have Finally Done Something Right” Jul. 23, 1973
    8) “No More Wild Cards, Congress Has Dealt Savers Out of the Money Game” Oct. 2, 1973
    9) “Poor Joe DiMaggio. It No Longer Pays to Save at the Bowery”” Sept. 22, 1975

    The ABA was behind the Depository Institutions Deregulation and Monetary Control Act (which destroyed the thrifts, caused the Savings and Loan Association crisis, or “the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995”; and created the U.S. July 1990 –Mar 1991 economic recession).

    This was predicted. As predicted in May 1980, the GSE’s had to pick up the slack.

  29. Gravatar of spencer spencer
    24. December 2023 at 08:16

    It’s all fool’s gold my friend. When DFIs grant loans to, or purchase securities from, the non-bank public, they acquire title to earning assets by initially, the creation of an equal volume of new money (demand deposits) – somewhere in the payment’s system. I.e., the DFI’s bank deposits are the result of lending, not the other way around.

    So, whereas Dr. R. Alton Gilbert didn’t understand the system dynamics of stock from flow, in “Requiem for Regulation Q: What It Did and Why It Passed Away” (FRB-STL, February 1986), the Fed’s “Bible”, he surmised that Reg. Q ceilings “discriminated against small savers and did not increase the supply of residential mortgage credit”.

    Dr. Lawrence H. White, a senior fellow at the Cato Institution wrote about duration risk in the borrow short to lend longer, savings-investment paradigm: “in 1979-1981 it rendered insolvent about two-thirds of US thrift institutions (FSLIC, NCUSIF, insured), who were financing 30-year fixed-rate mortgages with 1- and 2-year deposits”.

    Funny how professional economists talk about dis-intermediation for the NBFI, but not for the DFIs. But this is correct. The DFI’s, via various Depression Era regulatory modifications and enhancements, are now backstopped.

    Disintermediation for the DFIs can only exist in a situation in which there is both a massive loss of faith in the credit of the banks & an inability on the part of the Federal Reserve to prevent bank credit contraction, as a consequence of its depositor’s withdrawals.

    Ever since 1933, the Federal Reserve has had the capacity to take unified action, through its “open market power”, to prevent any outflow of currency from the banking system (i.e., before the remuneration of IBDDs).

    In contradistinction to the NBFIs, dis-intermediation for the DFIs isn’t predicated on the prevailing level of market clearing interest rates or the administration of policy rates.

  30. Gravatar of spencer spencer
    24. December 2023 at 08:22

    The remuneration of interbank demand deposits, IBDDs, in Oct 2008 caused disintermediation of the nonbanks, the “shadow banks” where the size of the nonbanks shrank by 6.2 trillion dollars, while the banks expanded by 3.6 trillion dollars.

    And as Dr. George Selgin pointed out: This Romulan cloaking device (payment of interest on interbank demand deposits, on a “Master Account”), vastly exceeded the level of short-term interest rates which was explicitly ILLEGAL per the FSRRA of 2006. That’s why there wasn’t a “V” shaped recovery.

  31. Gravatar of ssumner ssumner
    24. December 2023 at 08:42

    Lizard, You said:

    “wouldn’t those models pick up a strong correlation between central bank rate hikes and a slowdown in NGDP growth, and a slowdown in NGDP growth with slower rates of growth in employment and wages?”

    I’m not quite sure what you are getting at, but there’s a big difference between reasoning from an interest rate change (bad) and reasoning form an NGDP change (acceptable.). A sharp fall in interest rates might or might not be expansionary, whereas a sharp fall in NGDP is almost always an indicator of contractionary policy, which will reduce employment.

    I doubt whether there is a strong correlation between rate hikes and growth.

    Todd, I suspect the inverted yield curve is most effective when the recessions are in some sense intentional, such as 1980 and 1982. It didn’t work for the three Eisenhower recessions. The argument is that rates usually fall during recessions (true) and inverted yield curves are forecasts of falling rates (also true.)

    But as I noted, economists have an almost perfect record of failing to predict business cycle turning points–despite the yield curve indicator.

  32. Gravatar of spencer spencer
    24. December 2023 at 09:00

    “The term credit crunch had its origins in the unusually tight credit conditions that prevailed in the U.S. in the late summer of 1966, when reports of borrowers unable to obtain credit at any price were commonplace. Prior to 1966, the postwar U.S. experienced 3 periods of tight credit; the spring of 1953; the fall of 1957; and the last third of 1959. These periods were called “credit squeezes” or “credit pinches”.

    Sidney Homer and Henry Kaufman, economists at Salomon Brothers in the 1960’s, coined the term “crunch” to describe how the 1966 episode differed from those in the 1950’s. Although Homer and Kaufman did not formally define a crunch, Homer (1966) offered the following explanation:

    The words squeeze or pinch have gentle connotations. The prehensile male sometimes “squeezes” or “pinches”, with the most affectionate intentions. No bruises need result, no pain need be inflicted. A “crunch” is different. It is painful by definition, and it can even break bones.”

    See: “Identifying Credit Crunches” by Raymond E. Owens and Stacey L. Schreft. Federal Reserve Bank of Richmond, March 1993.

  33. Gravatar of spencer spencer
    24. December 2023 at 09:07

    The FED has so far solved this C-19 problem by remunerating the O/N RRP facility which allows the nonbanks to outbid what the bankers are currently on average paying their depositors. I.e., a soft landing (no recession), is a possibility.

  34. Gravatar of Lizard Man Lizard Man
    24. December 2023 at 11:13

    Wouldn’t a dumb model fitted to past data have a correlation between rate hikes and a slowdown in NGDP growth? In other words, how does the Fed have any idea if their actions will slow down or speed up NGDP growth if there isn’t a reliable correlation between the Fed’s actions and changes in NGDP growth? I don’t see how anyone avoids reasoning from a price change. If central bank wants to slow NGDP growth, what tools do they have except to change interest rates in order to change to money velocity/quantity? Don’t markets need price signals to function? How would a market economy function if price changes didn’t lead to changes in decisions and behaviors?

    I would grant that in macroeconomics trying to reason solely from a price change without being explicit about why you think the price change will lead to a change in money supply/velocity isn’t good practice, but at some level prices do have to change to change decisions/behavior.

  35. Gravatar of ssumner ssumner
    25. December 2023 at 19:39

    Lizard, You asked:

    “what tools do they have except to change interest rates in order to change to money velocity/quantity?”

    The central bank could directly change the monetary base, without targeting interest rates. Or they could change the exchange rate to impact M*V.

    “How would a market economy function if price changes didn’t lead to changes in decisions and behaviors?”

    That’s different. An individual supplier or demander should respond to price changes. My point is that an economist should not evaluate the effects of a price change without knowing if it was caused by a supply shift or a demand shift.

  36. Gravatar of TMC TMC
    26. December 2023 at 08:15

    Even though I agree with your conclusion, it’s probably good people question the limits we are willing to go to fight Russia.

    “Putin poodles like you” is a good line 🙂

Leave a Reply