Good news: Operation Twist is working!

Last fall Ben Bernanke and the Fed set out to reduce the yields on long term Treasury bonds, in the hope that this would spur the recovery.  The low yields are here, and I’m looking for the recovery to start any day now:

NEW YORK (MarketWatch) “” Treasury prices jumped on Friday, pushing yields on major benchmark indexes down sharply to record lows after a report showed U.S. payrolls rose 69,000 in May, far fewer than analysts expected.

Yields on 10-year notes (ICAP.SD:10_YEAR) , which move inversely to prices, fell 10 basis points to 1.46% “” setting a new low and from 1.53% prior to the report.

A basis point is one one-hundredth of a percentage point.

Thirty-year bond yields decreased 12 basis points (ICAP.SD:30_YEAR)  to 2.52% “” setting a record low.

Yields on 5-year notes (ICAP.SD:5_YEAR) fell 6 basis points to 0.60%, also the lowest level ever.

The Labor Department report also showed the number of jobs added in the prior two months were revised lower, and the unemployment rate unexpectedly edged up.

Seriously, can we finally stop talking about interest rates and start talking about what really matters?  If you don’t like the term ‘NGDP’ then call it AD.  But please, no more discussion of the need to cut interest rates.  And can we also put Nick Rowe’s upward sloping IS curve in the textbooks now?

And since I’ve been needling Paul Krugman about small issues in recent posts, how about a big round of applause for Dr. Gloom; the only major nationally-known pundit who’s been 100% right about the AD shortfall from the beginning.


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74 Responses to “Good news: Operation Twist is working!”

  1. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 06:30

    Now that Matty has been proven wrong on #RecoveryWinter

    I will make the correct prediction #RomneyRecoveryWinter

    Nov2012 will be the moment that everyone who matters breathes a sigh of relief and gets down to the business of making money again.

    The Fed bankers will look around and see:

    1. Govt. spending cuts
    2. Rich guys happy

    And they will quite naturally want to make sure that we don’t feel any ill effects from crushing public employee unions.

    Morning in America.

  2. Gravatar of Lars Christensen Lars Christensen
    1. June 2012 at 06:31

    Well, then the Danish central bank deserve the biggest round of applaud…negative yields: http://www.businessinsider.com/the-danish-dilemma-what-the-euro-crisis-has-wrought-2012-5

  3. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 06:59

    The real Operation Twist:

    http://www.buzzfeed.com/mckaycoppins/mitt-romney-fighting-moderate-wins-over-the-righ

  4. Gravatar of ssumner ssumner
    1. June 2012 at 07:05

    Morgan, I predict the 2020s will be the decade of recovery.

    Lars, Finance is not my area, so correct me if I am wrong. The article says the Danish bonds have lower yields than the German bunds, but a higher CDS. Is that because Denmark has a slightly higher default risk, whereas for Germany the risk is that the euro may collapse and bond holders will be repaid in a different currency?

  5. Gravatar of Bonnie Bonnie
    1. June 2012 at 07:07

    Morgan:

    Romney campaign speeches over the last few weeks have included the words “we need jobs and rising incomes.” I don’t know exactly what he means by “rising incomes,” but it is an interesting choice of words. Too bad, if it means what I think it might, he couldn’t tell us.

  6. Gravatar of Steve Steve
    1. June 2012 at 07:27

    “Is that because Denmark has a slightly higher default risk, whereas for Germany the risk is that the euro may collapse and bond holders will be repaid in a different currency?”

    My guess is that Germany has higher interest rates because they might choose to pay up (through inflation) and keep the Euro together. But they have lower default risk because their debts are denominated in depreciating Euros, and their finances stand-alone are stronger than Denmark. It’s just a guess.

  7. Gravatar of Steve Steve
    1. June 2012 at 07:28

    “Germany has higher interest rates”

    higher = less negative

  8. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    1. June 2012 at 07:36

    Unrelated to the post, but what’s going on in India and their NGDP right now?

    It seems that your prediction that India is going to catch up with China is not on the best track.

  9. Gravatar of Scott N Scott N
    1. June 2012 at 07:42

    Memo to Fed; you need to INCREEEEAAAAAASE long term interest rates. Lower long term interest rates mean that investors think long term returns for other assets such as stocks, businesses, etc. will be awful (i.e., business will suck!) so they are willing to take 1.45% yield for a ten year loan. Higher long term interest rates mean that investors think long term returns for other assets will be better (i.e., business will be great!) so they must be offered much higher yields for the same ten year loans.

    Keynesianism is the single biggest reason why people in this country and around the world are suffering right now. Abandon this interest rate foolishness and get on board with the market monetarists!

  10. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. June 2012 at 07:43

    On the subject of wierd things going on in the bond market David Glasner has a recent post pointing out strange things in the TIPS market.

    More on the Recent Anomaly in the Real Term Structure of Interest Rates – David Glasner

    “In this context what is striking about the recent anomaly in the real term structure of interest rates is the steepness with which the difference between the yields on the 10- and the 5-year TIPS has been falling. The drop seems steeper than any but the one that started around October 6, 2008, three weeks after the failure of Lehman Brothers, but the day on which the Fed announced that it would begin paying interest on reserves. By the end of October, the difference between the yields on the 10-year and 5-year TIPS had fallen by over a percentage point. Since May 3, the difference between the yields on the 10-year and 5-year TIPS have fallen 37 basis points, so we are clearly not in a panic. But the signs are disturbing.”

    http://uneasymoney.com/2012/05/30/more-on-the-recent-anomaly-in-the-real-term-structure-of-interest-rates/

    @Morgan

    Sounds like the Underpants Gnome Plan:

    1) Government Cuts/Rich Guys Happy
    2) ?????
    3) Morning in America

    Except of course the Fed fill in the question marks. What you say makes more sense after one reads Righteous Mind by Jonathan Haidt.

  11. Gravatar of Adam Adam
    1. June 2012 at 07:49

    Morgan – Apologies if you’re comment was meant to be sarcastic (I’m often not sure what you’re on about), but why would you predict Romney spending cuts? My guess is a Romney election will be accompanied by significant increases in spending, just on GOP-approved things (e.g., defense, energy subsidies, cut cuts for rich guys).

  12. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 08:03

    Mark, as I’ve said many time…

    The problem is PUBLIC EMPLOYEES. You can’t argue with this fact:

    If the US govt. is achieving the EXACT same amount of welfare, aid and social benefits, and we are simply paying $800B less per year for public employee compensation, with far fewer public employees (productivity gains)…

    Our economy is fine. No matter what happens in Europe, that change alone delivered like hard medicine the the public employee rent seeking class (yes I mean Teachers)… we will be kicking ass.

    And it is DOABLE.

    We can EASILY run the Federal State and Local govts. with 1/3 as many employees making about 1/2 the current compensation.

    We have delivered those gains without flinching in the private sector.

    2.5-3% per year YOY for 20 years adds up, dear boy.

    So, skip the 2) ?????? BS, if you don’t come to the table ready to do the public employees what Bain did to private failing industries you just aren’t getting it.

    Ya know this stuff is actually pretty obvious, so stop lying, we all KNOW OUTRIGHT KNOW that if Obama came in and pulled a Clinton, that the Fed would have kept printing money to keep us at near 2% come hell or high water.

    We KNOW IT.

    Obama was 1) too dumb to know it. 2) wouldn’t have done it, even if he knew it.

    We KNOW in our souls that if Obama skipped the stimulus, and really went Scott Walker on his base, the way Clinton did with welfare, the economy would be at 2%.

    Stop pretending we don’t KNOW it.

    I’m not saying Romney is going to balance the budget, he’ll leave the deficit big and gnarly, but he’s going to cut govt. spending and reform taxes, relax regulations, and the Fed will be so joyous they’ll make sure unemployment is 6% in 2016.

    And we KNOW it.

  13. Gravatar of Steve Steve
    1. June 2012 at 08:14

    KEY TAIL RISKS IN NORTHERN EUROPE

    My previous post wasn’t entirely clear, so I’ll try again:

    Denmark / Germany

    TAIL RISK 1:
    Eurozone officials look into the abyss and don’t like what they see. Germany agrees to a reflationary ECB, and perhaps even Eurobonds. Denmark says “to hell with this inflation” and breaks from the Euro peg. That lowers interest rates in Denmark but raises default risk.

    TAIL RISK 2:
    The Eurozone breaks up. Germany is on the hook for some bad debts through the ECB and Target II. An indignant German public demands that domestic savings get redenominated into D-Marks, while Germany’s foreign creditors get repaid in devalued Euros. This avoids technical default on the Euro denominated debts, hence low CDS prices, but raises the risk premium attached to German debt.

  14. Gravatar of Andre Andre
    1. June 2012 at 08:42

    http://misleadingguidetocurrentaffairs.blogspot.com/2012/06/jobs-report-what-jobs-report.html

    This month’s jobs report was pretty awful, so naturally I decided to write about it.

    I don’t generally post about monetary policy, and it certainly isn’t something I’m spectacularly good at, but you can officially count me in as a supporter of NGDP targeting.

    Quick question though, Professor: Since I’m sort of new to this whole NGDPLT thing, could you point me to some good introductory pieces on it? I read your publication in National Affairs already and was looking for more like it.

    Best,

    Andre

  15. Gravatar of dwb dwb
    1. June 2012 at 08:54

    That lowers interest rates in Denmark but raises default risk.

    why does that raise default risk??

  16. Gravatar of Mike Sax Mike Sax
    1. June 2012 at 08:57

    Morgan you really oversell the public unions as the root of all evil. And your premise even contradicts Market Monetarists who while they mostly follow you on structural reforms none of them see the main problem as public employee unions or regulations as the main problem but rather the collapse in NGDP.

    Rush Limbaugh-I subject myself to him sometimes-is having an on radio orgasm about today’s numbers. He says that capital worldwide doesn’t want to invest-which is true yet manages not to even breath the word Europe.

    It’s all Obama’s fault. Sure if there were no Obamacare we’d have no problems. Euroep wouldn’t be imploding, the contagion would not be spreading to China and India…

    Scott your prediction on the other hand is alas probably on the nose-the 2020s sounds about right.

  17. Gravatar of Steve Steve
    1. June 2012 at 09:00

    “why does that raise default risk??”

    Denmark would be choosing the deflationary route to (non)-prosperity.

  18. Gravatar of Liberal Roman Liberal Roman
    1. June 2012 at 09:01

    Today I heard this rather depressing exchange on CNBC involving their main Fed expert, Steve Liesman (and I am paraphrasing):

    Anchorman: “Steve do you think the Fed is more likely to do QE3 because of this poor jobs report?”

    Steve Liesman: “Maybe, but I don’t really see the point. The market has already done a lot of their work for them. 10 year yields are at record low levels. I don’t really see what else the Fed can accomplish with more QE”

    Anchorman: “Yea, you are right Steve”

    Liberal Roman: **Throws bowl of cereal at TV screen**

  19. Gravatar of Jeff Jeff
    1. June 2012 at 09:01

    Can someone explain the Dr. Gloom joke? I thought Roubini was called Dr. Gloom?

  20. Gravatar of Essayist-Lawyer Essayist-Lawyer
    1. June 2012 at 09:09

    Morgan, please stop telling people they “know” you are right. Claiming you “know” what other people know better than they do and that they do not really disagree with you, but merely are under the delusion that they don’t know you are right and mistakenly believe they disagree with you is insulting.

    You insist that if Obama had moved aggressively to balance the budget, the Fed would have given adequate monetary stimulus to revive the economy. If that is so, then why does Ben Bernanke keep urging Congress not to move too fast to balance the budget, and to give more fiscal stimulus? Apparently the chairman of the Fed is one of many people under the delusion that they don’t “know” what you say they “know.”

  21. Gravatar of Don Geddis Don Geddis
    1. June 2012 at 09:11

    Scott N says: “Keynesianism is the single biggest reason why people … are suffering right now. … get on board with the market monetarists!

    You need to sort your enemies more carefully. At least the Keynesians agree that the problem is lack of aggregate demand. They may be promoting an inferior solution to that problem, but they see the same problem.

    The real “biggest reason” is all the other economists. The Austrians who think this is some kind of healthy correction, the naive household economists who think the problem was “too much debt” and therefore we need austerity to “tighten our belts”, the central bankers who are proud of their “inflation fighting” and don’t care about unemployment, etc.

    In the worldwide debate over macro policy, Keynesians are actually the closest allies to market monetarists. It’s ok to highlight where they could do better, but don’t go thinking that they’re the biggest problem.

  22. Gravatar of Liberal Roman Liberal Roman
    1. June 2012 at 09:21

    @Don Geddis,

    Although, I generally agree, today we have Keynesians in power who view monetary stimulus as ineffective. It’s not that they don’t see that lack of AD is the problem, it’s that they do and still don’t want to try monetary stimulus. It’s not important to them. Worse, some think that there are risks to trying it. They are the ones who are standing between monetary stimulus being implemented.

    Austrians and household economists may make a lot of noise, but they are not in power right now.

  23. Gravatar of W. Peden W. Peden
    1. June 2012 at 09:37

    Mike Sax,

    I agree. It would be a real shame if Obama lost because (1) he missed the boat on a fairly administrative measure of Fed appointments and (2) he was a victim of overseas incompetance.

    That said, “Mitt Romney vs. Barack Obama” is one of the least objectionable US presidential conflicts ever in my book (right up there with Clinton vs. Dole and Eisenhower vs. Stevenson). Obama is economically centre-right (by UK standards) and I think that Romney is also centre-right insofar as he has any strong beliefs. Both are good compromisers and will work with congress; neither is dogmatic. Of the two, I favour Obama because while he’s not as socially liberal as I would like (e.g. his views on the war on drugs have turned out to be basically the same as Bush’s) he is socially to the left of Romney and his announcement of support for gay marriage was one of the best presidential decisions on social freedom since Nixon ended the draft.

  24. Gravatar of W. Peden W. Peden
    1. June 2012 at 09:41

    Essayist-Lawyer,

    You have a very interesting blog.

  25. Gravatar of Peter N Peter N
    1. June 2012 at 09:42

    @Tomasz

    Scott’s India – China prediction is a winner. China is about to prove why it matters that it isn’t really a free market economy.

  26. Gravatar of Steve Steve
    1. June 2012 at 09:49

    Liberal Roman,

    It’s just like Sept 2008. Every pundit I listen to is predicting an imminent upturn in the consumer economy due to:
    1- lower long term interest rates
    2- strengthing dollar
    3- falling gasoline prices

  27. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. June 2012 at 09:54

    Essayist-Lawyer,
    You wrote:
    “Morgan, please stop telling people they “know” you are right.”

    You’re obviously not thinking with your lizard brain. Morgan isn’t saying that we “know” it. He’s saying that we “KNOW” it. (The capitalizations make all the difference.)

  28. Gravatar of Steve Steve
    1. June 2012 at 09:57

    Meanwhile, I try to keep my ears to the ground to see what is happening in business

    1- financial companies are preparing another round of firings, due to weak interest margins, low loan demand, low trading and banking revenues, etc.

    2- tech companies (e.g. HPQ) are gutting their workforce. Not every tech company is booming like AAPL (though I expect AAPL to roll over too). CSCO is crashing, too. Businesses are scared to spend on tech.

    3- energy companies are going to start dropping drilling rigs. This will lower AS, and lead to a price spike down the road, but right now companies are really hurting with the sudden $30 drop in oil on top of the 60% drop in natural gas

    4- governments are still cutting teachers, police, etc. some of this is to pay for egregious pensions, but much of this is a feedback from declining tax receipts. I expect tax receipts to resume declining after a recent bounce.

    5- retail is still doing ok, although it got an unusual bounce due to a warm winter and low heating builds. this is already fading.

    6- housing is still doing ok off a disastrous base, but mostly consumers are getting squeezed by rent increases while owner occupied can’t get financed, or can’t get zoned in areas that actually have jobs.

    Overall, there’s a chance for a negative quarterly NGDP print before long, although I think “rent inflation” will probably keep NGDP positive.

  29. Gravatar of Mark A. Sadowski Mark A. Sadowski
    1. June 2012 at 09:59

    Steve wrote:
    “I thought Roubini was called Dr. Gloom?”

    No, he’s called “Dr. Doom.” I’m still waiting for CNBC to do a triple interview of Doom and Gloom with the Black Swan:

    http://www.youtube.com/watch?v=hk4TgUxX0fQ

  30. Gravatar of Matt Waters Matt Waters
    1. June 2012 at 10:06

    I’ve just gone to calling NGDP/AD “demand” myself. Even AD makes it seem like an esoteric economic term. When NGDP/AD is instead called demand and that it’s roughly equivalent to a company’s revenues, then the whole low AD causing high unemployment concept becomes clearer. Nobody is ever told by their boss they were laid off due to low NGDP, but just about every lay off has declining revenue at its core. When all company’s see declining revenue, then you see higher unemployment.

  31. Gravatar of Essayist-Lawyer Essayist-Lawyer
    1. June 2012 at 10:13

    Mark,

    I guess I just need someone to translate Lizard for me. Are you up to the job?

  32. Gravatar of Lars Christensen Lars Christensen
    1. June 2012 at 10:44

    Scott,

    It is really pretty simple in terms of Danish and German yields. The Danish bonds are denominated in Danish kroner and the German bonds are denominated in euros. The markets is pricing in a certain likelihood of a appreciation of DKK against EUR. This explain the lower yield despite of the slightly higher default risk on Danish bonds.

  33. Gravatar of dwb dwb
    1. June 2012 at 11:00

    i saw over at yglesias a bloomberg article that Berscoluni has broken the “ciao euro” taboo. anyone want to start a book on which monday during june the europocalyspe happens?

  34. Gravatar of dwb dwb
    1. June 2012 at 11:06

    “Liberal Roman: **Throws bowl of cereal at TV screen**”

    12 Ga much more satisfying, plus by buying a new LED tv and hiring a housekeeper to clean the shards, you are stimulating the economy.

  35. Gravatar of CA CA
    1. June 2012 at 11:27

    Yeah, I just heard on CNBC Steve Liesman and Rick Santelli agree that the Fed can do no more (and shouldn’t even try) to improve the economy.

    And earlier I listened to a podcast on Bloomberg with David Malpass saying the Fed needs to quite meddling in the economy. The interviewer, Tom Keene, seemed to agree.

    How depressing. I’m becoming resigned to the fact that the economy is just going to suck for the next 10 years:(

    BTW, for anyone who has an iphone, I recommend the Bloomberg app. It’s free and gives you access to all their radio content.

  36. Gravatar of Matt Waters Matt Waters
    1. June 2012 at 11:31

    “anyone want to start a book on which monday during june the europocalyspe happens?”

    I actually think that Germany will put the deposit insurance/fiscal backstops in place AFTER Greece leaves the Euro. There’s a caricature of Germans as wanting to see all of Europe south of the Alps float into the Mediterranean, but they should realize that the PII(/G)S main issue is not fiscal solvency but liquidity costs. With the backstop of a printing press, they could keep the Eurozone outside of Greece together with far less economic damage than a true economic breakup.

    As Ezra says, the poll showing 80% of Greeks think that Germany will soon have a fourth reich is oddly comforting that the Eurozone has more hope than many think after Greece leaves.

  37. Gravatar of Cthorm Cthorm
    1. June 2012 at 11:38

    Scott –

    You can verify Lars’ point by looking at DKK cross rates with other major currencies. On a 1 year forward basis DKK/EUR is expected to be 7.4013, currently at 7.4308 spot. In true Market Monetarist fashion you can get the most truth by looking at all relevant markets simultaneously. Which oddly reminds me of Walras.

  38. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 11:39

    Adam,

    Tax cuts are not spending. Money doesn’t originate in the govt. hands, a tax cut is an outright admittance that govt. spending is not effective.

    What the govt. collects and the debt it incurs, that’s the total govt. spending.

    So when we talk about redoing the tax code, the presumption is that in year one there will be no more extra revnue, just better code that lays the groundwork for growth.

    —–

    At this point a discussion on growth is important. All real growth (besides population) comes from productivity gains, technology improvements, creative destruction, etc.

    Somebody somewhere has to figure out how to do X for less, do Y better, etc. The workers need to produce more per hour etc.

    I mention this because 22M workers are public employees, and since 1980 they have been delivering <1% YOY productivity gains.

    Before that is was <1.5% YOY.

    While the rest of the country system was doing the P90X 40 year work out, with Mike Milken / Mitt Romney / Jeff Bezos style productivity gains…

    22M fat lazy good for nothing sloths gained 400LBS comparably.

    This is not a morality play.

    This is a cold brutal zero sum game strategy whereby, we have finally reached the point where GOV2.0 is REQUIRED to move forward.

    The rest of the country simply will not continue to carry the public sector on its back.

    If we go back to just 1998, and only give public employees raises based on inflation we are saving $450B this year.

    Nearly $7T with interest of our "national" debt can be attributed to not just paying them above inflation BUT not requiring them to deliver productivity gains.

    So Sax, one more time There is NO DOUBT that we could the local, sate, and federal govt. at current levels, providing all the same services, and do so spending $800B LESS.

    That's $1T is less compensation for public sector, and $200B in technology company revenue automating govt.

    ——

    Adam, what happens if the US govt. projects to spend $800B less on public employees say in 2016?

    Giant deflationary effects. Good Answer!

    What does Ben do when faced with giant deflationary affects?

    PRINTS MONEY.

    This is not cutting Social Security payments austerity – this isnt grandma become more conservative with her spending today austerity.

    THIS IS GROWTH!!!!

    What do we call productivity gains everyone?? Everyone??

    We call productivity gains GROWTH.

    So when you ask yourself what Ben means "austerity" – you need to be specific about what he is against and what he is for.

  39. Gravatar of Liberal Roman Liberal Roman
    1. June 2012 at 11:59

    This is truly getting depressing. Everywhere I look, there are headlines about how impotent further Fed action will be. I try to comfort myself by reminding myself that Bernanke never thinks the Fed is out of ammo. But then I also remember he has been assimilated by the Fedborg and his main goal is to find a way to do nothing.

    Also, Mario Draghi has thrown up his hands and basically said the Euro can go to hell. Things are looking rather bleak right now.

  40. Gravatar of Mike Sax Mike Sax
    1. June 2012 at 12:12

    Essayist-Lawyer-or W. Peden, one of you-what’s the name of your blog?

  41. Gravatar of Steve Steve
    1. June 2012 at 12:23

    “Operation Twist” may have succeeded in lowering long-term interest rates, but wait until you see “Operation Passively Tighten”!!!

    I’ve got the 10yr at 1.46% and the 30yr at 2.52%

  42. Gravatar of Major_Freedom Major_Freedom
    1. June 2012 at 12:35

    Do the low interest rates not falsify the market monetarist prediction of low interest rates being a signal monetary policy has been tight?

    Since 2010 NGDP has been rising according to historical trend. Shouldn’t interest rates be higher than they are now?

  43. Gravatar of Steve Steve
    1. June 2012 at 12:44

    “Since 2010 NGDP has been rising according to historical trend. ”

    MF, I didn’t realize you were a Time Traveler!

  44. Gravatar of Eric G Eric G
    1. June 2012 at 12:46

    Morgan, public employees is not the problem. Please drop the Faux News talking points.

  45. Gravatar of Liberal Roman Liberal Roman
    1. June 2012 at 12:48

    “Since 2010 NGDP has been rising according to historical trend. ”

    What? What? WHAT?!

  46. Gravatar of MkeC MkeC
    1. June 2012 at 13:04

    Morgan Warstler:

    From Felix Salmon:

    “Just look at the amount of money which is flowing straight to corporations’ bottom lines, and not being put to good, productive work. Corporate profits now account for significantly more than 10% of GDP: that’s never happened before.”

    That is NOW three years into Obama. Of course if you don’t like the facts you can always make some up. Proceed….

  47. Gravatar of Essayist-Lawyer Essayist-Lawyer
    1. June 2012 at 13:05

    Just click on the link, Max. I clicked on yours.

  48. Gravatar of Kevin Johnson Kevin Johnson
    1. June 2012 at 13:10

    So how can the subject of NGDP or AD targeting be raised or discussed with the decision-makers, the members of the FOMC?

    Comments such as “I don’t hear any business people and job creators saying, ‘I need more liquidity, I need more money,'” from Dallas Fed President Fisher (not on the FOMC) (http://ow.ly/1N6adu) suggest that the Fed presidents are listening.

    Should journalists be contacted to suggest questions for the next Fed press conference? Krugman has said that he doesn’t have discussions with Bernanake. Do any economists or business people?

  49. Gravatar of Liberal Roman Liberal Roman
    1. June 2012 at 13:15

    @Kevin Johnson,

    It’s hopeless. There is no one saying that between 2000 and 2012 there became a shortage of oil, but that’s exactly what happened. At least a shortage so as to satisfy all the demand at the $30/barrel price level.

    There is no one saying there is a shortage of housing in the Bay Area. But that’s exactly the case. At least a shortage of housing so as to satisfy all the demand at lower price levels.

    So, if people can’t understand that, how will they understand that there is a shortage of money?? They won’t.

    I bet you that even during the Great Depression there was no one saying “I need more liquidity”. They were saying I need more sales.

  50. Gravatar of Jim Glass Jim Glass
    1. June 2012 at 13:16

    10-years at 1.46% … returns on TIPS are negative … on German 2-year bonds are negative … Money is EASY!

    Meanwhile, the inflation news is just as good!

    inflation expectations implied by TIPS: The 2×2 breakeven (2-year forward) inflation expectation came down hard today, dropping below 1%. This is an extraordinary correction from the peak – 1.36% drop in 80 days.

    ___

    Carthago inflation targeting delenda est.”

    My Latin is rusty, how would that work? “Inflation targeting” wasn’t a Roman concept, so some improvisation seems needed.

  51. Gravatar of Scott N Scott N
    1. June 2012 at 13:20

    Don Geddis, I agree with Liberal Roman. All those other groups you mentioned are also wrong. Trust me, I have to argue this with all my relative who think we are one quantitative easing away from Weimar Germany. The difference is that New Keynesians are running BIG ECON right now. That is why they are disproportionately to blame.

    There is one good side to this. If the Fed drags its feet long enough, the likelihood Obama loses goes up. I think that is bargain definitely worth taking.

  52. Gravatar of Peter N Peter N
    1. June 2012 at 13:21

    It’s simple – QE4. The Fed bankrolls the major US banks to buy the large foreign banks. JP Morgan could take Bankia, Citibank Santander, BOA Dexia and so forth. Problem solved, what could go wrong? Nothing!? The ECB will, of course, throw in 1 trillion euros and the box lunches for the board meetings.

    But this could never happen, right? Right?!

  53. Gravatar of Scott N Scott N
    1. June 2012 at 13:27

    Did you see that the yield on 2 yr Swiss bonds is -0.284%. People are PAYING money for the privilege of loaning money to Switzerland.

    http://www.bloomberg.com/quote/GSWISS02:IND

    This may be due to expectations that the Swiss will break its Euro currency peg, but I’m not sure.

  54. Gravatar of dwb dwb
    1. June 2012 at 13:36


    The Fed bankrolls the major US banks to buy the large foreign banks.

    it would mean that Spain leaves the Euro.

    American banks are not exactly in great shape to digest some mergers; I think BoA and other banks are still busy digesting from the last round.

    Citibank Santander – not a wholly owned subsidiary of Citibank?? didnt we already bail them out once?

  55. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 13:57

    Eric G,

    Yes they are the problem.

    I gave facts. Look them up.

    If public employees were in same position financially today that they were in 1980, there would be no issue of debt.

    ——

    Let me put it another way:

    Romney and the right are going to make sure unions are out of the picture for 2016.

  56. Gravatar of ssumner ssumner
    1. June 2012 at 14:09

    Bonnie, That’s what they call “dog-whistle politics.”

    Steve, Perhaps, but the Danish currency is pegged to the euro.

    Tomasz, I predicted it would occur many decades after I was dead. And the prediction was for RGDP, not NGDP.

    If I’m wrong I encourage you to come and dance on my grave.

    Scott N, Exactly.

    Mark, Isn’t that just the zero lower bound for nominal rates? As all nominal rates plunge toward zero, the spreads compress.

    Adam, Good point, he’s promising big spending increases.

    Steve, That makes more sense.

    Andre, David Beckworth is editing an entire book on NGDP targeting, it should be out this year. I think he’s also done some articles. George Selgin has also written on the topic.

    Liberal Roman, Yes, unfortunately this post isn’t satire to lots of people.

    Jeff, I didn’t know that–I was referring to Krugman.

    Don, I half agree. But let’s not forget that 80% of US economists are basically Keynesian, and most seem to think the Fed is doing enough. Your point is well taken if referring to the smarter Keynesians.

    Steve, Heh! I forgot about the lower gasoline prices!

    You said;

    “energy companies are going to start dropping drilling rigs.”

    But wait, aren’t those low energy prices good??

    Matt, ‘Demand’ is actually not a bad term–it’s simple.

    Lars, Yes, and the CDS must imply Denmark has a bigger default risk.

    CA, Given the other quote, that actually makes sense.

    Thanks Cthrom.

    Kevin, It would be interesting to know who he talks to.

    Jim Glass, Yes, 2 year inflation forecasts below 1% and unemployment 8.2% and rising. Hmmm, why would anyone think we need easier money?

  57. Gravatar of ssumner ssumner
    1. June 2012 at 14:11

    Scott N, They are negative out to 4 or 5 years.

  58. Gravatar of Major_Freedom Major_Freedom
    1. June 2012 at 15:12

    Steve:

    “Since 2010 NGDP has been rising according to historical trend. “

    MF, I didn’t realize you were a Time Traveler!

    Liberal Roman:

    “Since 2010 NGDP has been rising according to historical trend. “

    What? What? WHAT?!

    Sometimes I wonder if you guys are even looking at the world around you.

    NGDP has been rising at historical trend since 2010.

    Steve I have no idea what you mean by time travelling.

  59. Gravatar of Major_Freedom Major_Freedom
    1. June 2012 at 15:14

    Since NGDP has been rising all nice and smoothly for the better part of two years, the question you must ask yourselves is why are interest rates at historical lows, when market monetarism predicts interest rates are a function of recent/past NGDP?

    Or is the window of prediction whenever interest rates do rise, and then you say “See? I told you so!”

  60. Gravatar of ChargerCarl ChargerCarl
    1. June 2012 at 16:16

    “I predict the 2020s will be the decade of recovery.”

    That is disheartening. There goes my 20’s.

  61. Gravatar of OGT OGT
    1. June 2012 at 16:33

    Where’s the Fed reaction function when we need it? I’m getting a bit tired of opportunistic disinflation.

  62. Gravatar of Morgan Warstler Morgan Warstler
    1. June 2012 at 16:41

    DeKrugman comes out in favor of firing the lazy public employees:

    “”The boom, not the slump, is the right time for austerity.” So declared John Maynard Keynes 75 years ago, and he was right.”

    He just wants to wait.

    And the answer is NO. Not until he comes up with a guarantee that we will fire them all when we post growth.

    Had he been as vigilant on keeping govt. spending from growing for his voters, we wouldn’t had to spend all the money.

    Eventually, he’ll finally get to this admittance of his beta nature, his team doesn’t drive the car, it rides int he backseat.

  63. Gravatar of ssumner ssumner
    1. June 2012 at 17:33

    MF, Levels matter.

  64. Gravatar of Peter N Peter N
    1. June 2012 at 19:04

    @morgan

    Their are a number of problems with local government spending. Public employee salaries aren’t too far out of line, but that’s not true of present value of all commitments as distorted by funding shortfalls.

    1) Since local government has to have balanced budgets, the easiest way to give employees more money is to push it out into the future.

    2) Because of weaknesses in how we allow local government to calculate pension fund investment earnings (pick a number, any number), pension funds with projected earnings of something insane like 8% appeared over-funded pre-2007 and thus needed little or no contributions. Since admitting it should be more like 3% would put them on the hook for huge topping up contributions, they’ve just mostly stuck with the old estimates and hoped it would work out. It hasn’t. compound interest is nasty if you ignore it. It’s easy to get behind and hard to catch up.

    3) Governments allowed gaming the system. If the pension is based on the last years earnings including overtime, everybody is grade 999 working 80 hour weeks for their last years. Funny that.

    4) The number of indians has remained reasonable, but there’s been quite a bit of chief inflation. Much like grade inflation in college, it’s a “cheap” way of keeping everybody happy. This seems to be a corollary of Parkinson’s law. Not only does bureaucracy increase at a rate of 3% a year, but the expansion is disproportionately at the managerial levels. Look at how many generals and colonels the army has per fighting enlisted person. Part of it is more complex support needs, but not near all of it.

    5) Local government revenues are pro-cyclical – a really bad idea. It causes to much spending in boom years and dangerous cutbacks in bust years (like deferred highway maintenance). This could and should be fixed.

    The unions say the problem was government cooking the books. There’s no doubt it did, that doesn’t leave them blameless.

  65. Gravatar of Peter N Peter N
    1. June 2012 at 19:58

    @dwb

    I was being sarcastic. Combining the banks is like deciding that the reason you can’t make chicken salad from chicken droppings is a shortage of droppings to be solved by buying more chickens and some laxatives.

    The banks are all insolvent. We need a resolution trust organization not bigger zombies. We’ve already done too much for the banks and not enough for the customers.

  66. Gravatar of dwb dwb
    1. June 2012 at 20:08

    @ peter n,
    sarcasm is difficult to detect.

    ” Combining the banks is like deciding that the reason you can’t make chicken salad from chicken droppings is a shortage of droppings to be solved by buying more chickens and some laxatives.”

    lol. quite a visual.

  67. Gravatar of Tom Tom
    2. June 2012 at 03:50

    Dr. Gloom isn’t so true of Krugman — Dr. Big Gov’t seems more honest.
    pundit who’s been 100% right about the AD shortfall from the beginning.
    The “beginning” was Bush’s tax cut boom and housing bubble, during which time the gov’t needed to be cut, but instead it expanded.
    I didn’t watch closely, but the times I looked, and the references to Krugman I recall about those boom years, he NEVER called for a gov’t reduction, only more. And complained about Bush, and the boom economy, as if it was frozen in the dot.com bubble pop 2000-2001 recession.

    Anybody who always calls for more gov’t spending is most often wrong. Tax cuts for the same deficits would have helped the economy more, by avoiding Solyndra like crony-capitalist donor payoff investments.

    But Dr. Big Gov’t seems to hate most tax cuts, and certainly hates tax cuts more than he likes increased employment.

    Scott, the reason so many Tea Party types are against Obama, is that he’s not pushing for more tax cuts. He was verbally against extending the Bush cuts, but reluctantly accepted them because he didn’t have to votes to repeal them. I seem to recall that Krugman certainly wanted them to expire for the top rates, but I don’t recall his final position about all cuts or none.

    The micro-reality is this: rich entrepreneur-owners only hire workers if they think the workers are going to make them richer (after taxes). If you don’t want the rich getting richer, you don’t want them hiring more workers. The Dems are getting an amount of hiring, little, in proportion to their support of rich employers getting richer by hiring more.

    The “demand” you want to stimulate is mostly “more jobs”, which mostly come from a desire of rich (enough to hire) folk wanting to get richer.

  68. Gravatar of Mike Sax Mike Sax
    2. June 2012 at 07:32

    You know W. Peden it’s amazing how much I miss Nixon these days. And I’ve discovered I’m far from alone-turns out there are many like me-Richard Nixon liberals.

    http://www.amazon.com/Nixon-Reconsidered-Joan-Hoff/dp/0465051057/ref=sr_1_1?ie=UTF8&qid=1338651134&sr=8-1

  69. Gravatar of flow5 flow5
    2. June 2012 at 08:34

    Keynes’ liquidity preference curve is a false doctrine.

  70. Gravatar of flow5 flow5
    2. June 2012 at 08:34

    Keynes’ liquidity preference curve is a false doctrine.

  71. Gravatar of flow5 flow5
    2. June 2012 at 08:35

    Keynes’ liquidity preference curve is a false doctrine.

  72. Gravatar of ssumner ssumner
    2. June 2012 at 11:32

    Tom, I also want low taxes. My only point was he’s been right about AD since the recession started.

  73. Gravatar of Major_Freedom Major_Freedom
    7. June 2012 at 11:50

    ssumner:

    MF, Levels matter.

    Until how long though?

    If NGDP fell in 1931, and since then there was 5% NGDP annual growth, then would it matter that the “level” growth is smaller than it otherwise would have been? Do you believe that 20% NGDP this year can “make up” for it?

    How many years have to pass before you say fine, OK, prices have adjusted to the stable NGDP growth, and it won’t help by having one year of massive inflation?

    Why isn’t two years enough? How many years is enough?

  74. Gravatar of Economy Slowing, Rush Limbaugh's GOP Jubilant | Last Men and OverMen Economy Slowing, Rush Limbaugh's GOP Jubilant | Last Men and OverMen
    24. April 2017 at 03:33

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