12/4/08 Antidote du Jour Posted on December 4, 2008 by Yves Smith Post navigation ← Reader Notice 12/5/08 Antidote du Jour → Subscribe to Post Comments 24 comments ndk December 4, 2008 at 1:09 am Mankiw goes empirical on fiscal stimulus’ track record. It doesn’t look encouraging. Setser talks about renewed RMB depreciation. He reinforces Wolf’s point about fiscal stimulus in deficit countries, but still supports domestic stimulus as well. Uncle Silly December 4, 2008 at 4:13 am That was an interesting photo on so many levels. Anonymous December 4, 2008 at 9:37 am I’M GOING INTO WITHDRAWL HERE tyaresun December 4, 2008 at 10:40 am ndk,Pettis talks about dollar outflows. Everyone was worried about hot money inflows into China just a few months back. Should be fun to watch. Eleanor December 4, 2008 at 10:47 am I count eight cats. Looks like a nice house, though I’d go a little lighter on the cats. ndk December 4, 2008 at 11:39 am Pettis talks about dollar outflows. Everyone was worried about hot money inflows into China just a few months back. Thanks, tyaresun, I’ll check it out. Brad has a stellar post graphically illustrating the scale of those hot money inflows. I don’t think it’ll have much practical impact on China given their surplus and cash hoards, so I can smile and laugh about that one. The potential trade war isn’t nearly as funny. S December 4, 2008 at 11:51 am Bloomberg reporting China resisiting US calls for opening up their banking sector. Is this not the height of irony. Is this what the Us has been reduced to: Paulson begging China to let our muscular investment banks into the fold? Sad. ndk December 4, 2008 at 12:02 pm Is this what the Us has been reduced to: Paulson begging China to let our muscular investment banks into the fold? Sad. I saw that too, S. My cynical hunch is that, more than just for the fees, it’s a desperate way to increase their tier 1 capital, given China’s high savings rates. I guess this is the next step after your $300b bailout request is rejected by your middle-eastern protectorates. For perspective, USAID doled out $23.53b in 2006, a large chunk of which went to Iraq. Tortoise December 4, 2008 at 12:08 pm For those who follow shipping, the BALTIC DRY INDEX fell further and is now at what can be technically described as the arghhh ouch ouch low of 666,00. I hope you guys had gotten rid of you bulk carriers at a good price before this fall. Keenan December 4, 2008 at 1:59 pm Charlie Rose interviews Nassim N Taleb on Dec 3. About 20 minutes N.N. Taleb projects “Capitalism 2.0” with banks as utility companies, very little leverage, coming massive inflation. N.N. Taleb with Charlie Rose Dec 3 Simit Patel December 4, 2008 at 4:18 pm Great post! I love cats. While we’re waiting for the Treasury market to collapse, the dollar to fall sharply, and all hell to break loose, US dollar/Japanese Yen is short worthy. Still time to get in on that trade. Anonymous December 4, 2008 at 6:14 pm This seems appropriate, with the cats theme and the currant economic environment. http://api.photoshop.com/home_7c1f6a5c78d14c5dbb4048d2e4e77019/adobe-px-thumbnails/dcbd95c8597f4d63b510663cf8796a10/256.jpg Enjoy Skippy Anonymous December 4, 2008 at 7:20 pm reshape that kitty cone and all will be well. foesskewered December 4, 2008 at 8:10 pm sorry, more enamoured of the loft house scene than the pets… Anonymous December 4, 2008 at 9:02 pm I think the main thing here is patience. Do not let Mr. Paulson (the Bush disaster) have any more of the Tarp money. Hold on. The TARP money was supposed to increase lending to Main Street. Obviously it has gone to propping up the balance sheets of bad companies with bad business models who should fail. If they are not supporting our effort to alleviate the damage they have done, then there is no good reason for the US taxpayer to support these dogs. Their survival is contingent on their usefullness to our war effort. China should be told, as kindly as possible, that the US would like them to spend their money stimulating consumption. We can no longer afford running atrade deficit with them more than $2 Billion per month. Beginning in February, the US will limit imports, of their choosing, so that the trade deficit is approaches the aforementioned number. I luv the Chinese as much as the next guy. However the stupid shit that academia and the business community have been promoting has created a depression. Why should I believe they know WTF we should do now ? Anonymous December 4, 2008 at 10:53 pm Taleb predicts massive deflation in that interview, not inflation. ndk December 4, 2008 at 11:10 pm Taleb predicts massive deflation in that interview, not inflation. That’s the fun thing about this particular precipice. It could be either, depending on policy decision, and the decision is not nearly as easy as it’s often made out to be. Creating and controlling inflation with current Fed and bank balance sheets and our fiscal gap is like hitting an old ironclad with enough cannonballs to kill all the sailors, then still managing to float home on the remnants. History has proven these battles can end in boredom and apathy. Anonymous December 4, 2008 at 11:18 pm So a few months ago 200 dollars a barrel of oil was the prediction. Now the prediction is 25 dollars a barrel of oil. http://www.bloomberg.com/apps/news?pid=20601087&sid=aIUEV3pCOJeo&refer=worldwide Anyone want to jump onto the prediction bandwagon. I predict 1000000000 dollar oil as the Zimbabwe dollar is adopted as the reserve currency. tom a taxpayer December 5, 2008 at 12:07 am I stick to bottled beer and decline dinner, lunch, breakfast, brunch, canapes, and horse’s douveres in homes where cats run wild, particularly in kitchens. Anonymous December 5, 2008 at 12:42 pm >Taleb predicts massive deflation in that interview, not inflation. That's the fun thing about this particular precipice. It could be either Agreed, but for the purposes of discussing the video, this issue is that his accent is too think to tell the difference on a cursory listen! Fooled by accent? "Cassandra" December 5, 2008 at 1:36 pm Take note that the Panda & Friend are occupying the exit row. Should we read anything significant into this fact??!? Juan December 5, 2008 at 4:12 pm ndk, the wiki link re deflation begins with the old and i thought disproven or at least shown inaccurate is/lm model and, though i didn’t read through the whole, would assume its relation to policy prescriptions. skipping ahead, would you be willing to consider an accumulation of deflationary pressures beyond the mitigating ability of monetary and fiscal policies, perhaps even enhanced through the long run use of such policies? and yes, i take a particular 19th century or, better, a contra-neoclassic perspective which does not deny the role of the state but attempts to place it in larger context. Anonymous December 5, 2008 at 9:23 pm Hey, I think I was on that flight… ndk December 7, 2008 at 1:57 am the wiki link re deflation begins with the old and i thought disproven or at least shown inaccurate is/lm model and, though i didn’t read through the whole, would assume its relation to policy prescriptions. Juan, accurate or not, I’m pretty sure that’s the playbook we’re using. It seems rather apparent that most economists believe we’re in a horizontal segment on the LM curve, and we need to shift IS to the right with a big pile of G and consume the resulting free lunch. skipping ahead, would you be willing to consider an accumulation of deflationary pressures beyond the mitigating ability of monetary and fiscal policies, perhaps even enhanced through the long run use of such policies? I believe that our current actions are probably making the deflationary pressures more intense, yes. There’s empirical evidence for that in real interest rates for corporations and the government, frozen markets, and the CDS on the Treasury have climbed a lot. There are also several possible transmission channels, such as real interest rates, solvency worries, and yes, the neoclassical view that banks can’t charge a high enough interest rate to make investment worthwhile. The Fed can always purchase sufficient assets to create inflation, but I think the amount required is a lot larger than we’d hoped, and may cause irreparable damage to the real economy and balance sheet of the government. See Buiter on maximum seigniorage. I don’t think fiscal policy is an ultimate solution to structural issues, and can be used as a stopgap at best. Krugman had some great thoughts here awhile back. While deflation as the ultimate evil is taken for granted, I do think we could conceive of worse situations to put ourselves in. Comments are closed. Tip Jar Please Donate or Subscribe!