Assuming current fiscal policies remain in force, our economic model suggests that interest rates will rise considerably over the next decade, with the yield on the 10-year Treasury note reaching nearly 9% by 2021. – Private interest rates will rise as federal borrowing competes for saving that might otherwise finance private investment. – In addition, […]
Read more...I hate to seem to be beating up on Brad DeLong. Seriously.
As I’ve said before, he is one of the few economists willing to admit error and not try later to minimize or recant his admission (unlike, say, Greenspan). And he seems genuinely perplexed and remorseful. This puts his heads and shoulders above a lot of his colleagues, at least the sort whose opinion carries weight in policy circles.
Even with DeLong making an earnest effort to figure out why he went wrong, his latest musings, via a Bloomberg op-ed, “Sorrow and Pity of Another Liquidity Trap,” show how hard it is for economist to unlearn what they think they know. And as the great philosopher Will Rogers warned us, “It’s not what you know that gets you in trouble. It’s what you know that ain’t so.”
So it’s important to regard DeLong as an unusually candid mainstream economist, and treat his exposition as reasonably representative if you could somehow get his peers to take a hard, jaundiced look at how wrong they have been of late.
DeLong’s mea culpa is about how he and his colleagues refused to take the idea that the US could fall into a liquidity trap seriously. As an aside, this is already a troubling admission, since many observers, including yours truly, though the Fed was in danger of creating precisely that sort of problem if if dropped the Fed funds rate below 2%. It would leave itself no wriggle room if the crisis continued and it had to lower rates further into the territory where further reductions would not motivate changes in behavior. That’s assuming we were in a “normal” environment. But the big abnormality is that we are in what Richard Koo calls a balance sheet recession. And as we will discuss below, Keynes (and Minsky) had a very keen appreciation of the resulting behavior changes, but those ideas were abandoned by Keynesians (it is key to remember that Keynesianism contains significant distortions and omissions from Keynes’ thinking.
But notice how he starts his piece:
Read more...Cross-posted from Credit Writedowns President Obama is not the only debt ceiling flip-flopper. During the Bush administration, when a budget surplus tuned to deficit and debt piled up, Republican leaders in Congress voted to raise the debt ceiling 5 times, increasing the limit nearly $4 trillion. We’re talking about Speaker John Boehner, House Majority Leader […]
Read more...William Rees is one of the pioneers of ecological economics and is the originator and co-developer of ‘ecological footprint analysis’. This video contains some basic facts about current consumption levels in advanced economies that are attention-grabbing. I’d normally say “Enjoy” but this is not that sort of video.
Read more...Bloomberg has a new story on its continuing efforts to pry more information out of the Fed on who borrowed what when in the runup to the financial crisis. The central bank had refused to provide details of what various needy financial firms had gotten under its single tranche open markets operations program, which was launched in March 2008. Lehman received a peak amount of $18 billion out of a total program size of $80 billion.
Now why does all this matter?
Read more...By L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City. Cross posted from FireDogLake
Yves Smith set off a firestorm in her criticism of several progressive groups that have joined forces with Pete Peterson to whip up deficit hysteria. There are three issues that need to be addressed:
Read more...1. Can a progressive take tainted money and remain progressive?
2. Did the Roosevelt Institute (in particular) take tainted money and remain progressive?
3. What would a progressive approach to federal budgeting look like?
By Jon Rynn, author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems. Cross posted from New Deal 2.0.
Between questionable science, health hazards, and exorbitant costs, there’s no fracking way that drilling for natural gas will solve our long-term energy issues.
Read more...The only reason to think Republicans are serious about their threat to have the Federal government default rather than raise the debt ceiling is that they have an undue fondness for apocalyptic outcomes. I suppose I should actually favor this sort of thing; I’ve long thought the only hope for getting the US freed from rule by financiers was another financial crisis, provided it came soon enough and it was big enough. This one might fit the bill on those scores.
However, with the immediate trigger being pigheaded Congressmen, the banks might look like innocent victims, when the ballooning of public debt around the world was the direct result of their recklessness and the resultant global economy near-death experience. So a debt-ceiling-row-induced great big financial dislocation would probably not produce the opportunity to break the power of banks that yours truly and many others are looking for.
As the hour of reckoning approaches, more and more creative ideas to disarm the Republican weapon are being put forward, and an intriguing one comes from, of all places, a Republican, Ron Paul.
Read more...Readers new to this site may be unfamiliar with our summer reruns, in which we reprise vintage NC posts that we think have stood the test of time pretty well.
We’ve done these more or less in chronological order (our last one was our post on the unveiling of the TARP), but we decided to skip ahead to one in 2010 because it focuses on a crucial bit of history that is too often overlooked, and were were reminded of it by a very good Frank Rich piece in New York Magazine on Obama’s failure to bring bankers to account.
Even Rich’s solid piece treats Obama more kindly that he should be. He depicts the President as too easily won over by “the best and the brightest) in the guise of folks like Robert Rubin and his protege Timothy Geithner.
We think this characterization is far too charitable. Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters. That fatal decision has severely constrained their freedom of action, as we explain below.
Read more...The Financial Times has two heated articles (relative to the each writer’s normal emotional register) on the continuing Greece neverending bailout saga, one from Wolfgang Munchau, the other from John Dizard. Munchau and Dizard reach the same conclusion from different fact sets: the latest Greek patch-up exercise is only going to make matters worse, politically and economically.
Read more...Yves here. This issue may seem a bit off topic to NC readers, but this subsidy to a state we treat as a mortal danger, and at a time of severe expenditure-cutting, illustrates the degree to which business interests drive American policy.
By Jane Hamsher. Cross posted from FireDogLake.
Yesterday the White House took the last step to owning all three leftover Bush NAFTA-expansion deals with Korea, Colombia and Panama by
. The Economic Policy Institute estimates that we’ll lose 159,000 jobs with the Korea deal alone.
At a time of high unemployment, it’s difficult to fathom why the President would be fighting to increase our trade deficit and ship tens of thousands of jobs overseas.
Even more stunning, however, is the loophole in the Obama deal that will hand billions over to North Korea to spend on their nuclear weapons program (PDF).
Read more...By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.
Markets are celebrating the triumph of an anti-labor, pro-capital agenda. But is social unrest the consequence?
The Europeans genuinely must genuinely believe that they can get blood out of a stone. Or perhaps resort to a modern day equivalent of turning lead into gold. There’s no other reason to explain the euphoria now prevalent in the markets, in light of the approval by Greece’s lawmakers to pass a key austerity bill, thereby paving the way for the country to get its next bailout loans that will prevent it from defaulting next month.
Read more...Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.
Read more...Jon Daniellsson of the LSE has spotted something odd about the Basel III debate on capital levels…
Read more...Several readers sent me links to a Brad DeLong post which they took to be a rebuttal to a takedown I did of a recent Ezra Klein piece.
Since DeLong did not link to or mention my post, I doubt his piece had anything to do with mine. But his post is noteworthy for a completely different reason: it illustrates how economists have refused to learn much, if anything, from the crisis.
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