Category Archives: Macroeconomic policy

"The Case Against Fiscal Stimulus"

A fine post by the thoughtful Jim Hamilton argues that listeners heard what they wanted to hear in Bernanke’s Congressional testimony Thursday, namely, that the good doctor ordered up a bit of fiscal tonic. He notes that the Fed chief in fact set forth cons as well as pros of budgetary measures. Hamilton raises two […]

Menzie Chinn on the Merits of Fiscal Stimulus Via Improvements to Automatic Stabilizers

While there is some debate about whether and how much fiscal stimulus is warranted to combat a likely recession (yours truly thinks that we are in a no-win situation, with side effects likely to be as bad as the disease), some sort of program seems inevitable, particularly since this is an election year. So then […]

Willem Buiter: "Why the US may well need a recession"

We are glad to be in such august company as Willem Buiter’s, professor at the London School of Economics who has also held a number of positions with various monetary authorities. Early this week, former Treasure Secretary Larry Summers, in the Financial Times, argued that the US needed a fiscal stimulus to ward off a […]

US Recession May Be the Best Medicine

The headline above isn’t precisely how Gilles Saint‑Paul of the Toulouse School of Economics states his conclusions in his article at Vox EU, “How the US imbalances can be corrected.” But he makes a solid case that a US recession is likely the better way to deal with our current economic mess than rate cuts. […]

Larry Summers Warns of "Deepening Crisis"

While a number of analysts, investors, and commentators have said for some time that the credit crisis is serious and is likely to damage the real economy, the only views that the Fed takes seriously are those of highly regarded economists, fellow regulators, and senior industry executives (oh, and of course, that of Fed futures […]

The Not-So-Good Federal Budget Outlook

Menzie Chin at Ecnobrowser supplied this chart from the Congressional Budget Office November Budget Review: The red line is receipts, and if you are an optimistic sort, you might persuade yourself that the gap has gotten smaller and therefore will continue to shrink. The fly in the ointment, however, is obvious. Receipts are a function […]

Treasury Sales to Rise Sharply to Fund Deficit

Bad enough that we have to worry that any further Fed fund rate reductions will lead to increases in long bond rates. That happened with the September 18 50 basis point cut, since investors regarded the move as inflationary. But further Fed cuts or no, it looks like we will see more upward pressure on […]

China Launches Price Freeze

Do you remember “Whip Inflation Now,” Gerald Forf’s program to reduce inflation by exhorting consumers to spend less? WIN buttons, part of a public awareness campaign, quickly came to symbolize the cluelessness of the Ford Administration. The Chinese are about to learn Ford’s lesson the hard way. Rampaging domestic inflation has led the government to […]

Fed Policy Too Expansive on Its Own Terms

In an interesting Brookings Institution paper (hat tip Greg Ip at the WSJ Economics Blog), former Federal Reserve economist Douglas Elmendorf looks at the question of whether monetary policy in the run-up to the credit contraction was too loose. However, he argues that the impact wasn’t great enough to have caused the housing bubble: Let […]

Krugman Savages Greenspan’s Revisionist History

Alan Greenspan made the mistake of resorting to a tired and increasingly ineffective move from the Bush playbook. Specifically, tell a big lie long and loudly enough, and quite a few people will come to believe you. But in Greenspan’s case, this tactic may be backfiring. Greenspan seems to have forgotten that some of the […]

John Kay on Central Bank Independence

Faithful readers, I have looked around quite a bit tonight, but I am not coming up with much grist for blogging. Yes, there is a Wall Street Journal front page story that tells us that homebuilders are putting up smaller houses. And there is some chat everywhere about OPEC’s small production increase, one that the […]

Robert Reich Uses the R Word

Robert Reich’s latest post, “The Way to Prevent the Looming Recession.” argues that monetary policy won’t prevent the coming recession and therefore policy makers need to consider tax cuts: With the economy heading for recession, all eyes are on Ben Bernanke and the Fed, and the question everyone is asking is how much the Fed […]

"The Fed versus the financiers"

Below are some excerpts from a good piece by Kenneth Rogoff on the Guardian’s website, which discusses why Bernanke thinks the Fed has no business worrying about asset prices, but argues that the lousy quality of macroeconomic data means policy makers ought to consider the information embedded in market prices: A bit of intellectual history […]

Housing Remedy: Employer of the Last Resort?

Financial Times columnist Wolfgang Munchau, in “Prepare for the credit crisis to spread,” tells us that the credit crunch is likely to get worse, since credit problems will spread to credit card receivables and car loans, both of which are typically securitized, and collateralized loan obligations (read takeover debt) also look shaky. Munchau argues that […]

Nouriel Roubini on the Instability of Bretton Woods 2

The Bear Stearns/CDO drama has taken attention away from other worrisome conditions in the economy, and the biggest one is “global imbalances,” which is shorthand for the US running continuing, large current account deficits that are financed for the most part by foreign central banks, particularly those of China, Japan, and Saudi Arabia. We’ve lived […]