Category Archives: Macroeconomic policy

"Stop behaving as whiner of first resort"

A comment by Ricardo Hausmann in today’s Financial Times takes US policymakers to task for trying to prop up demand and stave off a recession. We’ve pointed out repeatedly, as have various economists quoted here, that consumption as a percentage of US GDP is unsustainably high and saving correspondingly too low. It can only continue […]

Robert Reich Grasps the Enormity of the Problem

Although Robert Reich is a smart fellow (and I mean that sincerely), like a lot of Beltway types, he isn’t as well versed in the ways of the world of finance as he is in the workings of public policy and opinion. Thus I found his recent post, “The Politics of an Economic Nightmare,” intriguing […]

Less Than Respectful Commentary on the Fed Put and Fiscal Rescue Efforts

It wasn’t enough that the Administration’s fiscal stimulus plan announced last Friday was sufficiently off beam so as to precipitate a global stock market rout. The Fed then put its credibility and some of its remaining firepower on the line to try reverse the gap-downward stock market opening with the in-panic-mode pre-session 75 basis point […]

Fiscal Stimulus: "Why One Percent of GDP?"

I have a great deal of respect for people who take the time to do real analysis, and Menzie Chinn is one of them. In his current post at Econbrowser, “Why One Percent of GDP? Opportunity Cost Illustrated (Part III),” Menzie looks into where that arbitrary-seeming figure came from. He first goes through the history […]

Markets Want Christmas in January (Rate Cuts Edition)

Although a good deal can happen between now and January 31, the date of the next Fed Open Markets Committee meeting, a 50 basis point rate cut looks more consistent with present economic conditions than do deeper cuts. Most important (and widely ignored) is that the seize-up the money markets is largely a thing of […]

"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 […]