It seems that everyone wants to know the future course of interest rates. For a variety of reasons, it is less predictable than in “normal” times. But a quick look at a few numbers places the recent history of Fed policies in stark relief, possibly presaging what is to come. Consider the following quantitative measure that we call the Fed Accommodation Index. In our view, it approximates the degree to which the Fed’s monetary policy has been “accommodative” over the …
How Attention to Fed Policy Distracts Us from the Real Problem
June 5, 2023Can US financial markets remain robust even without ultra-low interest rates? While not often stated openly, many on Wall Street believe the answer is no. Some have been trying to persuade the Federal Reserve to stop raising interest rates, and even to begin lowering them. The recent collapses of Silicon Valley and Signature Banks, largely a consequence of rates rises, will probably only bolster their case. But why should any of this matter to ordinary Americans? Whether or not we like …
A Debt Jubilee Is Unavoidable
April 11, 2021I am truly sorry not to be teaching my macroeconomics principles class this semester. Debt is invariably an under-remarked topic in such classes, never mind a debt jubilee (or debt forgiveness). Yet everything recently happening both in the markets and politics offers a “real-time” tutorial. So, here I will try to explain why, in my view, a debt jubilee is unavoidable – sooner or later. “Debt” may be an abstract and confusing concept to many. Largely it is because we …
Biden Can Make a Difference
April 3, 2021As I’ve conceded elsewhere, I am not one to exaggerate whatever differences there might be between the U.S. Democratic and Republican parties. I have always viewed the Democrats as “Republican-lite,” since both parties have been beholden to corporate America for many decades. Even the thought of voting for the “lesser evil” last November disgusted me, as I noted in an earlier piece. Yet now I believe that Biden can make a difference. The unprecedented challenges that we face, along with the …
Do We Fear Inflation or Hope for It?
February 28, 2021Fear of inflation again appears to be rising to a fever pitch. Yet confusion about it persists, both among the uninitiated and the cognoscenti. It calls for a quick review of the basics. My students invariably state that inflation means the value of their money is going down. But of course, it is not what it means. Erosion of monetary value is a mere consequence. They will also sometimes claim that they can no longer afford Knicks tickets due to …
Revenge of the Little Guy
February 1, 2021By now everyone has heard about the recent “assault” on Wall Street by legions of day traders. Coordinating purchases over Reddit and using the Robin Hood app, possibly a few million individuals bought large quantities of shares from GameStop as well as other companies like Blackberry, AMC Entertainment, and Nokia, pumping up their prices as much as 300 percent – and much more in the case of GameStop. The surge in their share prices caused hedge funds like Melvin, Point72, …
Paradox of Thrift No Longer
January 7, 2021I want to try to bring together a few points about which I’ve posted previously. My motivation is to address an important article last week in the New York Times (January 1st) by Neil Irwin and Weiyi Cai. Perhaps its early for such a declaration, but the phenomenon they reveal might require a rethinking of Keynes’s celebrated “paradox of thrift.” The authors point out that much of the recent stock market boom can be attributed to an inordinate increase in …
Exchange Rates and the Dollar: The Short and Long View
December 23, 2020Last week the U.S. Treasury Department took the unusual step of labeling both Switzerland and Viet Nam currency manipulators. If the accusation stands, the two countries will then need to come to an agreement with the U.S. and the IMF or face possible retaliatory tariffs. The mainstream press has, as always, focused on reasons for, as well as the possible consequences of, the artificial currency deflation by the two countries. And as someone asked by many a puzzled student why …
The Great Divergence “on Drugs”
December 6, 2020Back in July I wrote about a “great divergence” that has been occurring between the stock market and the real economy. Yet today one might consider that recent developments put the lie to my claim. After all, while stock prices soar, the unemployment rate continues to fall. The November number was 6.7 percent, down from 6.9 percent in October. With imminent release of a new Covid-19 vaccine expected, all the major equity indices appear – almost irrationally – to have …
Could We Have Too Much Fiscal Policy?
December 3, 2020President-elect Biden’s formation of his economic “team” has been dominating the headlines. Unduly, I aver, because there are far more pressing issues than which Wall Street or otherwise pro-business cronies Biden ends up selecting. Most notably, of course, is the matter of another desperately needed stimulus package. Against all odds, it appears that moderate Senate Democrats and Republicans are working together on a compromise bill. Just yesterday the group, led by Senators Collins (R-Maine) and Warner (D-Virginia), proposed a $900 …
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