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  • Lots To Worry About But Nothing To Fear? [View article]
    Okay, good point except that 2020 is only 5 years away. And low interest rates means that there is almost no discounting at that horizon.
    I know, right? Seems crazy that 2020 is almost here!
    Mar 27, 2015. 02:56 PM | Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    March CPI: 236.642 (the base figure)
    April CPI: 237.1110
    May CPI: 237.658
    June CPI: 237.984
    July CPI: 238.217
    August CPI: 238.340
    September CPI: 238.686
    October CPI: 239.120
    November CPI: 239.304
    December CPI: 239.445
    January CPI: 239.871
    February CPI: 240.247 (released today)


    We have had 1.523% core inflation so far (1.66% at an annual rate). With 1 month to go and 240.665 the push, Mr. de los Angeles needs aggregate core inflation to be 0.17% or less (2.09% at an annual rate). I need the over.

    LOL. Folks, unless something REALLY WEIRD happens next month, we'll be within 0.1% of 1.7% on core. Today on a trailing-12-month basis, it's 1.694%. Seriously.
    Mar 24, 2015. 08:40 AM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    Well, it isn't the TBTF banks any more. Most of them can't really carry net positions of much size, or anyway no where near the size they used to. That's why Wall Street employment keeps shrinking. The TBTF banks are really struggling, in fact.
    Mar 18, 2015. 10:05 PM | 2 Likes Like |Link to Comment
  • Just One Thing [View article]
    That would be great, if the Fed had ever showed the slightest interest in unwinding imbalances. But while they occasionally say they see the need to do so, they are unwilling to deal with the fallout of actually doing it. Correcting imbalances like this can't be done in a painless way. Raising rates will probably crack asset markets - or anyway, if Gross is right and people save more and stop reaching for risk, they will - and I have seen no evidence since 1987 that the Fed is willing to let bad stuff happen. So while this may be their INTENT, what is the old Mike Tyson quote? A plan only lasts until someone punches you in the mouth.
    Mar 16, 2015. 11:05 AM | Likes Like |Link to Comment
  • The Answer Is No [View article]
    Economics is a 'science,' but you really need to keep the quotation marks. Economists fundamentally don't like experiments and evidence, and like their theory clean. Worse, since Samuelson they also love math because they think that makes their theory more meaty-seeming when what it really does is obscure what's wrong with the theory and make it more opaque to outsiders. So I don't know about "religion" but "guild" is more like it.

    Like any other area of knowledge, there's too much for one person to know and most professional economists also don't spend any time exploring models and doing experiments (the fact that Shiller DOES is one of the reasons he keeps getting the bubble question right and is one of the things that makes him really interesting). So they rely on what other people have said or done, even if it doesn't really make any sense. There is no scientific method in economics that can be used to refute silly things. It's just who yells louder in the bigger journal.
    Mar 13, 2015. 04:30 PM | Likes Like |Link to Comment
  • The Answer Is No [View article]
    Yes. He's wrong.

    Let me be less pithy. And let's assume that in general, people know when they are doing better or worse in the world. If wages generally CAUSED price pressures, then inflation would be a wonderful phenomenon for most people, who would see their wages rise BEFORE prices went up - creating a windfall gain. In practice, we know that people hate inflation. Why? Well, it's because we all know that our wages TRAIL inflation. Inflation is a windfall loss.

    It's much harder to show this econometrically, but it can be done. But, for a couple of generations, "cost-push" inflation has been taught in the schools. Even though there is no evidence that's how inflation works, old economists still chant the litany as if there actually is evidence.
    Mar 13, 2015. 02:42 PM | 2 Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    Note that because of seasonal revisions our starting point has been revised (in favor of Mr. d).

    March CPI: 236.642 (the base figure)
    April CPI: 237.1110
    May CPI: 237.658
    June CPI: 237.984
    July CPI: 238.217
    August CPI: 238.340
    September CPI: 238.686
    October CPI: 239.120
    November CPI: 239.304
    December CPI: 239.445
    January CPI: 239.871 (released today)


    We have had 1.365% core inflation so far (1.64% at an annual rate). With 2 months to go and 240.665 the push after the annual revision, Mr. de los Angeles needs aggregate core inflation to be 0.331% or less (1.65% at an annual rate). I need the over.

    With two months to go, this is looking amazingly like a tie. I think we will end up above 1.7% y/y, but whether we are above that or below that it will not be by very much!
    Feb 26, 2015. 10:02 AM | Likes Like |Link to Comment
  • The Answer Is No [View article]
    I don't know much about the plan. Generally, wages follow inflation rather than leading it, so if they're raising wages it's a sign that they already believe they have sufficient pricing power to raise prices. It ain't coming out of their profits. :-)
    Feb 25, 2015. 11:00 AM | Likes Like |Link to Comment
  • The Answer Is No [View article]
    Actually, the distinction is that interest rates are a result, not a cause, of tightening. Hiking interest rates by using a corridor, without removing all of the excess reserves, will do absolutely nothing to slow money growth and will tend to accelerate inflation since velocity is correlated with interest rates.

    If the Fed were to begin to remove excess reserves - which it turns out is almost impossible at this point without causing a major debacle, which is why they have turned to the corridor approach - then it would be tightening, even though interest rates would likely not rise for some time since there remains a surplus of liquidity at zero duration (excess reserves). But that's not their plan.

    I wrote about this last summer, when the Fed started mooting the current plan: http://bit.ly/1uGdqhH
    Feb 19, 2015. 03:15 PM | Likes Like |Link to Comment
  • Downside For Stocks, But Also For Fed Expectations [View article]
    My comment was obviously tongue-in-cheek. There is tremendous downside to the current approach, which will ultimately be realized in time. If it isn't, then it means everyone in the past was far too afraid of providing endless liquidity to the economy. Of course, there is no mystery about how it all ends, if the policy is carried through to its completion (as it seems as if it will be). No, it doesn't work now and it never has.
    Feb 13, 2015. 11:35 AM | 3 Likes Like |Link to Comment
  • Winter Is Coming [View article]
    Sure, TIPS track headline inflation, and a large part of the volatility in your month-to-month costs comes through gasoline and other fuels. You say your expenditures ex-gasoline are going up, and they are in TIPS as well. But you can't exclude that gasoline expenditure working in your favor!

    I have long thought that someone should issue a core inflation-linked security. Incredibly, I have never been able to persuade anyone to do it. I don't really know why.
    Feb 11, 2015. 10:14 AM | Likes Like |Link to Comment
  • Pre-Packaged Baloney [View article]
    The money supply is separate from the balance sheet. If the Fed sells securities, they will remove reserves from the system. However, the first reserves they will absorb are the "excess" reserves, which aren't directly involved in setting the money supply. That is, under ordinary circumstances when there are no excess reserves, selling securities would cause reserves to decline, which would cause interest rates to rise (if you decrease the supply of something, its price tends to rise), and the money supply would respond to the smaller pool of reserves through the multiplier effect.

    In this case, by removing excess reserves the Fed does nothing to affect the reserves the banks actually use to multiply into money by making loans. Accordingly, selling securities IN THIS CASE would not by themselves change either the money supply OR the overnight rate (although they would push term rates higher for a time).

    It is really important to understand HOW the Fed manipulates the money supply, by adjusting reserve balances, so you can see that this time is very different. The Fed would need first to remove a couple trillion in "excess" reserves before they can meaningfully affect the growth of the money supply.
    Jan 31, 2015. 02:42 PM | 1 Like Like |Link to Comment
  • Pre-Packaged Baloney [View article]
    I have commented extensively on this in the past and don't want to re-hash it here. But the bottom line is that: these facilities won't work - or at best, they are UNLIKELY to work - to withdraw the quantities of reserves that the Fed would want to withdraw if they believed that reserves mattered. This is why the Fed has all but abandoned all of these plans with respect to being the major solution, and has most recently made clear that they will try to normalize interest rates using the Sack/Gagnon approach (I discussed this last summer, when it became generally known that this was the approach favored by the FRB, here: http://bit.ly/1uGdqhH ).
    Jan 29, 2015. 03:24 PM | 4 Likes Like |Link to Comment
  • Pre-Packaged Baloney [View article]
    I don't care for the Fed to do anything with the level of interest rates. I prefer the level of interest rates to be set by the market, and I agree that while the fair value would be above this level it wouldn't be "normalized."

    But what the Fed needs to normalize is its balance sheet. As it exists, it is a big pile of money they have very little control over. They cannot directly control the level of excess reserves and the speed of translation into transactional money. They need to get excess reserves to zero. Otherwise (as I have written) they are powerless to tighten policy by restraining reserves.

    And let's not forget - the central bank does not manage interest rates, it manages reserves. Interest rates are the output (or are supposed to be), not the input. So if the Fed is unable to manage the level of required reserves, it is unable to manage the money supply. This is a crucial problem, and they should be aggressively shrinking their balance sheet. They won't, though, and this is the real risk of inflation.
    Jan 29, 2015. 12:33 PM | 3 Likes Like |Link to Comment
  • Money, Commodities, Balls, And How Much Deflation Is Enough? [View article]
    Hard to tell. Not all of it will flush immediately into the system, surely - there's too much to be absorbed all at once. But whereas before the ECB tried to immunize their purchases, I don't believe there is a plan to do that this time (offer deposits at the ECB, e.g.).
    Jan 23, 2015. 03:50 PM | Likes Like |Link to Comment
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