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PhD Candidate in Economics at George Mason University. Received a Master's in Public Administration from George Washington University. Majored in economics and finance at Washington University in St. Louis. Previously worked as an Options Market Maker/Trader.
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Bubbles and Busts
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  • Crony Capitalism - The Degree Matters
    Supporters of free markets seem to be increasingly vocal in their opposition to corporatism or crony capitalism. Whilst I wholly welcome this, I fear that the demand for a proper free market economy without cronyism or special favours is as unachievably utopian as the wildest leftist fantasy.

    Read it at Stumbling and Mumbling
    CRONY CAPITALISM - THE ONLY CAPITALISM
    By Chris Dillow

    Chris lays out three reasons why capitalism must in practice be crony capitalism. While I don't disagree with his premise, or even necessarily the conclusion, a more subtle point I would note is that it's ultimately about degrees. Even if one accepts that capitalism will involve some level of cronyism, that argument suggests nothing about whether cronyism will be limited to a few minor inconveniences or become so widespread as to discourage trust in practically any dealing. The differences between these two outcomes and the vast area in between are, in my opinion, the reason debates among free marketers and those favoring regulation are so meaningful. Any economic system will likely involve some manner of cronyism. Therefore, fighting to reduce the degree of its persistence is and will remain an extremely worthy cause.

    Jul 12 11:16 AM | Link | Comment!
  • Forgotten Lessons From Lost Decades In Japan

    For nearly two decades Japan has witnessed stagnating growth and mild deflation. Over the course of this period, Japan has experimented with various forms of monetary "stimulus" as well as fiscal stimulus, increasing public sector debt by nearly 400%.
    Source: The New Arthurian

    By many accounts, Japan should be a shining example of functional finance,demonstrating the positive impact of fiscal and monetary stimulus working together. Reality, however, depicts a largely different story.

    The New Arthurian offers four lessons from the struggles in Japan...

    Lesson 1: No recovery was created by increasing the money.
    Lesson 2: No recovery was created by replacing private debt with public.
    Lesson 3: There was little or no "erosion" of debt by inflation.
    Lesson 4: Try debt forgiveness.

    Most economists are currently calling for either greater monetary or fiscal stimulus, or in some cases both. I fear that this apparent focus on broad macro stimulus overlooks some of the subtler inefficiencies within developed economies that played an equal, if not greater, role in the current economic crisis. Tax laws and regulations that encourage the use of credit over money, promote greater inequality and subsidize various industries with political favor will largely remain in place under most of the proposed policy solutions. Until these issues, and numerous others, are dealt with, our fate may follow a similar path as Japan, whereby monetary and fiscal stimulus are only enough to continue muddling through.

    Jul 12 11:13 AM | Link | Comment!
  • NY Fed Puzzled By Greenspan/Bernanke Put

    Potential Explanations
    One might expect similar patterns to be evident also in other major asset classes, such as short-and long-term fixed-income instruments and exchange rates. Surprisingly, though, we don't find any differential returns for these assets on FOMC days compared with other days. In other words, the pre-FOMC drift is restricted to equities. Further, we don't find analogous drifts ahead of other macroeconomic news releases, such as the employment report, GDP and initial claims, among many others. The effect is therefore restricted to FOMC, rather than other macroeconomic, announcements. In the Staff Report, we attempt to account for standard measures considered in the economic literature that proxy for different sources of risk, such as volatility and liquidity, but they also fail to explain the return. Finally, we consider alternative theories that feature political risk, investors with capacity constraints in processing information, as well as models where stock market participation varies over time. Although these theories can help qualitatively explain the existence of a price drift ahead of FOMC announcements, they are counterfactual in some dimension of the empirical evidence.
    Our findings suggest that the pre-FOMC announcement drift may be key to understanding the equity premium puzzle since 1994. However, at this point, the drift remains a puzzle.

    Read it at Liberty Street Economics

    The Puzzling Pre-FOMC Announcement "Drift"

    By David Lucca and Emanuel Moench

    Does anyone still need further proof of the Greenspan/Bernanke put? What I found most telling about this research note is that the positive effect of Fed anticipation extends to equity markets in Canada and Europe, but not to fixed income or exchange rate markets. As this correlation suggests, the expectations channel for Federal Reserve policy through equity markets is very strong. Unfortunately, for proponents of the Fed, the wealth effect from higher equity prices has minimal effect on GDP growth or employment.

    Jul 11 4:41 PM | Link | Comment!
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