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Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380698)

You were just telling me that relative changes are more telling than absolute numbers, no?

Ty is exactly right!

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380698)

You were just telling me that relative changes are more telling than absolute numbers, no?

As we are about to see, there are no absolute numbers - we are going to try to inflate our way out of this.

Re: the cost of centrism

Quote:

Originally Posted by Hank Chinaski (Post 380699)

the numbers were worse

Burger is big on the point that relative changes are more important than absolute numbers, BTW. How fast was employment dropping then? At interest rates were so much higher that monetary policy could do a lot more -- today, we've pretty much shot that bolt.

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380702)

You'll recall, however, that monetary policy was used in the opposite direction in 1982.

(1981: +2.5 pct. points)

1981-11-01 8.3
1981-12-01 8.5
1982-01-01 8.6
1982-02-01 8.9
1982-03-01 9.0
1982-04-01 9.3
1982-05-01 9.4
1982-06-01 9.6
1982-07-01 9.8
1982-08-01 9.8
1982-09-01 10.1
1982-10-01 10.4
1982-11-01 10.8

(2008: +2.7 pct. pts)
2008-01-01 4.9
2008-02-01 4.8
2008-03-01 5.1
2008-04-01 5.0
2008-05-01 5.5
2008-06-01 5.6
2008-07-01 5.8
2008-08-01 6.2
2008-09-01 6.2
2008-10-01 6.6
2008-11-01 6.8
2008-12-01 7.2
2009-01-01 7.6

You can fiddle with 12 month periods here:
http://research.stlouisfed.org/fred2/data/UNRATE.txt

(FWIW, the lowest unemployment recently has been is 4.4% (3/2007). It was 7.2% at various points in 1981, and lower in the 1970s. So even measured from a recent low, the pct. point increase is approx. the same over the same length period.

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380702)

today, we've pretty much shot that bolt.

Quote:

Brad DeLong: WHEN an economy falls into a depression, governments can try four things to return employment to its normal level and production to its 'potential' level. Call them fiscal policy, credit policy, monetary policy and inflation.

Inflation is the most straightforward to explain: The government prints lots of banknotes and spends them. The extra cash in the economy raises prices. As prices rise, people don't want to hold cash in their pockets or their bank accounts - its value is melting away every day - so they step up the pace at which they spend, trying to get their wealth out of depreciating cash and into real assets that are worth something. This spending pulls people out of unemployment and into jobs, and pushes capacity utilisation up to normal and production up to 'potential' levels.

But sane people would rather avoid inflation. It is a very dangerous expedient, one that undermines standards of value, renders economic calculation virtually impossible, and redistributes wealth at random. As John Maynard Keynes put it, 'there is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose...'

But governments will resort to inflation before they will allow another Great Depression. We just would very much rather not go there, if there is any alternative way to restore employment and production.

The standard way to fight incipient depressions is through monetary policy. When employment and output threaten to decline, the central bank buys up government bonds for immediate cash, thus shortening the duration of the safe assets that investors hold. With fewer safe, money-yielding assets in the financial market, the price of safe wealth rises. This makes it more worthwhile for businesses to invest in expanding their capacity, thus trading away cash they could distribute to their shareholders today for a better market position that will allow them to reward their shareholders in the future. This boost in future-oriented spending today pulls people out of unemployment and pushes up capacity utilisation.

The problem with monetary policy is that, in responding to today's crisis, the world's central banks have bought so many safe government bonds for so much cash that the price of safe wealth in the near future is absolutely flat - the nominal interest rate on government securities is zero. Monetary policy cannot make safe wealth in the future any more valuable. And this is too bad, for if we could prevent a depression with monetary policy alone, we would do so, as it is the policy tool for macroeconomic stabilisation that we know best and that carries the least risk of disruptive side effects.

The third tool is credit policy. We would like to boost spending immediately by getting businesses to invest not only in projects that trade safe cash now for safe profits in the future, but also in those that are risky or uncertain. But few businesses are currently able to raise money to do so.

Risky projects are at a steep discount today, because the private-sector financial market's risk tolerance has collapsed. No one is willing to buy assets and take on additional uncertainty, because everyone fears that somebody else knows more than they do - namely, that anyone would be a fool to buy. Although the world's central banks and finance ministries have been devising many ingenious and innovative policies to stimulate credit, so far they have not had much success.

This brings us to the fourth tool: fiscal policy. Have the government borrow and spend, thereby pulling people out of unemployment and pushing up capacity utilisation to normal levels. There are drawbacks: the subsequent dead-weight loss of financing all the extra government debt that has been incurred, and the fear that too rapid a run-up in debt may discourage private investors from building physical assets, which form the tax base for future governments that will have to amortise the extra debt.

But when you have only two tools left, neither of which is perfect for the job - credit policy and fiscal policy - the rational thing is to try both, at the same time. That is what the Obama administration in the United States and other governments are attempting to do right now.

DeLong

Re: the cost of centrism

Quote:

Originally Posted by taxwonk (Post 380682)

Good point. It makes far more sense to give the money to the banks so that they can not lend it. We'll all feel much better then.

Um...cite please? Who is "not lending"? I can name offhand at least 1 initial TARP recipient that lent out over $90BN last quarter.

And as Ty pointed out elsewhere - they weren't really "given" anything. The Fed bought a chunk of stock which guarantees them a return that borders on Madoff territory.

Re: the cost of centrism

Quote:

Originally Posted by Mmmm, Burger (C.J.) (Post 380703)

You mean the 1982 recession where the deficit increased 250% from 1981 to 1983? Where St. Reagan succumbed to TEFRA 82 and hiked taxes to avoid even greater deficits than he incurred with his spending?

Yes, interest rates were cut. How much more can we cut interest rates now?

Re: the cost of centrism

Quote:

Originally Posted by SlaveNoMore (Post 380706)

Um...cite please? Who is "not lending"? I can name offhand at least 1 initial TARP recipient that lent out over $90BN last quarter.

Wait, so the 50 resumes from financing and lbo attorneys looking to retrain for my one lowly midlevel general corporate job are all from people who don't need to worry? And my i-banker relative at one of those big TARP recipients sitting on her hands should be getting herself busy?

I haven't looked up the stats, but the assessment I get from folks who lend as a business is that they are dead in the water - except for community bankers doing sub-$20million deals.

But, still, it's good to hear the credit markets aren't a problem. Someone had recently told me they were the only problem.

Re: the cost of centrism

Quote:

Originally Posted by Greedy,Greedy,Greedy (Post 380708)

Yes, interest rates were cut.

I think Burger was saying that rates rose in the '81-'82 period. I don't know why that happened or what the response was, and it seems a little odd.

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380711)

I think Burger was saying that rates rose in the '81-'82 period. I don't know why that happened or what the response was, and it seems a little odd.

82 sucked. I was coming out of college. If you mailed a resume to a big company the response was a post card:

"We received a large envelope from you. We assume it contains a resume. We have no jobs and have not opened the envelope."

you wanna be discouraged, get a couple of those. No resume doctor can fix that shit. if Reagan spent his way out of it, it was purely military because that is all that grew*. Maybe Obama should start a war instead of this package?

*other than one small office in commerce iykwimaittyd.

Re: We will never agree on this and therefore it is pointless to talk about!

As a concise explanation of the financial crisis, if not the problems with the larger economy, this seems pretty good.

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380711)

I think Burger was saying that rates rose in the '81-'82 period. I don't know why that happened or what the response was, and it seems a little odd.

Really?

http://upload.wikimedia.org/wikipedi...ive%29.svg.png

It strikes me the monetarists have gone a bit wild over at the Fed. They've lowered the discount rate sufficiently so that it no longer effects bank lending rates, just their margins. Another subsidy for the credit markets.

And now they're buying up securitizations no one else will touch.

I understand the next step is for the Fed to buy Treasuries.

Let's face it - the Fed has hit a wall and doesn't know what to do. Alan had a good run, but the time for he and his kind has ended.

Re: the cost of centrism

Quote:

Originally Posted by Tyrone Slothrop (Post 380711)

I think Burger was saying that rates rose in the '81-'82 period. I don't know why that happened or what the response was, and it seems a little odd.

Because inflation was out of control. Monetary policy was used by Volcker to choke off inflation in the belief that it was weakening the economy. Once inflation had been reduced, monetary policy was loosened.

Jeez, GGG, don't you know this is why Obama has Volcker on his staff?

Re: the cost of centrism

Quote:

Originally Posted by Mmmm, Burger (C.J.) (Post 380715)

I think 81 was the rise and 82 the fall.

Yes, I think Obama wants to make sure he doesn't screw up 09 like Volcker did 81. And who better to help than the man who learned first hand.

Re: the cost of centrism

Quote:

Originally Posted by Greedy,Greedy,Greedy (Post 380714)

It strikes me the monetarists have gone a bit wild over at the Fed. They've lowered the discount rate sufficiently so that it no longer effects bank lending rates, just their margins. Another subsidy for the credit markets.

Surely you understand that subsidies are generally intended to encourage something we want more of, in this case lending.