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31 Jul 09
The Re-Election Campaign of Ben Bernanke: The Federal Reserve chief fights for his future. Why is he bothering?
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But allowing the economy to naturally experience pain—one of the supposed benefits of the independent Fed that Bernanke touts—is exactly what he's been unwilling to do. He tries to scare Congress away from Ron Paul's audit bill with fears of the dire economic effects of lost independence, even as he demonstrates over and over that he is clearly just one more member of the Obama economic team.
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He shows no signs that he is willing to make any decision that could pin bad economic news on the administration. If he does anything now other than exactly what the administration wants and needs him to do, he'd be out of a job early next year, and he knows it. And his current wave of self- and institution-justifying public appearances proves that keeping the job matters a great deal to him.
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14 Jul 09
Budget deficit tops $1 trillion for first time
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The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar.
The deficit has been widened by the huge sum the government has spent to ease the recession, combined with a sharp decline in tax revenues. The cost of wars in Iraq and Afghanistan also is a major factor.
27 May 09
Exploding debt threatens America
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The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years.
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The deficit in 2019 is expected by the CBO to be $1,200bn (€859bn, £754bn). Income tax revenues are expected to be about $2,000bn that year, so a permanent 60 per cent across-the-board tax increase would be required to balance the budget.
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09 Mar 09
Countries are so deep in debt, they risk drowning in red ink
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As debt mounts and the recession lingers, we are surely going to see a number of governments trying to lighten their load through financial repression, higher inflation, partial default, or a combination of all three. Unfortunately, the endgame to the great recession of the early 2000s will not be a pretty picture.
20 Jan 09
Doom and Gloom
Why the optimism surrounding Barack Obama's accession to the presidency is misplaced.
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So the really gloomy scenario is a situation of rising inflation, rising nominal interest rates, ongoing unemployment, private investment stagnating because of regime uncertainty and on top of all that, everyone expecting a magical wizard of a president who loves them to fix everything.
And you want to know why I'm worried?
13 Jun 08
Why Gas Prices Rise as the Dollar Falls
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Oil is priced in dollars on the world market. When the dollar is weaker, foreign currencies are stronger, by definition. That means people in other countries can buy more oil for the same amount of money. So let's assume oil is $100 per barrel, and $100 is equal to 70 euros. If the euro appreciates against the dollar by 10 percent, then instead of 70 euros it will take only 63 euros to buy one barrel of oil. So that oil becomes cheaper to foreigners, and they can buy more. . . . As people in other countries buy more, demand rises, and it drives up the price in dollars. . . . So in the United States it looks like the price is going up sharply, in dollars, while in other countries it's actually going up by much less or staying about the same.
06 May 08
The Coming Recession: Seven observers debate the (sorry) state of the economy
Seven authors (some economists) offer their opinions on the cause of the current malaise.
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[Don Boudreaux]: My only fear, therefore, is fear itself—fear that deludes people into believing that giving government greater control is the key to earthly salvation. As I write these words, the Fed’s aggressive moves to bail out Bear Stearns and prevent other necessary market corrections—along with increasing public support for protectionism, anti-immigrant nativism, and environmental hysteria—send shivers down my spine. The threat of a long-term crisis is only as real as is the likelihood that government will try to exert more control.
15 Apr 08
Did the Fed Cause the Housing Bubble?
Robert P. Murphy responds to "Blame Federal Gov't, Not The Fed, For Subprime Mortgage Problems," by Jeff Hummel and David Henderson. He argues that the Fed is to blame.
18 Mar 08
Memo To The Fed: Stop Those Rate Cuts
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Regardless of past mistakes, the Fed must now make the best of a bad situation. It must stop chasing the financial markets, and even the broader economy. Creating more dollar bills will not add to the nation's wealth, or make workers more productive.
17 Mar 08
Bailout: The real March Madness
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Hopefully, sooner rather than later, the Fed will send a message to consumers that it remembers that its job is not to bail out the reckless few but to support sustainable growth and keep inflation in check. It's doing a terrible job on that second part of that mandate.
14 Mar 08
Short-term pain may be best long-term fix
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"What is this obsessive need to overturn the business cycle?" said Ritholtz. "You can end up preventing the market from following its normal course of clearing out the deadwood and letting healthy trees grow. The creative destruction of capitalism, that's what the Fed is working to prevent."
Dollar?s clout sinks worldwide
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Antique store owners in lower Manhattan, ticket vendors at India's Taj Mahal and Brazilian business executives heading to China all have one thing in common these days: They don't want U.S. dollars.
21 Jan 08
Will the cure be worse than the disease?
The Federal Reserve seems to think that a recession should be avoided at all costs. Unfortunately, they're stoking inflation while deepening a recession that will come anyway.
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Meltzer, who is finishing the second volume of his history of the Federal Reserve, warns that Bernanke is risking a disastrous replay of the 1970s, when high oil prices fueled double-digit inflation. Every time the Fed started to tighten and unemployment jumped, chairmen G. William Miller and Arthur Burns lost their nerve. They lowered rates to boost job growth, and inflation inevitably revived, causing a vicious price spiral. The Fed let the disease rage for so long that it took draconian action by chairman Paul Volcker in the early 1980s to finally defeat inflation. The price was a deep recession, with unemployment hitting 11% in 1982. "The mentality is the same as in the 1970s," says Meltzer. "'As soon as we get rid of the risk of recession, we'll do something about inflation.' But that comes too late."
15 Apr 05
How Changing the Sheets Can Make a Hotel Room ?New?
The rate of inflation can never be known exactly, because goods and services change qualitatively over time.
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If the guests do not see [an aesthetic upgrade to a hotel room] as more valuable, then the higher charge should be factored into inflation measures. If the redesigned room costs $15 a night more, the bureau's statistics should count the whole $15 toward an increase in the index.
If, on the other hand, guests care as much about aesthetics as hoteliers believe they do, it would be irresponsible to treat the $15 as a true price increase.
Depending on how much guests value the change - suppose they would have willingly paid $25 more for those amenities - the higher rate could even represent an effective price cut.
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