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2018-01-21

DSGE macroeconomics does not really allow for the large-scale financial panic we saw in 2008

In particular, there should be room for formalised theories in which the economy is subject to multiple equilibria — what could be called paleo-Keynesian views — which show how both large crises and protracted periods of stagnation are possible.

Martin Sandbu, FT 19 January 2018

2018-01-19

Germany’s current account surplus – 8.5pc of GDP, and the world’s largest in absolute terms at almost $350bn

Maury Obstfeld, the IMF’s chief economist, said Germany’s current account surplus – 8.5pc of GDP, and the world’s largest in absolute terms at almost $350bn (£252bn) – is 4.5 percentage points of GDP beyond what can be justified by demographic arguments.

The currency claim may raise eyebrows in Washington, where some suspect that the European Central Bank’s negative interest rates (-0.4pc) are a disguised way to hold down the euro – bad etiquette for a currency bloc running a surplus near $430bn, three times that of China



2018-01-18

How Economics Survived the Economic Crisis

Paul Krugman. His answer to Queen Elizabeth II’s now-famous question: “Why did no one see it coming?” 

Krugman’s cheerful response is that the New Keynesians were looking the other way. Theirs was a failure not of theory, but of “data collection.” They had “overlooked” crucial institutional changes in the financial system. 

While this was regrettable, it raised no “deep conceptual issue” – that is, it didn’t demand that they reconsider their theory.

2018-01-17

The economy needs rate hikes to curb speculative excess.

The economy needs higher rates, but not because of any threat of faster inflation. 

The economy needs rate hikes to curb speculative excess.


There's a great big pile of evidence that financial markets have reached the speculative mania phase.

The Federal Reserve’s response to all of this has been to engage in a ridiculous discussion about inflation targeting. 

Policy makers are still concerned about the rate of inflation being too low and are seemingly oblivious to the signs of excess speculation all around them


Jared Dillian, Bloomberg 16 januari 2018






A Franco-German consensus on the euro

Politicians should follow trail blazed by economists

"a very interesting contribution by a group of 14 French and German economists, many of the best policy-oriented thinkers of both countries. "

Martin Sandbu FT 17 January 2018



2018-01-15

Rethinking macroeconomics

The deepest effort to date to account for how economics failed us in the crisis

Martin Sandbu 15 January 2018

Kaletsky menar att det var Paul Volcker som ledde återgången till "demand management".


USA:s tidigare centralbankschef Paul Volcker är mest känd för att ha blivit tillsatt av Ronald Reagan för att få ner inflationen, vilket lyckades genom en hård åtsramning med recession som följd.
Det ryktet kvarlever med märklig kraft.


Men Kaletsky menar att det var Paul Volcker som ledde återgången till "demand management".


- In the United States, the return to demand management began as early as the summer of 1982, when a three-year recession and the bankruptcy of the Mexican government persuaded the Fed that its experiment with monetarism had gone too far.

Då sänktes räntan


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Just nu inte mycket som talar för en prisuppgång. – Men en utplaning kommer säkert att komma

Antalet bostadsaffärer brukar sedan ta fart under våren. Men enligt Per-Arne Sandgren finns det just nu inte mycket som talar för en prisuppgång.

– Men en utplaning kommer säkert att komma, säger Per-Arne Sandgren, analyschef på Svensk mäklarstatistik.
SvT Nyheter 15 januari 2018

Anders Borg, SvD 21 januari 2014:
- Jag tror att vi ska räkna med stillastående priser på bostäder under tio år framöver.

Professor Irving Fisher, October 1929:
"stock prices have reached what looks like a permanently high plateau."

2018-01-13

Investors believe the 10-year Treasury yield will be below the 3 per cent mark in two, five and even 10 years’ time.

Derivatives contracts indicate that investors believe the 10-year Treasury yield will be below the 3 per cent mark in two, five and even 10 years’ time. 

Robin Wigglesworth, FT 12 January 2018

2018-01-10

The Secular Bond Bull Market Has ended, perhaps.

The Moment of Truth for the Secular Bond Bull Market Has Arrived
John Mauldin 10 January 2018

The $50 Trillion Question for Bonds
Bloomberg 10 January 2018

The bond bear market is finally upon us after more than 25 years, 
bond guru Bill Gross said, CNBC 10 January 2018

Read more here

Last of the market bears wait in hope of a crisis

2018-01-04

Central banks have created the illusion of calm. It won't last.

By boosting asset prices, policy makers aimed to buttress elevated debt levels and, via the wealth effect, increase confidence, consumption and investment. 

But rising values of financial instruments representing claims on productive assets don't create real purchasing power unless converted into cash or real enterprises producing earnings.

Satyajit Das, Bloomberg 3 januari 2018

The very toxin that sparked the crisis is relied on to reboot economies - Beware the butterfly moment

Central banks need to reverse their policies, since continuing low rates and excessive leverage may well result in an explosive cocktail of multiple asset price bubbles.

Reversal, however, means that central banks will be unable to control volatility and keep a floor under asset values — something they have relied on to promote excessive risk-taking.