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ResponsiblyIrresponsible
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7/24/2015 4:26:03 PM
Posted: 1 year ago
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.

The goal of the debate is not necessarily to debate the merits of "overheating," but rather to examine the risk calculus before the Fed as it looks to begin normalizing monetary policy later this year. It's faced with a very consequential choice: it can either begin to lift interest rates now, and follow a slower, flatter, more gradual rate path thereafter, or it can hold off and risk having to tighten at a faster, steeper pace to ward off inflationary pressures. By affirming the resolution, I'm arguing that the risks and costs of overheating are preferable to bear relative to the risks and costs of tightening too early. I would go further and posit that there are actually benefits to overheating temporarily, though that wouldn't be the crux of my case.

If anyone is interested, let me know. I'd prefer to start next week, if at all possible.
~ResponsiblyIrresponsible

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ResponsiblyIrresponsible
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7/24/2015 5:01:41 PM
Posted: 1 year ago
At this point, I'm having such blue balls over this resolution that I might even make a series of posts spelling my position out. I'm not really concerned with whatever "disadvantage" that supposedly places myself at.
~ResponsiblyIrresponsible

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Lee001
Posts: 3,168
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7/24/2015 5:07:40 PM
Posted: 1 year ago
At 7/24/2015 5:01:41 PM, ResponsiblyIrresponsible wrote:
At this point, I'm having such blue balls over this resolution that I might even make a series of posts spelling my position out. I'm not really concerned with whatever "disadvantage" that supposedly places myself at.

Your balls are blue..?
"Condoms are societal constructs created by the government to restrain 'Murican freedom!"-SolonKR

"But I jest and digress (sick rhymes, yo); every boob is equal in the eyes of the Lord."- SolonKR

"Oh Hey, Seeing Artichokes Makes Me Want to Have Sex."- SolonKR

"Yep, but anyone who touches my hair immediately ascends to the heavens..You're already an angel, so touching my hair can do nothing <3" -SolonKR

My hubby Hayd <3 <3
ResponsiblyIrresponsible
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7/24/2015 5:10:57 PM
Posted: 1 year ago
At 7/24/2015 5:07:40 PM, Lee001 wrote:
At 7/24/2015 5:01:41 PM, ResponsiblyIrresponsible wrote:
At this point, I'm having such blue balls over this resolution that I might even make a series of posts spelling my position out. I'm not really concerned with whatever "disadvantage" that supposedly places myself at.

Your balls are blue..?

Oh, yes, totally. I went on a trip to Africa and encountered a dik-dik. The bastard instantaneously attacked me. But it's okay: I got his head.
~ResponsiblyIrresponsible

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Lee001
Posts: 3,168
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7/24/2015 5:12:06 PM
Posted: 1 year ago
At 7/24/2015 5:10:57 PM, ResponsiblyIrresponsible wrote:
At 7/24/2015 5:07:40 PM, Lee001 wrote:
At 7/24/2015 5:01:41 PM, ResponsiblyIrresponsible wrote:
At this point, I'm having such blue balls over this resolution that I might even make a series of posts spelling my position out. I'm not really concerned with whatever "disadvantage" that supposedly places myself at.

Your balls are blue..?

Oh, yes, totally. I went on a trip to Africa and encountered a dik-dik. The bastard instantaneously attacked me. But it's okay: I got his head.

You killed a dik-dik? How dare you, you monster! was it a big one? Are you going to mount the head on your ceiling so when you lay down you can look at the dik-dik?
"Condoms are societal constructs created by the government to restrain 'Murican freedom!"-SolonKR

"But I jest and digress (sick rhymes, yo); every boob is equal in the eyes of the Lord."- SolonKR

"Oh Hey, Seeing Artichokes Makes Me Want to Have Sex."- SolonKR

"Yep, but anyone who touches my hair immediately ascends to the heavens..You're already an angel, so touching my hair can do nothing <3" -SolonKR

My hubby Hayd <3 <3
ResponsiblyIrresponsible
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7/24/2015 5:13:53 PM
Posted: 1 year ago
At 7/24/2015 5:12:06 PM, Lee001 wrote:
You killed a dik-dik?

Yup

How dare you, you monster!

That's what they all say.

was it a big one?

Size of a flagpole, so yeah, I'd say so.

Are you going to mount the head on your ceiling so when you lay down you can look at the dik-dik?

I was considering placing it in the bathroom. I'm not diametrically opposed to the idea, though I don't want it staring at me, mocking me, whilst I go about my daily affairs.
~ResponsiblyIrresponsible

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lannan13
Posts: 23,107
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7/27/2015 12:17:13 PM
Posted: 1 year ago
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.

The goal of the debate is not necessarily to debate the merits of "overheating," but rather to examine the risk calculus before the Fed as it looks to begin normalizing monetary policy later this year. It's faced with a very consequential choice: it can either begin to lift interest rates now, and follow a slower, flatter, more gradual rate path thereafter, or it can hold off and risk having to tighten at a faster, steeper pace to ward off inflationary pressures. By affirming the resolution, I'm arguing that the risks and costs of overheating are preferable to bear relative to the risks and costs of tightening too early. I would go further and posit that there are actually benefits to overheating temporarily, though that wouldn't be the crux of my case.

If anyone is interested, let me know. I'd prefer to start next week, if at all possible.

Jah.
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If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

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lannan13
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7/27/2015 12:18:12 PM
Posted: 1 year ago
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.
Is this found the "old" way or the "new" way in terms of unemployment?
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~-~
ResponsiblyIrresponsible
Posts: 12,398
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7/27/2015 12:18:21 PM
Posted: 1 year ago
At 7/27/2015 12:17:13 PM, lannan13 wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.

The goal of the debate is not necessarily to debate the merits of "overheating," but rather to examine the risk calculus before the Fed as it looks to begin normalizing monetary policy later this year. It's faced with a very consequential choice: it can either begin to lift interest rates now, and follow a slower, flatter, more gradual rate path thereafter, or it can hold off and risk having to tighten at a faster, steeper pace to ward off inflationary pressures. By affirming the resolution, I'm arguing that the risks and costs of overheating are preferable to bear relative to the risks and costs of tightening too early. I would go further and posit that there are actually benefits to overheating temporarily, though that wouldn't be the crux of my case.

If anyone is interested, let me know. I'd prefer to start next week, if at all possible.

Jah.

Awesome -- will update you in about a week!
~ResponsiblyIrresponsible

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lannan13
Posts: 23,107
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7/27/2015 12:19:09 PM
Posted: 1 year ago
At 7/27/2015 12:18:21 PM, ResponsiblyIrresponsible wrote:
At 7/27/2015 12:17:13 PM, lannan13 wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.

The goal of the debate is not necessarily to debate the merits of "overheating," but rather to examine the risk calculus before the Fed as it looks to begin normalizing monetary policy later this year. It's faced with a very consequential choice: it can either begin to lift interest rates now, and follow a slower, flatter, more gradual rate path thereafter, or it can hold off and risk having to tighten at a faster, steeper pace to ward off inflationary pressures. By affirming the resolution, I'm arguing that the risks and costs of overheating are preferable to bear relative to the risks and costs of tightening too early. I would go further and posit that there are actually benefits to overheating temporarily, though that wouldn't be the crux of my case.

If anyone is interested, let me know. I'd prefer to start next week, if at all possible.

Jah.

Awesome -- will update you in about a week!

k
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
Posts: 12,398
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7/27/2015 12:19:16 PM
Posted: 1 year ago
At 7/27/2015 12:18:12 PM, lannan13 wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.
Is this found the "old" way or the "new" way in terms of unemployment?

What do you mean by "old" and "new?" I've never seen those terms applied to the unemployment rate.
~ResponsiblyIrresponsible

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lannan13
Posts: 23,107
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7/27/2015 12:20:44 PM
Posted: 1 year ago
At 7/27/2015 12:19:16 PM, ResponsiblyIrresponsible wrote:
At 7/27/2015 12:18:12 PM, lannan13 wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.
Is this found the "old" way or the "new" way in terms of unemployment?

What do you mean by "old" and "new?" I've never seen those terms applied to the unemployment rate.

Old refurring to that of including those receiving benefits.
New is excluding those on benefits.
-~-~-~-~-~-~-~-Lannan13'S SIGNATURE-~-~-~-~-~-~-~-

If the sky's the limit then why do we have footprints on the Moon? I'm shooting my aspirations for the stars.

"If you are going through hell, keep going." "Sir Winston Churchill

"No one can make you feel inferior without your consent." "Eleanor Roosevelt

Topics I want to debate. (http://tinyurl.com...)
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ResponsiblyIrresponsible
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7/27/2015 12:25:00 PM
Posted: 1 year ago
At 7/27/2015 12:20:44 PM, lannan13 wrote:
At 7/27/2015 12:19:16 PM, ResponsiblyIrresponsible wrote:
At 7/27/2015 12:18:12 PM, lannan13 wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.

Terms are fairly self-explanatory. "Overheat" simply refers to the economy running hot -- unemployment below the natural rate and output beyond potential, after which wage and price pressures begin to build.
Is this found the "old" way or the "new" way in terms of unemployment?

What do you mean by "old" and "new?" I've never seen those terms applied to the unemployment rate.

Old refurring to that of including those receiving benefits.
New is excluding those on benefits.

I've never heard of people receiving benefits receiving special recognition in the unemployment statistics. In some cases -- as is often the case with unemployment insurance -- they drop out of the labor force, albeit temporarily, and thus aren't included in the numbers at all. I've never heard of the BLS doing anything other than that.

So, I guess my answer is that we'll be using the current U3, as measured by the BLS: http://www.bls.gov.... But the discussion of "overheating" is less important the fundamental principle which is that, irrespective of what the "actual" unemployment rate is, I'm willing to traverse that point. Irrespective of which measure we use, the impact should be identical.
~ResponsiblyIrresponsible

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Porkloin
Posts: 53
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7/28/2015 7:00:57 PM
Posted: 1 year ago
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.


Hi RI. I'm not much on formal debating. I've argued for decades on online message boards, and as far as the formal "debates" on this site, I think the adage about old dogs and new tricks applies.

It's a good question, though - what, indeed, should the Fed do? I see them with no good choices, i.e. either accept deflation and a nasty economic slowdown, or further "prime the pump" just to stave that off, with all the further debt creation and currency debasement that brings.

What I think will happen, longer-term, is that the Fed may be, at a given time, slightly too loose or too tight, per what their objective is, but overall that objective will always be inflationary, an "easy-money" policy, versus letting deflation really get going (if they have the power to do that).

I've never seen any indication that the federal gov't will accept deflation, i.e. in the end they'll always print money, and try whatever else they can, versus taking a depression.
ResponsiblyIrresponsible
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7/28/2015 7:19:57 PM
Posted: 1 year ago
At 7/28/2015 7:00:57 PM, Porkloin wrote:
At 7/24/2015 4:26:03 PM, ResponsiblyIrresponsible wrote:
Would anyone be interested in debating the following resolution?

Resolved: The Federal Reserve should allow the U.S. economy to temporarily overheat.


Hi RI. I'm not much on formal debating. I've argued for decades on online message boards, and as far as the formal "debates" on this site, I think the adage about old dogs and new tricks applies.

It's a good question, though - what, indeed, should the Fed do? I see them with no good choices, i.e. either accept deflation and a nasty economic slowdown, or further "prime the pump" just to stave that off, with all the further debt creation and currency debasement that brings.

I think the good choice is probably to stay the course, as the only conceivably risk of that is slightly higher inflation in the near term, insofar as they don't completely blow it and lose their hard-fought credibility as an inflation fighter, which I really don't foresee happening. I don't think they're debasing the currency, though: the dollar has been rising over recent months, in fact, and will probably continue to rise as China continues to disintegrate -- that itself is de-facto tightening policy.

I'm almost not sure what you mean by "debt creation." The Fed doesn't physically create debt, nor does it purchase it directly from the U.S. government. Perhaps you're referring to the federal government, which is a whole other issue entirely, though I hardly see Fed action as "monetizing the debt."

What I think will happen, longer-term, is that the Fed may be, at a given time, slightly too loose or too tight, per what their objective is, but overall that objective will always be inflationary, an "easy-money" policy, versus letting deflation really get going (if they have the power to do that).

On this I disagree. The risk is indeed too loose or too tight relative to a proper balancing act between unemployment and inflation, with the former showing considerable improvement and the later cratering (though alternative measures which strip out volatile price movements--e.g, median CPI and trimmed mean PCE--have been fairly stable), but I think the current narrative is consistent with moving sooner and at a more gradual pace, irrespective of the global downward pressure on inflation, including but not limited to falling global demand, an appreciating dollar, and the resurgence in commodity price declines. I think the Fed, probably rightly, doesn't see deflation as an issue because of price rigidity, which was probably why we didn't see a sustained period of deflation in 2008-09 (though commodities took a hit and pushed the headline PCE number negative for a period in 2009).

I also don't think they'll follow an "easy money" policy, primarily because I don't think they have been thus far. I don't really think it's right to equate either short-term nominal interest rates or balance sheet size, as the Fed often does, with the stance of monetary policy; I'd much prefer looking at NGDP relative to trend and the real fed funds rate relative to the neutral real interest rate. By both of those gauges, policy has been abnormally tight -- and, as Scott Sumner would say, tighter than at anytime in history since Herbert Hoover was president.

I've never seen any indication that the federal gov't will accept deflation, i.e. in the end they'll always print money, and try whatever else they can, versus taking a depression.

I don't think they're "printing money," per se. The size of the balance sheet hasn't changed from roughly $4.5 trillion since QE3 ended back in October. All they're doing now is maintaining the size of the balance sheet by reinvesting principal payments from agency debt and agency MBS into new MBS. The base itself isn't actually moving, though the money supply itself, which the Fed only indirectly controls, might -- and obviously should be.

I also disagree on whether the government would "accept" deflation. They certainly accepted deflation in the 1930s. In fact, the Fed invited it by trying to lean against a stock-market bubble from 29-32, and then contracting policy later in the 1930s via enacting austerity and doubling reserve requirements. They've probably learned their lesson at least to some degree, but we're now awfully close to either no net change in prices or negative price gains on a 12-month basis, and in reality there isn't much of a tangible different between -X percent inflation and 20 basis points of inflation; the pass-through of energy and commodity prices aside, I think the Fed is pretty much indifferent about actually hitting 2 percent or in convincing financial markets that its target isn't a ceiling. Insofar as it's "somewhere in the ballpark," it declares mission accomplished.
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Porkloin
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7/29/2015 5:55:56 PM
Posted: 1 year ago
At 7/28/2015 7:19:57 PM, ResponsiblyIrresponsible wrote:

I'm almost not sure what you mean by "debt creation." The Fed doesn't physically create debt, nor does it purchase it directly from the U.S. government. Perhaps you're referring to the federal government, which is a whole other issue entirely, though I hardly see Fed action as "monetizing the debt."


I'm pretty cynical here, but I see the federal gov't, the Fed, and the big banks as one well-connected entity here, in some ways.

On creating debt, doesn't the U.S. gov't produce debt securities, which are purchased by the Fed, and in exchange the Fed issues physical money (Federal Reserve Notes) or money as banking deposits? As long as the total of outstanding Treasury securities is increasing, that certainly is debt creation.

I think the Fed as "inflation fighter" is not really applicable, right now. While I do wonder whether they're going to raise interest rates, I see nothing to suggest that inflation is much of a deal now. Much more that deflationary forces are very strong, and if anything the gov't will be trying to stave it off - though it's a real question as to when the urgency of such actions would make itself known.

As to whether the gov't would "accept deflation," I certainly agree that they did in the 1930s. Wages were allowed to fall to the point where it paid to put people back to work. I think it's different now - the impetus seems to be behind efforts to prop things up, rather then let them fall.
ResponsiblyIrresponsible
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7/29/2015 6:15:43 PM
Posted: 1 year ago
At 7/29/2015 5:55:56 PM, Porkloin wrote:
I'm pretty cynical here, but I see the federal gov't, the Fed, and the big banks as one well-connected entity here, in some ways.

I would probably bifurcate those into two groups, with the federal government and the big banks on one side and the Fed on the other. I don't think the Fed is really beholden to entrenched interests; otherwise, it would've modified policy a long time, or at the very least it would've (barring a September 2012 leak) slipped market-moving information to the investment community on a more regular basis.

On creating debt, doesn't the U.S. gov't produce debt securities, which are purchased by the Fed, and in exchange the Fed issues physical money (Federal Reserve Notes) or money as banking deposits? As long as the total of outstanding Treasury securities is increasing, that certainly is debt creation.

The U.S. government issues Treasury securities, but those are then bought up by investors -- the Fed cannot directly purchase Treasuries from the government, but can only purchase them on the secondary market from investors, in which case it does issue cash, yes, though it hasn't bought Treasuries since it ended QE in October.

Also, while the volume Treasury securities might be "increasing" since the federal government is still running a budget deficit -- which threatens to grow larger over the next few years due to healthcare inflation -- there have actually been worries about a global dearth in Treasury supply. This is, in large part, because the Fed has been holding so many of them, and obviously in doing so it has removed them from circulation. The implication, then, is that a shortage of Treasury securities will apply persistent downward pressure on longer-term interest rates.

I think the Fed as "inflation fighter" is not really applicable, right now. While I do wonder whether they're going to raise interest rates, I see nothing to suggest that inflation is much of a deal now.

I agree that it's not an issue, but the fact that the Fed has proven itself as an inflation fighter is actually crucial to assessing the impact of policy moves on market participants. For instance, because markets expect the Fed to aggressively tackle a future inflationary buildup, inflation expectations -- which, via any New Keynesian Phillips curve model, bear directly on current inflation -- are likely very sticky, and thus inflation persistent. Currently, those expectations, judging by market-based measures like TIPS spreads and the 5 year, 5 year forward (which uses 5-year and 10-year Treasuries), are substantially below the Fed's target. Low inflation expectations is another way to say that (a) the public isn't expecting nominal income to rise much in the future, and thus they'll likely delay spending and investment decision and (b) that the Fed's target is, simply put, not credible: in other words, 2 percent might be seen as a ceiling, rather than a symmetric target, which significantly diminishes the Fed's ability to actually hit 2 percent -- when in reality they should be targeting slightly above 2 percent in the near term because inflation has been low for so long.

Much more that deflationary forces are very strong, and if anything the gov't will be trying to stave it off - though it's a real question as to when the urgency of such actions would make itself known.

Again, I wouldn't say "deflation," but disinflation, and I agree. Judging by the global output gap -- which some research suggests is a better predictor of current inflation than a closed-economy Taylor Rule -- there is significant downward pressure on inflation: China'a slowdown, the threat of a Greek implosion, falling global commodity prices, rising dollar, labor slack, etc.

As to whether the gov't would "accept deflation," I certainly agree that they did in the 1930s. Wages were allowed to fall to the point where it paid to put people back to work. I think it's different now - the impetus seems to be behind efforts to prop things up, rather then let them fall.

That's not my reading of the 1930s. My understanding is that FDR both passed and raised on several occasions the MW during the 1930s. Granted, allowing wages and prices to fall under the logic that markets would magically "clear" isn't exactly an effective strategy to me, especially when nominal interest rates are pinned at zero, such that a fall in inflation translates to a rise in real interest rates (paradox of flexibility). Efforts to push demand back up are indeed much more aggressive now than they were in the 1930s, and that's probably because former Chair Bernanke looked extensively at the Depression and found, I think rightly, that a Fed asleep on the job was the proximal cause. That notwithstanding, I think the Fed has still been far too timid to take the aggressive steps it can and should have taken a while back.
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Porkloin
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8/1/2015 3:42:20 AM
Posted: 1 year ago
At 7/29/2015 6:15:43 PM, ResponsiblyIrresponsible wrote:

Also, while the volume Treasury securities might be "increasing" since the federal government is still running a budget deficit -- which threatens to grow larger over the next few years due to healthcare inflation -- there have actually been worries about a global dearth in Treasury supply. This is, in large part, because the Fed has been holding so many of them, and obviously in doing so it has removed them from circulation. The implication, then, is that a shortage of Treasury securities will apply persistent downward pressure on longer-term interest rates.


Have to laugh - could well be a "global dearth" but wow - to lend money to the U.S. gov't at such tiny interest rates - boggles my mind. Still, "market of last resort" I guess.

Yeah, if there is a "shortage" of them, then they get bid up in price, and down go the interest rates.

I think the Fed as "inflation fighter" is not really applicable, right now. While I do wonder whether they're going to raise interest rates, I see nothing to suggest that inflation is much of a deal now.

I agree that it's not an issue, but the fact that the Fed has proven itself as an inflation fighter is actually crucial to assessing the impact of policy moves on market participants. For instance, because markets expect the Fed to aggressively tackle a future inflationary buildup, inflation expectations -- which, via any New Keynesian Phillips curve model, bear directly on current inflation -- are likely very sticky, and thus inflation persistent. Currently, those expectations, judging by market-based measures like TIPS spreads and the 5 year, 5 year forward (which uses 5-year and 10-year Treasuries), are substantially below the Fed's target. Low inflation expectations is another way to say that (a) the public isn't expecting nominal income to rise much in the future, and thus they'll likely delay spending and investment decision and (b) that the Fed's target is, simply put, not credible: in other words, 2 percent might be seen as a ceiling, rather than a symmetric target, which significantly diminishes the Fed's ability to actually hit 2 percent -- when in reality they should be targeting slightly above 2 percent in the near term because inflation has been low for so long.


Wow, that's a lot to take in. Thanks for the explanation.

I think we will see outright deflation in a meaningfully short time, i.e. while of course I don't have a crystal ball, could be in the next year, or in the next few. We went down from 2007 to a bottom in 2012 or so, and since have come back up some. My opinion - we're about due to have another downturn.

Somewhere in here, the old adage about "pushing on a string" ought to take effect...?
ResponsiblyIrresponsible
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8/1/2015 3:55:27 AM
Posted: 1 year ago
At 8/1/2015 3:42:20 AM, Porkloin wrote:
Have to laugh - could well be a "global dearth" but wow - to lend money to the U.S. gov't at such tiny interest rates - boggles my mind. Still, "market of last resort" I guess.

It sounds silly, but in reality it's a question of relative risk and return. When people aren't confident about the state of the (mostly global) economy, their tolerance for risk tends to fall, so they'd probably opt for riskless government bonds. U.S. bonds just happen to be safer and, believe it or not, higher yielding than bonds in other countries -- namely eurozone bonds -- so it's a safe place for people to put their money. Hell, there was a flock-to-Treasuries in 2008.

Yeah, if there is a "shortage" of them, then they get bid up in price, and down go the interest rates.

Precisely, and I think that'll be an ongoing problem throughout the remainder of the decade because the Fed still holds a boatload of them.

Wow, that's a lot to take in. Thanks for the explanation.

It is a lot, lol. This is sort of my thing, so I love going on these rants, especially because they clarify my own thinking on these issues.

I think we will see outright deflation in a meaningfully short time, i.e. while of course I don't have a crystal ball, could be in the next year, or in the next few. We went down from 2007 to a bottom in 2012 or so, and since have come back up some. My opinion - we're about due to have another downturn.

I guess it depends on how you measure deflation. Are we using core -- underlying inflation stripping out food and energy -- or headline, which accounts for everything? With commodities, we could very well see "deflation" in headline, though I doubt the core will fall much, and that I think is what the Fed, and policymakers more broadly, pay the most attention to because they can't exactly stabilize the global phenomenon of a declining China and consequently commodity prices.

Inflation was actually pretty stable until 2009 or so, even by headline measures, though March 2009 to September 2009 was "deflationary" because of commodities -- though there was actually, prior to that, a period of "stagflation" in 2008 because of, of course, oil. 2012 was an interesting case where inflation technically moved upward to 2 percent -- or "on target" -- though it was most likely (and there's a body of literature on this no one really cares about, but should) because a negative output gap in the U.S. was offset by a positive output gap, at the time (though certainly not now), in emerging markets. Even now as that U.S. gap is receding -- and potential is in the doldrums, anyway, so "receding" is a somewhat loose term as it concerns the pace of underlying growth -- emerging markets are in the toilet, so I do think there will be future downward pressure on headline inflation and some pass-through to core, though I don't think oil is any longer in such a state of free fall as it was late last year that we'll see sustained deflation on more than a transitory, month-on-month basis.

Somewhere in here, the old adage about "pushing on a string" ought to take effect...?

With respect to Fed policy? I've heard that analogy, and I really don't buy it at all.
~ResponsiblyIrresponsible

DDO's Economics Messiah