Opinion

Ben Walsh

Inflation is too low; how does it get too high?

Ben Walsh
Sep 13, 2013 13:30 UTC

“Inflation can be too low as well as too high.” That was Fed governor Jerome Powell’s warning back in June. The data show that, based on the Fed’s own target of 2%, inflation is too low:

An interesting question is why post-crisis inflation has been so low, and what causes high inflation. Here’s a rundown of some of the debate.

Low inflation doesn’t seem to be for lack of effort

Mike Konczal made an important point in June. “Inflation is collapsing in 2013”, he wrote, despite the fact that “the Federal Reserve took extraordinary actions at the end of last year to hit its inflation target… The fact that inflation is falling even when more action is being taken should have us questioning whether a 4% move would have any traction”.

With that for context, there’s been an interesting debate over the last week about the origins of inflation in the 1970s, a time when 4% inflation would have been joyously embraced (instead it whipsawed from the mid-teens to mid-single digits and back again).

What if inflation is caused by factors the Fed can’t address?

Steve Waldman started the debate by asserting that “the great inflation [of the 1970s] was not at root a monetary phenomenon”:

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Golden delicious

Ben Walsh
Sep 10, 2013 22:03 UTC

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Apple has decided that there can, in fact, be more than one. The company announced today it is releasing two new iPhone designs: the iPhone 5S and the 5C.

The 5C starts at $99, with contract. In another first for Apple, the 5C comes swathed in variable shades of high molecular mass petrochemical polymers (aka plastic). The more expensive 5S, which starts at $199 with contract, also breaks new visual ground by coming in a golden, vaguely champagney color last seen in mid-1990s Mercedes sedans.

Chart: Selling the headline, buying the complete transcript

Ben Walsh
Sep 6, 2013 17:22 UTC

At the G20 today, Russian President Vladimir Putin spoke about about Syria. His comments were reported by Bloomberg “will provide assistance if the U.S. launches military action against the country [Syria]“, under the headline “U.K. Stocks Drop as Putin Says Russia Will Help Syria“.

Both the FTSE 100 and the S&P 500 dropped as the story was published at about 9:45 EST. At its lowest, the S&P fell 20 points, or about 1.2%, and the FTSE 100 fell 55 points, or about .8%.

The full context of Putin’s comments seemed to be less worrying to international stability than they initially appeared, and in fact were in line with his previous comments on Syria. As this was digested, both markets recovered.

from Counterparties:

G20 economic questions

Ben Walsh
Sep 5, 2013 22:00 UTC

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Under normal circumstances, the most important things to happen at a G20 meeting are cordial handshake photo ops. (Here’s our roundup of April’s meeting.) This G20 gathering, hosted by Russia in St. Petersburg, is already looking quite different. Here’s our guide to the major themes being discussed at the G20:

Syria:

Reuters’ Timothy Heritage reports that the split between the US and Russia over Syria is likely to overshadow a meeting that was supposed to be focused squarely on jumpstarting the global economy. The Council on Foreign Relations’ Stewart Patrick says that as a result, this G20 will be the “summit of compartmentalizing... focus on economic recovery while ignoring the elephant in the room”. Sort of the international relations version of how you get along with your family.

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The BoE orders a 7 and 7

Ben Walsh
Aug 28, 2013 22:06 UTC

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Bank of England governor Mark Carney has delivered “a radical change of monetary policy in the world’s sixth largest economy”, says the FT’s John Aglionby. For the first time, the BoE will tie its monetary policy to the unemployment rate.

Unemployment, currently at 7.8%, will have to fall below 7% for the bank to even begin thinking about raising interest rates, Carney said: “When unemployment reaches 7% the MPC [Monetary Policy Committee] will reassess the state of the economy and the appropriate stance of monetary policy”. In addition, Carney set a goal of bank capital ratios reaching at least 7% by the end of 2013; Barclays, Lloyds, and RBS are in total $41 billion short of that mark.

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The Rocky road away from QE

Ben Walsh
Aug 26, 2013 22:18 UTC

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Hanging over this year’s Jackson Hole gathering is the same policy question that has been kicked around in economic circles all summer: How quickly and aggressively should the Fed slow quantitative easing?

Caroline Baum thinks this WSJ headline says it all: “At Fed conference, everyone knows how to make an exit”. The problem, the WSJ’s Victoria McGrane reports in the story that follows, is that while opinions are everywhere, agreement isn't.

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Enforcement season

Ben Walsh
Aug 20, 2013 22:35 UTC

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Phil Falcone has been forced to say he was wrong. The hedge fund manager has settled charges with the SEC that he improperly put investor money to personal use, and the SEC struck a hard bargain: an admission of wrongdoing, a $17 million fine, and a five-year ban from the securities industry, which will probably force him to liquidate his fund. He will be allowed to continue to run his bankrupt wireless network company.

Falcone’s case is the latest in a veritable spree of regulatory enforcement. The SEC’s charges against hedge fund manager Steve Cohen may be on hold, but only because the Justice Department is busy prosecuting its case against Cohen’s firm, SAC. And despite agreeing to a $410 million settlement over energy manipulation charges, at least eight federal agencies are still investigating JP Morgan; the DOJ is also now looking into JPMorgan’s energy market behavior.  The SEC is examining JP Morgan’s Chinese hiring practices, and the bank recently said its regulatory costs might hit $6.8 billion above its current reserves.

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The London small fry

Ben Walsh
Aug 15, 2013 22:14 UTC

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It “is not who is being charged, but who isn’t". That’s Stephen Gandel’s assessment of the most interesting part of the US government's case against two JP Morgan employees connected to the bank’s $6.2 billion London Whale loss. Reuters’s Emily Flitter and David Henry write that while the government is charging Javier Martin-Artajo and Julien Grout with fraud, "the complaints make only passing reference to their former bosses". Conspicuously unmentioned are Ina Drew, who ran the Chief Investment Office, and Achilles Macris, who oversaw the now infamous derivative position.

David Benoit’s who’s who in the whole saga does give Martin-Artajo and Grout top billing, but it’s unlikely that would have been the case before the charges were filed. CEO Jamie Dimon, Drew, and Bruno Iksil -- nicknamed the "London Whale" for his role in accumulating those outsized derivative positions -- have been far more prominent figures in l’affaire baleine. Iksil has negotiated a non-prosecution agreement with authorities and will be testifying against his former colleagues.

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Pink slips for Fannie and Freddie

Ben Walsh
Aug 7, 2013 22:08 UTC

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President Obama wants to eliminate a government-owned company that just made a $5 billion profit. More specifically, he wants to eliminate both Freddie Mac and its sister Fannie Mae by 2018, and replace them with a new "common securitization platform" for mortgage securities where private investors bear mortgage risk, not the government: “For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag... It was ‘heads we win, tails you lose.’”

Sober Look thinks that Obama’s plan is a “hell of an undertaking”: 84% of the mortgage-backed securities issued so far in 2013 have been government backed. And, Sober Look says,  there’s no surefire plan to transfer that risk to private investors. House Republicans have proposed eliminating not just Fannie and Freddie, but also pretty much every form of government support for the housing market. There’s also bipartisan Senate bill that broadly mirrors the President’s preferences.

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Bad to bad-but-not-terrible

Ben Walsh
Aug 2, 2013 21:22 UTC

There were two ways of seeing July’s jobs report: it was either bad or bad-but-not-terrible. The US economy added 162,000 jobs in July; the consensus expected more like 184,000. May and June’s job totals were also revised down by a total of 26,000 jobs, and the unemployment rate edged down to 7.4%. Here’s a breakdown of the reactions, with the caveat that the distinction between weak and not-particularly strong is in the eye of the beholder.

The bad:

Neil Irwin called it the “Groundhog Day of jobs reports” and Matt O’Brien remarked that job creation remains ploddingly consistent, just like it has been for two and a half years.

Unemployment may be ticking down ever so slightly, but employment isn’t rising. At the current three-month average of 175,000 new jobs a month, we won’t get back to a pre-recession number of jobs for 11 months, more than five years after the recession began. Even worse, if you take into account new people coming into the workforce (and you should), we won’t close the jobs gap for another 9 years. Another estimate by the Chicago Federal Reserve puts that number at five years, which puts the over-under on the return to full employment at between a decade and a decade and a half.

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