Commentaries
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Reasons to be cheerful
By John M. Berry
John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.
Doing more with less is a corporate mantra that some say bodes ill for job growth. Data last week showed that productivity at non-farm business jumped at an extraordinary 9.5 percent annual rate in the third quarter.
Yet the sharp gains in efficiency are helping drive corporate profits and that could be just what’s needed to convince employers that it’s safe to begin hiring again.
(more…)
Now you can get inflation protection for the (super) long haul
Treasury announced that it’s tweaking its TIPs program so investors can get inflation protection for 30 years rather than 20 years. It will certainly make break-even calculations much easier since the government doesn’t sell regular run-of-the-mill Treasurys with 20-year maturities.
The first batch of 30-year TIPS will be sold in February, while the 20-year variety will be discontinued immediately.
Playing politics with Social Security
By John M. Berry
The White House’s knee-jerk reaction to the news that inflation was so low that Social Security beneficiaries won’t get a cost-of-living increase next year was a seriously bad omen for long-term control of federal spending.
The problem wasn’t the $13 billion cost of another one-time $250 payment to each retiree proposed by President Barack Obama. No, it was the utter disregard of the discipline inherent in indexing payments to changes in consumer prices.
Kohn on V-shapes, housing, inflation and a whole lot more
Donald Kohn, the Fed’s number 2, has a lot to say about the economic outlook but not a whole lot new in terms of when the central bank will reverse course on its extraordinary easy monetary policy. Full speech at the National Association for Business Economics in St. Louis can be found here.
Some choice bits:
I don’t think a V-shaped recovery is the most likely outcome this time around.
We’re all doomed, part 94
If you really want to spook yourself, try this. The sweep of history, courtesy of Dylan Grice of SocGen (he starts with 3rd Century Rome) shows that all fiat money eventually collapses under the weight of its internal contradictions, as politicians struggle to meet promises made under more benign circumstances.
There are some really spooky charts here, showing the real level of government liabilities (rather than merely the actual borrowing) and none of the Western countries looks remotely solvent. Oddly enough Spain comes out best – or least worst – Â with liabilities totalling a mere 250 percent of GDP. The US is joint worst with 550 percent.
Gold’s run impressively up
All the goldbug fever, not withstanding today’s pullback in the yellow metal’s price, got me thinking about just how well has gold stacked up against say stocks and oil over the longer term. I picked 2004 as a starting point for no other reason than it gives enough distance from the mania of the credit bubble and the distortion of its popping.
Gold’s trajectory is pretty impressive. Now whether you think that means it’s bubble that never fully burst or whether it’s indicating a longer term trend in which enough investors want a hedge against inflation further down the line is another matter. But, since 2004, it’s been mostly up.
Who’s afraid of deflation?
For most policymakers, deflation is the stuff of nightmares — scarier even than bank failures and stock market collapses. As the economy stumbled, deflation became Lords Voldemort and Sauron rolled into one.
In recent months, however, this economic supervillain seems to have lost its power to intimidate.
from Rolfe Winkler:
Fed walks the tightrope
(Cartoon from The Economist, click to enlarge)
NEW YORK, July 29 (Reuters) – The sound money set remains concerned that the Federal Reserve’s emergency actions to corral collapse could ignite hyperinflation. In particular, they point to the explosion of excess reserves inside the banking system, which they call dry tinder just waiting for the spark of recovery. Bill Dudley, president of the Federal Reserve Bank of New York, says this isn’t an issue because the Fed now pays interest on excess reserves.  It's a good argument, but only in the short run.
To liquefy the banking system, the Fed drastically expanded its balance sheet, which, as you can see in the chart to the right, has led to an explosion of excess reserves at banks.
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The Wall
