Passing along a great video from INET with its interview of William Lazonick. He talks about the ideology changes through the 80’s, stock buy-backs, labor becoming a commodity and lack of real investment for the future. Yet, he mentions another very important thing… There is an ideology that only shareholders take risk, so therefore they […]
There are quite a few shifts happening in the global and domestic economy. I have been observing for the past week. So many people are getting confused. Here is a list of concerns… China is slowing down. Some emerging markets are facing capital outflows and are tempted to raise their central bank interest rates. Argentina […]
Barry Ritholtz is talking about the Bull market coming to an end. It is no surprise to me. My equations of effective demand may finally be cracking the code of the business cycle. But I want to say that knowing where the business cycle ends is the ultimate transparency in capitalism. Barry, as usual, makes […]
If inflation starts to rise or the economy overheat, how can the Federal Reserve raise their Fed rate? One might think it would be impossible with $4 trillion in reserves, but the Fed does have a way. They can simply raise the floor under the Fed rate. What is the floor? The interest on reserves. […]
David Beckworth made a determination of nominal interest rates using the Output Gap from this paper…Measuring potential output: Eye on the financial cycle, by Claudio Borio, Piti Disyatat, Mikael Juselius. Determining the output gap correctly in real-time is very important for determining the nominal interest rate and many other factors. It is not good to […]
Jared Bernstein is saying that the unemployment rate is actually higher than 6.7%… “Based on numbers I’ve written about in greater detail, I think a more representative rate would be about 9 percent.” His reasoning is based on the fall in labor force participation. But I do not agree with his logic. 6.7% is a […]
As the Euler equation begins its descent into history, where will we go from here? Well, we must understand the social psychology impacting consumption. It is not always true that higher interest rates leads to less consumption and more saving. Just look at the financial repression in China, where higher returns to savings increase consumption. […]
Noah Smith wrote a GREAT! post about how the data does not support the Euler equation. His post strikes at the heart of why economics and monetary policy is failing. Hopefully, we will see a revolution in thought about interest rates and monetary policy. The one sentence from his post that empowers the rebels is… […]
Labor’s share of national income sets a limit upon the utilization of labor and capital. That is the basic principle of effective demand. Domestic production periodically hits the effective demand limit. But are imports also constrained by the effective demand limit? Yes, they are, at least for the US. Let’s look at imports to exports. […]
This wave occurred 3 days ago and is an analogy for investing when stock prices are high. One guy barely escaped. The other guy thought he could make it. But he may end up winning the biggest wave of the year, and receive a bunch of money. Life is funny that way.