Relevant and even prescient commentary on news, politics and the economy.

Q4 2010 Flow of Funds: Household leverage down, wealth effect dead, and equities surge

The Federal Reserve released the Q4 2010 Flow of Funds Accounts for the US. On the household balance sheet, net worth (total assets minus total liabilities) was estimated at $56.8 trillion, which is up $2.1 trillion over the quarter. Notably, household net worth has increased $6.4 trillion since the recession’s end (Q2 2009). Moreover, personal […]

It’s pretty obvious how China can achieve its top economic priority of price stability

Premier Wen Jiabao made stabilizing prices China’s top economic priority for 2011. Amid the surge in world energy costs, this story didn’t make the front page. However, Chinese policymakers did take their time spent out of the limelight to allow the Chinese yuan to appreciate roughly 0.3% against the US dollar. Chinese inflation is elevated […]

Evidence says the ECB is overreacting

Earlier this week I argued that the ECB’s inflation target of just below 2% is too simplistic, especially during periods of supply-side price shocks: energy, food, VAT hikes. Here’s a menu of reactions to the ECB’s announced rate hike (Trichet used the phrase ‘strong vigilance’, which historically is a leading indicator of a rate hike […]

It’s pretty simple: the ECB’s now in hiking mode

I WAY underestimated the simplicity of ECB policy. I think that the terse monetary policy objective explains quite well the ECB’s announced stance on policy today: The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. […]

Trichet and King: it’s energy, VAT, and food!

The global inflation picture is heating up. On Google, a search of ‘inflation’ spanning the month of February 2011 gets 311,000,000. For one year ago, the same search parameters yielded 1,850,000 hits. Inflation’s on the monetary policy makers’ minds. But why? In the developed world, it’s a food and energy story! Seriously, look at German […]

Based on the German inflation print, the ECB may be less ‘hawkish’ next week than people think

Today the German Federal Statistics Office reported that the February Consumer Price Index is expected to mark a 2.0% (2.047% by my calculations, which is very close to a rounded 2.1%) annual pace in February 2011. This is simply a ‘flash’ print, and the Statistics Office was very careful to discount the fact that inflation […]

The UK faces a serious inflation issue if oil pops!

Bond markets are pricing in rate hikes this year by the ECB and the BoE. Both are inflation targeters, so which one should react first to a possible spike in oil prices? What’s your answer? (1) Neither. As FX appreciation and fiscal austerity pass through to domestic prices, the core will drag down the headline. […]

Interesting interpretation of Trichet’s comments regarding ECB policy

Eurointelligence cites a Die Zeit interview (the original interview here) with ECB central bank President Jean-Claude Trichet. Their take on it is quite interesting, which suggests that most are ‘wrong’ about the path of ECB policy. According to Eurointelligence: Central bankers are trained not to say anything of any relevance in long speeches or interviews, […]

Europe’s at it again…

Key European CDS are starting to turn in the more northern direction again, as the German-French ‘pact for competitiveness’ faces near-unanimous pushback across Europe. Credit default swaps (CDS) are a market security used by investors to buy 5-yr protection (in this case) against default (or the like). As the spread rises the implied probability of […]

Deficit Hawks Down: The Misconstrued “Facts” Behind Their Hype

Reposted from New Deal 2.0 with permission from author. Deficit Hawks Down: The Misconstrued “Facts” Behind Their Hype by James K. Galbraith Economist James K. Galbraith attends a Pete Peterson-funded road show. The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — […]