Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for March 2009

The budget: Ammunition for the critics

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The original story is linked here.
Mar 26th 2009
From The Economist print edition

 

 

A grimmer economic outlook from Congress’s scorekeeper

BY THE standards that obtain in the blogosphere, the duelling posts of Peter Orszag and Doug Elmendorf are pretty tame stuff. But they are still exciting, because Mr Orszag runs Barack Obama’s budget office and Mr Elmendorf heads Congress’s fiscal watchdog, the Congressional Budget Office (CBO). The debate over the budget hinges heavily on whose economic forecasts are more accurate. Read the rest of this entry »

Written by gregip

March 26, 2009 at 9:31 pm

American economic intervention: Cavalry to the rescue (book review)

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The original story is linked here.

Mar 19th 2009
From The Economist print edition 

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now
By Felix Rohatyn

1416533125

Simon & Schuster; 259 pages; $26

Buy it at
Amazon.com
Amazon.co.uk

IN THEIR collective mythology, Americans owe their wealth to an entrepreneurial spirit which government has usually only served to suppress. More so than any other society, Americans give private enterprise the benefit of the doubt. Even now, though outraged at the excesses that led to the current financial crisis, they are deeply cynical about the spending, bailouts and interventions that form the government’s response.

Yet the mythology is based on a selective interpretation of history. Felix Rohatyn demonstrates this by recounting ten episodes of significant and ultimately beneficial economic initiatives taken by past American governments. Read the rest of this entry »

Written by gregip

March 19, 2009 at 4:55 pm

Financial regulation: Top watchdog

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The original story is linked here.

Mar 19th 2009 | WASHINGTON, DC
From Economist.com

Should the Fed take up the cudgel as America’s regulator-in-chief?

AFP

frank

 

BARACK OBAMA’S government is using the firestorm over American International Group to press a priority of its own: new authority to take over any big, troubled financial institution and a watchdog to look for risk in the entire financial system. But the controversy has also created a new obstacle for those plans. The most logical agency to fill those roles had been the Federal Reserve, but political support for that idea may have been hurt by its role in the bail-out of AIG.

That is the view of Barney Frank, the powerful chairman of the House Financial Services Committee, who suggested in an interview on Thursday March 19th that “The Fed has taken a bit of a hit over this AIG issue.” He argues that the “political case for the Fed as systemic risk regulator is going to have be rebuilt, re-examined. It has not changed my personal view of the Fed as the best possible [candidate] but it has substantially weakened their political position.” Read the rest of this entry »

Written by gregip

March 19, 2009 at 4:50 pm

Economics focus: Money’s muddled message

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The original story is linked here.

Mar 19th 2009
From The Economist print edition

Today’s fattened central-bank balance-sheets evoke fears of inflation. Deflation is the bigger worry

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BACK in 2002 Ben Bernanke, then still a Federal Reserve governor, declared that “under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” That does not mean it is easy.

On March 18th America’s inflation rate was reported at 0.2%, year on year, in February. The same day the Fed said “inflation could persist for a time” at uncomfortably low levels. Yet some economists and investors insist high inflation, even hyperinflation, is lurking in the wings. They have two sources of concern. The first is motive: the world is deleveraging, ie, trying to reduce the ratio of its debts to income. Policymakers might secretly prefer to do that through higher inflation, which lifts nominal incomes, than through the painful processes of cutting spending and retiring debt, or default. The second is captured by the Fed’s announcement that it plans to purchase $300 billion in Treasury bonds and an additional $850 billion of mortgage-related debt, bringing such purchases to $1.75 trillion in total, all paid for by printing money. It is not alone: around the world, central-bank balance-sheets have ballooned (see chart).

 

This is scary stuff to those who swear by Milton Friedman’s dictum that “inflation is always and everywhere a monetary phenomenon.” But the role of the money supply in creating inflation is less obvious than monetarism suggests.

The quantity theory of money holds that the money supply, multiplied by the rate at which it circulates (called velocity), equals nominal income. Nominal income in turn is the product of real output and prices. But does money supply directly boost nominal income, or does nominal income affect velocity and the demand for money? The mechanism is murky. Read the rest of this entry »

Written by gregip

March 19, 2009 at 4:45 pm

The Fed: A test of will

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The original story is linked here.

Mar 18th 2009 | WASHINGTON, DC
From Economist.com 

 

The Fed finds innovative ways to pump hundreds of billions of additional dollars into the economy

AFP
ben_top1

A FEW days ago Ben Bernanke, chairman of the Federal Reserve, was asked to identify the biggest obstacle to economic recovery. That “we don’t have the political will,” he replied.

Mr Bernanke showed his own will on Wednesday March 18th, when the Fed’s policy panel said it would purchase $300 billion in Treasury debt, mostly maturing in two to ten years, starting next week. Read the rest of this entry »

Written by gregip

March 18, 2009 at 4:38 pm

Greenspan had the power: should he have used it?

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The original post is linked here.

ALAN GREENSPAN’s defence of the Federal Reserve in the formation of the housing bubble restates a familiar argument—it raised short-term interest rates but long-term interest rates did not follow, and housing is most sensitive to long-term rates. His proof includes the fact that long-term rates were low worldwide, and that many countries had bigger housing bubbles than America. The housing bubble’s source must therefore be global.

I agree with this analysis but I don’t agree that it exonerates the Fed. Read the rest of this entry »

Written by gregip

March 14, 2009 at 8:54 pm

The economy: Pursued by Obamabears

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Mar 12th 2009 | WASHINGTON, DC
From The Economist print edition



Investors fret that President Obama’s crisis response is not up to the task

The original story is linked here.

Illustration by David Simonds
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BARACK OBAMA has modelled his early days on those of Franklin Roosevelt, the last president to take office during a serious economic crisis. But by one benchmark he is failing. At market close on March 11th, despite a rally this week, the Dow Jones Industrial Average was 16% below its level on the Friday before Mr Obama took office. At this point in Roosevelt’s presidency, 54 days in, it was up 35%.

The “Obama bear market,” as conservative commentators have gleefully labelled it, has been blamed on two things: on the new president trying to do too much, and on his failure to do more. There is, paradoxically, truth to both assertions. Read the rest of this entry »

Written by gregip

March 12, 2009 at 4:12 pm

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