For as long as I can remember people have referred to the Fed printing money-usually when they disapprove. The implication is that printing money is inflationary.
I've always assumed that those who use that terminology understood that "printing money" shouldn't be taken literally. Nowadays, I'm not so sure. Several financial talking heads I've heard recently sound like they mean it literally. Often the context has been whether the Fed might buy longer-term treasuries.
Comments (0)Because of the financial crisis and the deepening recession, more economic literacy is being recommended once again. When I was there, the Dallas Fed had several programs to teach economics to teachers so they could teach it to their students. Teachers often asked me what were the most important economic concepts to teach students who wouldn't be taking additional courses in economics. Here are my Top-10.
The American Spectator (online) has been running an excellent series of articles on the damage mark-to-market accounting has been doing to our financial system. They have some real heavyweight authors, plus myself. I'm a heavyweight in a different sense.
The series is introduced by Editor-in-Chief, R. Emmitt Tyrrell, Jr. accessible from my article. Once there, you can follow the trail to the following:
Newt Gingrich,
Brian Westbury, FT Advisors
Edward Yingling, President of the American Bankers Association,
William Isaac, former director of the FDIC
Gary Wolfram, Professor of Economics, Hillsdale College
(How a Good Thing Can Make a Bad Thing Worse)
This morning's employment report confirmed that the recession has recently moved into steeper decline. Payroll employment declined by a staggering 533 thousand, and the unemployment rate increased from 6.5 percent to 6.7 percent. The increase in the unemployment rate would have been greater except for a decline in the labor force, presumably because of discouraged job seekers. From December 2007 to Dec 2008 the economy shed 1.9 million jobs.
While spending and investing billions of dollars-or is it trillions?-trying to heal the sick credit markets, the government continues, inexplicably, to ignore the low-hanging free fruit of suspending or modifying mark to market accounting. We are hoisting ourselves on our own petard by adhering strictly to accounting rules that unnecessarily threaten to put thousands of viable financial institutions out of business.
The business cycle dating committee of the National Bureau of Economic Research today announced their determination that the peak of the last expansion occurred in December 2007, coinciding with the peak in employment. This means the recession started in January 2008, the month employment began to decline. Although they consider other factors as well, the labor market was the primary factor in this case.
This means that we've already been in recession longer than the past two recessions, which were relatively shallow as well as brief. Commentators would make a mistake, however, if they start applying rule of thumb to this recession using the January 2008 beginning date since the employment losses were relatively modest for a recession period through August. In September and October, 2008, employment losses steepened and, judging from new applications for unemployment insurance, will have continued to do so in November. That will likely be confirmed Friday morning, December 5th.
What I mean about not applying rules of thumb is that for the first 9 months or so, the recession was mild; and it's becoming much more serious now. For some purposes, September might be a more relevant starting date than January. You might think of it as a recession within a recession.
Congratulations to Bob Gates and to President-elect Obama for making an excellent decision, even if I did recommend it in my latest post. Congratulations are also due on the appointment of my former Fed colleague Tim Geithner as Treasury Secretary and Larry Summers for the White House economic post. I've only met Larry a couple of times, but I've heard him at several conferences and found him most impressive. Both are excellent appointments. I don't know the other members of the economic team, but they have good reputations. It looks like we're off to a promising start.
The Business Cycle Dating Committee of the NBER will likely say the recession began in January 2008, when total employment started dropping. However, the net job losses accelerated this September and October likely signaling a steeper rate of decline.
Payrolls declined 240,000 in the October after a revised decline of 284,000 in September. The household survey showed a larger 297,000 decline in October, which, combined with a labor force increase of 306,000, drove the unemployment rate up from 6.1 to 6.5 percent. Total payroll employment has fallen by 1.2 million in the first 10 months of 2008, with over half of the decline in the past three months." We are clearly experiencing a nasty inflexion point in the economy.
My latest New York Times post goes through the traditional categories of spending, asking the question: Where is the strength to pull us out of the recession going to come from? The answers aren't encouraging. You may find that post here.
The economy is facing quite a dilemma-or paradox. Actually, John Maynard Keynes called it the Paradox of Thrift, but most economists I know don't talk about it much for fear of being labeled a Keynesian. The paradox is this: most of us need to save more, i.e., consume less of our disposable income. Yet, if all or most of us try to save more at the same time, income will fall. The paradox comes in because out of the lower income we will likely end up saving less, not more.
My latest contribution to the NY Times Economix blog discusses how to beat the stock market. View it here.
A Random Walk Off a Cliff: ‘Beating' the Market
By Bob McTeer
I've always been fascinated by the question, "If you're so smart, why aren't you rich?" Why don't the experts have an advantage in stock-picking? Or do they? Are markets so efficient that they incorporate all relevant information instantly and leave us nothing to trade on? Or, can some investors "beat the market" consistently?
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