For a prophet, [Roubini’s] wrong an awful lot of the time. In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. That didn’t happen. In January 2009, he predicted that oil prices would stay below $40 for all of 2009, arguing that car companies should rev up production of gas-guzzling SUVs. By the end of the year, oil was a hair under $80, Hummer was on its way out, and automakers were tripping over themselves to develop electric cars. In March 2009, he predicted the S&P 500 would fall below 600 that year. It closed at over 1,115, up 23.5 percent year over year, the biggest single year gain since 2003.
Mr. Bernanke will speak to reporters at the National Press Club in Washington Feb. 3 , and take questions there…A month ago, Mr. Bernanke appeared on prime-time television on CBS News’ “60 Minutes” for the second time.
As the linked article notes, even Bernanke lags his European and Japanese counter-parts in holding regular press conferences. I make the case for an increased public profile for the RBA Governor here.
International Economy poses the somewhat loaded question to 30 pundits, including my CIS colleague John Lee. My answer would be ‘go back and look what happened in 1998-99.’ China has grown in importance since, not least to Australia, but Australia has already weathered a scenario in which East Asia and commodity prices crashed.
Not content with a monthly CPI, an article in Slate looks at the prospects for an even higher frequency CPI in the US. According to the article, the US CPI costs $US234m a year to compile at a monthly frequency, which works out at about US$0.75 per capita. The ABS tells us that a monthly CPI in Australia would cost $A25m a year compared to the $A10m it spends compiling the existing quarterly release, which works out at around $A1.11 per capita. There must be economies of scale in compiling the CPI. Otherwise, the ABS quote looks expensive, even at PPP exchange rates.
I recall a certain market economist in the late 1990s who would embarrass the ABS by pointing out the above-CPI increases in the cover price of the ABS CPI publication.
I make the case for a monthly CPI in Australia here.
I have an op-ed in today’s Age arguing that the government’s expanded support for the mortgage securitisation industry is of no benefit to retail borrowers. Henry Ergas makes related points in The Australian:
where is the evidence that the benefits from the subsidy outweigh its costs? Indeed, where are the estimates of just how large that subsidy is likely to be, and to whom it will accrue? And where is the analysis showing that what Australia needs is yet more lending on houses, this time funded by taxpayers?
Don’t waste your time looking, for the answers are nowhere to be found.
As Michael Stutchbury notes, the whole banking package was premised on Joe Hockey’s lies about the big banks. But what does it say about the government that it allows public policy to be driven by the cynicism and opportunism of a populist federal opposition?
The Year RBA Watchers Got an Involuntary Early Retirement
Ross Gittins, giving his traditional address to the Australian Business Economists’ annual forecasting conference:
It’s become a lot harder for you guys to predict now the nation’s economics editors have retired from the prediction game. But that’s the way the more loud-mouthed of your brethren seem to have wanted it.
Ross Gittins delivered a fascinating speech this week during which he gave me a subtle slap for forcing the RBA to stop tipping-off journos about the internal executive’s rate recommendations prior to its Board meetings, which in and of itself is an acknowledgement that demonstrates how right we were to push this line (our actions also brought about the demise of the former Shadow Governor, Terry McCrann, after the October meeting).
Gittins’ remarks effectively concede that the economic writers in question can’t play the prediction game nearly as well now that they have a more circumscribed relationship with the Bank. Glenn Stevens denies that Board decisions have ever been leaked, but there is a distinction between the outright leaking of a Board decision and the backgrounding and nudging of economics writers that previously took place.
Should Central Banks Publish an Official Interest Rate Projection?
The case for and against. Since the RBA already produces economic forecasts endogenised to an assumption about the future path of monetary policy, it would make sense to publish the cash rate projection as well. Changes in the projection would heavily condition the expected real cash rate and could even reduce the need for changes in the actual cash rate.
ASX commissioned Access Economics to produce a report on why the ASX-SGX merger is in the national interest. As the report notes, internationally ‘no previously proposed cross-border exchange sector transaction has failed to proceed on the basis of regulatory disallowance.’ But in Australia, as Jennifer Hewett has noted, ‘the politics are overwhelmingly stacked against it’.
You’re a responsible Brazilian living in your decent Sao Paolo apartment (paid off!). You have a tidy pile of cruzeiros in your local bank, saved from the income your reasonable private sector job generates. But it’s 1979 and you’re worried about inflation looming on the horizon. What do you do?
Nic Rowe re-phrases the question for the benefit of a PhD candidate operating under the constraints faced by an economics blogger:
Using a macroeconomic model with monopolistically competitive firms, explain how an increase in the expected future price level will cause an increase in the current price level. Also explain whether there is an effect on real output.
Your answer must use words only, with no diagrams or equations. Be very precise about all the mechanisms that would be involved in this interdependent system of simultaneous causation. Your answer must assume no previous knowledge of economic theory or familiarity with economic concepts on the part of the reader. Try to make your answer as realistic as possible, using 10 real-world goods as examples. These should be goods that a homeowner with liquid domestic currency assets living in Sao Paolo Brazil in 1979 might want to buy in response to an increase in the expected future price level. Any transactions in your explanation must be shown to be consistent with double-entry bookkeeping. Please write clearly.
You have 2 hours to answer this question.
Of course, this has never been a deterrent to Scott Sumner, who writes blog posts faster than you can read them.
Inflation outcomes are the ultimate test of whether monetary policy has been too easy or too tight. With disinflationary pressures in the US at their most pronounced since the Volcker disinflation of the early 1980s, critics of quantitative easing would do well to ponder the counter-factual in which US monetary policy was not as accommodative. The data suggest that the risk of inflation being too low has been greater than the risk of inflation being too high.
While everyone has been watching Fannie and Freddie, the administration has quietly shifted most federal high-risk mortgage initiatives to FHA, the government’s original subprime lender. Along with two other federal agencies, FHA now accounts for about 60 percent of all U.S. home purchase mortgage originations. This amounts to more than $1 trillion and is rising rapidly. The administration justifies this policy by saying it is necessary to support the mortgage market, yet borrowers are once again receiving high-risk loans…
The Dodd-Frank Act, however, exempts FHA and other government agencies from appropriate standards on mortgage quality. This will give low-quality mortgages a direct route into the market once again; it will be like putting Fannie and Freddie back in the same business, but with an explicit government guarantee.
For example, thanks to expanded government lending, 60 percent of home purchase loans now have down payments of less than 5 percent, compared to 40 percent at the height of the bubble, and the FHA projects that it will increase its insured loans total to $1.34 trillion by 2013. Indeed, the FHA just announced its intention to push almost half of its home purchase volume into subprime territory by 2014-2017, essentially a guarantee to put taxpayers at risk again.
David Laidler: Many commentators are claiming that, in Japan, with short interest rates essentially at zero, monetary policy is as expansionary as it can get, but has had no stimulative effect on the economy. Do you have a view on this issue?
Milton Friedman: Yes, indeed… It’s very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high powered money starts getting the economy in an expansion. What Japan needs is a more expansive domestic monetary policy.
