Despite the most serious financial and economic crisis of recent history, and having narrowly missed a catastrophic meltdown, the existing rules, and more importantly, the modus operandi, which caused the breakdown, are all still in place.
I always felt bad for being the sole soul outside Seoul confused by the Central Bank of Turkey, or CBT.
But for once, I feel comfort in the company of strangers: With more or less equally divided between labeling the Bank’s latest Inflation Report as hawkish or dovish, economists seem to be as baffled.
“…crises and emergencies may be welfare-improving and hence desirable. When ongoing social conflict implies that an economy has settled in a Pareto-inferior equilibrium, radical changes are often needed to break the stalemate and put the economy on a welfare-superior path. The necessary introduction of drastic measures, which may involve sharp tax increases and expenditure cuts, is usually unpopular and forcibly resisted because of distributional concerns. The distress associated with living through an economic crisis often makes these measures acceptable…”
Since mid-April, the euro has depreciated 10% against the U.S. dollar and European stocks have lost 17% of their value. But markets aren’t acting as though the problems will be confined to Europe.
It isn’t hard to see that the lack of decent information about how serious the Deepwater Horizon oil spill is is almost certainly due to obfuscation on the part of BP. The puzzling part is how BP can fantasize that it ultimately gains from this conduct, and why the Obama Administration tolerates it.
Here we go again: Futures look very weak, with the Dow indicating a drop of 175 at the open.
The cascade is weak Euro (Greek related or not). The soft EU currency means a strong dollar, and that is pressuring Gold, Oil, and stocks. The 200-day moving averages have been minor support, but indices (Dow & S&P500) are in spitting distance. If we open where the futures suggest, we are blow right through them.
Yours truly is actually a macroeconomist, indeed with a knack for financial markets, but still; a macroeconomist nonetheless. However, you would not have gotten that impression from the writings here end last week where I worried a lot about the worry of financial markets. I still do, worry that is, mostly because we are in a very delicate situation where a severe shock in financial markets can easily and quickly be transmitted into the real economy. Moreover and as Edward eloquently conveys in his recent post the structural challenges we face are complex and difficult.
I don’t buy into the core inflation number that the press or Federal Reserve use. Today’s Wall Street Journal has an article on the front page entitled “Inflation at 44-Year Low.” When you read further, you realize they are using the bogus core inflation number that strips out food and energy costs to get a 0.9% y/y number. Nowhere does the article mention actual consumer price inflation number of 2.2% y/y.
How much does the Greek crisis matter for China? There are, as far as I see, broadly two schools of thought. One school says that the Greek crisis is largely a problem internal to Europe, and its impact on Europe and the rest of the world is too small to matter much. In support they point to limited bilateral trade relationships between China and the most affected European countries.
I don’t expect to get a holiday card from Tim Geithner this winter. Nor do I expect one from Larry Summers. Or even Michael Barr, despite everything I’ve written in favor of consumer protection. (I probably will get one from Barack Obama, since I donated money to his campaign.) But they might want to consider putting me on their lists.