The NHL hockey players from Russia put in a pretty good showing tonight. Not sure why they did it on behalf of the backwards panphobic kleptocracy, but it’s not their fault where they were born, I guess. Shit happens. Lord knows it can here too.



I don’t deny that Ovechkin is a great hockey player and part of the case for evolution that definitely needs to be made in these times of excessive religious influence.

But what I don’t get is why he would care about representing that backward little petro state with the botoxed little piss ant in charge.

Their retro czarist uniform looks like a cross between a Brighton Beach motel doorman’s coat and what you might see at Disney’s RussiaLand. It must be hard for a guy who actually made something of HIMSELF to suit up to represent that situation over there.

Phil Esposito put it well back in 72. Game on.





You know nothing of my work

This post is not serious and will be removed, along with many others.


Strong lede.

This guy, who calls himself THE market monetarist, is really angry with Noah Smith, mostly because Noah did not use his preferred definition of monetarist in a recent Bloomberg View article in which Noah is typically nihilist about everything macro. Semantics debates can really get heated fast.

After citing at length an egregious passage from Noah’s article,  the blogger — who has much experience speaking with international organizations — points out helpfully:

All of that is basically wrong.

Noah Smith argues that “It (monetarism) posits that technocratic central bankers, manipulating a single price in the economy (the interest rate), are all we need.”

I guess Noah Smith never read anything any monetarist ever wrote about monetary policy, but he could for example start with reading Milton Friedman’s 1967 presidential address to the American Economic Association The Role of Monetary Policy:

Yeah. So there.

I think Noah Smith probably was referring to monetarism in the broadest sense, in which monetary policy matters and is the preferred way to stabilize the cycle.  You might say Noah teaches a course in media and money at Columbia and that his insights on monetarism have a great deal of validity. But religious zealots, particularly from MMT and market monetarism,  are easily provoked. None of this matters at all.  But it provides me an excuse to link to this old chestnut, featuring Marshall McLuhan. IMHO, jokes get better with repetition.  And this one has a really long head start. I will probably use it again.


Fed and BoJ, one thought each

I barely made it up the hill, but did.

Yellen left the impression that once the expansion progresses a bit further it will be safe to raise interest rates.  I don’t think that is quite right. What she really means is that once the unemployment rate falls a bit further, there will be some more urgency about getting economic growth to trend or slightly below.  That smells sort of similar in terms of the very short-term outlook for interest rates. But the way she expresses it incorporates the logic of the Taylor Rule, which is defunct in the current environment. So in my view, that is misleading. I will elaborate on that later.

The BoJ inflation story is fun, as a teaching moment for h money. H money puts the cart before the horse, by starting with a desired fiscal stimulus and then solving for the inflation required to make the holders of currency pay for it. In contrast, announcing an increased toleration of inflation gets the horse in front. Then we can solve for the budget constraint relaxation implied by the tax on currency holders. Even in Japan, where currency demand is higher, the fiscal relaxation is tiny. That is why h money is a no hoper in the US, and not all that attractive in Japan.  I will elaborate on that later.


The 99% in Japan

Update on Sep 21: Kuroda makes Bernanke sound like George Washington.  Not being able to control what matters, Kuroda is now going to pretend to control what doesn’t matter.

It may not be a good idea to just give up.  Maybe they should follow the Summers’ Principle and pretend that they have things more in hand than they do. But at this point, the fibs may actually be counter-productive. They might want to be more honest that the remedies are elsewhere. Or they could look out the window and say, liquidity trap is awkward but it seems like we can live with it. It is not like it is causing massive unemployment.

I am a broken record on this, but the silliness of these tools to get out of liquidity trap are an indication that you really  want to avoid it, if you put any priority on hitting a positive inflation target. Don’t start here, as the map says.  That holds a lesson for the Fed, given that they claim to have an inflation target.


Ninety-nine percent of the people speculating on what the BoJ will do don’t know what QE is. Of them, the majority don’t care, because the odds of somebody figuring it out between tonight and next week are low.

QE in government bonds is nothing more than the central bank shortening the effective maturity of the federal government debt on behalf of the Treasury, in Japan’s case, the MOF.

QE in private assets is effectively the MOF doing industrial policy.

This is shrouded in monetary mumbo jumbo because the financial markets are often attracted by shiny objects, at least in the short run. Long run, not so much, as Japan has demonstrated.

I have long dissed the effectiveness of QE in the US.  I doubt I had much effect convincing many people. Not many read my blog and I ain’t that convincing.

But, as I argued in the piece on QE that I wrote for the Noahpinion blog, the Bank of Japan would probably figure out a way to discredit QE, first in Japan and, then once people thought about it, outside Japan as well.  Doing nothing in a country that is going nowhere is less likely to fool people than doing nothing in a country that is going somewhere.

As for tonight, I have no idea how this meaningless beauty contest will play out. Maybe they will shorten the effective maturity of the debt more than people expected. That would be YUUUUUUUGE for those wondering how other people will think other people will think other people will think about it for the next week.

Good luck.


I think we’re gonna need a bigger flag

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People are pretty upset that Colin Kaepernick respected the main themes of the national anthem, which are freedom and bravery. That national anthem literally concludes emphasizing them.

I saw on the tee vee today some timid conformists standing safely around people who agree with them holding a sign telling Kaepernick to “stand up.”  Going out on a limb here, I am guessing the anthem was not written for the lowest conservative denominator, so beautifully typified by these Tories.

What the Tories need is a bigger flag and maybe some ear plugs and blind folders to seal them off from the reality of what the United States actually is, which is pretty cool, with about a 60% chance.

Bloomberg editorial brings it all together

In my opinion, the reason the consensus among Fed watchers has been so badly off during the past several years has very little to do with witting speculations having gone awry. Witting speculations are hard.

It is much more to do with those unknown unknowns, things people believe are beyond questioning and yet are not.

This editorial on what the Fed “should” do tomorrow is the best I have seen in terms of collecting all these unwitting premises into a tight, comprehensive non-argument. You don’t often see not thinking in its Platonic essence:

A rate hike would bring “clarity”, because after Wednesday people would just stop worrying about the Fed.

It would be part of “renormalization.” Clearly the normal funds rate is way different from what it has been for eight years.

It would follow the logic of a Taylor Rule, which is a good thing, having worked so well lately.

It would reduce the risk of bubbles. All bubbles happen when rates are 40 bps or less for precisely eight years  and none happen with rates “normal.”

It would unwind the “distortions” caused by low interest rates and the Fed’s bloated balance sheet. What the Fed really needs is to let go with a good fart to deal with all the bloating associated with shortening the average maturity of the federal debt.

It would recognize that you don’t need “crisis” policy when the economy is not in crisis.  Monetary policy is best conducted as a semantics debate.

I think all of those arguments are extremely weak, as I have belabored pretty much since I started this blog.  I could be wrong on a lot of that.  The markets are not spotting you much to bet dovish for tomorrow. Dovish is clearly the consensus  among people who actually bet money.

But what strikes me is the popularity of the belief that these points are not even debatable. They are just breezily taken as self-evidently true, even though believing in them has been practically speaking a huge loser for years now.

One innovation that the Bloomberg editorial does bring, besides collecting all unwitting premises into one place, is the promotion of intentional anchoring. They want the Fed to conduct policy on the basis of what people previously would have believed. I had not quite seen that one before. Innovative.

Cyclical spending shares are meh

I mentioned in this post that the financial-balances perspective on the condition of the business cycle can be confirmed by looking at the share of GDP or domestic income taken by the most cyclical components of demand.

Just because one confirms the other does not mean they are both right.  This is just one aspect of the story, one that has gone from an unambiguous positive to now more neutral / non-threatening.

The most cyclical components of aggregate demand are basically all forms of investment, excepting – I assert – investment in intellectual property. IP development is not particularly cyclical and until recently the National Accounts did not even treat it as capital spending.  Back in the day, it was a cost item.

When the cyclical components are running hot relative to the rest of the economy, a greater share of aggregate demand is likely to be debt financed and contingent on expectations for the future, which can change more abruptly than the reality of the present, which tends to determine the other components of aggregate demand. Hence the link to financial balances.

You might say that a high cyclical spending share reflects optimism. And it is hard to be against that, because optimism now can improve the supply-side performance of the economy later. But not all forms of optimism are equal, and excessive optimism can lead to disappointment. So anyhow, that is my rationalization for looking at this stuff. Doing so, what do I see?


The cyclical spending share is now actually below the lows seen at the depth of prior recessions. So one thing we got going for us: there is no evidence here of too much optimism or too much commitment to spending decisions that relate to the future. Yay Obama! Making America secure by making sure nobody is too optimistic.  Kidding! I am a fan.

The cyclical spending share is well off its low, though, which makes this less a no-brainer than it was because – just as in the case of profit margins – I ought not pretend I really know the appropriate mean towards which this should “revert.” Assuming that mean does not move abruptly, we are probably low enough for safety.  But the point is that this is no longer so clear. This was an unambiguous positive. Now what we can say for it is that it is non-threatening, taken in isolation.

Recently, the cyclical spending share has ticked down, partly because of a somewhat needed correction of business inventory investment .  Nominal investment is now running at -20 billion (ar), which is about $70 billion below the pace required to keep the (real) I/S ratio declining along its secular trend in an environment of normal demand growth for goods and structures. So there is now actually some pent-up demand there.  That part I got, but it is not the decisive part.


You can split private fixed investment into two separate components, that done by businesses and that done by households. The former includes investment in equipment and structures, while the latter includes investment in housing and consumer durables.

The business sector has arguably almost renormalized – or is indistinguishable from almost having done so. I lack confidence here because secular stagnation may have introduced a declining trend line into this series.

But the household sector is still pretty retrenched. We all know housing is still running low, which means the recovery there still has a while to go. It is less well known – and occasionally surprises me when I am reminded of it – that consumer spending on durables is also still fairly low.