March 30 5:48 PM

 Economists Who Say "Ni!"Krugman – OK, it’s actually the economists who say “Inflation!” But isn’t it all too predictable that with almost 10 percent unemployment and ongoing disinflation — at this rate we could be looking at deflation in the core rate by next year — what the shadow open market committee is warning about is … inflation. What seems to have them worried, aside from the fact that they’re always saying “Ni!” “Inflation”, is the growth in the Fed’s balance sheet. Yet as many of us have pointed out again and again, that’s doubly wrong: rapid growth in base money isn’t inflationary when you’re in a liquidity trap — see Japan, 1998-present — and much of the expansion in the monetary base isn’t really a monetary expansion, it’s the Fed taking on the role of intermediary of last resort, taking bank deposits and recycling them to the private sector. But worrying about inflation is what these guys do, no matter the circumstances.

 Health Reform Revelations – Krugman – One of the side benefits of health reform is that it has acted as a character test. If, for example, you thought of Mitt Romney as a person of character, his desperate attempts to disavow what is essentially his own policy proposal have cured you of that affliction. And as Menzie Chinn points out, Robert Samuelson’s hysterical reaction to what is, when all is said and done, a fairly modest — and paid for! — expansion of social insurance tells what what really lies behind his constant harping on the long-run fiscal issue. Menzie has a nice chart comparing four policies and their impact on the budget: the two big Bush tax cuts, the Iraq war, and the health reform:

Disappointing Roach  Krugman – I really don’t know what to say about Steve Roach’s column on China today. It doesn’t sound as if he’s read anything those of us calling for a tough stand on the renminbi have written. The whole thing is laid out as if China critics were focused on the US-China bilateral imbalance, when I’ve made it very clear that this is not at all the right thing to focus on: …And his insistence that changing the value of the renminbi wouldn’t change overall balances, because these reflect savings, seems to me to imply both that he subscribes to the doctrine of immaculate transfer and that he’s oblivious to the fact that the world is both deeply underemployed and in a liquidity trap. I’m not necessarily right about China. You can argue, for example, that the dangers of confrontation outweigh the potential gains. But this issue deserves more than misrepresenting the views of the renminbi hawks and rolling out old macroeconomic fallacies.

Fedspeak Highlights – The actions of the Federal Reserve are closely watched by markets for hints of coming policy actions. Some of the best sources of clues are speeches by Fed officials and regional bank presidents. Here are some highlights from speeches since the last meeting of the rate-setting Federal Open Market Committee. (in table form)

Extending the home-buyer tax credit: up is down and down is up – Once again, the federal home-buyer tax credit meant to spur demand in the housing market is coming to an end. To claim the credit—worth up to $8,000 for first-time buyers and $6,500 for folks who already own a home—you’ve got to be in contract by April 30 and close by the end of June. Much as happened the last time this deadline loomed, people are rushing to buy houses. Also like last time: there’s talk of hanging on to the credit for a bit longer. But it might surprise you who thinks that’s a good idea and who doesn’t. Consider this passage from a recent NYT story: Arguments for extending the tax credit a second time are just beginning. Robert Shiller, a professor of economics at Yale and co-developer of the Standard & Poor’s/Case-Shiller housing price index, is an early advocate. He thinks the credit was a bad idea that nevertheless the market cannot do without.


Credit Unions, Commercial Banks at Odds Over Lending Turf – A proposal to double the percentage limit that determines how much credit unions can lend to small businesses is drawing sharp criticism from commercial lenders, building upon an already thorny relationship between the two. The Credit Union National Association is lobbying Congress to increase how much credit unions can lend to small business from 12.25% to 25% of a credit union’s total assets, and increase the individual loan amounts that wouldn’t count toward the cap from $50,000 to $250,000. As policymakers continue to wrangle with how to reduce constrained lending standards to companies, the association — seizing the opportunity put forth by the financial meltdown — said credit unions are viable resources for businesses who need loans.

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