Six of one…

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Six of one…SCOTT SUMNER has been arguing that Japan hasn’t been in a deflationary trap for twn years, from which the Bank of Japan is helpless to extricate the economy. He writes: I was under the impression that the Bank of Japan was an ultra-conservative bank, and liked mild deflation. Indeed I thought that was pretty widely understood. I guess not. And as evidence he notes: The Bank of Japan would never raise interest rates during a period when inflation is “too low,” that would make no sense. I agree. The problem is that the BOJ did raise interest rates during the 2000s, indeed more than once. So although Western economists consider Japanese inflation to be “too low,” it is quite apparent that the BOJ feels differently. Paul Krugman disagrees; he says that the Bank of Japan would love to be rid of deflation but lacks the courage to be more adventurous with policy. That, by itself, seems a little suspicious. I mean, if the central bank really hated deflation and wanted to be rid of it, it would buck up the courage to act, wouldn’t it?

The deficit terrorists have found a new hero. Not!  – Last year it was Reinhart and Rogoff being rammed down our throats as the deficit terrorists were claiming that governments in the advanced nations were on the cusp of defaulting on their sovereign debt. More recently, the deficit terrorists have been holding up a new effigy – a new hero. Another Harvard economist – Alberto Alesina. What is it about that place? Alesina has allegedly provided a solid theoretical case to support the absurd claims by the austerity proponents that cutting the very thing that is supporting growth at present will not damage that growth. He is now the new hero. Well it is another scam job! He chooses to use flawed orthodox textbook models to assert his case without mind to the situational context and other realities. I had read the Alesina paper – Fiscal adjustments: lessons from recent history – and decided it was so poor that I wouldn’t comment on it. But it has come back again in a Wall Street Journal article (July 26, 2010) where it is once again claimed that:Before the debate over the efficacy the 2009 stimulus is resolved, Congress is turning to whether it’s time to start cutting deficits.Mr. Alesina says it is: In 107 periods since 1980 when governments cut deficits, doing so tended to quicken economic growth, not slow it

 

Revisions: Real GDP and PCE far away from previous peak – These two graphs show the revisions for real GDP and PCE. The recession was clearly worse than originally estimated (we suspected this already using Gross Domestic Income).  In fact real GDP in Q2 2010 was lower than originally reported for Q1 2010. And annualized real GDP is still 0.85% below the pre-recession peak. This means that real GDP would have to grow at a 3.4% rate over the nextquarter to reach the recession peak.This shows that St Louis Fed President Bullard was too optimistic in a speech last month. From Bullard in June: The Global Recovery and Monetary Policy …I disagreed with him, and pointed out that GDI suggested downward revisions.Real PCE was revised down even more.Annualized real PCE is now 1.1% below the pre-recession peak, and would have to grow 4.3% over the next quarter to reach the previous peak. Cleveland Fed President Sandra Pianalto had it right in February: When the Small Stuff Is Anything But Small

Bangladesh garment workers riot over new wages  Thousands of Bangladeshi garment workers took to the streets, burning cars and blocking traffic in the capital Dhaka on Friday to protest against a government-announced wage hike that fell far short of their demands. Police officers said security forces used tear gas and batons Friday to disperse the protesters in central Dhaka, where dozens of garment factories are located.The angry workers broke into shuttered buildings and set furniture on fire in the heart of Dhaka Friday, the BBC reported. Officers said several people were injured. The officers spoke on condition of anonymity, citing local briefing rules.

 Fed Officials Clash on Need for More Stimulus – ABC News – Federal Reserve officials clashed on Thursday over whether the central bank should be more aggressive in supporting the stumbling economy and one said the Fed’s current policy may be contributing to worryingly low levels of inflation.The Fed’s promise to hold benchmark interest rates exceptionally low for an extended period — a vow aimed at giving extra punch to rock-bottom borrowing costs — "may be increasing the probability of a Japanese-style outcome for the U.S.," St. Louis Federal Reserve Bank President James Bullard said. Japan has struggled to break out of deflation and weak or no growth for years.Bullard, a voter on the Fed’s policy-setting panel this year, said the central bank should be ready to shift its focus to more aggressively pumping credit into the financial system to get the economy going if the recovery appears at risk.  Dallas Fed President Richard Fisher said any further monetary accommodation would have as little effect in boosting the economy as "pushing on a string.""We’ve done our job. We’ve restored liquidity to the market, we’ve leveraged up our balance sheets,"

Housing-Lock Threatening Job Mobility – Conservatives like to say that the problem with the economy right now is all the uncertainty. Of course, their remedy is to repeal everything the Democrats have done and create more uncertainty. But never mind, it’s a talking point, the conservative plan for everything is “whatever they want, the other thing,” it’s not meant to be serious.However, to the extent that there’s uncertainty in this economy, it’s because of one thing and one thing only: millions of consumers don’t know if they’re going to be able to stay in their homes, and how that will affect their jobs and their lives.In the first half of 2010, more than 1.6 million U.S. properties were hit with foreclosure filings, which include bank repossessions, default notices and auction sale notices. That’s up 8 percent from the first six months of 2009 and puts the U.S. on pace to top 3 million filings this year. That includes more than a million bank repossessions, and while sub-prime borrowers and bad loans led the surge in foreclosures in 2008 and 2009, this year’s wave comes from homeowners who’ve lost their jobs

Today’s GDP Report: Getting Real About the Recession – So it was a humdinger, after all. Friday morning’s GDP report, which is the first stab at estimating growth in the just completed second quarter of 2010, also provides some significant revisions to prior quarter growth estimates. The latter news is perhaps bigger than the 2nd quarter’s 2.4% gain—a bit below the consensus expectation of 2.7%. But what should really rock the boat is that the Commerce department did revisions across the full span of the pre-recession and post-recession period. While this big a revision across multiple quarters  is not unprecedented, it will be an eye opener to many who commonly compare this recession to ones that occurred in the past two decades. What’s now clear is those comparisons were apples to oranges. What we suffered in the past recession—the depth of the contraction— hasn’t been seen since the 1940s. 

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