tag:blogger.com,1999:blog-5713178645208582139.post6347671307220900481..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: What Caused the Great Recession: Household Deleveraging or the Zero Lower Bound?David Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-5713178645208582139.post-39527062736041896252014-05-25T14:27:39.108-05:002014-05-25T14:27:39.108-05:00Unless the money stock increases at least at the r...Unless the money stock increases at least at the rate prices are being pushed up, output can't be sold, & thus jobs will be lost. Thus the Fed's inflation mandate is a positive 2 plus percent. Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-5811781586083145892014-05-25T14:23:37.922-05:002014-05-25T14:23:37.922-05:00The Fed reacted to the economic downswing in the 4...The Fed reacted to the economic downswing in the 4th qtr of 2008 very timidly. The FRB-NY's "trading desk" didn't purchase any significant volume of SOMA securities until April of 2009 (when stocks & gDp bottomed):<br /><br />Securities held outright - H.4.1 (Factors affecting Reserve Balances)<br /><br /><br />07/2/2008 -- $478,838.00<br />08/6/2008 -- $479,291.00<br />09/3Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-8350534084470918672014-05-25T14:20:37.263-05:002014-05-25T14:20:37.263-05:00The cause & effect was extraordinarily simple....The cause & effect was extraordinarily simple. Money was exceptionally tight. Bankrupt U Bernanke drained legal reserves (based on transaction type deposit accounts 30 days prior), for 29 consecutive months (using the 24 month rate-of-change in the proxy for inflation). This turned previously “safe assets” into “impaired assets” on financial institutions balance sheets (principally within Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-14247192027629363532014-05-24T11:59:41.610-05:002014-05-24T11:59:41.610-05:00All recessions since the Great-Depression have the...All recessions since the Great-Depression have the same cause (a short-fall in the money stock). I.e., all these recessions were huge mistakes made by the Fed. It is so simple it wouldn't tax a 6th grader. Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-53958329826551406872014-05-23T00:02:26.263-05:002014-05-23T00:02:26.263-05:00Thanks.I love reading through your blog, I wanted ...Thanks.I love reading through your blog, I wanted to leave a little comment to support you and wish you a good continuation about financial & non financial advice.<br /><br /><a href="http://www.i-financialadviser.com/" rel="nofollow">Independent Financial Adviser Weston-Super-Mare</a> & <a href="http://www.i-financialadviser.com/Financial%20Services%20Weston-super-mare%20to%20Bristol/rickymartinhttps://www.blogger.com/profile/05255039913155553602noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-74638684057479259232014-05-20T05:41:35.637-05:002014-05-20T05:41:35.637-05:00Curvehospitality provides extensive range of Caseg...Curvehospitality provides extensive range of Casegoods,Seating,Lighting,Artwork,Bathroom fixtures,Electronics,Drapery and Flooring.It saving valuable space.<br /><a href="http://curvehospitality.com/electronics/" rel="nofollow">Best Western electronics </a>Anonymoushttps://www.blogger.com/profile/07915347197843261593noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-84522833048599561772014-05-19T12:24:16.637-05:002014-05-19T12:24:16.637-05:00Mark, where can I get the individual Euro househol...Mark, where can I get the individual Euro household data you used above to calculate the weighted average?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-65958208873561845862014-05-16T09:39:28.705-05:002014-05-16T09:39:28.705-05:00David,
Mian and Sufi have erased the entire conver...David,<br />Mian and Sufi have erased the entire conversation with me that took place on their blog save for my initial comment. <br /><br />Disappointing to say the least.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-84304980639160868112014-05-13T18:01:48.246-05:002014-05-13T18:01:48.246-05:00So when those consortia of buyers pick up the borr...So when those consortia of buyers pick up the borrowing (and resulting lending, hence money creation) slack from households, does that result in more spending on newly created goods and services the way household borrowing does? Je ne sais pas.Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-40777506183134283532014-05-13T17:14:36.136-05:002014-05-13T17:14:36.136-05:00Anonymous, did you not read the part about credito...Anonymous, did you not read the part about creditors/savers providing an offset?Macronerdnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-54019367975034696432014-05-13T16:30:02.908-05:002014-05-13T16:30:02.908-05:00Bubbles do pop themselves once customers run out a...Bubbles do pop themselves once customers run out and there is nobody else to service. The cash flow halts, the debt built up becomes exposed and financial companies can't revolve the debt anymore. This leads to a crash in all leverage, as it becomes suspect to crash, even outside where the bubble built up. Monetary policy really can't stop this nor does it matter in its creation. Central Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-40471279122507016042014-05-13T16:18:27.564-05:002014-05-13T16:18:27.564-05:00You could argue there wasn't even a recession ...You could argue there wasn't even a recession in the early 2000's. A couple "micro recessions", one in 2001 and another in late 02/early 03.<br /><br />The demand post-2000 was completely consumption driven, which means that party will end at some point. That point ended. The "0 bound" has nothing to do with it. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-71769414932055371692014-05-13T13:47:45.860-05:002014-05-13T13:47:45.860-05:00Steve, for a couple years from 2009 onward, I hel...Steve, for a couple years from 2009 onward, I helped a large real estate fund acquire a couple thousand homes. The group I helped now is managing 5K headed toward 20K single family homes.<br /><br />We basically provided the price floor for the housing market. <br /><br />In our markets, every auction, every new listing, had the same 10 firms bidding to pay cash. Once the properties are Morgan Warstlerhttps://www.blogger.com/profile/16938589106562557110noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-52711044554729261312014-05-13T12:54:42.216-05:002014-05-13T12:54:42.216-05:00David,
Glick and Lansing (2010) and IMF: “Dealin...David, <br />Glick and Lansing (2010) and IMF: “Dealing With Household Debt” (2012) include Australia in their respective data sets but its effect is massively outweighed by the Euro Area members, who of course all have the same monetary policy. <br /><br />I could not find GADI and/or Household FCE for Australia, Canada, Israel, New Zealand or Taiwan at the OECD otherwise I would have included Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-84867720360317596312014-05-13T11:49:47.409-05:002014-05-13T11:49:47.409-05:00Amir Sufi:
"but be careful to mistake cause f...Amir Sufi:<br />"but be careful to mistake cause for effect. we hit ZLB because indebted households massively cut back on spending."<br /><br />And why did indebted households cut back spending? <br /><br />Sufi obviously believes that the initial shock came from debt. I emphatically believe this is false. The initial shock came from monetary policy.<br /> <br />The US yield curve Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-36148564842716087782014-05-13T11:45:36.090-05:002014-05-13T11:45:36.090-05:00That is fine. As long as we are pushing the discus...That is fine. As long as we are pushing the discussion on ideas in the right direction--and hopefully making the world a better place--then I am content. And to be fair, not everything we say is original. Maybe we are just helping folks 'remember' good monetary economics.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29923301642975601602014-05-13T11:38:12.087-05:002014-05-13T11:38:12.087-05:00Mark, those are great comments. You need to write ...Mark, those are great comments. You need to write those up as a note. <br /><br />I looked up one cross-country study and found Australia's incredible performance discussed nowhere. Did any of the ones you covered address this it?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-41130362203333558622014-05-13T11:09:56.021-05:002014-05-13T11:09:56.021-05:00(conclusion)
In the conclusion, while paying Irvi...(conclusion)<br /><br />In the conclusion, while paying Irving Fisher homage as the author of the debt-deflation theory of depressions, King notes:<br /> <br />“I have argued that debt-deflation should be seen as a real business cycle [RBC] rather than a monetary phenomenon.”<br /> <br />This is certainly not what Irving Fisher himself thought, who states on page 346 of “The Debt-Deflation TheoryMark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-44421830718756190262014-05-13T11:08:26.245-05:002014-05-13T11:08:26.245-05:00Sufi and Mian responded by citing four studies to ...Sufi and Mian responded by citing four studies to support their claims. Perhaps what they didn't realize was that two of those studies had inspired my above comment. Here is what I said in response.<br /><br />Levels of private debt can explain the geographical distribution of the effects of debt-deflation recessions if one controls for monetary policy. But Irving Fisher, the author of the Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-11603908453001290072014-05-13T10:48:12.266-05:002014-05-13T10:48:12.266-05:00"While it is true there was far more U.S. hou..."While it is true there was far more U.S. household debt leading up to the Great Recession and that cross country evidence shows that countries with more debt were generally hit harder during the crisis, I think they are confusing a symptom with the cause."<br /><br />Actually the premise of this statement isn't even true.<br /><br />I got into a conversation with Sufi and Mian at Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-76855177759246288132014-05-13T09:01:47.352-05:002014-05-13T09:01:47.352-05:00The St. Louis Fed's quarterly newsletter The R...The St. Louis Fed's quarterly newsletter The Regional Economist has an article on the liquidity trap and another on inflation & Fed credibility. Both, unfortunately, lack any citation of market monetarist work. Justin D. Tapphttps://www.blogger.com/profile/12618278252714742391noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-90749723846944514902014-05-13T08:45:44.933-05:002014-05-13T08:45:44.933-05:00Steve, it is not just interest rates but the expec...Steve, it is not just interest rates but the expected path of interest rates relative to their natural rate level. In other words, there is an entire term structure of natural interest rates that can be compared to the observed term structure of interest rates. <br /><br />If anything, I think the past five years confirm the view that having the interest rate path above the natural rate level David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-20549352883053582512014-05-13T07:34:40.322-05:002014-05-13T07:34:40.322-05:00David:
That explanation assumes that borrowing/l...David: <br /><br />That explanation assumes that borrowing/lending and resulting spending are *only* sensitive to interest rates. That all the economic effects are resolved perfectly into interest rates. That, for instance, creditworthiness (based largely on projected incomes), and banks' assessments of creditworthiness, are fully reflected in the interest rate.<br /><br />But if the last Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-4050384350695206212014-05-12T16:46:32.296-05:002014-05-12T16:46:32.296-05:00Steve, if interest rates were able to fall to thei...Steve, if interest rates were able to fall to their negative natural rate level capital projects become profitable (i.e. positive NPVs) for firms. Consequently, firms sitting on cash would start doing more capital spending and hire more workers. Likewise, households holding lots of liquid assets would start to diversify into riskier assets and durable goods as the rates fell. These creditors David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-34050013660436126362014-05-12T16:21:06.312-05:002014-05-12T16:21:06.312-05:00"for every debtor there is creditor who could..."for every debtor there is creditor who could provide offsetting spending if the interest rates adjusted down to their natural rate level"<br /><br />That's just not right, it seems to me. <br /><br />In the housing market at least, for every debtor there is a bank.<br /><br />When interest rates decline, banks don't spend more. They don't purchase more newly produced goods Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.com