More by the Same Author
2013-04-19 "America Has Faced the Unknown Since 1776," So Says Warren Buffett by Paul Kasriel of Econtrarian, LLC
So wrote Warren Buffett in his March 1, 2013 letter to Berkshire Hathaway Inc. stockholders. In the phrase before this quote, Mr. Buffett wrote: “Of course, the immediate future is uncertain ” And after this quote, he wrote: “It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful).”
2013-04-08 Ben Bernanke, the Rodney Dangerfield of Fed Chairmen by Paul Kasriel of Econtrarian, LLC
First it was 2012 presidential candidate Rick Perry, who wanted to deal with Ben Bernanke’s money-printing “Texas style”. Then 2012 presidential candidate Mitt Romney indicated that Ben Bernanke had better have his personal effects packed up and ready to move out of his Fed office by January 21, 2013.
2013-03-27 Why Not a Quantitative Target for Quantitative Easing? by Paul Kasriel of Econtrarian, LLC
When I should have been practicing my bass guitar in preparation for my band class Thursday evening, I, instead, watched the first few minutes of Federal Reserve Chairman Bernanke’s post-FOMC press conference. A number of press inquiries were related to adding specificity to the FOMC’s criteria for modifying its current $85 billion per-month purchases of securities. In the short time that I watched the press conference, Chairman Bernanke did not seem to satisfy the press on this issue.
2013-02-20 Sequestration Will Slow Real GDP Growth But Not Because of Demand-‐Side Effects by Paul Kasriel of Econtrarian, LLC
In my February 5, 2013 commentary "2013 Economic Outlook Bright Sunshine for the U.S., Some Cloud Abroad," I argued that changes in federal fiscal policy have no material impact on total spending on the economy, but rather affect the distribution or composition of a given amount of total spending. The crux of my argument was that other private spending would "crowd in/out" changes in demand emanating from changes in tax and/or government spending policies. In this commentary, I will amend that argument.
2012-05-01 Don't End the Fed, Mend the Fed by Paul Kasriel of Northern Trust
Congressman Ron Paul has written a book entitled End the Fed. I have to admit that I have not read his book. But I have read many of Congressman Pauls excellent (in my opinion) essays on monetary theory and policy. Congressman Paul likely argues in End the Fed that the Fed and other central banks have created monetary "mischief" in the past and are likely to continue to do so in the future. Because of this monetary mischief, I assume that Congressman Paul would like to replace the Fed and other central banks with some form of a gold standard. I share Congressman Pauls sentiments.
2012-04-24 Kasriels Parting Thoughts Mortgage Refinancing: Stimulative or Redistributive? by Paul Kasriel of Northern Trust
It is a little acorn for you to bury today and dig up in the future when some partial-equilibrium yahoo on CNBC says that total spending in the economy will get a boost as households refinance their mortgages at lower interest rates. Yes, the folks doing the refinancing will now have more income left over after making their monthly mortgage payment to spend on other things. But what about the ultimate lender who has had his higher-interest security called away from her? She was earning 6% on her loan but now is able to earn only 4% on the same type of loan.
2012-04-17 The Cyclical Macroeconomic Impact of Taxmageddon 2013 and Seniors Worried about the Debt by Paul Kasriel of Northern Trust
December 31, 2012, the current federal personal income tax rate structure will revert to the structure that prevailed at the close of the Clinton administration. And among other things, tax rates also will go up because of the additional taxes on investment income as part of the Affordable (Health) Care Act. All told, tax revenues will increase by about $500 billion in 2013, which is about 3.2% of the Blue Chip survey average forecast of 2012 nominal GDP.
2012-04-13 Recent Federal Budgetary Trends: Facts, Not Opinions by Paul Kasriel of Northern Trust
The federal budget deficit reached its widest gap on a 12-month moving total basis in February 2010 at $1.478 trillion. Although remaining at astronomical levels, the budget deficit has been trending lower and stood at $1.246 trillion in March 2012.
2012-04-05 Why Should Not Stocks Have Done Well? or Business, With Enemies Like This, Who Needs Friends? by Paul Kasriel of Northern Trust
Brent crude oil is trading around $122 and change today, down from a peak of $128.31 on March 9. The rapid run-up in oil prices since late-January has made a dent in household budgets and keeps us wondering if it is permanent. The reasons for the jump in oil prices in recent months is largely a supply story the Iran nuclear controversy raising concerns about future oil supply and actual supply bottlenecks in several spots of the world. The support to this thesis is visible in the recent behavior of industrial metal prices.
2012-04-04 Kasriel's Parting Thoughts - Has the Fed Boosted the Stock Market? by Paul Kasriel of Northern Trust
The Feds actions have benefited the stock market as well as aggregate demand for goods and services in the U.S. economy. Would you have preferred that the Fed sit idle as it did in the early 1930s, with likely similar results for the stock market and the economy in recent years as occurred at that time? The Fed has simply provided some of the credit to the economy that the private MFI system would have had it not been crippled with loan losses. And even with the Feds additional credit creation, total MFI credit growth has fallen short of the long-run normal credit creation of private MFIs.
2012-03-30 Kasriels Parting Thoughts Mary Matlins Economics by Paul Kasriel of Northern Trust
There is a controversy about whether one should use real GDP or real GDI to evaluate the performance of the U.S. economy. Real GDP is obtained by adding up spending across the economy and real GDI is computed by adding up income earned. Conceptually, GDP and GDI are identical but the source data for each is different and they yield different numbers. The GDI measure is gaining attention; Jeremy Nalewaik of the Fed has pointed out the National Bureau of Economic Research uses monthly indicators, GDI and GDP to determine official dates of business cycle peaks and troughs.
2012-02-14 Hey, Big Spender? by Paul Kasriel of Northern Trust
Some political movement ought to unfurl the Mission Accomplished banner with regard to reining in federal government spending. As shown in the chart below, in the 12 months ended January 2012, the cumulative total of federal outlays-defense, non-defense, entitlements, interest on the debt-increased only 1.5% vs. the 12 months ended January 2011. The median growth in 12-month cumulative total federal outlays from January 1954 through January 2012 is 6.6%. Starting with the 12 months ended March 2010, this measure of growth in federal outlays has been below the long-run median.
2012-02-07 If Current Bank Credit Trends Continue, Bet Against the Feds Interest Rate Forecast by Paul Kasriel of Northern Trust
A majority of FOMC members expect that the interest rate on federal funds, an interest rate controlled by the Fed, will not be increasing until late in 2014. If the current trend in the behavior of bank credit continues in 2012 and into 2013, I believe that the FOMC will be lifting its federal funds rate target early in the second half of 2013. Again, if the current growth trend in bank credit continues, a failure on the part of the FOMC to raise its federal funds rate target and shrink its balance sheet will sow the seeds of a rate of consumer inflation above the FOMCs 2% annualized target.
2011-12-23 Should the Definition of the Central Bank Lender of Last Resort Function Be Expanded? by Paul Kasriel of Northern Trust
If the ECB needed to expand its balance sheet to maintain the specified rate of growth in combined ECB and MFI credit, the ECB could purchase in the open market the requisite amount of pan-euro bonds rather than individual-country sovereign debt. In this way, the ECB could fulfill its expanded lender-of-last resort function without taking on individual-country sovereign-debt credit risk.
2011-11-23 We Are All Keynesians Now - Except Me by Paul Kasriel of Northern Trust
If you want federal debt reduction, you are going to get it Super-Committee "failure" or not. The recent debt-ceiling legislation calls for $1.0 trillion less-than-otherwise federal spending over the next 10 years.
2011-11-22 Europe Is in for a Long Recession by Paul Kasriel of Northern Trust
Collectively, the 27 sovereign nations that make up the EU most likely entered a recession this quarter. Given that the EU represents the largest economy in the world, a recession there is no small beer for the rest of the world. The Greek tragedy morphed into an Italian comedy. Now, it has become a French farce. The plot behind all of these theater forms is how an economy struggles when deprived of adequate bank credit. Although eurozone MFI credit is growing, its growth is much slower than it was prior to the global recession.
2011-09-28 With Apologies to James Carville, It's the Demand, Stupid by Paul Kasriel of Northern Trust
If there were more demand for goods and services in the economy, then corporations allegedly sitting on all that cash would start to use it. Our current weak economic growth is largely the result of inadequate aggregate demand for goods and services, not inadequate supply. And that is why I suggested a properly designed Federal Reserve quantitative easing could chum up aggregate demand until banks are able to create adequate amounts of credit on their own to get the job done. Monetary policy is all about affecting aggregate demand; fiscal policy is all about affecting aggregate supply.
2011-09-19 Benjamin Strong and Milton Friedman - Ironically, Something in Common? by Paul Kasriel of Northern Trust
Had Milton Friedman not passed away in 2006 and were alive and writing today, he would be arguing forcefully in favor of continued Federal Reserve quantitative easing. Friedman argued that had Benjamin Strong been alive to influence Federal Reserve policy in 1930 and 1931, the recession of 1929 would not have degenerated into the Great Depression. If Milton Friedman were alive today to influence the current Federal Reserve monetary policy debate, the near stagnant economic environment we find ourselves in would not need to persist.
2011-09-08 If Some Dare Call It Treason, Was Milton Friedman a Traitor? by Paul Kasriel of Northern Trust
The principal factor accounting for the current exceptionally weak economic recovery is not unusually high uncertainty, too burdensome regulation and taxation, excessive federal government spending and/or debt or a major structural change in the economy, but rather inadequate depository institution credit creation. The reason depository institutions are not creating normal amounts of credit is that they suffered enormous losses after the residential real estate bubble burst and they remain concerned about current and/or future capital adequacy.
2011-08-15 The August 9 FOMC Decision - Ineffective at Best, Dangerous at Worst by Paul Kasriel of Northern Trust
The FOMCs decision to commit to holding its federal funds target in a range of zero to 25 basis points at least through mid 2013 strikes me as an ineffective way to accomplish one of its goals full employment of the labor force and potentially dangerous with regard to another of its goals stability in an index of goods/services prices. In my view, the Fed should abandon an interest-rate targeting approach to monetary policy. Rather, it should adopt a quantitative-targeting approach targeting the growth in the quantity of combined Federal Reserve and commercial bank credit.
2011-08-12 I was sent to Washington to Change the Trajectory of Government Spending by Paul Kasriel of Northern Trust
In the 12 months ended Jul 11, cumulative total federal outlays were 2.7% higher than cumulative federal outlays in the 12 months ended Jul 10. The average year-over-year % change in 12-month cumulative outlays from 1956 through today has been 7.6%. And with 12-month cumulative total federal receipts growing at 8.7% the cumulative deficit in the 12 months ended Jul 11 was $1.225 trillion, $36 billion less than the cumulative deficit in the 12 months ended Jul 10. With continued fiscal progress of this nature, S&P will beupgrading U.S. debt faster than the Fed can change its forecast!
2011-08-08 S&Ps Downgrade of U.S. Sovereign Debt Some People Actually Pay Them for these Opinions? by Paul Kasriel of Northern Trust
S&P stated the obvious after the U.S. markets closed on August 5 - the projected growth in U.S. public debt is on a long-term unsustainable path. Rather than paying S&P for this opinion, all you need to do is look at some past CBO projections and you would have arrived at the same opinion years ago.
2011-07-28 U.S. Debt Ceiling If Cooler Heads Do Not Prevail by Paul Kasriel of Northern Trust
What would be the immediate economic effect of a sudden balancing of the U.S. federal government budget? The $1.26 trillion decline in federal outlays would represent a negative demand shock to the U.S. economy. Some entities who were expecting payments from the federal government would be disappointed. These disappointed entities might have to cut back on some of their planned spending in order to be able to honor their payment commitments to others. Alternatively, these disappointed entities might have to increase their borrowing in order to honor their payment commitments.
2011-07-27 Washington Had a Spending Problem by Paul Kasriel of Northern Trust
Although Washington does not seem to have a current spending problem, what about a spending problem going forward? Specifically, if the programs specified in President Obamas February 2011 budget proposal were implemented, how would growth in federal total outlays in an eight-year Obama presidential tenure compare with growth in federal total outlays of other presidents tenures? To answer this question, I have relied on projections of total federal outlays by the Congressional Budget Office (CBO), the nonpartisan scorekeeper of all things fiscal.
2011-07-27 U.S. Businesses Appear to Have Selective Uncertainty by Paul Kasriel of Northern Trust
Business hiring remains weak and business capital spending is robust. The capital spending part is illustrated in the chart below showing the 8-quarter annualized growth in shipments of nondefense capital goods deflated by the PPI for capital goods. I would think that if abnormally-high business uncertainty prevailed today, there would have been considerably slower growth in price-adjusted purchases of nondefense capital goods than what has occurred.
2011-07-21 Poor People or Old People - Who Do We Want to Help? by Paul Kasriel of Northern Trust
Milton Friedman used to talk about the "tyranny of the status quo." By that, he meant that it is difficult to change public policy because of entrenched interest groups allied with policies that have been in effect for decades. I would argue that opposition to changes in our current Social Security and Medicare programs is an example of tyranny of the status quo. The original intent of both was to provide an income support floor for our retired senior citizens. So, why do these programs supplement the income directly through Social Security and indirectly through Medicare to wealthy seniors?
2011-07-19 Do We Have a Medicare Budgetary Problem or an Aging Population Problem? by Paul Kasriel of Northern Trust
If it makes sense for corporations to borrow to fund capital expenditures, why does it not make sense for the federal government to do so as well? By the gov making investments in physical capital (infrastructure) and human capital (education), the economy's future growth rate would be expected to be enhanced. This would imply higher future tax revenues (without higher tax rates) to pay the interest and principal on the debt issued to fund capital expenditures. So, rather than trying to balance the overall budget, would it not make more sense to bring into balance the operating expenses?
2011-06-23 U.S. Monetary Policy: A Case of Self-Induced Paralysis? by Paul Kasriel of Northern Trust
Part of the decreased real GDP growth/increased unemployment rate central-tendency forecasts for June vs. April can be attributed to supply interruptions from Japan and higher energy prices. But given the FOMC's assumption that the supply interruptions are dissipating and that energy prices are declining, this explanation does not apply to the reduced real GDP growth and unemployment rate central-tendency forecasts for 2012. I think the central-tendency forecasts for real GDP growth and the unemployment rate are optimistic for 2011 and 2012 in the absence of continued quantitative easing.
2011-04-11 One Man’s Fiscal Austerity is Another’s Prosperity? by Paul Kasriel of Northern Trust
Fiscal austerity is the rage in the developed economies. The proponents of fiscal austerity argue that it will lead to economic prosperity. The opponents of fiscal austerity argue that it will lead to poverty. If the government decides to spend less, then, it will need less funding. This, in turn, implies that the government will either cut back on its current taxation or cut back on its current borrowing. The former recipients of the cut-back government expenditures will indeed experience a decline in their spendable funds. However, taxpayers will find themselves with extra spendable funds.
2011-03-01 Musings on Proposed Government Spending Cuts and Current Energy Price Increases by Paul Kasriel of Northern Trust
Just as labor is an important input in the production of goods and services, so is energy(E). An increase in the price of E reflects a relative shortage of E from what was the case. Just as the price of labor can increase from an increase in demand or a decrease in supply, so, too, can the price of E. Assume that before an increase in the price of E, the economy was set to go from 3% growth to 4% growth. Assume that the increase in the price of E has resulted from an increase in the demand for E. At the higher price of E due to demand, the economy will not be able to rise from 3% to 4%.
2011-02-23 Don’t Know Much about Geography, Don’t Know Much Trigonometry, But Sarah Palin Does Know Her ... by Paul Kasriel of Northern Trust
On November 8, 2010, Sarah Palin commented that the Fed’s quantitative easing monetary policy was tantamount to printing money out of thin air. Sarah Palin may not know much about geography, but she does know her Fed policy. I would phrase quantitative easing a little differently. It is the Federal Reserve creating a specific amount of credit figuratively out of thin air. Theoretically, the Federal Reserve can create an unlimited amount of credit out of thin air. Of course, there would be dire economic consequences if the Fed were to create an unlimited amount of credit out of thin air.
2011-01-04 The 2011 Economic Outlook – Credit Given Where Credit Is Due by Paul Kasriel of Northern Trust
With regard to 2011 real GDP growth, we now expect Q4/Q4 growth of 3.3% vs. 3.0%. An upward revision of 2011 Q4/Q4 real consumption growth to 2.9% from 2.5% in November is the primary factor accounting for the upward revision to the real GDP growth forecast. We are more optimistic about 2011 real GDP growth primarily because QE2 implies that the Fed will be purchasing all of the additional Treasury debt issued in conjunction with the Obama-McConnell tax and unemployment insurance compromise. We currently see more upside risk to our 2011 real GDP growth forecast than downside risk.
2010-11-24 Corporations, Give Thanks - With 'Enemies' Like This, Who Needs Friends? by Paul Kasriel of Northern Trust
On November 23, the Bureau of Economic Analysis updated its analysis of U.S. corporate profits. After-tax corporate profits from current operations hit their highest level, $1.221 trillion, since the beginning of this data series, 1947:Q1. Paul Kasriel gives further analysis.
2010-11-17 I Wonder What Milton Friedman and Karl Drunner Would Say About Allan Meltzer by Paul Kasriel of Northern Trust
On November 9, I wrote a commentary entitled ''Quantitative Easing in the mid 1930s Appeared to be Successful''. In my commentary, I did not mention what happened to the U.S. unemployment rate as a variation on quantitative easing was taking place. So, let’s do this now.
2010-11-15 I Am Shocked, Shocked that the QE2 is Akin to Printing Money and Public Debt Monetization! by Paul Kasriel of Northern Trust
Whenever the sum of Federal Reserve and commercial banking system credit increases, credit is being created out of thin air and debt is being monetized. The magnitude of the credit creation being contemplated by the Fed is not extraordinary in an historical context. It is not an extraordinary increase in credit creation given the current amount of resource underutilization in the U.S. economy. Being shocked by the implications of QE2 with respect to “printing money” and the “monetization of debt” would appear to be either naïve or hypocritical.
2010-11-12 They Just Don't Get It by Paul Kasriel of Northern Trust
Had the Fed said that QE2 would involve the purchase of $600 billion of Treasury bills rather than Treasury coupon securities, we could have avoided this phase of uninformed criticism of the policy. Of course, the chorus of critics would have complained that by the Fed purchasing bills rather than coupons it was not affecting the “important” part of the yield curve.
2010-11-10 The Quantitative Easing in the mid 1930s Appeared to have been Successful by Paul Kasriel of Northern Trust
There is much skepticism as to whether the Fed’s second round of quantitative easing, QE2, will be effective in stimulating the nominal demand for goods and services in the U.S. economy. Keying off Mark Twain’s aphorism that although history may not repeat, it often rhymes, perhaps we can get some guidance as to whether QE2 will be successful from the results of the quantitative easing that was initiated in the second half of 1933.
2010-11-04 QE2 Is Likely to Be More Successful than QE1 by Paul Kasriel of Northern Trust
The theory behind quantitative easing is that an increase in the quantity of combined central and commercial bank credit will lead to an increase in nominal aggregate spending on goods, services and assets. Indeed, the correlation coefficient between percentage changes in the annual average of combined Federal Reserve and commercial banking system credit and the percentage changes in nominal U.S. GDP from 1960 through 2006 is relatively high, at 0.62. This correlation coefficient is reduced to 0.49, however, when the period is extended through 2009. Northern Trust explains why.
2010-10-08 The Effectiveness of QE2 Depends on Quantities, Not Interest Rates or Exchange Rates by Paul Kasriel of Northern Trust
The level of U.S Treasury security interest rates or the level of the U.S. dollar foreign-exchange rate are not the correct way to think about the prospective effectiveness of QE2. What transpires with respect to commercial bank credit will determine the effectiveness of QE2 in increasing aggregate demand for U.S. goods and services.
2010-09-24 The Real Economic Cost of Government Is Spending - So, What Do You Want to Cut? by Paul Kasriel of Northern Trust
Because the private sector generally uses productive resources more efficiently than the government does due to competitive pressures, the economy's long-run potential real economic growth rate is hurt by increases in federal spending. The largest projected increase in spending by an order of magnitude over the next decade is for entitlement programs - Social Security, Medicare and Medicaid. Millions of baby boomers will become eligible for Social Security and Medicare benefits over the next 10 years. Northern Trust also discusses home sales, employment and leading economic indicators.
2010-09-08 Michael Boskin’s Summer of Economic History Amnesia by Paul Kasriel of Northern Trust
Michael Boskin, former chairman of the President’s Council of Economic Advisers under George H.W. Bush, argues in a recent editorial for the Wall Street Journal that the current economic recovery is so feeble because of economic policies pursued by the current presidential administration. There is another reason for the relative weakness in the first year of this current recovery, however: the unprecedented contraction in nominal and real bank credit in the post-WWII era.
2010-09-02 I Renounce Monetarism (with apologies to Mr. Lippman of Pendant Publishing) by Paul Kasriel of Northern Trust
Monetarists such as Milton Friedman hold that the M2 money supply is a leading indicator of aggregate demand. Indeed, from 1960 through 1989, the price-adjusted M2 money supply had a relatively high correlation with real aggregate demand for goods and services. As charts presented in this commentary illustrate, however, from 1990 through the second quarter of 2010 the correlation between real M2 and real final sales of domestic product deteriorated dramatically.
2010-08-24 Why Hasn't the Stimulus Been More Stimulative? by Paul Kasriel of Northern Trust
The $790 billion stimulus package was supposed to put the economy firmly on a trajectory toward recovery. As one Obama administration economic advisor has said, however, the economy is still having trouble reaching 'escape velocity.' This is because fiscal policy must be accompanied by bank financing in order to stimulate aggregate demand. Otherwise, fiscal policy just reallocates total aggregate demand toward government spending and away from private spending. Policymakers should therefore concentrate more on invigorating bank credit if they want faster economic growth.
2010-08-18 Bank Credit – One Month Does Not Make a Trend, But... by Paul Kasriel of Northern Trust
U.S. commercial bank total credit increased at an annualized rate of 8.3 percent in July. If this is the beginning of an upward trend in bank credit, then we can feel a lot more confident about the prospects of rising real GDP growth rates in 2011. Subsequently, if bank credit continues to grow on a sustained basis and aggregate demand growth starts to pick up in the first half of 2011, then the Fed would be expected to begin raising policy interest rates around mid-year.
2010-07-09 Potholes in the Recovery Road – Reduce Speed Ahead by Paul Kasriel of Northern Trust
The second-half GDP growth forecast has been lowered to 1.8 percent and Q4/Q4 GDP growth in 2011 will be 3.2 percent. This is a business cycle unlike any other in the post-war era. In prior cycles, as the Fed raised the funds rate, growth in bank credit slowed. In the current environment, even with the Fed holding the funds rate at less than 25 basis points, bank credit continues to contract. Thus, we are going to utter the six most dangerous words in economic forecasting: This time it might be different.
2010-06-25 When It Comes to Increasing Aggregate Demand, What’s Fiscal Policy Without Monetary Policy? by Paul Kasriel of Northern Trust
In order for an increase in government spending to result in an increase in total aggregate demand, the government's spending needs to be financed by the central bank and the commercial banking systems. Although the Fed and the banking system have helped fiscal policy to stimulate total aggregate demand through a cumulative increase in Treasury borrowing of $1,455 billion, the help was not all that spectacular. No wonder the results of the recent fiscal stimulus program were something less than awe-inspiring with regard to increasing aggregate demand.
2010-06-23 Recipe for a Lost Decade, or Two by Paul Kasriel of Northern Trust
There are legitimate concerns that the U.S. could catch the 'Japanese' disease and endure a lost decade in terms of normal economic growth. As has been the case in Japan, weak U.S. money and bank credit growth is occurring in the context of very low monetary policy interest rates. The private financial system is not transforming the inexpensive credit being offered it by the Fed into credit for the private nonfinancial sector of the U.S. economy. Until this transmission mechanism between the Fed and the economy gets mended, we are unlikely to experience potential economic growth.
2010-06-15 Airplane Musings - Part Deux by Paul Kasriel of Northern Trust
Although U.S. federal government spending continues to increase, the rate of growth in that spending has slowed enormously. In the 12 months ended May 2010, accumulated spending by the federal government totaled $3.437 trillion, just 2.6 percent higher than the 12-month accumulated total federal spending for May 2009. This is quite a deceleration in growth from the 15.3 percent registered for the 12 months ended 2009 vs. 2008, near the trough of the last recession.
2010-06-04 All We Are Sayin' Is Give Free Markets A Chance by Paul Kasriel of Northern Trust
Before we can determine whether or not free markets have failed, we must actually have free markets. Central banks currently create or destroy credit by by holding a key short-term interest rate below or above the unobservable free-market equilibrium. The Securities & Exchange Commission determines which credit rating agencies receive official 'approval.' Lastly, without their debt being implicitly guaranteed by the federal government, Fannie and Freddie would not have been able to have consistently fund themselves at interest rates below other financial institutions.
2010-06-02 Gold: Early 1930s vs. Early 2010s by Paul Kasriel of Northern Trust
Some argue that gold will outperform general stocks in the early 2010s, as it did in the 1930s. If this is true, then it will be for entirely different reasons. Investors currently gravitate toward gold as a hedge against future inflation, or because of a loss of faith in the fiat currency. U.S. gold mining stocks were strong performers in the 1930s, by contrast, because the U.S. Treasury was guaranteeing gold miners a steady or rising price as production costs were falling.
2010-05-20 A Strategic Proposal to Combat Strategic Residential Mortgage Defaults by Paul Kasriel of Northern Trust
More and more we are hearing that occupants of residential real estate with mortgages far in excess of the current market value of their properties are choosing to default on their mortgage agreements. Many of these borrowers have calculated that it would take many years for the value of their properties to rise back to the amount outstanding on their mortgages. One tactic for lenders to stop these strategic defaults may be to write down the principal on the mortgage outstanding to an amount closer to the current actual market value of the property.
2010-05-11 ECB Sterilization -Trichet's Maginot Line? by Paul Kasriel of Northern Trust
European Central Bank president Jean-Claude Trichet has stated that the ECB will drain by other means the amount of base money it creates through sovereign debt purchases. If Milton Friedman was correct that inflation is everywhere and always a monetary phenomenon, however, then Trichet need not worry about a sustained acceleration in euro area inflation given recent declines in euro area money and credit aggregates. Northern Trust also comments on the Federal Reserve's swap lines with other central banks, and a recent small business survey.
2010-04-29 Declines in Bank Loans - Write-Downs or Pay-Downs? by Paul Kasriel of Northern Trust
The record decline in commercial bank loans/leases the U.S. experienced in 2009 was dominated by pay-downs (payments on loans) rather than write-downs (reductions in recognized value). Pay-downs have negative implications for new aggregate demand whereas write-downs are irrelevant with regards to new aggregate demand. Declines in capital limit the ability of banks to create new credit. The continued contraction in commercial bank loan/lease balances is cause for caution with regards to near-term growth in economic activity.
2010-04-16 It's Been a While by Paul Kasriel of Northern Trust
Inflation is forecast to be 1.7%, rather than 2.5% as in Northern's previous forecast. Lack of credit creation in the private sector will result in a muted recovery, with GDP growing 2.8% in 2010. They are are in agreement with the Federal Open Market Committee that “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
2010-03-26 Macro Effects of Patient Protection and Affordable Care Act at 30,000 Feet by Paul Kasriel of Northern Trust
The macroeconomic effect of the Patient Protection and Affordable Care Act will depend on whether the $900 billion shift of resources from the private sector to the government over the next ten years it brings will adversely affect labor productivity and technical progress, and by how much. On one hand, PPACA could result in a healthier and more productive workforce. On the other hand, increased government spending associated with PPACA may also have been spent by the private sector on health care, only in a less efficient manner: in the emergency room rather than on preventative care.
2010-02-23 Hey Big Spender? by Paul Kasriel of Northern Trust
The most serious fiscal challenge ahead is spending, not deficits and debt. And the most serious spending challenge the government will face relates to the diversion of productive resources to future retirees, which will build over the next 20 years are more baby boomers retire. The second spending challenge facing government is ballooning interest payments on prior debt issued. Prior federal policies that established retiree entitlement programs and funded rapidly rising spending with the issuance of debt are to blame for these problems.
2010-02-03 Does Anyone in Washington Know What Needs to Be Done to Create Jobs? by Paul Kasriel of Northern Trust
“If what small- and medium-sized businesses need to increase their hiring is increased sales, then it would seem that fiscal stimulus coupled with Fed-created credit is the right medicine.” The current ($787 billion) stimulus has only been partially spent, and policy makers should not push for another stimulus until more of the remaining funds have been spent.
2010-01-25 If M Does Not Pickup, Will V Save Us? by Paul Kasriel of Northern Trust
“To summarize, M2 growth currently is extremely weak. It likely will remain relatively weak through 2010 as credit creation by depository institutions will be impeded by capital constraints. If invest
2010-01-20 Financial Crisis Responsibility Fee - A Modified Proposal is Likely by Paul Kasriel of Northern Trust
…by 2013 the President should put forward a plan that 'recoups from the financial industry an amount equal to the shortfall in order to ensure that the TARP does not add to the deficit or national
2010-01-15 Ballooning Treasure Deficits - It Takes both Outlays and Receipts to Tango by Paul Kasriel of Northern Trust
...although high growth in federal spending is contributing mightily to our record federal deficit, the rate of growth in that spending is slowing. What often is forgotten is that the rate of contract
2009-12-22 Staggered Return to Global Growth by Paul Kasriel of Northern Trust
2009-12-21 Q4 2009 May Be as Good as It Gets Until Q4 2010 by Paul Kasriel of Northern Trust
2009-12-10 Did Bernanke Get Grilled for the Sins of Others by Paul Kasriel of Northern Trust
2009-12-03 Is the Fed Engaged in Quantitative or Qualitative Easing by Paul Kasriel of Northern Trust
2009-11-30 While Pundits Play Gotcha, the Unemployment Situation Improves by Paul Kasriel of Northern Trust
2009-11-16 Accumulated Musings by Paul Kasriel of Northern Trust
2009-10-17 Inflation and Deficits – What Might Milton Friedman Have to Say? by Paul Kasriel of Northern Trust
2009-10-13 Increase Employment the Same Way You Increase Home Sales by Paul Kasriel of Northern Trust
2009-08-24 If Inflation Is a Monetary Phenomenon, Is U.S. Hyperinflation a Clear and Present Danger? by Paul Kasriel of Northern Trust
2009-07-10 The Passing of Billy Mays Will Boost My Personal Saving Rate by Paul Kasriel of Northern Trust
2009-06-06 Greater Risk over Next Five Years - Inflation or Deflation? by Paul Kasriel of Northern Trust
