Tightrope Walking

The ECB walks a tightrope in helping banks

It has also created perverse incentives for institutions world-wide to tailor their collateral and route it via euro zone affiliates.

Securities tied to loans to consumers and for auto purchases in Australia and South Korea, for example, have been pledged as collateral, something the ECB probably did not anticipate when the rules were first put into place.

Silicon Valley's working class walks tightrope

"This report does an excellent job documenting what people outside the region have been slow to understand - that Silicon Valley is a fairly brutal environment," Joint Venture President Russell Hancock wrote in an e-mail. "Our performance on the global stage doesn't necessarily translate into regional prosperity, the kind that is widely shared. So you get this troubling picture where our companies are thriving but the region feels worse off."

David Prosser's Outlook: Blanchflower's iceberg alert is spot on, but MPC won't change course

This is about the worst time imaginable for serious doubts to be raised about the credibility of government statistics. Walking the tightrope between recession and inflation is a tough enough job for the Monetary Policy Committee. But if the committee can't trust the data on which decisions must be based, each member has effectively been blindfolded. Don't be surprised if they all fall off.

Tightrope: How to claim victory over a defeatist attitude

Pay particular attention to the importance you give to thoughts that are self-sabotaging, i.e., "I know this is not going to work." Or, just re-read your e-mail to me when you wrote, " I somehow don't feel that I have enough of a positive outlook…."

The economy is very well! The economy is well! The economy is well. The economy is ill. The economy is very ill. :(

I have this tendency to revert to the mean it seems. Can't say I didn't try though.

Pictures are powerful.

Take the following picture for example. It shows the average annual inflation rate over the previous five years. It isn't the black line that concerns me. Oil's dropped in price a bit recently and therefore that black line may come down a bit. It's done that quite a few times in the last few years. The red trend line (4th order polynomial) is another matter entirely. I have no idea what it will do in the coming years, but I'd be hard pressed to bet that it will ever fall below zero percent (long-term deflation).



What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. - Ben Bernanke, 2002

2002 seems to mark the bottom in the chart. Ben Bernanke must feel very proud. "Mission Accomplished."

On May 1, 2003, it was a powerful and accurate metaphor that played to the president’s benefit, and as events grew worse, it was a powerful metaphor that played to the detriment of the president. In retrospect, the sign was too declarative, while the president’s words were accurately subtle. It all got undone because of all the post-war problems we’ve had. - Ari Fleischer

In any event, we're clearly winning the war on deflation even as home prices plummet. Perhaps "credibly threatening to" use the government's printing press "technology" to print money "at essentially no cost" has something to do with it. I see a major problem here though. What's the opposite of threaten? How does one put the threatening inflationary genie back into the bottle?

"Unthreaten" isn't actually a word in the English language. There's probably a very good reason. Once you threaten someone, that's pretty much it. For example, if someone was to threaten me with a gun he'd find it very difficult to "unthreaten" me afterwards. I'd still feel threatened. Go figure. You can be unthreatening of course, but that implies you never threatened in the first place.

I think it is safe to say that Bernanke's 2002 speech did not leave me feeling unthreatened. In fact, it has a lot to do with my long-term stagflationary outlook for as far as the eye can see. First, I now have complete faith in the government's ability to debauch its own currency (and/or "credibly threatening to do so") during an economic downturn. Second, I do not have a good feeling about where our economy has been or is heading. Between income inequality, the outsourcing of jobs, and the similarly massive and extremely related trade deficit I find very few reasons to have a positive outlook about our long-term future. The truth of the matter, at least in my opinion, is that there are billions who are willing to work for less than we will and that imbalance will someday be adjusted.

The optimists would have you believe that the standard of living of billions will soon match our own. The pessimists would have you believe that our standard of living will soon match those elsewhere. I might argue that the truth lies somewhere in between, perhaps weighted by population. If you mix billions of gallons of water with millions of gallons of fine wine, you don't end up with billions of gallons of fine wine. Of that I am fairly confident. Similarly, it seems highly unlikely that if you mix billions of low paying jobs with millions of high paying jobs that you will end up with billions of high paying jobs. Put yet another way, I don't expect to see billions of people drinking fine wine in my lifetime (not that I drink fine wine either for that matter).

Retailers Take a Slower Road in India

Just three years ago, an explosion of conferences, analyst reports, Web sites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.

"I was an eternal optimist; now I have become a realist," says Kishore Biyani, chairman of Pantaloon Retail India Ltd., India's largest retailer by sales, which has revamped its expansion plans as it discovered more about Indian consumers. "Everybody has miscalculated."

Meanwhile, I expect more of the same for the majority of American workers.

Wages in America:
The Rich Get Richer and the Rest Get Less

The picture is worse for workers who had no college degree. That's more than 100 million workers, or 72.1% of the workforce. For them there was no 'boom of 1995-2000' whatsoever. Their average real hourly wages were less at the end of 2000 than they were in 1979! And since 2000 their wages have continued to slide further.

See Also:
Trend Line Disclaimer

Source Data:
St. Louis Fed: CPI For All Urban Consumers: All Items