Saturday, March 18, 2017

Today's Links

1--Nouriel Roubini warns: Markets are overestimating Trump policy positives

"[Markets] are overestimating the positives of the US-Trump policies. Infrastructure, stimulus, deregulation, tax cuts: I think Trump will achieve much less on those dimensions," he said. "And they're underestimating the risk that the U.S. protectionist policies are going to lead to trade wars, that the restrictions on immigration are going to slow down labor supply, and that micromanaging the corporate sector is going to be negative."

Roubini added that the policy mix for the U.S. also presents a challenge: Fiscal stimulus is going to force the Fed to tighten more, it's going to push up interest rates and the dollar, he said. "In a way it's going to weaken the economy over time."

Still, he acknowledged, confidence is reigning.

2--Letter from a Syrian reader: “There is a new sentiment of solidarity in the ranks of the poor people”

3--Why Hillary lost

  1. The Democrat Establishment

  2. Clinton’s “Deplorables” Gaffe
  3. Clinton Repels the Left
  4. “It’s The Economy, Stupid!”
  5. Voter Registration and Turnout Failure
  6. The Undecideds Break for Trump .....

Obama’s economic record includes job creation exclusively in part-time, precarious jobs (see the comment on warehouse jobs from Pennsylvania). Obama’s tenure has been marked by rising mortality rates, an AIDS-level epidemic of excess “deaths from despair” due in part to an opioid epidemic. These are all economic issues, and Obama’s record is terrible. Clinton attempted to wriggle out of the contradiction in two ways: First, she began by proferring incremental changes and endless bullet points, and then shifted to focusing on Trump’s flaws as a candidate and a man.[4] In either case, it was crystal clear she had no sense of how bad it was out there, or any real idea of what to do (unlike Sanders, who explicitly framed his program as an economic one). Trump’s slogan: “Make American Great Again.” Clinton’s riposte: “America is already great!” Really? The counties that voted for “hope and change” in 2008, and gave Obama a second chance in 2012, weren’t buying it, nor should they have. They decided to vote for “change” again in 2016. And why wouldn’t they?..


I hope the matrix of failure is a useful tool; I enjoyed fitting as much as possible of what I remember happening into it’s framework. To me, though, the election turned out to be pretty simple:

1) “It’s the economy, stupid!”, and

2) “Change vs. more of the same”

Clinton was the “more of the same” candidate in a change year when the economy was the issue. That’s why the Obama counties flipped. So she lost! Oh, and you can argue that zeitgeist issues like the Comey letter “lost Clinton the election.” But arguments like that depend on national polling. What you’ve got to do is show that your zeitgeist issue of choice would unflip the Obama counties that went for Trump. Seems unlikely.

3--Why Trump's budget may be 'devastating' to his supporters

It includes many programs that are important to rural, lower-income areas that went big for Trump last November, such as subsidies for regional airports, funds to clean up the Great Lakes and Chesapeake Bay, and support for regional economic development.

4--The Big Con-- Here's How Donald Trump's Budget Screws Over the People Who Elected Him

Goodbye safe drinking water. Hello high energy bills.

5--Why I Dissented--President Kashkari explains his vote at the March 2017 FOMC meeting.  (Excellent)

In short, the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target. And since the last FOMC meeting, overall, data on wage inflation are mixed....

It is true that headline inflation rates have climbed around the world since the last FOMC meeting. As noted earlier, that is due to higher oil prices, which can be transitory. More importantly, core inflation rates in advanced economies continue to come in below their inflation targets...

In summary, inflation is still below our target. While there are some signs of inflation slowly building toward our target, it isn’t happening rapidly, and inflation expectations appear well-anchored. Not much has changed since the last FOMC meeting...

The headline unemployment rate has fallen from a peak of 10 percent to 4.7 percent, roughly the level it was at before the financial crisis. But we know that measurement doesn’t include people who have given up looking for a job or are involuntarily stuck in a part-time job. So we also look at a broader measure of unemployment, what we call the U-6 measure, which includes those workers. The U-6 measure peaked at 17.1 percent in 2010 and has fallen to 9.2 percent today, which is still almost 1 percentage point above its precrisis level. The U-6 measure suggests that there may still be additional workers who might re-enter the labor force if the job market remains healthy....

Monetary policy has been at least this accommodative for several years, including the effects of the Federal Reserve’s expanded balance sheet, without triggering a rapid tightening of the labor market or a sudden increase in inflation. This suggests that monetary policy has been only moderately accommodative over this period. This level of accommodation seemed appropriate given where we are relative to our dual mandate. ....

The dollar has increased more than 20 percent over the past 2½ years. The strong dollar will likely continue to put some downward pressure on inflation. Overall, the global environment doesn’t seem to be sending a strong signal for a change in U.S. interest rates....

will shrink the balance sheet and when that roll-off will begin. I think it is imperative that we give the markets time to understand the details of the plan before it is implemented. And while it is likely the announcement of that plan will not trigger much of a market response, we don’t know that for certain. The announcement of our balance sheet plan could trigger somewhat tighter monetary conditions. In that case, that announcement could be viewed as a substitute for a federal funds rate increase, whose magnitude is uncertain...

One additional consideration that I think about is the possibility that low rates are scaring people and causing them to save more and invest less, while conventional wisdom is that low rates should lead to more investment and less saving. It is not a crazy argument because negative rates seem to be having unexpected results in some countries that have adopted them. If negative rates can scare people into saving more, perhaps very low rates can too? This would be an argument to raise rates just so people can feel more confident.


As was the case in the February FOMC meeting, we are still coming up somewhat short on our inflation mandate, and we may not have yet reached maximum employment. Inflation expectations remain well-anchored. Monetary policy is currently somewhat accommodative. There don’t appear to be urgent financial stability risks at the moment. There is great uncertainty about the fiscal outlook. The global environment seems to have a fairly typical level of risk. From a risk management perspective, we have stronger tools to deal with high inflation than low inflation. Looking at all this together led me to vote against a rate increase.

In summary, I dissented because the key data I look at to assess how close we are to meeting our dual mandate goals haven’t changed much at all since our prior meeting. We are still coming up short on our inflation target, and the job market continues to strengthen, suggesting that slack remains. Once the data do support a tightening of monetary policy, I would prefer the next policy move by the FOMC to be publishing a detailed plan that explains how and when we will begin to normalize our balance sheet. Once we put that plan in place, and we see the market reaction to it, we can return to using the federal funds rate to remove monetary accommodation when the data call for it. ...

Next let’s look at inflation expectations—or where consumers and investors think inflation is likely headed. Inflation expectations are important drivers of future inflation, so it is critical that they remain anchored at our 2 percent target. Here the data are mixed. Survey measures of long-term inflation expectations are flat or trending down. (Note the Michigan survey, the black line, is always elevated relative to our 2 percent target. What is important is the trend, rather than the absolute level.) The Michigan survey has been trending down over the past few years and is now near its lowest-ever reading...

But perhaps inflationary pressures are building that we aren’t yet seeing in the data. I look at wages and costs of labor as potentially an early warning sign of inflation around the corner.2 If employers have to pay more to retain or hire workers, eventually they will have to pass those costs on to their customers. Eventually, those costs must show up as inflation. But we aren’t seeing a lot of movement in these data. The red line is the employment cost index, a measure of compensation that includes benefits and that adjusts for employment shifts among occupations and industries. It has been more or less flat over the past six years, and there has been no new information since the last FOMC meeting

6--WSJ Op-Ed: Make Big Banks Put 20% Down—Just Like Home Buyers Do

7--The West’s sights are now clearly set on Iran

8--Archive--The world can no longer rely on debt: BIS

9--Stocks Soared on Trump’s $1-Trillion Infrastructure Boom. But that Just Evaporated. Now What?

Where does this leave the stock market? The “Trump trade” was conditioned on, among other things, massive deficit spending on infrastructure projects that would distribute $1 trillion of taxpayer money to the companies involved in it. Wall Street has endlessly hyped this bonanza and has used it to rationalize the recent rally of already irrational stock prices. Now it looks like Wall Street will have to go look for another mirage to hype, or someone is going to end up holding the bag.

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