Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
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Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#2This is one area where I think the US system shows the power of separation of concerns.
Trump would love lower interest rates but the Fed, tends to run itself without much political influence. These people are all "adults" and very accomplished and knowledgeable.
They set the FED rate and everyone else falls along. They have been actively raising rates, with more rate hikes expected in this year to cool inflation, and the economy by extension.
At the very least the US will have some wiggle room to lower rates when the economy slows down again.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#3When I read articles like this I wish I had a better grounding in economics, I guess specifically macroeconomics? Is there a well-known, digestible textbook?
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#4This is one area where I think the US system shows the power of separation of concerns. Trump would love lower interest rates but the Fed, tends to run itself without much political influence. These people are all "adults" and very accomplished and knowledgeable. They set the FED rate and everyone else falls along. They have been actively raising rates, with more rate hikes expected in this year to cool inflation, an…
> At the very least the US will have some wiggle room to lower rates when the economy slows down again.
While true, one of the lessons from 2008-9, and part of Bernanke's point, is that monetary policy alone can't always accomplish the task. If we use up all the extra fuel in the run-up to a rough patch, we risk not having enough to get us out of the rut ahead.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#5The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary 'contraction') is more or less unprecedented (we've never seen it happen in modern times in the US or any other large developed economy).
The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed's job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.
Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.
This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it much harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#6This is consistent with what I’ve heard. Seems no one expects a recession until at least 2020 or 2021. Be ready.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#7When I read articles like this I wish I had a better grounding in economics, I guess specifically macroeconomics? Is there a well-known, digestible textbook?
Macroeconomics by Paul Krugman and Robin Wells is a good one.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#8The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary 'contraction') is more or less unprecedented (we've never seen it happen in modern times in the US or any other large dev…
Just to clarify. There is no inherent business cycle. The Great Depression proved that the lows can continue on indefinitely without abatement. Laissez faire economics are dead.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#9The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary 'contraction') is more or less unprecedented (we've never seen it happen in modern times in the US or any other large dev…
Just to clarify. There is no inherent business cycle. The Great Depression proved that the lows can continue on indefinitely without abatement. Laissez faire economics are dead.
The buisness cycle is closer to the truth than calling economic growth a random walk. You get feedback loops which prevent a steady state.
Re: Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
#10Ben Bernanke’s point in his recent memoir is that central banks can only do so much.
At the end of the day, monetary policy is not social change, moral evolution, or political coalition building. These things happen outside the Central Banking system and are just as important for a functioning economy.
I know this sounds controversial, but at this point quite frankly the deficit does not matter. There is so much debt in the world, we are likely heading towards a global debt write-off.
It doesn’t help that China has essentially been spewing entirely fictitious accounting numbers for the last 20 years. It’s not even about padding an extra 10-15% anymore. There are journal articles out there claiming that Alibaba, a company as big as Oracle, is making up whole cloth 95% of it’s accounting statements. Ridiculous...