Credit Writedowns » balance sheet recession

What about all those excess reserves at the Fed?

Edward Harrison — Fri, 20 Apr 2012 21:00:23 +0000

The Fed is out of bullets on interest rate policy and has turned to other nonconventional measures like quantitative easing. Excess reserves have piled up as a result. What does this mean for inflation and the economy

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Bill Gross on Risk Seeking Return and Safe Carry

Edward Harrison — Tue, 27 Mar 2012 14:00:32 +0000

Bill Gross is out with his monthly commentary. Because his points are central to the discussion of policy and markets right now, I am going to write this weekly newsletter commentary outside the paywall. The major question is about how to invest in a world that levers much more slowly in total, and can delever sharply in selective sectors and countries. Gross has some answers and I have some comments on the macro backdrop

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[Premium] Is household debt driving the US recovery?

Edward Harrison — Tue, 13 Mar 2012 00:14:46 +0000

This is a silver level post asking to what degree the US recovery is fuelled by household sector releveraging

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[Premium] Investment implications of jobs report and 227,000 nonfarm payrolls, 8.3% unemployment

Edward Harrison — Fri, 09 Mar 2012 14:52:31 +0000

This is a gold level post. According to the US Bureau of labor Statistics, nonfarm payroll employment rose by 227,000 in February, and the unemployment rate was unchanged at 8.3 percent. Here are my thoughts on what this signals about the economy and the current cyclical bull market

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Chart of the Day: Monetary Transmission Mechanisms

Edward Harrison — Thu, 08 Mar 2012 18:00:49 +0000

If and when the demand for credit increases, so too will the money supply

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Big in Japan

Michael Pettis — Mon, 12 Sep 2011 13:30:00 +0000

As I see it, Japan’s problem was that during the 1980s it was so addicted to investment-led growth and artificially cheap financing that it misallocated capital on a massive scale and failed to include the resulting implicit losses in its GDP calculations. If you look at real per capita household income and household consumption growth during the period of Japan’s stagnation, you will find that both of them rose fairly rapidly. This isn’t what typically happens during a US-style financial crisis, when household income suffers

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Market volatility and double dip mean re-test of March 2009 low

Comstock Partners — Tue, 06 Sep 2011 22:48:47 +0000

This extra $4.5 trillion of household mortgage debt is a terrible burden on the economy since consumers make up over 70% of our economy. This is why consumer spending has been so tepid over the past few years. U.S. consumers spent well beyond their means for decades and now that they are so overleveraged their PCE will stay constrained for years. The consumer spending didn't seem too onerous over the past few years until the Commerce Department lowered their earlier estimates significantly. Also, consumer confidence by any measure you chose is signaling another recession, and any cuts in federal or state government spending could only exacerbate that. U.S. consumers spent well beyond their means for decades and now that they are so overleveraged their PCE will stay constrained for years. The consumer spending didn't seem too onerous over the past few years until the Commerce Department lowered their earlier estimates significantly. Also, consumer confidence by any measure you chose is signaling another recession, and any cuts in federal or state government spending could only exacerbate that

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The Jackson Hole Spaghetti Toss

Guest Author — Wed, 24 Aug 2011 11:00:00 +0000

If the Chairman has to do something, then the real question is what policy response is adequate to a) reviving asset prices and b) returning the US to trend real GDP growth (since the portfolio balance channel appears to be the only one left for monetary policy transmission to work). Many institutional investors may be realizing that is a null set given current political configurations, and so whatever the Chairman delivers - even if he goes boldly where no Fed governor has ever gone before - may have a very short half life, as we saw with the last move of pegging the 2 year US Treasury yield at the fed funds rate

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The impotence of monetary policy

Edward Harrison — Fri, 24 Jun 2011 00:30:51 +0000

For my part, I am with Richard Koo. Monetary policy reflation will not work in a balance sheet recession when fiscal policy is contractionary. But at some point, the Fed will be compelled to act anyway

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Roach: Return of the Living Dead

Edward Harrison — Thu, 16 Jun 2011 13:47:35 +0000

Rather than adding stimulus with the aim of goosing demand to help the economy reach escape velocity, I would say that the central objective of economic policy is to help the economy reach full employment. Doing so will increase demand, increase output, and cut budget deficits tremendously. Policy makers should do this while aiding the economy in reallocating scarce resources to areas that will sustain longer-term productivity growth. In America, that means less resources in finance and housing and perhaps more in technology and infrastructure

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