I am certainly of the view that a considerable worsening of the recession is baked in the cake for 2009. But will fiscal and monetary stimulus prevent worst case scenarios? I certainly hope so, as I have laid out in recent posts.
But, don’t take my word for it. The RGE Monitor headed [...]

Caroline Baum had a good column today at Bloomberg in which she suggests central banks consider asset prices in monetary policy going forward. In the piece she quoted William White, a former economist from the Bank for International Settlements. He said:
“The most calamitous downturns were not preceded by any degree of inflation. There [...]

My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.

And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.

First the Fed and now the ECB and Bank of England are talking about some form of quantitative easing! Of course, if they are all going to do it, do we have a dollar crash or is it more of a crisis of confidence in fiat currencies in general? The only obvious [...]

As interest rates in the developed economies approach the zero bound, we must begin to ask ourselves how effective monetary policy can reasonably be in these circumstances. And if policy is to be effective, which policy tools will be most advantageous to use? Or are we just pushing on a string here?

In plain English: central banks are running out of bullets and the deflation bogeyman seems to be right on our doorstep. Can they even stop him from ripping our house to shreds and sending us into depression?

In economic circles, there has been a lot of buzz about Quantitative Easing of late. Basically, the U.S. Federal Reserve has lowered interest rates to near zero percent and the fear is that these cuts will not have enough effect on the willingness to lend in order to reflate the U.S. economy. Therefore, the Fed has decided to take more draconian measures, one of which is Quantitative Easing, flooding the economy with money.

Consumer prices came down more than expected with the CPI (Consumer Price Index) falling 1.0% month-to-month. This s a large decline, but is entirely related to fall in the price of oil. Underlying core CPI excluding food and energy, down 0.1 month-to-month, remains steady on a year-to-year basis.
Although the 1.0% fall is being touted [...]

The headline story is that this is the largest month-to-month fall ever since monthly statistics began for this data series in 1947. But, as you can see from the chart below, all of this decline was due to food and energy. Therefore, the massive fall in oil prices was responsible for the drop [...]

The Bank of England has cut interest rates to 3%, a 1 1/2 point cut. Just weeks ago, the BoE Governor Mervyn King was writing to the Government explaining how they had let inflation run out of control. However, with the economy tanking, credit short of hand and commodity prices plummeting, the Monetary [...]

The U.S. Federal Reserve is tasked with watching inflation while keeping the economy growing. This dual mandate is a juggling act no mortal could manage successfully for long. The result has been a Fed which has largely erred on the side of growth over inflation, leading to a weak dollar and many an [...]