Economics Blog : Greenspan Cracks a Joke and Breaks It Down

Few if any figures draw as much attention as Alan Greenspan when they speak about the economy. Watch Greenspan discuss the economy and his new book with Jon Stewart of the Daily Show. You won't be disappointed.

Economics Blog : Greenspan Cracks a Joke and Breaks It Down

Krugman on the US housing bubble

Here's an interesting clip of Paul Krugman speculating about the housing market's effects on the economy. Note he also mentions the 'other shoe' which is an old favorite, the current account deficit. Paul always draws lots of fire and support so check-out his take and see what you think.

Jim Cramer's Bernanke/Armageddon Rant

I must admit, the intensity of Cramer's rant caught me by surprise, which is itself a surprise because, well, it's Jim Cramer. Cramer, who visited Darden only a few months ago goes thermonuclear while saying Bernanke has 'NO IDEA WHAT IT'S LIKE OUT THERE' and imploring him to 'OPEN THE DARNED WINDOW!!' Take five minutes of your day and watch this, you won'd be disappointed. Then, be sure to ask yourself why lies behind Cramer's reasoning. Is it a just liquidity issue? Or, is it a question of bad loans coming due? Cramer argues that Chairman Greenspan would have cut more by now, but whether or not that's true, the question is should the Fed add liquidity through the discount window, cut the target Fed Funds rate, or both? Or maybe, it shouldn't act at all.

Why Running the Fed is Art and Science

The Journal of Turkish Weekly (JTW) probably doesn't make your weekly reading list, or mine, but I couldn't resist commenting on this article written by one of my former professors about another. It's worth wondering why it is so hard for even sophisticated thinkers with billions at stake to settle on what the Fed will do next. Former Chief Economist at the IMF Ken Rogoff offers a brief, clear statement on why central banking and 'real life' macroeconomics is so important and tough. Chairman Bernanke's thinking on a crisis just like our current one isn't really a mystery to anyone, but how he will choose to steer the economy now that his hands are at the big wheel is. Rogoff rightly points out that the academic literature suggests a steady hand most times asset prices fall sharply.

On the surface, Bernanke’s view seems intellectually unassailable. Central bankers cannot explain equity or housing prices and their movements any better than investors can. And Bernanke knows as well as anyone that none of the vast academic literature suggests a large role for asset prices in setting monetary policy, except in the face of extraordinary shocks that influence output and inflation, such as the Great Depression of the 1930’s.

On the other hand, (as we economists are infamous for saying) reading the economy is no simple trick. I'm not saying we all sit around reading tea leaves, but that may not be as much of a stretch as you think. Even for an Academic superstar with an army of SAT-crushers to do his bidding, knowing where the economy has been can be tough; knowing just where it is now and will be tomorrow can be Everest.

But, while Bernanke’s view is theoretically rigorous, reality is not. One problem is that academic models assume that central banks actually know what output and inflation are in real time. In fact, central banks typically only have very fuzzy measures. Just a month ago, for example, the US statistical authorities significantly downgraded their estimate of national output for 2004!

Even if, like Chairman Bernanke, you are true to your academic convictions and have the mettle to risk being unpopular, the nature of beast offers no simple solutions. We can and do 'science' our way to a set of reasonable decisions but it's still 'art' that finally pulls the levers. Thinking about both the art, and a bit about the science, is what fills the Wall Street Journal, countless Bloomberg screens and makes bank for an endless supply of pundits.

For the rest, follow this link http://www.turkishweekly.net/news.php?id=48432.

China's Inflation, Trade Surplus Surge, Bolstering Need to Tighten Liquidity - WSJ.com

Inflationary pressures in China are closely related to events in the US economy and elsewhere; consider the following.

BEIJING -- China's inflation surged in August to the highest level in more than a decade as meat and vegetable prices skyrocketed, putting the central bank on track to raise interest rates again soon as government efforts to curb food prices fail.

Also keeping up the pressure on the People's Bank of China to tighten liquidity, China's trade surplus in August climbed to its second-highest ever. But growth in exports to the U.S. slowed, in what may be a sign that the meltdown of the subprime-mortgage market is having economic effects beyond America's borders.

Without some structure to your thinking about an issue like this one, you'll be lost in trying to make informed decisions or to consider the implications for your firm, career or investments. How about the following sentences - do they make sense to you? Are the implied relationships familiar?

It is "just a matter of time when the market will enter the [correction] period," said Xu Yinghui, an analyst at Guotai Junan Securities. "The government is using a variety of measures to rein in the economy and fast-rising markets, including accelerating the pace of new share issuance."

Government bonds also fell on the strong inflation data and a looming bond sale from the Finance Ministry.

Good stuff - expect to become much more familiar and comfortable with readings like this one. Don't worry if this seems mysterious. Soon you'll be at home with discussions like these.

China's Inflation, Trade Surplus Surge, Bolstering Need to Tighten Liquidity - WSJ.com