The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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September 30, 2005

The Saving Rate Increases - And That Ain't Good News

From Reuters, via CNNMoney:

U.S. consumer spending fell an unexpectedly steep 0.5 percent in August, the biggest drop since November 2001, according to a government report Friday that also showed a surprise income decline potentially caused by Hurricane Katrina...

The spending decline pushed up the saving rate, the percentage of disposable income saved, to negative 0.7 percent from July's record low of minus 1.1 percent. A negative saving rate shows U.S. consumers eating into their accumulated wealth to spend.

Admittedly, that's not much of an increase, and it's not clear anyone is expecting it to stick.

Although spending proved weaker than expected in August as auto purchases plummeted, the decline followed two months in which consumers spent freely. Economists said the fall was not particularly troubling.

"The drop in August is just a pullback from that earlier surge in spending," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis.

As to the inflation side of the report:

The fall in spending came as energy prices pushed consumer inflation up 0.5 percent, the largest jump since September 1990, the Commerce Department said.

Outside volatile food and energy costs, inflation as measured by the Federal Reserve's favorite gauge edged up 0.2 percent. Over the past year, so-called core inflation has climbed 2 percent, a tick faster than in the 12 months through July.

That represents a pretty good one-month jump.  Here's the broader picture from the Dallas Fed:

The trimmed-mean PCE inflation rate for August was an annualized 3.1 percent.

According to the BEA, the overall PCE inflation rate for August was 6.1 percent, annualized, while the inflation rate for PCE excluding food and energy was 3.0 percent.

These are fairly volatile series month-to-month...



PCE excluding food & energy
Trimmed mean PCE

... so we shouldn't read too much into one month's number -- the 12-month core inflation rate is still holding steady:



PCE excluding food & energy
Trimmed mean PCE

Those facts prompted this, from the CNNMoney report:

Anthony Chan, senior economist at J.P. Morgan Asset Management, said the August core inflation reading was within the Fed's "tolerance" zone.

"I would not view these numbers as overly worrisome," he said. "In the wake of a surge in energy prices, you don't see a lot of it spilling over into the rest of the economy."

Nonetheless, the most recent public comments from Federal Open Market Committee participants do not exactly suggest benign neglect.

From the consumer record elswhere: August retail sales rose In Australia. They did not in Japan, nor in Germany.

UPDATE: Kash is worried about the drop in spending.  Barry Ritholtz documents his signs of decay at The Big Picture.  The Skeptical Speculator is impressed by improvements in manufacturing.  US Housing Bubble notices an AP story on an increase in credit card delinquencies.

September 30, 2005 in Asia, Data Releases, Europe, Inflation | Permalink


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» But you said that more saving was a good thing from Econbrowser
After many of us have been arguing for some time that an increase in the U.S. personal saving rate was key for promoting long-run growth and reducing the trade deficit, th... [Read More]

Tracked on Oct 2, 2005 11:02:19 AM


Why do they say "negative", in one place, and "Minus", in another, are they trying to confuse?

Posted by: big al | October 03, 2005 at 10:02 AM

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Inflation In The Eurozone

The near-term fortunes of the euro's purchasing power is looking a lot that of the dollar.  From Bloomberg:

Inflation in the dozen nations sharing the euro accelerated in September to the fastest pace in more than a year after oil prices surged to a record.

Consumer prices rose 2.5 percent from a year earlier, after increasing 2.2 percent in August, Eurostat, the European Union's Luxembourg-based statistics office, said today. That was the biggest annual gain since May 2004 and topped the 2.4 percent median estimate of 32 economists surveyed by Bloomberg. A separate report from the Brussels-based European Commission showed consumers and executives anticipate rising prices.

One difference between the U.S. and Eurozone, of course, is that the European Central Bank has an explicit inflation target and the Federal Reserve does not. 

A 53 percent increase in the price of crude oil this year pushed inflation beyond the European Central Bank's target of just below 2 percent for eight months. That's prompting ECB council members including Yves Mersch and Axel Weber to say the Frankfurt- based bank is concerned about prices, suggesting its next shift on interest rates may be an increase.


The ECB's governing council next sets its benchmark interest rate Oct. 6 and 29 economists surveyed by Bloomberg are unanimous in expecting it to leave it unchanged.

One reason for that may be that the data is not clearly speaking to a pick up in the inflation trend:

The euro-area's so-called core rate of inflation, which excludes energy and food prices, held at 1.3 percent in August, the lowest since February 2001. Eurostat will publish a breakdown of September's data on Oct. 18.

Another reason might be that inflation expectations appear to have stabilized.  From Reuters:

ECB policymakers regularly cite the low level of expected inflation as a reason not to raise interest rates...

The break-even rate [one commonly used measure of market inflation expectations] is the difference in yields between inflation-indexed and normal government bonds. Very roughly it represents the average annual inflation rate that bondholders expect over the life of a bond.

The 10-year BEIR rose steadily from a trough of 1.7 percent in June 2003 --just before the ECB cut interest rates to a historic 2 percent low -- to a peak of around 2.3 percent a year later, and has since slid back to about 2.0 percent, according to data in the ECB's September bulletin.

The Reuters article does note that the "break-even rate" is not without its problems:

One thing analysts and the ECB do agree is that it is misleading to read the BEIR as a simple predictor of future inflation.

For example, the relative illiquidity of euro-denominated index-linked bonds compared with nominal bonds tends to give the BEIR a downwards bias. But their value as a hedge against inflation and their popularity with some pension funds attempting to match index-linked liabilities pushes the BEIR upwards.

Each effect might be in the region of tenths of percentage points, but it is unclear what the net impact is. This means the ECB and analysts prefer to look at changes in the level of the break-even rate, rather than its absolute level.

Even here, there is a question mark over whether the liquidity premiums on index-linked bonds remain the same over time -- not a certainty as issuance of these bonds increases.

The BIER measure is similar to the "TIPS" measure of inflation expectations in the U.S., which is subject to similar criticisms.  That said:

Given these caveats, most economists say the BEIR is probably the best of an imperfect range of options for the ECB. "It's a worthy part of the armoury, but by no means a weapon that can be used on its own," James said.

For now, at least one member of the ECB wants you to know they are on the case.  From Bloomberg:

European Central Bank council member Yves Mersch said oil prices at current levels risk boosting wages and feeding inflation, suggesting he may support an increase as the bank's next step on interest rates.

"The longer the oil prices remain high, the higher the risks are that second-round effects will also materialize,'' Mersch said in an interview at an event in Luxembourg late yesterday. "That's the reason why we called for particular vigilance.''

September 30, 2005 in Europe, Inflation | Permalink


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Is ECB using U.S. cpi methodology for calculating inflation? How different is their reporting/calcing system? It seems implausible that the ECB would have a BLS type team with the equivalent of our 40,000 or so part-timers in the fireld recording current prices, or that it is making so many subjective decisions, i.e. what percentage is housing, & how does it determine "rental equivalency"? For that matter I don't know if the ECB collects data or relies upon individual countries. I've gotten nowhere looking on the WEB for this info., this is why I've been pleading for a global forum to standardize economic reporting.

Posted by: bailey | September 30, 2005 at 11:08 AM

Bailey-- The ECB uses Harmonized Price Indexes (HICP's) when computing "European" inflation. These HICP's can be much different than the CPI's computed independently for each country (although I believe the data used to compute these numbers are obtainded from the statistical agencies of each nation according to standards set down by the Eurostat, but I'm not 100 percent sure of that.) In a nutshell, the difference between the HICP method and the CPI you are familiar with is that the former includes only those items a household actually spends money on for final consumption. So things paid for on your behalf by an employer or government (e.g. healthcare for many), and ANY imputed costs (like housing), are not in these measures. Indeed, the last I looked, there were no housing costs in these measures whatsoever. So the marketbasket implied by the HICP measure is much more narrow than your ordinary CPI. Some of this is due to the difficulty of producing these numbers and the speed at which the EMU was put together. I believe that over time, the HICP's are getting broader and more sophisticated in their approach. Be careful though, while high quality data is what we all desire (and is being pushed pretty hard), I think, standardization is not always a desireable thing. I suspect that the cost-of-living measure that is appropriate for your life might look a lot different than the one appropriate for me.

For a technical look at this issue, see:


Hope this helps.

Posted by: Waterdog | October 01, 2005 at 09:50 AM

H2Odog, It helps TREMENDOUSLY, thanks. I'm going to have to give your standardization comment more consideration as it's echoed by Dave Altig.

Posted by: bailey | October 01, 2005 at 11:09 AM


Posted by: mojtaba | October 10, 2005 at 05:12 AM

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September 28, 2005

Consumers Gloomy, Businesses Not

We knew as much from the earlier University of Michigan survey, so yesterday's release of the September consumer confidence index from the Conference Board was more confirmation than news.  A few details:

The Conference Board Consumer Confidence Index, which had rebounded in August, plummeted in September. The Index now stands at 86.6 (1985=100), down from 105.5 in August. The Present Situation Index decreased to 108.9 from 123.8. The Expectations Index fell to 71.7 from 93.3 last month...

“Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years (81.7 in October 2003) and created a degree of uncertainty and concern about the short-term future,” says Lynn Franco, Director of The Conference Board Consumer Research Center. “Historically, shocks have had a short-term impact on consumer confidence, especially on consumers’ expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006.”

That's an interesting statement.  It suggests that the Conference Board itself thinks that folks in the survey are not all that forward-looking.  The predictive powers of consumer confidence measures remains a source of controversy, but there isn't much doubt that folks are feeling nervous.  But it's not just the U.S. consumer feeling the blues.  From Bloomberg:

Confidence among French executives and German consumers declined in September, the latest evidence that near-record oil prices are threatening the outlook for economic growth across the dozen-nation euro region.

In the opposite corner, European businesses appear to be feeling much better, thank you:

In Italy, Europe's fourth-largest economy, business confidence unexpectedly rose to a 10-month high in September, the Rome-based Isae Institute's said...

Business confidence in Germany, Europe's largest economy, unexpectedly rose to an eight-month high in September as the euro's 11 percent decline against the dollar this year made the country's goods cheaper abroad, the Munich-based Ifo institute said yesterday.

I'm not sure what to make of the divergence in business and consumer views.  Today's report on August durable goods orders in the U.S. is doesn't suggest that American businesses are feeling some love too.  From MarketWatch:

Total durable goods orders rose 3.3% in August, the Commerce Department reported Wednesday. It was the fourth increase in the last five months and the largest gain since May.

The increase was much larger than Wall Street economists were predicting. Economists were expecting durable goods to rise 0.9% in August...

Orders in July were revised to a 5.3% decrease from 4.9% previously estimated.

A key measure with the report, non-defense capital goods rose 4.3% last month after falling 7.1% in July. Excluding aircraft, this subset of data rose 3.6%.

Some may view yesterday's report on existing home sales in the U.S. as a sign that the consumer's are giving the truer signal, States-side at least, but the New York Times provides some welcome perspective on that report:

...the Commerce Department said new home sales fell 9.9 percent, to an annualized pace of 1.24 million, from a record-setting July, and were at their slowest pace since January. There was a 4.7-month supply of homes on the market in August, up from a 4.1-month supply in July. The median sale price, however, rose 2.5 percent, to $220,300. Economists had been expecting an annualized pace of 1.35 million new home sales.

By comparison, the National Association of Realtors said Monday that existing home sales rose 2 percent, to an annual rate of 7.29 million, in August and the median sale price hit a record of $220,000, up 15.8 percent from a year earlier. Existing homes make up about 85 percent of all home sales."You shouldn't think that this is a sign of apocalypse now, that things are collapsing on us," Anthony Chan, an economist with J. P. Morgan Chase, said of the new home sales data. "This is clearly not that. When I look at these numbers, I see that this is a year that most Realtors would be proud of."

Overall, not much reason to run for the exits yet, I think.

Related posts from blog-buddies:

The Skeptical Speculator covers these reports, and yesterday's speech by Chairman Greenspan too. 

The Capital Spectator says the data is "less than conclusive."

The Housing Bubble 2 highlights the new home sales report. The Eclectic Econoclast has a look at the consumer confidence report and thinks the "housing bubble seems on the verge of breaking."  Calculated Risk has a similar opinion, and makes his case with lots of nice pictures.

UPDATE: At A Few Euros More, Edward Hugh notes that the positive reading on German business confidence may not fully reflect the impact of the electionsBarry Ritholtz suggests care in using the consumer confidence numbers.

September 28, 2005 in Data Releases | Permalink


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Small businesses get MANY Gov't. ks, consumer's lost most of his. Remember when credit card debt was deductable? Now it's not, banks are charging as much as 25% interest for incollateralized cards & consumers must pay up even to go bankrupt. Further, their paymments pegged to cpi are grossly unestimated, they have lost any wage barganing power as they've wathed medical, college, driving & home costs skyrocket. 30% of population are NOT homeowners and you wonder why they're not as positive as businesses? How many of these folks who don't already own a house can afford to buy a median priced house today? My bet is every small business owner in the world is writing off their gas expenses. How secure is YOUR retirement plan? Want to compare it to what most consumers have?
P.S. I believe DG contains airplane orders deliverable three years down the road & cancellable on a phonecall. Lastly, aren't companies paying the lowest taxes in history, down phenominally in the last 20 years?

Posted by: bailey | September 28, 2005 at 09:20 PM

Hope I didn't shut off comments with my shrill outburst. I'm fed up with all the postmodernist rhetoric. The Fed's got a job to do. It's wrong for it to want to "feel" out public's readiness to accept a tough course. We are all aware of the difference in public attitude toward infation in Burns & Volcker terms. I think the only question of relevance now is Fed credibility. 5% here we come.

Posted by: bailey | September 29, 2005 at 12:40 PM

Not at all bailey. I couldn't agree more and if you spit some data into the Taylor Rule function you come up with ~5.25% Fed Funds. There's no question that the Fed has more work to do, but what are the chances they ignore aggregate measures of CPI and just focus on the PCE deflator and end up making a monumental policy error by stopping/easing too soon?

Posted by: John_Bott | September 29, 2005 at 02:08 PM

Huge concern! My wildest hope is that AG will use wear his pulpit thin in the next few months & a few academics will voice support. But, I recognize it's a real longshot; who's ready to take on the holy grail?

Posted by: JB | September 29, 2005 at 02:43 PM

apologies JB.

Posted by: bailey | September 29, 2005 at 02:44 PM

John -- Our Taylor rule calculations don't clearly show 5.25. Check it out here:http://www.clevelandfed.org/Research/ET2005/0905/taylor.pdf

Posted by: Dave Altig | September 30, 2005 at 09:18 AM

Whoops - The back of the envelope Taylor Rule I think I found was something like 2 + some moving average of the GDP Deflator + 1/2(Deflator - 2) + 1/2 (output gap).

At unemployment of 5%, I just assumed the output gap to be zero. After I look at your link, would it be ok if I email you with any questions?


Posted by: John Bott | September 30, 2005 at 10:29 AM

Here we go again. Can someone please explain how we can adequately estimate potential output for use in setting monetary policy?

Posted by: bailey | September 30, 2005 at 03:06 PM

It all depends on the natural rate of unemployment right? ;-)

Posted by: John Bott | September 30, 2005 at 04:09 PM

John -- Absolutely, feel free to drop me a line.

bailey -- that is my sentiment as well.

Posted by: Dave Altig | October 02, 2005 at 10:00 AM

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September 27, 2005

Morning Round Up, Odds and Ends

More stuff I read this morning:

--William Polley asks bloggers to weigh in on FOMC policy, and Everyone's Illusion predicts three more rate hikes are coming.  William hopes it isn't so.

-- Barry Ritholtz continues his campaign against the notion of core inflation.  Debate is good -- but I'm holding my position for now.

-- David K. Smith does some China myth-busting.

-- Econbrowser kicks out another must-read post on the origins of the U.S. current account deficit.  Jim is worried.  Mark Thoma helps out with some advice from The Economist.  The bottom line -- the U.S. should save more, China and other emerging-economy
countries should save less.

-- William Polley breaks the news that the Federal Reserve Bank of Chicago has brought the world its first official blogs from the central bank.  Gee -- wish I would of have thought of that.

UPDATE: I neglected to notice that Menzie Chinn was guest-blogging at Econbrowser.  Jim may or be worried.

September 27, 2005 in Asia, Deficits, Federal Reserve and Monetary Policy, Inflation, This, That, and the Other, Trade Deficit | Permalink


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The Econbrowser post on the CA deficit is excellent, but the author is new guest blogger Dr. Menzie Chinn, not Professor Hamilton.

So many good blogs, so little time ...

Posted by: CalculatedRisk | September 27, 2005 at 03:00 PM

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Morning Round Up, Housing Edition

More this and that from blogland:

Calculated Risk notices today's Wall Street Journal article by Greg Ip (page A1 in the print edition), that contains a new warning from Chairman Greenspan:

Federal Reserve Chairman Alan Greenspan, drawing on new research he has personally supervised, said American consumers have become enormously dependent on borrowing against their homes to fuel their spending, and that a rise in mortgage rates could trigger a spending pullback.

Mark Thoma has the story too (and throws in Bernanke on the risks associated with energy price increases, optimism from Chicago Fed president Michael Moskow and Governor Susan Bies).  The Housing Bubble 2 has even more.

For better or worse, The Skeptical Speculator reminds us that the "U.S. housing market remains strong."

Tax Policy Blog outlines the case against home mortgage interest deductions.  The essence of the argument:

Simple: by giving a tax subsidy to housing, it distorts investment decisions toward houses and away from assets like factories and equipment that are more productive at the margin. And that makes workers less productive, ultimately lowering wages and making society poorer.

For those looking to the practical end of the whole housing price debate, Calculated Risk considers the rent versus buy decision at Angry Bear.

September 27, 2005 in Data Releases, Housing, Taxes | Permalink


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Actually, it is not allowing interest deductions causes distortion. Under the income tax, it is income that should be taxed, not everyones favorite whipping boy.

The problem is factories and equipment are no longer more productive than housing and can no longer attract investment dollars. It is too cheap to substitute emerging market labor for expensive equipment and no longer makes sense to make those kinds of investments. This is yesterdays thinking.

Posted by: Lord | September 27, 2005 at 04:21 PM

On Sept.26 National Association of Realtors reported that the sales of previously owned homes surged in Aug., the median price rose 15.8 percent in the last 12 months. When homes are the object of speculation, this 15.8 percent could be regarded as "yield", and so long as expectations exist for the “yield” to exceed the expected borrowing rate, the speculations never ends.Some other policies are needed.

For details please see:
"Before and After Real Estate Bubble In Japan"

Posted by: Yamada | September 28, 2005 at 07:08 AM

Just another thought from yesterday:


Usually one cites the half century or so of falling manufacturing/total labor ratio in this country, to stem those whining about offshoring. This recent period, say 2000 onwards, is different. Many come to the conclusion that nothing is"more productive than housing" and point to GDP stats in this period to support this claim.
More profitable maybe for now ( review the profitability of UK housing over the past year), but not more productive.

Posted by: calmo | September 29, 2005 at 11:51 PM

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Morning Round Up, International Edition

A little of this, a little of that, from some of my blogger colleagues:

Edward Hugh brings our attention to a Financial Times report on a new proposal from Nicolas Sarkozy, president of France's Union for a Popular Movement (UMP) party that would make the largest countries in the EU

"...the motor of the new Europe."

Mr Sarkozy said this G6 - France, Germany, the UK, Italy, Spain and Poland - should make collective proposals to other EU leaders. The other members could accept or reject these proposals, but they should not be able to prevent the G6 from pursuing them.

In another post, Edward reports that the Swiss have voted to gradually ease restrictions on the free movement of workers from the EU-10 'new accession’ members.

And from Edward one more time, this news:

Eurostat reports that 12 EU states exceeded the 3% stability and growth pact limit last year...

All the larger EU states (with the honourable exception of Spain) had excess deficits...

Maybe that helps to explain this, from Nattering Naybob:

While most investors suspected there was wholesale diversification from USD holdings by major central banks, the IMF’s data paint a very different picture. The volume of EUR purchases last year was significantly less (about half) than the share of EUR holdings in total reserves at end-2003.

The latest IMF report shows global holdings of official reserves in USDs rose from 65.8% to 65.9%.

A related take, from The Prudent Investor:

I assume that the political uncertainties in Germany and fears of unabatedly rising deficits in the USA will keep currencies in an equilibrium.

September 27, 2005 in Asia, Europe, Exchange Rates and the Dollar, Federal Debt and Deficits, Trade Deficit | Permalink


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September 26, 2005

Funds Rate Probabilities: Keep On Truckin' (At Least One More Time)

This morning brings the usual interesting commentary about last week's decision and announcement from the Federal Open Market Committee, from William Polley, from Tim Duy (at Mark Thoma's Economist's View), and from James Hamilton.  It's Monday, so it also brings the latest estimates about where things are headed, from the market prices on options for federal funds futures.  Without further delay:


Here's the data: Download implied_pdf_november_092305.xls

The estimation wizards are still not quite comfortable in posting the results for the December meeting.  I will tell you this much -- it does not appear that a clear pause/no-pause sentiment has yet emerged.  I will update if more information is made available.

September 26, 2005 in Fed Funds Futures | Permalink


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The last few weeks seem evidence enough that the equity market can't see in front of itself, let alone two months down the road. I believe it would be way out of character for AG to interrupt a policy he believes in just because he's on the way out the door. Let's not forget his early Spring comment, that mortgages won't be affected by rate increases until mtg. rates touch 7%, & even then only minimally.

Posted by: bailey | September 26, 2005 at 01:44 PM

AG talked today like he was kicking off a p.r. campaign to prepare us for tougher monitary policy down the road. Maybe he's lobbying to influence selection criteria for his successor. We now do know he's CONVINCED two 1/4 point ff increases (Nov. & Dec.) will not be enough. We also know the world's awash with liquidity & the U.S. consumer-homeowner is not prepared for the shock that's ahead. But, we don't know who Bush will pick to replace AG, and we don't know why Bush has TWO Fed Governor seats open.

Posted by: bailey | September 27, 2005 at 07:08 PM

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What Should You Know About Economics?

In case you haven't seen it yet, Russell Roberts and William Polley have a discussion of "what the public doesn't know about economics" in the latest edition of the Wall Street Journal's Econoblog feature.  On this topic, I have lately had the opportunity to interview a number of economists about various things, as part of an exhibit that is being developed for a soon-to-be-finished learning center at the Federal Reserve Bank of Cleveland. I generally ask different questions of different people, but try to ask this one of everyone: If there was one lesson from economics that you could magically implant into the brain of everyone, what would it be?

You'll be able to see these answers yourself in the near future, but my answer would be this: Trade is good.

Whether your an "official" economist or not, feel free to leave your own opinion in the comment section.

September 26, 2005 in This, That, and the Other | Permalink


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Q: If there was one lesson from economics that you could magically implant into the brain of everyone, what would it be?


Posted by: Robert Cote | September 26, 2005 at 10:06 AM

Perhaps as a corollary to Trade is good, "Trade is growth (for someone at least)."

Posted by: Mike Gershowitz | September 26, 2005 at 10:17 AM

"Trade is good" is tricky, because it has been on so many lists of "one lesson we should take from economics" that it is becoming repetitive. (Sorry, this isn't the first.) Good why? I understand the static gains (consumer surplus) generated by trade are not large, as a share of GDP. Is it the rise in welfare from Smithian specialization that impresses you, or is it some other virtue of trade? I am quite willing to back trade for the benefits in terms of technology diffusion, discipline of local firms and the like. Or is the point that there are so many good things that its inclusion is self-evident?

Posted by: kharris | September 26, 2005 at 10:30 AM

"There is no free lunch".

Posted by: eric bloodaxe | September 26, 2005 at 10:36 AM

I like "trade is good" though unqualified workers in advanced economies would be a tough nut to crack in this regard.

One of my own favourites is "governments have less influence on the economy in the short run than they would wish and more influence in the long run than they imagine". But I guess it does'nt qualify as a snap quote. It takes an american to carve a snap quote.

Posted by: fourdegreesnorth | September 26, 2005 at 01:10 PM

Incentives matter.

Posted by: Adam Raizen | September 27, 2005 at 01:05 AM

kharris -- "... is the point that there are so many good things that its inclusion is self-evident?"

Yep -- although if I thought it was that self-evident to the world-at-large, I would have chosen something else.

Posted by: Dave Altig | September 27, 2005 at 11:41 AM

Foster entrepreneurs; tolerate bean counters!

Posted by: Joe Rotger | September 28, 2005 at 10:02 PM

Time is money.

Posted by: David Ricardo | October 01, 2005 at 09:32 AM

"Ceteris Paribus"

Not a lesson as such, but what would Economics be without assumptions? ... of which the most important I believe is "Ceteris Paribus" for it applies to any economic model.

Posted by: David Ricardo | October 01, 2005 at 09:50 AM

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Debt Relief

From Bloomberg:

The World Bank and International Monetary Fund concluded their annual meetings yesterday with an agreement to write off as much as $57.5 billion in debt to ease the burden on impoverished countries...

The debt-relief package, an endorsement of the initiative agreed to by the Group of Eight major industrialized countries in July, would wipe out the debts that the poorest of nations owe to the World Bank, IMF and African Development Bank. The proposal is being sent to the executive boards of those institutions for final approval, World Bank President Paul Wolfowitz said...

One of the main sticking points heading into the meetings was concern about the drain on the World Bank's budget once it wrote off so much debt -- eliminating the repayments the bank has come to depend on to finance its operations. Roughly $42.5 billion of the total amount of debt write-off is tied to the World Bank's International Development Association.      

The G-8 countries on Sept. 23 sought to address that by pledging additional money out of their pockets to ensure that there would be no reduction of resources at the World Bank or the IMF.         

The proposal the IMF and World Bank policymaking committees agreed to in the end calls for prompt ``dollar for dollar'' compensation to help maintain the other programs for poor nations, according to a report by a joint committee for the institutions.         

The Wall Street Journal has this handy graphic (page A2 in the print version) of the largess-receiving countries:


The WSJ article also makes it clear that the negotiators were cognizant of this plan being seen as a reward for bad behavior:

... some [IMF] member nations thought it unfair to forgive loans to poor nations with huge debts but not provide equal treatment for poor countries that had better managed their borrowing. In the end, IMF governors backed a plan to offer debt relief to any member nation with an annual per capita income of less than $380, regardless of its credit problems...

The benefits will go first to 18 countries that have been certified as having sufficiently prudent economic policies to qualify. An additional 22 nations may qualify, but still have to clear the bar by sticking to economic plans that satisfy IMF economists. Together, those countries owe some $55 billion to the IMF, World Bank and the smaller African Development Bank.

The article characterizes paying off poor countries that did not manage their debt well as "unfair", but economists would generally stress the moral hazard problem: Forbearance for poor policy may just induce more poor policy.  That the issue was raised, and an attempt made to address it, is a good thing.


September 26, 2005 in Economic Growth and Development | Permalink


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Do you have an update to where this program is at as of 2009?

Posted by: David "Debt Relief" Schmidt | July 02, 2009 at 02:46 PM

Debt is debt and is devastating in eevry aspect. i guess, one shold abide by to start saving nad pay off monthly instalments for future ease!

Posted by: debt relief | April 20, 2010 at 02:15 AM

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September 23, 2005

The Chinese Central Bank Back In Action (Sort Of)

From MarketWatch:

China's central bank has widened the yuan's trading band against the euro, yen and Hong Kong dollar, another step toward currency flexibility ahead of weekend finance meetings expected to bring some heat on the Chinese leadership.

The People's Bank of China said in a statement that it has widened the yuan's trading band against non-U.S. dollar currencies to 3% from 1.5%.

Daily yuan-dollar trading in the interbank market remains unchanged at 0.3%.

Here's an interesting bit:

China said the move came to counter speculative currency market moves that would work against an appreciating yuan.

China Daily has more:

"Gradually the (People's Bank of China) will carry out fewer and fewer interventions in the foreign exchange market and let the market decide," Hu Xiaolian, deputy governor at the central bank, told the publication "Emerging Markets"...

But Hu, who is also China's foreign exchange chief, added: "We think it's still an open question as to whether the (yuan) exchange rate is undervalued."

"We can't expect the move will change the activity or strategy of the (central bank) in the foreign-exchange market overnight," Hu told the publication.

She said China still needed to take steps to ensure speculative inflows do not destabilize the economy.

"We should first further develop our capital markets and other domestic institutions, to better use our domestic market to finance business," she said. "We have to implement all kinds of control on this hot money. We have to keep our watch on capital inflows."

"We've repeated this many times: a stable exchange rate is in China's best interest," Hu said.

September 23, 2005 in Asia, Exchange Rates and the Dollar | Permalink


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Tang Xu, head of reaseach at the People's Bank of China reports that July's foreign reserves hit $740B up +$29B from June. He says the country hasn't detected any "abnormal" capital inflows since the pace is the same as last years.

At $740B the foreign reserves are about 44% of GDP and annualizing the monthly $29B puts the annual capital inflow at $348B or 20% of GDP.

Since China has about a $31B net annual trade surplus it would seem that $318B in "normal" capital flows are occurring.

If this is normal and thus isn't worrying Chinese officials I wonder what it would take for them to get nervous.

I don't know about you all, but I'd be plenty nervous. Just think if the Chinese equivalent foreign reserves were coming into the U.S. which would be $2.3T per year.

Why isn't anyone writing about this huge financial dislocation now occurring?

Posted by: Norman | September 23, 2005 at 04:23 PM

Such a hugh amount of FER ( amounting to $800 Billion in 2005 on a cumulative basis is really horrifyinga and if it adds up to 44-50% of China's GDP is really amazing if you look at the Country's net GDP and if Yuan is not undervalued, I wonder how the self-regulating mechanism can square off the pressure of Yuan not to continue appreciating but China is obviously using the visible hand as well as its administrative means gifted by the Socialism to withstand the international pressure in not to revalue Yuan.besides, just buying into Treasuries ot Government Agency Bonds could help a bit but it does not solve the actual problem because Yuan is awkwardly undervalued so that I tend to believe there is a trend for Yuan to continue appreciating no matter what sort of excuse you would like to say you are not.

Anyhow, China is already part of the World Economy, it should have the responsibility to bear the brunt of economic realities instead of hiding its head in the sand again.

Posted by: Steve | September 23, 2005 at 09:57 PM

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