• Hoenig’s Dissent
    Posted by on February 17th, 2010 at 2:38 pm

    At the FOMC meeting from three weeks ago, Thomas Hoenig was the only member to dissent from the final policy statement. The Fed released the minutes from that meeting today and this is what it had to say about Hoenig’s position:

    Mr. Hoenig dissented because he believed it was no longer advisable to indicate that economic and financial conditions were likely to “warrant exceptionally low levels of the federal funds rate for an extended period.” In recent months, economic and financial conditions improved steadily, and Mr. Hoenig was concerned that, under these improving conditions, maintaining short-term interest rates near zero for an extended period of time would lay the groundwork for future financial imbalances and risk an increase in inflation expectations. Accordingly, Mr. Hoenig believed that it would be more appropriate for the Committee to express an expectation that the federal funds rate would be low for some time–rather than exceptionally low for an extended period. Such a change in communication would provide the Committee flexibility to begin raising rates modestly. He further believed that moving to a modestly higher federal funds rate soon would lower the risks of longer-run imbalances and an increase in long-run inflation expectations, while continuing to provide needed support to the economic recovery.

    Here’s more from a talk he gave today.

    German hyperinflation is one classic and often-cited example, and with good reason. When I was named president of the Federal Reserve Bank of Kansas City in 1991, my 85-year old neighbor gave me a 500,000 Mark German note. He had been in Germany during its hyperinflation and told me that in 1921, the note would have bought a house. In 1923, it would not even buy a loaf of bread. He said, “I want you to have this note as a reminder. Your duty is to protect the value of the currency.” That note is framed and hanging in my office.
    Someone recently wrote that I evoked “hyperinflation” for effect. Many say it could never happen here in the U.S. To them I ask, “Would anyone have believed three years ago that the Federal Reserve would have $1¼ trillion in mortgage back securities on its books today?” Not likely. So I ask your indulgence in reminding all that the unthinkable becomes possible when the economy is under severe stress.

  • Mundell: Italy is Biggest Threat to Euro
    Posted by on February 17th, 2010 at 11:52 am

  • Never Answer Critics
    Posted by on February 17th, 2010 at 11:30 am

    Nassim Taleb tweets: “The idea is to NEVER answer critics, just aim to stay in print –make sure people will be reading me long after they are dead.”
    Flashback:

    Unlike the other, more technical critics, I do not think much of Cowen’s intellect, abilities, & understanding of probability & random payoffs, but that irresponsible fool was the first to advertise the contribution of “prediction markets” in high moment applications, heavy-tailed environment. “Prediction markets” fail in fat-tailed domains because of a huge estimation error. Also note a blogger who got my point about predicting in Extremistan.

    The quote above is just part of a typically overheated response to Tyler Cowen’s review of the Black Swan. Cowen’s review, by the way, is mostly positive.

  • Should Greece Ditch the Euro?
    Posted by on February 17th, 2010 at 11:03 am

    Martin Feldstein writes that Greece ought to take a holiday from the euro. This is one of those fascinating ideas that economists like to come up with, but are completely unrealistic politically. If Greece were to leave the euro, it would be a precedent that Eurozone may not like.
    Here’s the problem. To really fix its problems, Greece needs some serious financial reforms, meaning higher taxes and/or lower spending. That would hurt the economy which is already in pretty bad shape.
    But if Greece had its own currency, then they could devalue. That’s not a great move but it’s better than the alternatives. The problem is that the eurozone has an integrated monetary policy but it’s not integrated politically. Now countries like Germany and France are balking at a bailout, but the fact is that those kinds of moves are inherent in monetary integration. If you want one currency, you have to take the good and the bad.
    Feldstein favors letting Greece leave the euro “with the right and the obligation to return at a more competitive exchange rate.” Of course, what if they don’t want back in? Furthermore, as Tyler Cown points out, this could lead to a run on Greek banks: “Who wants a Euro deposit to be converted into a drachma deposit?” Not me.
    For their part, the French have snapped into action. They blame us. Or more specifically, six “Anglo-Saxon” hedge funds.
    Now, can get California to ditch the dollar?

  • U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion
    Posted by on February 17th, 2010 at 10:01 am

    The Onion:
    WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

    Read more…

  • Odd Lots
    Posted by on February 16th, 2010 at 4:44 pm

    The Absurdly Arrogant Tweets Of Nassim Taleb
    Gasparino Going to Fox
    Alan Blinder – It’s Time for Financial Reform Plan C
    Hank Paulson – How to Watch the Banks
    Navigating Your Taxes
    Measuring the Speed of Light…With Chocolate
    4 charged after uproar at Memphis Chuck E. Cheese

  • JP Morgan Offices in Athens Bombed
    Posted by on February 16th, 2010 at 2:05 pm

    Reuters:

    A bomb exploded outside the JP Morgan offices in Athens on Tuesday, causing minor damage to the building, police said.
    There were no immediate reports of injuries. Police had cordoned off the area after a local newspaper received a warning call.
    Police cars, ambulances and fire engines have blocked streets in the upmarket central district of Kolonaki, where JP Morgan’s Greek offices are situated, a Reuters witness said.
    “It was a time-bomb at JP Morgan’s offices,” a police official who declined to be named said. “The explosion damaged the outside door and smashed some windows.”
    No group has yet claimed responsibility for the attack, the official said.
    Banks and foreign companies are a frequent target for bomb attacks in Greece, which has been rocked by a wave of urban violence since the police shooting of a teenager in December 2008.

    In September, there was a bombing outside the Athens Stock Exchange.
    Incidentally, JP Morgan’s headquarters on Wall Street were bombed 90 years ago. The damage is still visible at 23 Wall Street.

  • Good News! General Mills Expects 18% Sales Growth
    Posted by on February 16th, 2010 at 12:37 pm

    This is totally awesome good news!

    At an investor conference on Tuesday, General Mills Inc. said it expects its revenue to grow to $18 billion in fiscal 2015, up roughly 18 percent from its forecasted $14.7 billion in sales this year.

    Wait. By 2015?
    Let me get this right. They expect 18% sales growth over the next five years?
    Annualized that’s 3.4%. A five-year Treasury currently yields 2.34%.

  • Stocks and Earnings Estimates
    Posted by on February 16th, 2010 at 8:58 am

    Briefing.com has an interesting chart showing the rise of the S&P 500 along with the rise in earnings estimates over the coming four quarters. It’s not a perfect match, but clearly both have been going higher.
    briefing021610.jpg
    For 2010, analysts sees earnings for the S&P 500 at $78.92. The index is currently going for about 13.7 times this year’s estimate.

  • North Dakota’s Socialist Bank
    Posted by on February 16th, 2010 at 8:36 am

    From the AP:

    It has no automatic tellers or drive-up windows, doesn’t issue credit cards, and tends only a few thousand checking and savings accounts. Its only location is a glass, steamboat-shaped headquarters near the Missouri River, where the business moved from its original 1919 home in a former auto assembly plant.
    The Bank of North Dakota — the nation’s only state-owned bank — might seem to be a relic. It was the brainchild of a failed flax farmer and one-time Socialist Party organizer during World War I.
    But now officials in other states are wondering if it is helping North Dakota sail through the national recession.
    Gubernatorial candidates in Florida and Oregon and a Washington state legislator are advocating the creation of state-owned banks in those states. A report prepared for a Vermont House committee last month said the idea had “considerable merit.” Liberal filmmaker Michael Moore promotes the bank on his Web site.
    “There’s a lot of hurt out there, a lot of states that are in trouble, and they’re tying the Bank of North Dakota together with this economic success that we’re having right now,” said the bank’s president, Eric Hardmeyer.
    Hardmeyer says he’s gotten “tons” of inquiries about the bank’s workings, including questions from officials in California, Michigan, New Mexico, Ohio and Washington state. North Dakota has the nation’s lowest unemployment rate at 4.4 percent, soaring oil production and a robust state budget surplus — but Hardmeyer says the bank isn’t responsible for the prosperity.