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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Fed Minutes

Posted by WARREN MOSLER on July 14th, 2010

The staff still expected that the pace of economic activity through 2011 would be sufficient to reduce the existing margins of economic slack, although the anticipated decline in the unemployment rate was somewhat slower than in the previous projection.


Karim writes:

Staff still forecasting above trend growth, though not as firm as before. Activity indicators coming in as expected, with financial strains in May and June the cause for the revision.

Table below is average of FOMC members, not staff, but appears to have similar profile. Average expectations for 2011 growth at 3.85% from 3.95% prior..

A few participants cited some risk of deflation. Other participants, however, thought that inflation was unlikely to fall appreciably further given the stability of inflation expectations in recent years and very accommodative monetary policy. Over the medium term, participants saw both upside and downside risks to inflation.


Deflation talk still seems contained to a ‘few’ members.

Members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.


This was only mention of QE2 – not very extensive.

9 Responses to “Fed Minutes”

  1. Ramanan Says:

    Paul Mcculley on the sectoral balances approach.

    http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2010/GCB+Focus+July+2010+Facts+on+the+Ground.htm

    http://media.pimco-global.com/pdfs/pdf/GCB%20Focus%20July%20FINAL%20WEB%20_%20EMAIL.pdf?WT.cg_n=PIMCO-US&WT.ti=GCB%20Focus%20July%20FINAL%20WEB%20_%20EMAIL.pdf for the pdf.

    Reply

    anon Reply:

    This was good:

    “To be sure, the vigilantes have fled Greece, but Greece does not have a fiat currency; Greece is a risk asset and all risk assets depend upon growth for valuation support. And fiscal austerity is not the path to growth if everybody wants to do it at the same time. The risk asset vigilantes, who rightfully fear fiscal austerity–induced deflation, are in charge, not the bond market vigilantes of our youth, who feared fiscal profligacy–induced inflation.”

    Reply

    Ramanan Reply:

    Page 121 by Mcculley here http://www.levyinstitute.org/pubs/pro_apr_10.pdf Conference Proceedings of the Annual Hyman Minsky conference is also a good read.

    Partly understand this point and is PKEish.

    “The essence or the genius of banking—not just now,
    the last century, or the century before that, but since time immemorial—is that the public’s ex ante demand for assets that trade on demand at par is greater than the public’s ex post demand for those types of assets. Let me repeat this, because this is first principles: the ex ante demand for on demand liquidity at par is greater than the ex post. Therefore, you can have a banking system, because the banking system can meet the ex ante demand but never have to pony up ex post. Therefore, the essence or the genius of banking is maturity and quality transformation.”

    Reply

    Tom Hickey Reply:

    The last mile is closing.

    Double-entry bookkeeping was a great invention. It is a shame that so many macroeconomists and political pundits – and therefore, politicians themselves – seem to have forgotten it. One who hasn’t is the Financial Times’ Martin Wolf. And to the delight of all friends of the Levy Economics Institute, Martin cited in a recent column1 the financial balances approach of the late Wynne Godley, who spent his last years as a Distinguished Scholar at Levy.

    Reply

  2. strawberry picker Says:

    Regarding unemployment, I do not understand Robert Reich’s latest article. First he says Obama has a 5 year policy to double US exports. But I know Warren is correct when he says Exports are a cost. So that is strike 1 against Obama’s policies and Reich’s suggestions.

    Secondly Reich says we must reduce our dependence on oil, and Obama has policies to reduce oil imports with his energy initiatives. That is strike 2, imports are a benefit to our standard of living.

    The third point Reich shows how backwards thinking most of economists are – Reich actually believes that to lift the standard of living of Americans, we must put them back to work in jobs. Isn’t this contrary to Warren’s ideas – where letting other people in the world do the work while we sit back and enjoy thier output is the way we are truly increasing our standard of living? Strike 3 and you are out of the game no?

    Reich: “But the essential point is we can’t expect foreign consumers to fill the shortfall in demand left by American consumers who can no longer maintain their pre-recession standard of living. The only answer is to lift the standard of living of Americans. How? ”

    He does slightly redeem himself later in the article though by advocating a payroll tax holiday and a few other initiatives that will help the poor. But only insofar as these initiatives increase jobs and WORK that americans must do.

    I assure all you economists here, my standard of living would go up if you get some guys in china to pick strawberries and suffer the chemicals and herbicids and heatstrokes and snakes while I sit down and eat thier output. I am confused as hell by Reich and Obama who are trying to convince me that ME slaving away in the strawberry field with a job is how I increase my standard of living!!?!

    http://www.businessinsider.com/why-we-cant-rely-on-foreign-consumers-to-rescue-american-jobs-and-why-todays-jobs-for-america-summit-is-a-bad-joke-2010-7

    Reply

  3. strawberry picker Says:

    In fact, now that I am thinking about it, can someone explain to me why we have a national MANDATE to keep unemployment levels LOW? This seems contrary to what Warren’s Macro Goals are for this country – shouldn’t we be striving to make unemployment levels and imports as HIGH as possible so that everyone can sit down and watch tv all day in the mcmansion while eating strawberries that workers in Asia picked? How does someone get these 2 opposite and opposing ideas in their head, that to increase the standard of living – you must work a JOB and nationally we must keep unemployment low. That is totally backwards, the richest people party all the time, NEVER work, and have never had a job in thier entire life, and that groups unemployment level is 100% no? Please someone here explain to me how we can seek low unemployment, more jobs and work for americans, and then say that is the way to increase our standard of living?

    Reply

    ESM Reply:

    Straw,

    Unemployment, by definition, measures the percentage of people who WANT a job but can’t GET one. Your point is better made about the labor participation rate, or rather, the labor non-participation rate. Having a low percentage of the population in the labor pool may be an indication of a high standard of living (e.g. if it is not necessary for both parents in a household to work). Of course, there are also so-called discouraged workers who are not counted as unemployed, but are not really happy to be sitting at home in front of the TV. If you strip out the unemployed and the discouraged, then I agree with you.

    Europeans have a high unemployment rate, but I would bet they have a very high labor non-participation rate as well. Add that to the fact that even the employed work much fewer hours per year on average, and you have a situation where the standard of living is pretty good compared to the US even though the GDP per capita is much lower. If I were a strawberry picker, I would much rather live in Europe. Being a white collar worker, I much prefer being in the US.

    Reply

    strawberry picker Reply:

    ESM thanks for bringing some clarity, you perfectly explained the point I was trying to make. I just recently read an article in the Atlantic called “The End of Men” and it fascinated me. As you indicate about both parents working, I viewed this as a declining standard of living in the USA where in the past only 1 parent had to work. However in that article it discusses that some men of the country have fooled the women of the country into becoming the working mule of the family while the men stay home and watch TV Mr. Mom style. Amazing that in just a few decades we have tricked the females of the USA that going out and working and taking care of her slacker husband is “empowerment.” In my own personal case I am trying to get my wife to do the strawberry picking so I can sit here more and talk with you guys on this blog, all the while telling her a job is freedom and liberating. (snicker)

    Reply

  4. The art of war Says:

    The art of war…

    2. ……

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