Daily Archives: February 3, 2012

US Employment Growth Shows Fiscal Policy Matters

By Marshall Auerback

US Q4 2011 GDP growth was slightly disappointing, and the mix was terrible as the growth was mostly due to inventories. I took issue with that report, arguing that the weakness was due to statistical distortions in the government spending data and the PCE services data. With that disappointing Q4 GDP report, expectations for quite weak economic growth in this year’s first half were encouraged.

But today’s employment data blows the weak consensus outlook out of the water. The economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low of 8.3 percent, indicating last quarter’s growth carried into early 2012.

Continue reading

Say W-h-a-a-t?

By Jon Krajack

This past week, in an ironic twist of fate, former Royal Bank of Scotland CEO Fred Goodwin was stripped of his Knighthood. Goodwin presided over RBS’s rapid growth leading up to the 2008 financial crises, but he retired suddenly, just a month before RBS reported roughly $35 billion in losses. Goodwin had been nicknamed “Fred the Shred” for his cost-cutting practices. With “Sir” being cut from Fred Goodwin’s official name, karma seems to have come full circle.


In testimony before the House Budget Committee, Chairman Bernanke warned that in order for the United States to ensure economic and financial stability, it must reduce its debt-to-GDP ratio over time.  We wish the Chairman had warned against cutting the deficit during a balance sheet recession (while households are still trying to deleverage). We wish he had explained that countries that issue a non-convertible fiat currency, like the US, can allow their budgets to remain in deficit until the private sector finishes deleveraging (even if that means the debt/GDP ratio increases).  We wish he had said that when private sector balance sheets have been repaired, the private sector will start spending again, the economy will begin to grow more rapidly, and the debt/GDP ratio will come down the RIGHT way.


Greece finds itself in a precarious situation. It has outstanding debts that it can not afford to repay. Fortunately, Germany has a “solution”! It’s simple: the Greek government should give up what little economic sovereignty they still have. More specifically, Greece should turn over it’s fiscal policy decisions to a euro zone budget commissioner that would have the power to veto budgetary proposals that are “not in line with targets set by international lenders.” If this occurs it will set a very dangerous world precedent:what’s the point of democracy and elections if public policy is in the hands ofinternational financiers?  


This piece at The Economist talks about how recovery from the financial crises is going better in the United States than in Europe. They note that recovery in the United States has occurred against a backstop of loose fiscal policy. Further, they recognize that Europe has “been forced, or chosen” much tighter fiscal policy. What’s interesting here is that The Economist has the dots, but is failing to connect them. Maybe they should consider why it is that the United States is able to have looser fiscal policy?


David Cay Johnston
is one of the few mainstream journalists that demonstrates an understanding of the difference between a currency issuer and a currency user. In this piece he explains that austerity will worsen economic recovery. 

BREAKING NEWS! In order to prevent an election year debt ceiling debate, President Obama and congressional Republicans have reached an agreement. The president will sell his Burning Man tickets and donate the proceeds to help pay off the national debt. Some may argue that his Burning Man tickets will not even make a dent in the debt. Baby steps, folks. Baby steps.

Charles Goodhart once served on the Bank of England’s Monetary Policy Committee.  In this piece, Goodhart explains why the Federal Reserve’s latest attempt to reveal its own expectations about the future path of short-term interest rates makes for fashionable theory but lousy policy.