Category Archives: Macroeconomic policy

Marshall Auerback: Are We Approaching the Endgame for the Euro?

By Marshall Auerback, a hedge fund manager, portfolio strategist, and Roosevelt Institute fellow. A version of this post appeared at New Economic Perspectives.

Forget about the S&P downgrade, which has had ZERO impact on the global equity markets. The downgrade was supposed to mean that it would be more likely that the US government would not be able to pay its debt than previously assumed. IF the markets took this warning seriously, then they would have attached a higher risk premium to US government bonds. Of course, the opposite occurred. US bonds soared in price. In other words, investors, both here and abroad, voted with money as loudly as possible that they view the US government debt as a very safe haven in a time of financial turmoil

So if it wasn’t the S&P downgrade which caused this downward cascade in the global equity markets, then what was it? By far, the most important factor currently driving the market’s bear trends is Europe or, more specifically, the future of the euro and the European Monetary Union. Systemic risk has migrated across the Atlantic to the euro zone.

Philip Pilkington: Profits in a Capitalist Economy – Where Do They Come From, Where Do They Go?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The engine that drives enterprise is not thrift, but profit – John Maynard Keynes

Profits are without doubt the key driving force in a capitalist economy. No respectable entrepreneur would try to sell goods or services were they not to make some sort of profit out of it. And yet profits are spoken of surprisingly little in mainstream neoclassical economics. For the neoclassicals there is, in fact, a deafening silence surrounding the role that profits play in the functioning of our economies; economies that are, of course, founded on the profit motive.

For example, if we turn to a fairly standard mainstream textbook – in this case Samuelson and Nordhaus’ ‘Economics: Fifteenth Edition’ – we find just how little neoclassical economics concerns itself with profits (some will say that Samuelson is a Keynesian, indeed he would probably have said so himself, but Samuelson is not really a Keynesian, his ‘neoclassical synthesis’ was just a grafting of a vulgarised Keynes onto the neoclassical edifice). This 800-odd page book devotes all of three pages to the topic. And even in this short space the authors are vague and fuzzy. We are told that profits come from ‘a hodgepodge of different elements’; that they are earned as a ‘reward for bearing risk’ and that occasionally they take the shape of ‘monopoly returns’. At no point do the authors even dare to suggest where profits come from.

This must appear to anyone with even a cursory interest in how our economies work as a rather unusual evasion. And it should. Usually when people are evasive on such important issues it is because – whether they know it or not – they are hiding something. In this case the authors are – again, whether they know it or not – hiding something extremely important; namely: the origin, source and function of profits in a capitalist economy.

For whatever reason

Cross-posted from Credit Writedowns Paul Krugman has another piece up on MMT. I like this piece a lot more than the last one he wrote. I suggest you read it. Here’s the one passage I do find troubling, however: Let’s have a more or less concrete example. Suppose that at some future date — a […]

Summer rerun: Misunderstanding Modern Monetary Theory

This is a post I wrote last summer clarifying some points that I have learned about Modern Monetary Theory. The genesis of the post was a gross mischaracterization of Modern Money Theory (MMT) by Paul Krugman in a piece called “I Would Do Anything For Stimulus, But I Won’t Do That (Wonkish)”, which Paul Krugman […]

On the ECB and the sovereign debt crisis

Cross-posted from Credit Writedowns Last month I wrote an article called “The ECB is the difference” which claimed the ECB was the pivotal institution in the European sovereign debt crisis. I presented two options that the European Central Bank had in relieving pressure on European sovereign debt markets. Option A was monetisation i.e. buying up […]

Rob Johnson and Tom Ferguson on the Real Meaning of the S&P Downgrade and the Market Reaction

I feel as if I am too often making excuses for coming across good material on the late side, but between being distracted by the market gyrations of last week and figuring out how to write to Salon readers, I’m even more behind the eight ball than usual. But our initial reader comments confirm our instincts that this material is very relevant.

Readers have responded well in the past to Tom Ferguson’s cut-to-the-chase, curmudgeonly style, but I also wanted to call your attention to Rob Johnson’s observations. Rob, by contrast, is a very measured speaker, so on his scale of discourse, his remarks about Obama are remarkably blunt.

Philip Pilkington: European Citizens are Not Being Taxed to Fund the Bailouts

By Philip Pilkington, a journalist and writer based in Dublin, Ireland

We hear it time and time again: EU taxpayers are paying for the bailouts in the European periphery. The problem with this statement? As popular as it may be in the media right now, it’s not quite true – at least, it’s not true if you take a proper macroeconomic perspective on the crisis rather than looking at it through the crass lens of nationalism.

Permanent zero is official policy

Cross-posted from Credit Writedowns Today, the Federal Reserve told us that interest rates will remain at zero percent for two more years, making official the policy I have dubbed permanent zero. In response we saw a massive rally in treasuries starting at about 225PM ET and equities starting at about 240PM ET as interest rate […]

Searching for solutions to the European crisis

Cross-posted from Credit Writedowns As I have said in prior posts, I am a bit of a eurosceptic. It is my view that the Euro is a political construct just as the expanded European Union has been and just as the reunification of East and West Germany on a 1 for 1 currency basis was. […]

“Is Too Much Significance Given to U.S. Credit Rating?”

A useful discussion with Marshall Auerback on Fox News on the debt ceiling deal and the implications of a possible downgrade of US Treasuries. Enjoy!

Randy Wray: The Budget Compromise – Congress Creates a Rube Goldberg Doomsday Machine

By Randy Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College. Cross posted from EconoMonitor

Don’t you feel relieved? After weeks of threats, hostage-taking, and other forms of deficit terrorism, our two political parties have finally “compromised” on what was always a foregone conclusion. (As I write, we still await the Senate vote—but it looks like a done deal.)

Washington got what it wanted—a down payment on destruction of the last remnants of progressive policy. Soon, it will be 1929 all over again. We can make believe that the New Deal and Great Society programs never existed, and go back to the good old days when it was every “man” for himself.

Tom Ferguson on the Debt Deal: Debt Ceiling Deal All Cuts No Taxes

Our favorite astute political observer (and curmudgeon) Tom Ferguson weighs in on the debt deal. The bottom line is that the deflationary impact starts relatively soon, what appears to be $300 billion starting in October.

“Europe plans its next crisis”

By Delusional Economics, who is unhappy with the current dumbed-down vested interest economic reporting. Cross posted from MacroBusiness

With the economic world firmly focussed on the US debt debacle this week it is likely that Europe will slip off the radar a little. I suspect, as many people do, that for the US there will be an eleventh hour resolution followed by a short lived bounce in the world markets. Once that bounce heads back to earth again it is likely that the world’s eyes will turn back to Europe. There is much to see.

Pro-cyclical fiscal policy

Cross-posted from Credit Writedowns Looking up the term procyclical on the Internet, I see the Wikipedia entry defines it as: Procyclical is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of countercyclical… In business cycle theory and finance, any economic quantity that is […]

GDP numbers make double dip threat real

Cross-posted from Credit Writedowns I have stopped reporting the quarterly GDP numbers but this last reading bears mentioning. The US Bureau of Economic Analysis reported the following at 830AM ET: Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an […]