An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Wednesday, November 29, 2017
Bill McBride — Policy Mistakes
Add the Trump tax cuts to the list of policy mistakes if it becomes law.
What he is saying is that we are nearing the tail end of this business cycle and according to the "Keynesian" view, the deficit should be be paid down over a cycle and that is not happening. Tax revenue should be increasing and the deficit falling. From this POV increasing the deficit now is countercyclical.
Ed Harrison is saying something similar. We are now nine years into this relatively long cycle and the recovery is really just beginning to take off. But the yield curve is flattening, and the Fed is talking about tightening anyway, risking inverting the curve. This should only happen toward the peak of the expansion phase.
Add to this the remarkable admission of Janet Yellen that the Fed doesn't have a good theory explaining inflation.
We're in new territory here.
MMT analysis explains it and it's more complicated than "the deficit is too small."
There has been a reserve build over the last several weeks so the longer term risk free rates start to move to zero (MMT 101)...
Now we had big settlement Friday, auctions Monday and Tuesday this week so I am assuming reserve levels are being lowered and yesterday the 10-yr yield is back up a bit...
Govt loses ability for reserve draining at debt ceiling on Dec 8th so curve should start to resume flattening (MMT 101) then if we have to operate at ceiling for an extended period like this year from March 15 thru Sept 6... also Fed will probably kick up the short end at December meeting... curve is looking like major flattening ahead...
I’m hoping this nascent weakness in the 10 yr continues into the Dec 8 deadline then I’m going to go flat from my bond shorts until they lift the debt ceiling figuring I can go short again later at higher prices....
I don’t believe in “the business cycle!” .... it’s another lousy figure of speech....
Here is what he asserts is the mistake:
ReplyDelete"The economy is currently in the mid-to-late stage of a recovery, so decreasing the deficit makes sense now - not increasing the deficit."
This puts McBride at loggerheads with the "deficit too small!" people...
McBride: "deficit too big!"
I cant keep up... "too small!" ... no "too big!"...
What he is saying is that we are nearing the tail end of this business cycle and according to the "Keynesian" view, the deficit should be be paid down over a cycle and that is not happening. Tax revenue should be increasing and the deficit falling. From this POV increasing the deficit now is countercyclical.
ReplyDeleteEd Harrison is saying something similar. We are now nine years into this relatively long cycle and the recovery is really just beginning to take off. But the yield curve is flattening, and the Fed is talking about tightening anyway, risking inverting the curve. This should only happen toward the peak of the expansion phase.
Add to this the remarkable admission of Janet Yellen that the Fed doesn't have a good theory explaining inflation.
We're in new territory here.
MMT analysis explains it and it's more complicated than "the deficit is too small."
“But the yield curve is flattening, “
ReplyDeleteThere has been a reserve build over the last several weeks so the longer term risk free rates start to move to zero (MMT 101)...
Now we had big settlement Friday, auctions Monday and Tuesday this week so I am assuming reserve levels are being lowered and yesterday the 10-yr yield is back up a bit...
Govt loses ability for reserve draining at debt ceiling on Dec 8th so curve should start to resume flattening (MMT 101) then if we have to operate at ceiling for an extended period like this year from March 15 thru Sept 6... also Fed will probably kick up the short end at December meeting... curve is looking like major flattening ahead...
I’m hoping this nascent weakness in the 10 yr continues into the Dec 8 deadline then I’m going to go flat from my bond shorts until they lift the debt ceiling figuring I can go short again later at higher prices....
I don’t believe in “the business cycle!” .... it’s another lousy figure of speech....