Bill Mitchell — US Federal Reserve decision correct – there is no ‘normal’

Last week (September 17, 2015), the US Federal Reserve Bank took the sensible decision to leave the US policy interest rate unchanged. Nine of the ten Federal Open Market Committee (FOMC) voted accordingly. One dissenter wanted rates to rise by 25 basis points. The central bank made the correct decision, even if you might like to question their reasoning. The decision has not pleased the financial markets who have been baying under the moon for months if not years for interest rates to return to higher and more stable levels. There is no surprise in that. They make more profits under those conditions and when there are low rates and higher uncertainty about their direction (and adjustment speed), profits come less easily. Further, they long for what they call “normal levels” of interest rates despite the fact that reality changed with the GFC and we now know that monetary policy is relatively ineffective as a policy tool for controlling or influencing aggregate spending. And it is typical that they ignore the millions of people who remain idle in one way or another and are enduring flat real wages and rising poverty rates. There is no old “normal’ now. Things have changed.

I clearly agreed with the Federal Reserve Bank’s decision. In August I outlined why the – US Federal Reserve should not increase interest rates. Those views remain current.…

Bill Mitchell – billy blog
US Federal Reserve decision correct – there is no ‘normal’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Xinhua — China Headlines: China lowers growth target, eyes better quality

[Premier] Li [Keqiang] reiterated the Chinese government's key policy tone -- prudent monetary policy and pro-active fiscal policy, with an emphasis on more flexibility.

To shore up growth, Li said the government had decided to raise the fiscal deficit target to 1.62 trillion yuan (263 billion U.S. dollars) in 2015, which was 2.3 percent of GDP, up from the planned 1.35 trillion yuan (2.1 percent of GDP) in 2014. 

As a result, planned local government deficit will be increased to 500 billion yuan in 2015, from 400 billion last year, Li said. 

Other key macro economic targets for 2015 included 3 percent for the consumer price index (CPI) and 12 percent for growth of broad money supply, or M2.
The premier said China needed to rely on both traditional and new engines to achieve 7 percent growth. 

"We need to develop twin engines to drive development -- popular entrepreneurship and innovation -- paired with increased supplies of public goods and services," he said.
To this end, China will invest at least 800 billion yuan in railway construction, and another 800 billion yuan in major water conservation projects in 2015....

Xinhua | Business
China Headlines: China lowers growth target, eyes better quality

James K. Galbraith — The new way forward

For these reasons, it may be that we can not return fully to “normal” even if there were a lot more “stimulus” as fellow Keynesians often demand. So let’s challenge our basic assumptions, and adjust. High ambition is sometimes a good thing — but stubborn over-reach leads to perpetual failure.

There are better ways. Let’s first recognize that our great social insurance programs are more necessary than ever before; these programs should be extended, not attacked and cut back. Second, let’s demand that the financial sector be restructured and shrunk, with public alternatives that can achieve social objectives at low cost. Third, let’s focus our minds on specific objectives — for jobs, education, caring, living conditions, energy, climate mitigation and decarbonization — that may be achieved within the limits and despite the difficulties that we face. Fourth, let’s (finally) face the limits of military action and the foundations of global security.

Growth alone cannot solve our problems. But we can still improve our lives, work to stabilize our world, and work to the save the planet, if we put minds and resources to the task....

The Boston Globe | Opinion

The new way forward
James K. Galbraith
(h/t Mark Thoma at Economist's View)

Joe Weisenthal — Here's The Investment Outlook From The New Managers Who Just Took Over PIMCO's Flagship Fund

With Bill Gross' abrupt departure, PIMCO's flagship Total Return Fund has been taken over by Scott Mather, Mark Kiesel and Mihir Worah. 

Maher, Kiesel, and Worah have just published a Q&A about their investment approach, and what opportunities they see now 

Here's the relevant part

Business Insider
Here's The Investment Outlook From The New Managers Who Just Took Over PIMCO's Flagship Fund

Joe Weisenthal

Brad DeLong — I Remain Absolutely Gobsmacked by the Magnitude of the Crisis…

Washington Center for Equitable Growth
I Remain Absolutely Gobsmacked by the Magnitude of the Crisis…
Brad DeLong

Settling in to a "new normal" (equilibrium)?