June 09, 2013
The more you borrow, the more you'll pay
A key reason to be concerned about high debt levels is very simple-- you're going to be stuck with the bill for the interest payments for the rest of your life.
June 02, 2013
Is Social Security running out of money?
The trustees overseeing the finances of Social Security and Medicare issued their latest report on Friday, declaring that a) the Social Security Trust Fund is expected to run out of money in 2035, the same estimate as last year; b) Medicare's hospital trust fund is expected to run out of money in 2026, a two-year improvement over last year's estimate; and c) the Disability Insurance Trust Fund is expected to run out of money in 2016, just as projected last year.
Here's why I don't believe that's the correct way to think about these numbers.
May 26, 2013
Reinhart and Rogoff defend themselves
Carmen Reinhart and Kenneth Rogoff have posted an open letter to Paul Krugman to try to correct some of the misrepresentations of their scholarship that continue to be repeated by people who should know better.
May 19, 2013
Sovereign debt concerns in 2013
Interest rates on government debt for a number of European countries-- notably Greece, Portugal, Ireland, Italy, and Spain-- shot up considerably during 2010-2012. Those yields have fallen significantly from their peaks, though these five countries still face higher borrowing costs than most other countries in Europe.
May 12, 2013
How Fannie Mae made its profit
Mortgage buyer and insurer Fannie Mae was in the news again this week.
April 28, 2013
The contributions of Reinhart and Rogoff
With all the heated discussions of the last two weeks, it is important to keep perspective on which issues are in dispute and which are not. Let me state plainly something on which I think we ought to be agreed: Carmen Reinhart and Ken Rogoff's 2009 book, This Time Is Different: Eight Centuries of Financial Folly, is a valuable work of scholarship that continues to deserve study and praise from any thinking person. Here I review some of my reasons for saying that.
April 24, 2013
Reinhart-Rogoff and Herndon-Ash-Pollin: a few further comments
I made some comments on Sunday about a recent critique by Thomas Herndon, Michael Ash, and Robert Pollin of an influential 2010 paper by Carmen Reinhart and Kenneth Rogoff. Yesterday Econbrowser hosted a reply from Pollin and Ash to my remarks. Here I would like to add a few further thoughts on this discussion.
April 21, 2013
Reinhart-Rogoff data problems
The methods and conclusions of an influential paper by Carmen Reinhart and Kenneth Rogoff published in 2010 have recently been challenged by Thomas Herndon, Michael Ash, and Robert Pollin. Here I comment on both the details and broader significance of the dispute.
April 18, 2013
No Time for Austerity: US Edition
With unemployment at 7.6% and an output gap of around 6%, it's (still) not the time to embark on front-loaded spending cuts in the United States.
April 17, 2013
"The Great Divergence of Policies"
March 15, 2013
The Cyclically Adjusted Budget Balance: Shrinking Rapidly
The CBO has just released estimates of the cyclically adjusted budget balance (or, specifically, the budget balance without automatic stabilizers). The cyclically adjusted budget balance is a better measure of the fiscal stance. The evolution of this series is interesting.
March 13, 2013
Why I'm more worried than Paul Krugman about the U.S. debt burden
I have been writing recently (, ) about my paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, co-authored with David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). Our paper has generated some interesting discussion by Paul Krugman and Matthew O'Brien, among others, to which I'd like to respond.
March 09, 2013
Does the U.S. risk a fiscal tipping point?
In my previous post I reviewed the recent experience of a number of countries whose sovereign debt levels became sufficiently high that creditors began to have doubts about the government's ability to stabilize debt relative to GDP. When this happens, the government starts to face a higher interest rate, which makes debt stabilization all the more difficult. Is there any danger of the same adverse feedback loop starting to matter for the United States?
March 06, 2013
Fiscal tipping points
At the recent U.S. Monetary Policy Forum I presented the paper Crunch Time: Fiscal Crises and the Role of Monetary Policy, along with co-authors David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist for Morgan Stanley), Peter Hooper (Managing Director and Chief Economist for Deutsche Bank Securities Inc.), and Frederic Mishkin (professor at Columbia University and former governor of the Federal Reserve). One of the goals of our research was to try to understand the events that can lead a country to a tipping point in which it faces rapid increases in the interest rate on its sovereign debt, as a result of which the country finds itself with an unmanageable fiscal burden.
February 15, 2013
Heritage Still at the Cutting Edge
From J.D. Foster, Ph.D., "Budget Cuts Would Not Harm the Economy" (February 14, 2013):
The [basic Keynesian] theory fails because it relies on the unstated fantasy government can magically create demand out of thin air. In fact, government must borrow to finance deficits, and all borrowing subtracts from the funds that would otherwise be available and used in the private sector for private investment or private consumption. ...
January 20, 2013
A long-run perspective on the U.S. deficit and debt
Federal Reserve Bank of St. Louis economist Daniel Thornton has a new paper looking at long-run factors in the U.S. deficit and debt. His graphs tell a familiar story, but one worth repeating.
January 16, 2013
Debt-ceiling economics and politics
Let me outsource this topic to some others who've said it better than I could.
January 14, 2013
Great Moments in Policy Analysis: Heritage on the Debt Ceiling
From the Heritage Foundation, today:
Very simply, reaching the debt limit means spending is limited by revenue arriving at the Treasury and is guided by prioritization among the government’s obligations. How the government would decide to meet these obligations under the circumstances is a matter of some conjecture. Certainly, vast inflows of federal tax receipts—inflows that far exceed amounts needed to pay monthly interest costs on debt—would continue. Thus, the government would never be forced to default on its debt because of a lack of income. [emphasis added - MDC]
How to Induce Explosive Debt Dynamics
The debt ceiling and implications of:
and more recently
January 13, 2013
The near-term U.S. fiscal situation
Here I briefly survey some recent developments.
December 27, 2012
Metrics for the “Ever Expanding Government”
The latest in a series examining persistent macroeconomic myths 
December 08, 2012
Trillion dollar platinum coin
Here's one of the wilder suggestions floating around for what the President could do if Congress fails to raise the debt ceiling.
December 06, 2012
Why Worry about the Fiscal Slope?
Lessons from the American Recovery and Reinvestment Act (ARRA)
Or, cognitive dissonance in the conservative world
November 10, 2012
Links for 2012-11-10
A few links to some items I found of interest.
November 07, 2012
President Obama won a second term in office yesterday, receiving 50.3% of the popular vote But the Republicans held control of the House of Representatives and Americans remain deeply divided. Historically, the party in control of the White House loses some congressional seats in the midterm elections. That means that any legislation passed into law over the next two years, and likely the next four years, is going to have to be agreed to by both a Democratic President and a Republican House.
November 04, 2012
Going over the fiscal cliff
The "fiscal cliff" refers to a broad set of tax increases and spending cuts that under current U.S. law will take effect in January. A recent assessment by Bank of America Merrill Lynch estimates the tax increases in 2012 could come to $470 B and spending cuts another $250 B, for a combined fiscal shock of $720 B, or 4.6% of GDP.
October 21, 2012
Reducing oil imports
On Wednesday I noted that encouraging more U.S. oil production was unlikely to result in a significant drop in U.S. retail gasoline prices. Nevertheless, I believe that there would be some important economic benefits from lowering the U.S. oil import bill, as I discuss here.
October 18, 2012
To Make the Math Add Up, Romney Needs Ryanomics
Or more precisely, Ryanomics as interpreted by the Heritage Foundation/Center for Data Analysis.
August 24, 2012
A Debate in Foreign Affairs: Stimulus or Reform
From an exchange in the September/October issue of Foreign Affairs, with Raghuram Rajan, Karl Smith and myself. I write in my comment:
August 22, 2012
Federal receipts and expenditures
I was interested to take a look at the trends in receipts and expenditures of the U.S. federal government over the last 40 years.
August 19, 2012
The Ryan Plan and bipartisan compromise
I have a dream.
August 12, 2012
How long can Japanese bond prices defy gravity?
August 08, 2012
The Federal Reserve's Maturity Extension Program and Treasury debt management
The Fed giveth and the Treasury taketh away.
August 07, 2012
Guest Contribution: "The Making of America’s Imbalances"
July 21, 2012
The fiscal cliff and rationality
What should happen, what could happen, and what will happen?
July 09, 2012
The Fiscal Cliff, and the Enduring Legacy of EGTRRA/JGTRRA and a Certain Discretionary Spending Measure Starting in 2003
The CBO recently released a document that places our current policy dilemma in context (Changes in CBO’s Baseline Projections Since January 2001, June 7, 2012).
June 27, 2012
Links for 2012-06-27
Quick links to another proposal for Europe, and estimates of U.S. consumer benefits from lower natural gas and gasoline prices.
June 19, 2012
Europe in 1931
I was at a conference at the Cato Institute two weeks ago discussing some research by Dartmouth Professor Doug Irwin on the role of the gold standard in the Great Depression of 1929-1933. If you're interested, you can see a written version of my comments, the slides from my presentation, or a video of the session (my comments begin a little more than half way in). Here I'd like to relate some of the discussion of what happened in Europe in 1931, and comment on some of the parallels with what is going on today.
June 16, 2012
Options for Europe
This problem is not fixing itself.
June 03, 2012
Markets see bad news
May was a bad month for U.S. stocks. June started out worse, with the S&P500 on Friday down 9% from where it stood at the beginning of May. That puts us back about where we started the year in January, though still significantly above last fall's lows.
May 02, 2012
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.
April 17, 2012
A Little Less Unscorable
In a previous post, I noted that Governor Romney’s budget plan was essentially unscorable (as he himself stated ) because he was so vague on the tax expenditures he was going to eliminate. That fog of obfuscation lifted slightly yesterday, with Governor Romney’s not-for-public attribution comments to donors. From Sara Murray, in the WSJ:
March 30, 2012
Long Term Real Ex Post Interest Rates around the Great Depression
I was wondering how long real long term (ex post) interest rates remained negative after the onset of the Great Depression. This is obviously interesting given the large amount of slack currently in the global economy, and the rampant fears of crowding out (see ) as governments continue to run deficits (and are likely to continue as leaders refuse to raise tax revenues). Fortunately, Lawrence Officer and Sam Williamson have done the profession an enormous service by compiling online historical series on many variables, including interest rates and price, at Measuring Worth. It turns out ex post real rates were really low for a very long time...
March 26, 2012
Simon Johnson and James Kwak on Learning -- or Not -- from the Past
I’ve been reading some history, from Simon Johnson and James Kwak's new book, White House Burning. And it strikes me how ahistorical (or just plain ignorant of history) so many of the prescriptions for fixing up the economy are. For instance, the tax cutting ideology of today is merely a recapitulation of what has caused America to come to grief at the Nation’s birth.
March 22, 2012
Assume a Can Opener*
Some reflections on the new Ryan plan.
The CBO provides some numbers (it's not a "score"), with a caveat:
March 15, 2012
Guest Contribution: “Financing U.S. Debt”
In a Guest Contribution today, John Kitchen (U.S. Treasury, formerly Chief Economist, Office of Management and Budget) addresses the issue of “Financing U.S. Debt: Is There Enough Money in the World -- and at What Cost?”. The comments are based on a paper recently published in International Finance (Winter 2011), co-authored with Menzie Chinn. The views expressed are the author's and do not represent the views of the U.S. Treasury.
March 13, 2012
“Scoring” the Romney Economic Plan
Well, this could be a short blogpost, because in Mitt Romney’s words, “frankly it can’t be scored” [The Hill]. However, I think it of interest to consider what it would take to make the Romney plan deficit neutral, as he has argued it would be.
February 09, 2012
Miscellanea: Deficit Hypocrisy Watch, Conspiracy at the BLS, and Wisconsin’s Continuing Downward Trend
Deficit Hypocrisy Watch
The WSJ editorial page last Thursday remarked upon:
"...the worst fiscal record of any President in modern times..."
January 23, 2012
In Search Of: Fiscal Responsibility
Given all the talk about taxes, I wondered how the Republican candidates plans stack up on the fiscal responsibility dimension, which Jeffry Frieden and I define thus:
[T]rue fiscal responsibility involves a willingness to raise sufficient tax revenue, over the longer term, to pay for the programs the government implements. Fiscal responsibility should not be equated with a small government, but rather with a commitment to pay for the government services provided. ...
January 18, 2012
Links for 2012-01-18
FT Alphaville on crude oil and the eurozone crisis.
VoxEu notes the systematic international tendency for official deficit figures to understate the magnitude of the change in public debt.
Liberty Street Economics on forecasting with internet search data.
January 03, 2012
Looking Forward in the New Year: Crowding Out and Hyper-Inflation Watch
In my previous post, I cited Jeff Frieden's and my proposal for a conditional inflation target. Yet, according to several observers, we are either on the brink of crowding out due to elevated government deficits , or high to hyperinflation, due to monetary base expansion . As has been noted, none of these outcomes have yet materialized, despite months of such warnings.   Here, I wanted to evaluate where market expectations stand on these views.
January 01, 2012
On the burden of government debt
I didn't have time for a lengthy discussion of this issue, so will have to settle for some quick links of interest.
November 27, 2011
If you're prone to worry about where the economy's headed, last week's developments weren't very reassuring.
November 23, 2011
Taxing the 1%
Trying to prevent an increase in tax rates on the richest 1% of Americans looks to me like a losing strategy for the Republicans.
November 13, 2011
Greece, Italy, and financial stability
The drama began in Greece. Where is it going to end?
November 07, 2011
Photos from a (Book) Forum
From Prakash Loungani's blog:
A standing-room only audience at the IMF last month heard a presentation by [Menzie] Chinn and [Jeffry] Frieden [on Lost Decades], along with comments from Diane Lim Rogers (Concord Coalition), Gail Cohen (Joint Economic Committee) and Simon Johnson (MIT and Peterson Institute). The forum was moderated by Nobel Prize-winner George Akerlof.
October 30, 2011
Home Affordable Refinance Program
Last week the Federal Housing Finance Agency, Fannie Mae and Freddie Mac jointly announced changes to the Home Affordable Refinance Program (HARP) with the goal of making it easier for some households to refinance their mortgages at lower interest rates. Here I offer some thoughts on this proposal.
October 16, 2011
The Real American Jobs Act: Dealing with the Threat from Farm Dust Regulation (Really!)
October 01, 2011
De-Mythologizing Fiscal Consolidation
In Lost Decades, Jeffry Frieden and I argue that fiscal consolidation is a necessary prerequisite for long term recovery; however, fiscal consolidation too soon can derail the recovery, and plunge us further into debt. In contrast, some commentators have asserted that fiscal consolidation can be accomplished painlessly, or even with immediate benefits (e.g., JEC-Republicans, Rep. Paul Ryan/Heritage Foundation). Recent empirical work which carefully identifies the relevant episodes concludes that such instances of expansionary fiscal contraction are rare, and usually conducted near full employment. Ball, Leigh and Loungani review the effects of fiscal contraction in "Painful Medicine".
September 16, 2011
The Wrong Track, in Figures
Mike Rosenberg (Bloomberg) notes that, when viewing the policy mix from the perspective of fiscal and financial conditions, we are on the following path, even as there is a large amount of slack in the economy :
The Fall 2011 World Economic Outlook
The analytic chapters were released yesterday.
- Chapter 3: Target What You Can Hit: Commodity Price Swings and Monetary Policy
- Chapter 4: Separated at Birth? The Twin Budget and Trade Balances
September 11, 2011
What do low government bond yields signify?
August 11, 2011
Still Waiting for Expansionary Fiscal Contraction in the UK
And Generalissimo Francisco Franco is still dead (with apologies to the under 35 set).
Since in the U.S. we are currently embarking upon a program of reducing fiscal stimulus, it seems useful to examine whether this action would result in rapid economic growth as some have predicted. The UK is at the forefront of conducting this fiscal experiment.
August 10, 2011
Losing your AAA
On Friday, Standard & Poor's, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It's been a wild ride for equity and commodity markets ever since.
August 09, 2011
And dispensing with childish things, such as the belief that our economic future can be secured by spending cuts alone. From "The Downgrading of a Debtor Nation", by me and Jeffry Frieden, in today's New York Times:
THE Treasury can cry foul all it wants, but the decision by Standard & Poor’s to downgrade America’s credit rating by one notch last Friday, and the subsequent plunge in the stock market, are serious symptoms of a loss of confidence -- an assessment that is fundamentally political, not economic.
August 06, 2011
The S&P Downgrade and Tax Revenue Increases (or lack thereof)
July 28, 2011
Graphic of the Day: Who Borrowed? Who Loaned?
A picture says a thousand words. From the NYT today:
July 26, 2011
The Bonds of August
An Historical Analogy applied to today's debt ceiling crisis, with apologies to Barbara Tuchman
July 25, 2011
More Data: Debt, and the Origins of Debt
I thought it of interest to see the evolution of Federal debt held by the public, and exactly what Administrations were the most spendthrift.
Data: Spending and Tax Receipts, 1967-2011
I keep on hearing we have a spending problem, but no revenue problem, from you know whom. I decided to appeal to actual data. Below is a time series plot of Federal current expenditures and tax receipts plus contributions to Federal social programs, as a share of GDP, over the 1967Q1-2011Q1 period. The data are based upon the data definitions in the BEA’s national income and product accounts (NIPA), as of June 2011. Outlays are declining, and as of 2011Q1 are at 0.25, which exceeds the previous peak, during the Reagan era, at 0.241 (1982Q4). Federal tax receipts plus social program contributions are at 0.158.
July 18, 2011
Ending the debt ceiling stand-off
Here's how I'm hoping this might work out.
July 12, 2011
Jeff Frankel: "The Federal Government Races to the Cliff"
At the NBER meetings, I have been asking around what will happen if the Federal government defaults, and Treasurys go down a notch in ratings. Keep in mind pension funds and financial institutions are constrained to hold at least some AAA rated securities. What happens if those securities are downgraded; should we expect a smooth, re-balancing of portfolios worldwide?
Jeff Frankel dissects why we are in this situation, using fable (well, a movie fable):
July 09, 2011
Debt ceiling options
As Congress and the President continue to wrangle over raising the debt ceiling, more of us are wondering, what would happen if the debt ceiling isn't raised? To paraphrase Sherlock Holmes, when you have eliminated the impossible, whatever remains, however improbable, must be Plan A.
July 06, 2011
Ron Paul's debt default proposal
Congressman Ron Paul (R-TX) is apparently proposing that the U.S. Treasury simply refuse to pay interest and principal on the $1.6 trillion in Treasury securities currently owned by the Federal Reserve. Dean Baker, Greg Mankiw, Steve Williamson, and Stephen Gandel all seem to think it's not a totally crazy idea. Here's what I think they're missing.
June 28, 2011
Random Views on U.S. Default
From WSJ Washington Wire:
Mark Zandi, chief economist of Moody’s Analytics, said the market impact of failing to raise the $14.29 trillion debt ceiling by Aug. 2 could become severe by late July.
June 23, 2011
And Policymakers Are Proposing to Withdraw Stimulus?
Three pictures and three quotes
GDP growth is slackening:
June 21, 2011
Guest Contribution: The Fiscal Stimulus in 2009-11
Trade Openness, Fiscal Space and Exchange Rate Adjustment
This post draws upon Aizenman and Jinjarak (2011).
June 14, 2011
A game of chicken
Making a political game out of the debt ceiling is playing with fire.
June 09, 2011
In Order to Know Where You Are Going...
...you need to know how you got where you are. From the abstract to a working paper by myself, Barry Eichengreen and Hiro Ito, entitled A Forensic Analysis of Global Imbalances:
We re-examine the determinants of current account balances applying updated data to the framework based on Chinn and Ito (2007). ...
June 04, 2011
Debt ceiling politics
Here's a link to an interview with a local TV station.
May 31, 2011
How Innocuous Is a Treasury Default?
Steven Englander, Global Head of G-10 FX strategy for Citi is not very sanguine about a Treasury default, especially as it pertains to foreign holders of Treasurys. From an email today (not online):
May 18, 2011
U.S. Postal Service pension funding
The challenge of meeting pension payments is starting to put a huge burden on the San Diego and California budgets, leading many of us to regret that more voices weren't raised in objection at the time these commitments were quietly made years ago. For that reason, discussion this week of pensions for U.S. postal workers got my attention.
April 26, 2011
The Washington Post reported last week on a discouraging poll. Americans supposedly want to reduce the deficit, but not if it means changing Medicare, cutting programs like defense or Medicaid, or raising taxes on anybody but the very richest Americans. Democrats and Republicans seem farther than ever from finding agreement. It's times like this that I'm glad there are some optimists around who still see some basis for making progress with America's daunting fiscal challenge.
April 20, 2011
Heritage Breaks Internet Silence on Its Ryan Plan Simulations (w/o a single number!)
Or, a "Forensic Analysis for the Heritage CDA results"
The Heritage Foundation Center for Data Analysis (CDA) simulation of the Ryan plan, on behalf of the House Committee, has come in for some criticism. Commentary has been provided by Paul Krugman, and perhaps most comprehensively by Macroeconomic Advisers. (My comments are here:   ). Yesterday, the Heritage Foundation CDA’s director, William Beach, posted a rebuttal to Krugman's critique. While Big Picture posted an excellent rejoinder, I want to deal with one particular aspect of Mr. Beach's open letter. Consider this excerpt.
April 14, 2011
More on the Characteristics of the Heritage Foundation CDA Analysis of the Ryan Plan
April 12, 2011
From the GOP: Budget Cuts for FY 2011
From the House Appropriations Committee (Republican), courtesy of TPM:
April 10, 2011
Paying for health care
Representative Paul Ryan's (R-WI) plan to address the U.S. federal deficit is an opportunity to reflect on fundamental questions of what we're trying to buy and how much we're willing to spend when it comes to the role of the government in health care.
April 07, 2011
Representative Ryan's Roadmap: Interesting Implied Macro Impacts
I've read and re-read the Heritage Foundation's analysis of how the projections for the Ryan plan were developed. I'm sure it's my own failing, but I still don't quite understand what is going on. And this is after Heritage took down their original documentation that indicated unemployment would eventually hit 2.8%.
February 18, 2011
CBO on HR2, repealing the Patient Protection and Affordable Care Act
From Congressional Budget Office, in a letter dated today:
...CBO and JCT [Joint Committee on Taxation] estimate that, on balance, the direct spending and revenue effects of enacting H.R. 2 would cause a net increase in federal budget deficits of $210 billion over the 2012-2021 period ....
February 17, 2011
The Fiscal Implications of Recent Wisconsin Policy Measures
From the Legislative Fiscal Bureau, roughly analogous to the Congressional Budget Office, an assessment (p.11) that notes the tax revenue implications of three bills implemented under the current Administration:
February 15, 2011
Intermediate Macro Exercise: How to Construct a Maximally Contractionary Budget Deficit Reduction
Consider an economy called Käseland, with gross output equal to approximately $475 billion, and unemployment rate of 7.5%, so considerable underemployment of factors of production exists; consistent with this interpretation, the general nonfarm wage rate has been relatively constant, growing at only 1.2% on a 12 month basis through 2010, and the price level has risen by about 1.5% from the second half of 2009 to second half of 2010.
Suppose there is a budget deficit, that you wish to close. How do you maximize the negative impact on output?
January 05, 2011
Debt ceiling politics
The decision to raise the debt ceiling will be the first test of whether the Republicans can move from tree shaking to jelly making.
December 02, 2010
Chicken**** Passes House
House passes middle-class tax bill with three Republicans supporting
By Vicki Needham - 12/02/10 04:00 PM ET
The House passed by a vote of 234-188 a measure that permanently extends expiring middle-class tax cuts and provides a patch for the alternative minimum tax.
December 01, 2010
BCA, UI and EGTRRA/JGTRRA
Four Acronyms in a Very Depressing Play
Truly we are in a strange world where legislative extension of unemployment insurance payments, which is highly effective at maintaining aggregate demand, is stalled, while giving tax cuts to households with income in excess of $250K (a.k.a. the Todd Henderson households) moves forward despite having very little impact on employment and aggregate demand. In other words, on benefit-cost grounds we would want to do exactly the reverse. Given the sheer incoherence of some of the arguments being propounded, it might be useful to recap some findings.
November 30, 2010
Europe and China: is this deja vu all over again?
The autumn of 2010 is in some ways a replay of what we saw last spring. Is what we saw then a guide to what's going to happen next?
November 16, 2010
Cut the Deficit!
The New York Times has provided a neat interactive graphic that allows one to see how various proposals affect the budget deficit in 2015 and 2030, here.
September 14, 2010
Three Graphs Regarding EGTRRA/JGTRRA
If (1) one is a concerned about budget deficits over the longer term, but (2) is concerned that a reversion to pre-2001 tax rates would hurt short term growth, then one should favor the partial extension of EGTTRA/JGTRRA for only those earning less the $250K ($200K for singles).
September 08, 2010
The Budgetary Impact of EGTRRA/JGTRRA Extension and AMT Fixes
...According to the CBO
In evaluating the advisability of extending either completely or partially the tax cuts of 2001 and 2003 (aka EGTRRA and JGTRRA), and implementing additional fixes to the AMT, one should consider the impact on the budget.
August 29, 2010
New database on the maturity structure of publicly-held debt
I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I'll be relating the conclusions from that research in a few days. But first I'd like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.
August 16, 2010
Financing U.S. Debt
Is There Enough Money in the World -- and At What Cost?
This paper examines the potential role for foreign official holdings of U.S. Treasury securities and the associated implications for Treasury security interest rates, international portfolio allocations, net international income flows, and the U.S. net international debt position, using a baseline outlook of current and projected U.S. budget deficits and growing debt. ...
August 03, 2010
Macro Advisers on Expiration of EGTRRA/JGTRRA
From Macroeconomic Advisers "The impact of sunset of tax cuts on GDP, employment, inflation & interest rates", released today:
July 13, 2010
A Comment on Keith Hennessey's Deficit Defense
In this post, Keith Hennessey takes issue with President Obama's assertion there were spiraling deficits during the President G.W. Bush years. He presents this graph.
July 11, 2010
Who's buying all that debt?
I've been taking a look at what happened to the demand for U.S. Treasury bills and bonds as a result of the financial crisis. Here's a summary of some of the data that I found interesting.
July 05, 2010
A Specter is Haunting America
...The specter of fiscal mindlessness
I'm just back from two weeks in Europe. During that time, growth indicators have signaled a slowdown  in the midst of a massive negative output gap , while a substantial bloc in the Congress refuses to think in a sensible fashion about fiscal policy. This point is most forcefully illustrated by the inability of the Senate to move forward on extending unemployment insurance. (It makes me wonder if some were asking the question, "Are there no poorhouses?")
June 20, 2010
Inflation or deflation?
For the last year and a half my assessment has been that the near-term pressures on the U.S. economy were deflationary, while long-term fundamentals involve significant inflation risks. It's time for a look at the data that have come in over the last 6 months, and time to say that I still see things exactly the same way.
May 31, 2010
Cyclically Adjusted Budget Balance, Updated
The CBO has just released new estimates of the cyclically adjusted, or structural, budget balance (link here). They've also given the series a new name, and some new tweaks. First, observation -- the cyclically adjusted deficit is substantially smaller than the actual in 09Q4.
May 16, 2010
Inflation, taxation, and the underground economy
University of Maryland Professor Boragan Aruoba (of the Aruoba-Diebold-Scotti Business Conditions Index fame) has an interesting new paper that offers another perspective on the challenges facing Europe.
May 12, 2010
The European bailout
March 28, 2010
Interest rates spike up
How scary is it?
March 18, 2010
CBO Scoring of HR3590 plus Reconciliation Legislation
The CBO and the Congressional Joint Committee on Taxation have just released its scoring of "budgetary effects of the reconciliation proposal, in combination with the effects of H.R. 3590, the Patient Protection and Affordable Care Act (PPACA), as passed by the Senate". The link to the document is here. The CBO/JCT estimated reduction in the deficit over FY2010-2019 is $119 billion. A comparison of the impact on the budget balance against previous reconciliation measures is presented in Figure 1, below.
March 12, 2010
Update: the 2010-19 Impact of PPACA on Budget Balance
And a quantitative comparison to previous reconciliation measures.
The CBO and the Congressional Joint Committee on Taxation (JCT) have updated cost estimates for H.R. 3590, the Patient Protection and Affordable Care Act (PPACA), as it was passed by the Senate on December 24, 2009. The figures are here. I've incorporated the new estimates into the bar chart first reported in this March 1st post.
March 08, 2010
Speaking of Unfunded Liabilities: Medicare Part D
The Financial Report of the United States Government, 2009 was released last week. Perusing the tables, one encounters the gigantic new, unfunded entitlement enacted in 2003, namely Medicare Part D.
February 15, 2010
The December Trade Release: Implications for GDP Growth, Rebalancing, Doubling Exports and the US-China Deficit
The December trade release surprised some observers in terms of the rise in imports.  I think there are some other interesting implications. First, the implied downward revision in GDP is minimal. Second, the drop was less pronounced in the ex-oil trade balance. Third, although real trade flows are rising from their troughs, they have not re-attained pre-Lehman levels. Fourth, the US-China goods trade balance continues to improve.
February 08, 2010
Letting the EGTRRA and JGTRRA Provisions Expire
Or, what would happen if we "Let Bush Be Bush". Recall the 2001 and 2003 tax cuts were written to expire, for the most part, in FY2011. The impact of extending those cuts (along with some others) is strikingly depicted in this Figure from the Center for Budget and Policy Priorities (h/t Brad Delong).
February 06, 2010
Federal Debt: More Time Series
Augmenting my previous post, here are two additional graphs, motivated respectively by comments by Econbrowser readers Eric Swanson (for Figure 1) and Cedric Regula and tim kemper (for Figure 2).
January 31, 2010
Federal Debt: The Time Series
Here is a graph of Federal debt held by the public, as a share of GDP, 1990-09.
January 27, 2010
G-7 Consumption Behavior and Global Rebalancing
Or, the end of the consumption follows a random walk view.
Following up this post last week on Lee et al., here is another analysis of consumption behavior, but this one is cross-country. From the abstract to "After the Crisis: Lower Consumption Growth but Narrower Global Imbalances?" by Ashoka Mody and Franziska Ohnsorge:
January 26, 2010
A budget freeze?
Here I offer some thoughts on President Obama's new proposal.
January 19, 2010
Is it reasonable to worry about inflation in the current environment?
December 21, 2009
Podcast on the federal debt
EconTalk hosts a podcast of a conversation I had with George Mason Professor Russ Roberts on deficits and the debt. At the end we also get to a discussion of oil markets. You can participate in the discussion with your own comments either here or over at EconTalk.
December 16, 2009
Links for 2009-12-16
- NY Fed economist Erkko Etula finds that he can predict oil prices using the volume of broker-dealer financial assets.
- Washington University Professor James Morley and separately Kansas City Fed economist Todd Clark haven't given up on the Great Moderation.
- My colleague Eli Berman discusses his book Radical, Religious, and Violent: The New Economics of Terrorism
- Fannie Mae and Freddie Mac may seek an increase to their $400 billion federal lifeline before the end of the year.
- Billy Hallowell puts together a blog carnival on Facing Up to the Nation's Finances.
- Berkeley Professor Petr HoYava proposes a new theory of gravity.
December 06, 2009
Some quick excerpts of what others are saying.
November 30, 2009
CBO's Assessment of ARRA's Impact on Q3 Output and Employment
...Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO's judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.
In other words, the continued deterioration of the economy through the first few months after the passage of ARRA was not due to the stimulus package; rather underlying conditions had deteriorated, and the economy would have been in a worse state in the absence of the package. This is similar to the points I made here:   
November 25, 2009
Yes the future deficits are worrisome
October 26, 2009
The National Saving Identity: Private Saving, Household Saving, and Rebalancing
The National Saving Identity states:
CA ≡ (T-G) + (S-I)
Where CA is the current account, (T-G) is the consolidated government budget balance, and (S-I) is the private sector saving-investment balance. Figure 1 depicts the profound shifts that have occurred in these components (normalized by nominal GDP).
September 22, 2009
We Should'a Run Smaller Deficits
From today's chapters 3 and 4 of the IMF World Economic Outlook, released today. From Chapter 4:
"...the results based on the small-scale regressions suggest that economies with larger current account deficits, rising inflation, and a deteriorating fiscal balance before a crisis experienced significantly larger output losses [from financial crises].
September 02, 2009
The Cyclically Adjusted Budget Balance
My article with Jeffry Frieden and the decomposition of the 2001-07 change in the deficit discussed in The Lasting Legacy of the Bush Tax Cuts inspired lots of vigorous debate regarding the role of the Bush deficits in the current crisis. Here is the CBO's take on the cyclically adjusted budget balance:
August 31, 2009
The Lasting Legacy of the Bush Tax Cuts
From The 2009 Budget Deficit: How did we get here? by John Irons, Kathryn Edwards, and Anna Turner:
This Issue Brief examines the details and causes of the current budget deficit and the role the current recession has played. The years between 2001 and 2007 saw a large deterioration in the budget balance, which was driven chiefly by legislated policy changes. The Bush-era tax cuts are the largest contributors to this period of policy-induced increases to the federal budget deficit. . . .
August 28, 2009
$9 trillion-- what, me worry?
August 11, 2009
Paying for design flaws
Updates on what this is going to cost you and me.
August 02, 2009
Cash for clunkers
A victim of its own success?
July 29, 2009
Fiscal Policy and Banking Sector Repair Synergies
This paper assessed the effects of fiscal policy responses during 118 episodes of systemic banking crises in advanced and emerging market economies. The results indicate that timely countercyclical fiscal responses (both due to discretionary measures and automatic stabilizers), accompanied by actions to deal with financial sector weaknesses, contribute to shortening the length of crisis episodes. During crisis caused by financial sector distress, fiscal expansions increase the likelihood of earlier exit from a shock episode. Expansionary fiscal policies reduced the crisis duration by almost one year. These results hold for different definitions of crisis duration and alternative specification and estimation methods. The findings are consistent with recent studies that highlight the importance of countercyclical policy in response to recessions associated with financial sector problems (Classens, Kose, and Terrones, 2008; IMF, 2009b; IMF, 2009c).
July 21, 2009
Looking for an exit
In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.
July 14, 2009
Concerns about the Fed's New Balance Sheet
That's the title of a chapter I contributed to a new book edited by John Ciorciari and John Taylor entitled The Road Ahead for the Fed. The book grew out of a conference held at Stanford University in March.
July 11, 2009
Ed Lazear on the Stimulus Package
From the WSJ editorial page:
Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.
July 05, 2009
Off-balance-sheet federal liabilities
Just how much has the U.S. government promised to pay?
June 23, 2009
Update on US Exports and Imports: The Collapse Continues
Here's an update of US imports and export behavior. The trade collapse remarked upon a couple of months ago is still in play.
June 22, 2009
The Global Saving Glut: Rest in Peace? Mirage? Bete noir?
I've just come back from two weeks on the road, during which time I attended a couple of conferences. The first conference (NBER International Seminar on Macroeconomics) dealt with issues of exchange rates, reserve accumulation and financial crises (more on that later). The second one, a joint Bank of Canada-ECB workshop (not online), focused on exchange rates in the global economy. At the latter, Jeff Frankel delivered the keynote speech, entitled "On Global Currency Issues", in which he outlined what's "out" and what's "in" in international finance (Powerpoint presentation here). One of the phenomena he concluded was no longer relevant was "the global saving glut".
June 01, 2009
High Anxiety (about Interest and Inflation Rates)
In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn't understand the fears at the time; and I still don't. Now flash forward eight years, and move across the Pacific.
May 11, 2009
The Administration's Economic Forecast against Updated Alternatives
The Analytical Perspectives of the FY2010 budget have been released. Imbedded in the document are the Administration's
new forecasts placed in the context of newer forecasts from CBO and Blue Chip [text added 12:30] (see the Chapter on Economic Assumptions). They have also provided some insights into the sensitivity of the budget outlook to specific alternate economic scenarios (not something I recall the previous Administration doing, but I might be wrong), as well as coefficients of revenue and expenditure sensitivities (something done in previous Analytical Perspectives).
April 13, 2009
The Demise of the Dollar? Should We Worry about Quantitative Easing and Deficit Spending?
Over the weekend, I was working on my long delayed manuscript on exchange rate modeling , and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
March 26, 2009
The Debt to GDP Trajectory in Perspective
There's been substantial discussion of how the debt-to-GDP ratio evolves under the Obama plan. In part, the House attempts to pare back certain provisions of the Obama budget are a reaction to the projected rise in the debt-to-GDP ratio .
March 03, 2009
How much is a trillion?
A trillion dollars used to be a sum that never naturally came up in normal conversation. Now all of a sudden, it's the standard unit we seem to be using to talk about our economic problems and what we're trying to do about them. Fortunately, I think I finally got a handle on what $1 trillion really means.
February 15, 2009
Projected size of the deficit
It's interesting that as we discuss the magnitude of the economic problems and proposed solutions, the units everything is quoted in have gone from billions to trillions.
February 10, 2009
The Treasury's Financial Stability Plan
Here's my two cents on the latest two trillion.
February 08, 2009
The paradox of thrift
Or, how come you used to say that if consumers don't save more, it will wreck the economy, and now you say, if consumers do save more, it will wreck the economy?
January 27, 2009
HR 1 and the Fiscal Impulse over the next 20 months (and an instance of deja vu).
The CBO has posted an actual "cost estimate" on HR 1 (not just a partial examination of Division A, as explained in the Director's Blog, the locus of great disinformation in previous discussions, as recounted by Dean Baker). Here is a graphical depiction of what CBO believes will be the impact on the deficit (once again, recalling that there is an explicit omission of repercussion effects on tax revenues and transfers that would arise from elevated aggregate demand; in other words, this is the estimated impact on the full employment budget balance).
January 26, 2009
Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition
It's been frustrating to me that so much virtual ink has been spilled about why the fiscal package will or will not be effective, with so little clarity. Lots and lots of words are being thrown around,   when a lot of the arguments can be summarized pretty easily in terms of four cases, and hence four graphs (I won't deal with the fifth, in detail). There are numerous excellent critiques; here in the interest of specificity, the exposition will be fairly dense.
1. With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
2. With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
3. With prices predetermined, the sensitivity of money demand to wealth is high.
4. Output is at full employment levels.
5. Neo-Ricardian equivalence, as put forward by Barro, holds.
December 19, 2008
Fiscal stimulus: the case for block grants
A few thoughts on how the federal government might best implement a fiscal stimulus.
December 15, 2008
Finding the exit
How you think we might get out of our current economic problems has something to do with how you think we got into them in the first place.
November 24, 2008
Obama's economic plans
President-elect Barack Obama today announced more details of the economic team that will be advising the new president. I find these quite encouraging.
October 27, 2008
Pocketful of Multipliers (II): Options for Stimulus Packages
As the debate over the nature and size of a stimulus package wends its way through the Congress , , , I thought it would be useful to bring numbers into the debate, especially as we are considering fiscal stimulus in a time when the Bush Administration has constrained, by dint of previous profligacy, our options. In particular, I want to return to the issue of multipliers, discussed in nearly a year ago. Here, I want to provide a little more specificity, regarding the impact depending upon the type of outlays.
October 23, 2008
Brief questions and answers on the fiscal stimulus
No time to post much today, so I'll just pass along an interesting question and brief answer from the Econbrowser mail room.
October 12, 2008
The Budget Deficit...and Macro Policies Going Forward
Let's assume the Treasury, the Fed and the rest of the community of international financial policymakers are able to stabilize the financial system. What are the fiscal options available, given the borrowing and spending policies of the Bush Administration?
From Chowdhury and Huie, "Skyrocketing Issuance," US Economics/Strategy Weekly (Deutsche Bank, 10 Oct.) (not online):
Treasury issuance is likely to increase to extraordinary levels over the past year. There are 3 components to the issuance picture. The first is the traditional federal budget, which in fiscal year 2009 is likely to increase substantially from the 2008 deficit of around $440 bn. The second are the various Treasury rescue initiatives that involve buying assets or equities; only the expected net cost will be formally recorded on the budget, but the entire gross spending amount will be added to the issuance requirement. Finally, the Federal Reserve's liquidity facilities will also add to issuance, as the Fed no longer has capacity to sell or lend the Treasuries in its portfolio; instead, going forward it will rely on the Supplementary Financing Program, where the Treasury issues bills and deposits the proceeds at the Fed, to finance its lending facilities. In total, we expect net issuance to rise to $3.3 tn over the fiscal year.
October 10, 2008
Ex-oil Deficit Shrinks, but Exports Slow
September 29, 2008
Detroit gets in on the action
With all the excitement in financial markets, I almost missed this story on the bailout for automakers.
September 21, 2008
Let me begin with the point on which I am in complete agreement with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke-- it is hard to overstate just how scary this week's developments in financial markets could be.
September 11, 2008
Trade Deficit Reduction via Changes in Exports, Imports or Prices
Today's July trade release was a little bit of a surprise, due to oil ; Haver covers the numbers. Calculated Risk discussed the release, and actually took the outcome as a fairly positive, albeit with some anxiety about whether exports will keep up the robust growth necessary to continue shrinking the deficit.
I want to focus on a couple of other aspects of the release which seem to make me worry a bit more.
September 03, 2008
Corporate tax policy, budget deficits and the capital stock in a neoclassical model of investment
Or, What would be the net effect on investment of the McCain tax plan?
September 01, 2008
Extending JGTRRA and EGTRRA under the CBO's March 2008 Baseline
There are many moving parts to McCain's budget policy (see McCain site on the economy, ), so I can only undertake a partial analysis. That being said, extension of JGTRRA and EGTRRA is the most concrete, and easy to score, component, exactly because the CBO has already done it.
Figure 1 depicts the impact of making permanent the Bush tax cuts of 2001 and 2003, relative to the March 2008 CBO baseline.
August 30, 2008
Obama's acceptance speech
Barack Obama gave a fine speech at the Democratic National Convention on Thursday. But I'm troubled by what I see as its underlying economic philosophy.
August 25, 2008
The Dollar and the Trade Deficit: How Does Productivity Fit In?
Why is the trade deficit, even taking out oil, so large when the dollar is so weak? Maybe some insights can be gleaned from productivity measures.
August 10, 2008
Current Account Adjustment Redux? What's Different this Time Around
July 13, 2008
The Fannie and Freddie assistance plan
I see much to like about this.
July 10, 2008
Two Interesting Facts of the Day
As of 2008Q1, wholly 100% of the increase in the trade deficit since 2001Q4 is accounted for (in a mechanical sense) by the increase in the value of oil imports. And the dollar share of reserves appears to continue its decline.
May 12, 2008
Net Exports, Oil Imports, and Implications for GDP
The March trade release was taken as good news. Here's some reasons to wonder a bit more about how good the news was.
May 06, 2008
Current Account Balances, Again
Two years ago, as part of a multi-year project, Charles Engel and I organized a conference on current account sustainability in major advanced economies. Lask week, we convened a follow-up conference aimed at updating our knowledge on this subject. Below is the latest read on the U.S. current account to GDP.
March 03, 2008
Two Questions: What Do Slowing Imports Mean? And Is There a J-Curve?
As the dollar continues to plumb new depths , and the economic slowdown continues, I want to discuss two questions about the trade balance that occur to me.
February 18, 2008
Trade, Exchange Rates and Pass Through
Some thoughts on what to make of the trade and export/import price releases.
February 07, 2008
Expenditure Switching or Expenditure Reduction Again: How Adjustment Is Occuring
The latest GDP release suggests trade balance adjustment is proceeding. Some of the adjustment is being driven by changes in the dollar's value. But I think a lot seems to be coming from the reduction in consumption and income growth.
February 05, 2008
How to balance the Federal budget, Bush style, Redux
A year ago, I observed that the Bush Administration was projecting a balanced budget eventually, by assuming away expenditures. We're in for a replay.
January 27, 2008
How Much Stimulus? Dollar Amounts versus Efficacy
The stimulus package seems near a done deal, and the critiques are abounding -- as they should be. Greg Mankiw says no fiscal stimulus package is necessary, given the current state of the economy. Andrew Samwick says implementing a stimulus package ill conceived given that excessive deficits are what got us into this mess (a view I have some sympathy with). Jim Hamilton argues that a properly constructed fiscal stimulus is unlikely to be implemented in time, and may additionally further erode the dollar's role as a safe haven. Paul Krugman argues that the structure of the package leaves much to be desired.
January 18, 2008
More Thoughts on Fiscal Stimulus: Business Incentives
What does the literature say about the efficacy of incentives for investment?
January 17, 2008
The case against fiscal stimulus
Everybody else seemed to hear Bernanke say he was in favor of fiscal stimulus as one approach to our economic problems. But I instead heard him articulate very intelligently the potential pitfalls of the strategy.
January 14, 2008
The Implications of a Textbook Analysis of Macro Stabilization via Discretionary Fiscal Policy
If Bush and Congress are to act at all, they will have to move quickly to have any impact, says Alan Auerbach, an economics professor at the University of California, Berkeley, who has done research on the effects of fiscal stimulus.
"Timing is extremely important," he says. "Recessions typically last less than a year, so unless you can be pretty quick, it's not worth doing."
January 09, 2008
What Are the Prospects for a Two Recession Bush Presidency?
With recession calls becoming more frequent (, , , , ) it might pay to revisit the indicators that the NBER looks at in determining the turning points in recessions (The fact that NBER put up some new recession-dating-FAQs just a couple days ago might be a leading indicator of sorts).
January 03, 2008
Do We Really Know that a Flexible Exchange Rate Regime Facilitates Current Account Adjustment?
In an post in VoxEU, Shang-Jin Wei alluded to work we have undertaken examining whether de facto exchange rate regimes have an impact on current account reversion.
Financial Globalization and the US Current Account Deficit
Matthew Higgins and Thomas Klitgaard at the Federal Reserve Bank of New York discuss the outlook for financing the deficit, going forward, in a new Current Issues. From the introduction:
January 01, 2008
The Dollar in the New Year
Is there (an "equlibrium" exchange rate) model for all seasons?
December 11, 2007
Is the Dollar Near the Bottom (II)
Last week, I wrote a post examining what the measures of central tendency for the dollar's trajectory were, based upon some standard forecasts. This week, I want to examine more closely whether we should anticipate more depreciation, in real terms, by way of discussing alternative measures of the dollar's value.
December 09, 2007
The Administration Finds Fiscal Restraint
From the White House OMB on Saturday:
November 25, 2007
Budget Deficit Watch: Receipts Stabilize, Deficit Fails to Shrink
Reader CoRev, in commenting on this post, advises me to look at the actual data for October (instead of the CBO estimate) before declaring a trend deterioration in the budget balance. Well, the data are out.
November 15, 2007
Musings on the Trade Release and Consumption Theory
Last week's trade release induced some wide-ranging thoughts, that spurred more questions than answers. In an experimental post, I'll pose some questions that I hope readers will help me answer.
November 07, 2007
If this is what Federal receipts look like at full employment...
...then a balanced budget is far off.
The CBO released its November budget review yesterday. In this figure, the red dashed line (receipts) is slowing its ascent. Expenditures are falling, but to the extent that transfers rise in slowdowns, one knows the likely trajectory of the blue line.
November 01, 2007
Some Observations on the GDP Release
The BEA's NIPA release had some surprises for many. Here are some aspects of the release that I find surprising.
October 26, 2007
Have Net Exports Ever Prevented the U.S. from Going into Recession?
First, a look at what the blogosphere is thinking about recession.
October 18, 2007
The Debt-to-GDP Outlook in Plausible Scenarios
In updating a graph of the projected debt-to-GDP ratio, I was only slightly surprised to see that the out-years (still) look pretty grim.
October 15, 2007
So Much for that Balanced Budget...
September 26, 2007
Perspective on Selective Fiscal Restraint and the Bush Administration
As the President and the Congress head to a showdown over SCHIP, it might be useful to see how, over the 2000-2005 period, the Federal government's fiscal exposure evolved.
September 13, 2007
Saving Glut Redux
Bernanke recaps his interpretation of the explanation for global imbalances. Is it any more convincing than the first time?
August 25, 2007
A disappearing budget deficit, if...
The CBO has released its budget and economic outlook update.
August 19, 2007
Saving Glut Reversed? A Historical Analogy and Conjecture about US Adjustment
One interpretation of recent global capital flows is that the collapse in investment in East Asia post-crisis, combined with stable saving rates in ex-China developing Asia, led to an excess of saving in that region (so really the term of "investment drought" is better). Note that there was no excess saving until the collapse of unsustainable lending associated with bubbles, or crony capitalism, or -- in other models -- behavior of investors implicitly "insured" against losses. While this is a voluminous literature, it's interesting to me that few analysts have observed that a similar occurence can not be ruled out in the current unfolding drama in the ever expanding but always containable subprime mortgage crisis.
August 03, 2007
Revaluation and China's Multilateral Trade Balance: First Estimates
Yin-Wong Cheung, Eiji Fujii and I have just completed a paper entitled China's Current Account and Exchange Rate" for a conference on China's Growing Role in World Trade. This paper follows up on some of the issues I laid out in these posts: , , , and .
July 30, 2007
US Economic Growth: Retrospect and Prospect
Some interesting tidbits can be gleaned from the BEA's recent release. First, despite the acceleration in growth in 2007Q2, the level of output in 2007Q2 is less than what we thought -- as of 28 June -- it was in 2007Q1. Second, q/q consumption growth now looks weaker than it did before. Third, while net exports provided a big boost to GDP growth, a large chunk of that effect is attributable to import compression, rather than export acceleration. How one views the durability of the net export effect depends in large part upon how one views the sources of import and export trends.
July 26, 2007
Will Dollar Depreciation Prevent A Recession?
As worries from ever expanding -- but always containable -- housing and mortgage market collapse mount (see this Reuters article), some analysts believe that the external accounts will save the day. From Bloomberg (July 23):
July 20, 2007
"We have always thought that America got away with something."
Well, maybe not anymore. And perhaps not even before.
The quote is from an article on how the weak dollar is raising the costs of traveling to Europe, as the USD/EUR rate flirts with 1.40. The longer quote, from yesterday's NYT article entitled "As Dollar Crumples, Tourists Overseas Reel" , is:
July 16, 2007
More on the Yuan and the Chinese Trade Balance
More speculation on the Yuan's prospects. From Bloomberg:
June 28, 2007
The 2006 Net International Investment Position
The BEA released the end-2006 net international investment position (NIIP) today.
June 18, 2007
Rejoice! The 2006 current account to GDP ratio has been revised up by 0.3 percentage points
There's a temptation to view the upward revision to the current account balance, and the components thereof, as yet more evidence that the US external situation is in better shape than commonly perceived.
June 14, 2007
Keeping China's Yuan in Perspective
The Treasury released its report International Economic and Exchange Rate Policies yesterday. As expected, the Treasury declined to declare China a currency manipulator. On the same day, four senators submitted legislation to tie Treasury's hands in terms of the actions it can take against countries with "misaligned" currencies.
June 08, 2007
The April Trade Release: Good and Ambiguous News
The April trade release surprised on the upside. Here are a few other insights, not all of which are unalloyed positives.
May 31, 2007
Messages from the GDP Preliminary Release
GDP growth was revised down, as expected, in today's NIPA preliminary GDP release. At 0.6% q/q growth SAAR was below Bloomberg consensus of 0.8%. But even more revealing is the pattern in recent revisions; in addition, trade adjustment looks a bit further off.
May 28, 2007
More on Real Exchange Rate Changes and Trade Adjustment
Time for an update on estimated income and price elasticities of US trade flows. These issues are important to those of us who believe that the US remains vulnerable to shifts in the rest-of-the-world's willingness to finance the current account deficit. If you think it's just jolly fine and likely for the US to keep on borrowing at around 6.5 percent of GDP for the indefinite future, skip this post.
More on Real Exchange Rate Changes and Trade Adjustment
Time for an update on estimated income and price elasticities of US trade flows. These issues are important to those of us who believe that the US remains vulnerable to shifts in the rest-of-the-world's willingness to finance the current account deficit. If you think it's just jolly fine and likely for the US to keep on borrowing at around 6.5 percent of GDP for the indefinite future, skip this post.
May 10, 2007
Oops. Or Trade Deficit Stabilization Deferred
April 19, 2007
The politics of future promises
I have been detailing concerns about meeting the pension and health care obligations of the city and county of San Diego. Although these challenges arise at the level of our local government, the problem appears to be national in scope, as a sampling of stories from PensionWatch makes clear.
April 17, 2007
The Coming (?) US Current Account Adjustment: Two Questions Inspired by Two Graphs
The IMF has recently released its Global Financial Stability report. Two figures inspired two questions from me.
April 16, 2007
New estimates of macroeconomic effects of tax changes
April 15, 2007
Trade adjustment via import compression or export expansion?
April 13, 2007
The Last Throes of PoMo Macro?
That is to say, is Post-Modernist Macroeconomic Policy over?
April 07, 2007
Exchange rate depreciation and expenditure switching in the United States
The IMF's April 2007 World Economic Outlook has been released -- or at least part of it. One chapter, entitled Exchange Rates and the adjustment of External Imbalances [pdf], deals with a subject close to my heart.
March 27, 2007
Maybe we can't count on exorbitant privilege/dark matter/manna from heaven...
The new conventional wisdom is that the return foreigners obtain on U.S. assets is less than the return U.S. residents obtain on foreign assets. And that this means that the U.S. can build up a bigger foreign debt than traditional analyses; I've been skeptical , . Now, we have more reason to ask how robust is the finding of a durable earnings differential in favor of U.S. investors?
March 18, 2007
Attaining Internal and External Equilibrium in China
China raises rates again. What will higher rates do?
March 15, 2007
Negative Net Income: The 2006 Balance of Payments
Most commentary on the 2006q4 current account balance release focused on the improvement in the overall balance. Little noted is the fact that 2006 is the first year in which the net income category has registered negative.
March 10, 2007
The January Trade Balance: Reading the Tea Leaves
Are declining capital imports growth rates an indicator of recession?
March 08, 2007
WMDs in Iraq, "Last throes..." and... "deficits don't matter"
According to former Secretary of Treasury Paul O'Neill, Dick Cheney is reputed to have said: "...deficits don't matter." (see Suskind's The Price of Loyalty, and online here). What's the (updated) evidence?
February 25, 2007
Fiscal Stimulus under Current Law and under a Probable Alternative
The CBO released The Cyclically Adjusted and Standardized Budget Measures last Thursday.
February 16, 2007
The December Trade Release: Beyond the Surprise
Almost old news, the February 13 BEA/Census release for December trade provided ample grist for the mill. Insightful perspective was provided by Brad Setser and David Altig. Here I try to add a few other insights.
February 09, 2007
Is a 12 Step Program Needed for Policymaking in Washington?
From the Wikipedia entry on 12-step programs:
February 04, 2007
How to balance the Federal budget, Bush style
First, assume away expenses...
Manufacturing, Tradables, and Trade Adjustment
In his preview of the 2007 Economic Report of the President, CEA Chair Ed Lazear presented the argument that manufacturing output is still growing.
February 01, 2007
Trends in exports and imports
January 22, 2007
Army Transformation sacrificed on the altar of ...(a) tax cuts, (b) Iraq, (c) other
January 20, 2007
Bernanke and the Social Security Trust Fund
I would like to join Felix Salmon ,  in suggesting that Dean Baker has mischaracterized both Fed Chair Ben Bernanke's remarks to the Congress as well as the substantive policy questions on the table.
January 19, 2007
Bernanke on the deficit
In testimony before the Senate Budget Committee yesterday, Fed Chair Ben Bernanke once again tells it like it is.
January 18, 2007
Federal Government Interest Payments Rising
The Treasury Department reported a steady rate of purchases of Treasuries by foreigners (see the Bloomberg account here). Let's hope that continues -- although we should be cognizant of the ramifications: increasing debt and interest payments to foreigners.
January 15, 2007
Escalation and Accidental Military Keynesianism
Under plausible assumptions, Fiscal Year '07 expenditures for operations in Iraq will come close to 1 percentage point of GDP. What will be the impact on the U.S. economy?
January 10, 2007
The Wartime Economy and Tax Policy
So Shinseki was right.
January 09, 2007
International Economics at the AEA/ASSA: Selected Items
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
January 04, 2007
President Bush on Economics
On Wednesday, the President writes in a Wall Street Journal op-ed (sub. req.):
December 28, 2006
Is Decoupling Possible?
The dream rebalancing scenario, in which adjustment of the world's imbalances occurs without fiscal responsibility returning to America, relies upon "decoupling".
December 22, 2006
Surge or no surge? minimal "burn rates" for operations in Iraq
Where are expenditure rates now? Where might they go?
December 18, 2006
Econoblog on "Dollars, Debt and the Trade Gap"
Thoughts on the Dropping Dollar
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
December 12, 2006
The October Trade Release
The non-oil trade balance stabilizes. Petroleum-related imports exceed the US-China trade deficit.
November 14, 2006
Current Account Imbalances, Again
November 10, 2006
RIP, Dark Matter As Cure-All
Two recent publications should help put to rest the conjecture that there are vast pools of U.S. wealth lying overseas, ready to save the day.
November 02, 2006
Estimating U.S.-China Trade Elasticities: Some Very Preliminary Results
Do we have any idea what the CNY appreciation against the dollar will accomplish?
October 26, 2006
The U.S. Macroeconomy: Facing the Future with (at least) One Hand Tied
[This is an English version of an article that appeared the Italian newspaper Il Sole 24 Ore on the 24th September.]
Today, the U.S. economy stands poised between persistent inflation and slowdown. Even as many measures in the production side of the economy signal continued strength in the economy, forward looking indicators such as housing prices, residential investment, and the yield curve point to substantially weaker growth going forward.
October 24, 2006
The Fiscal Exposure of the Nation
In present value terms, where were we in 2000? Where are we now?
October 18, 2006
Tales from the CBO (and the White House)
Investigating the numbers
October 16, 2006
How Strong Is (Was) the Dollar?
An alternative view on the dollar's strength and trend over time.
October 04, 2006
Twin deficits redux
On the current account deficit, "We have met the enemy, and he is us".
September 19, 2006
Current Account Release for 2006q2
September 14, 2006
Measuring the U.S.-China trade balance
September 12, 2006
The July 2006 Trade Release
September 07, 2006
Trade Deficit Watch: 2006q2
Stabilization in the non-oil trade balance arrives. What needs to happen for adjustment to continue without a recession?
August 31, 2006
Net interest and factor payments in 2006q2
The message from yesterday's NIPA release.
August 29, 2006
Heckuva job on Fiscal Policy!
Or, why I have to explain to my Money and Banking students that discretionary counter-cyclical fiscal policy is "off the table".
August 23, 2006
Opportunity cost illustrated
On a one year anniversary, a look back to (one of the reasons) why the National Guard's post-Katrina rescue and recovery efforts were hampered.
August 21, 2006
Does Manufacturing Matter? An Update
Manufacturing employment is down. So is the manufacturing share of output. And so is the estimated tradable share of output. Consequently, as the Economist noted recently, adjustment to a smaller current account deficit might be difficult.
August 17, 2006
Are we winning the war against the budget deficit?
The Congressional Budget Office released its update on the budget outlook today. What's the message behind the message?
August 16, 2006
A closer look at the US-China trade figures...and more on the RMB
The Renminbi (RMB) is probably undervalued, according to some criteria. Would adjusting it fix the US-China trade deficit? Or the overall US trade deficit?
August 14, 2006
Billions for production, not a cent for conservation...
Well, not quite. But I find it interesting to see how much revenue the government loses by giving tax breaks to certain groups in the energy arena.
August 10, 2006
The June 2006 Trade Figures
Persisting trends, for now
August 02, 2006
The enigmatic Yuan
The Yuan has not been moving much. Or has it? And does it matter much for the U.S. current account deficit
July 25, 2006
A Dynamic Analysis of Permanent Extension of the President's Tax Relief
The press account surrounding the Mid Session Review (MSR) (page 3-4) noted the preferred estimate of GNP response to the President's tax proposals: real GNP might be 0.7 percent higher than steady state baseline. The Treasury's Office of Tax Analysis has just released the underlying analysis.
July 23, 2006
A long term perspective on differential approaches to fiscal policy
Or, over the past quarter century, have Democrats and Republicans acted differently?
July 20, 2006
(Non) transparency of GWOT expenditures, and an update on Iraq metrics
While the events in Lebanon and Gaza have pushed Iraq off center stage, Iraq and Afghanistan remain the largest fiscal drains on the U.S. Treasury and the military's ability to respond to other strategic challenges. In this light, GAO Comptroller David Walker's testimony on Tuesday [pdf] is both illuminating and depressing. From the Summary:
July 17, 2006
Some (delayed) reflections on whether the non-oil trade deficit stabilization at hand -- or not
I was out of the country when these data were released, so I didn't immediately write a post on the data. In any case several commentators covered the ground so well I didn't have much to add immediately. Several forwarded the possibility of trade deficit (as a share of GDP) stabiization (see here and here), in light of the fact that the May trade release which showed a smaller than consensus deficit. In the past I made similar observations (see here). I remain hopeful, but am still not yet convinced.
July 11, 2006
Is the surge in tax receipts truly extraordinary?
There has been much talk about how the deficit problem has been licked, as tax receipts surge. Is (Lafferian) supply-side economics right? Are we in a new era of surging tax receipts for the forseeable future? The short answers are "no" and "no".
July 10, 2006
One picture from the 2005 International Investment Position release (and one from the NIPA)
Amid all the relief (see here and -- kind of -- here) over the improvement in the U.S. net international investment position (NIIP) despite the record current account deficit, the trend in one ratio was unremarked upon -- namely the ratio of U.S. Government securities held by non-residents, divided by GDP.
June 29, 2006
A Budgetary Counterfactual
What if we had not cut taxes for the richest and increased discretionary spending faster than the rate of inflation?
June 22, 2006
Measuring the import component of U.S. exports
In order to export in a competitive market, we need to import
June 20, 2006
Some Iraq cost metrics on a one year anniversary
Evaluating the costs one year after Cheney's prediction of "the last throes ...of the insurgency"
June 16, 2006
The 2006q1 Current Account figures
Upside surprises. Will they continue?
June 09, 2006
April 2006 Trade Balance Figures
Where the ex. oil trade balance is going, and what trade prices are doing.
June 05, 2006
Learning (or non-learning) from the Classical Age
Or, what if George W. Bush had lived in 480 BCE; would we all be speaking Persian?
May 31, 2006
Does a new economic team mean a new economic policy?
Henry Paulson has been nominated to the position of Secretary of Treasury. Will it matter?
May 24, 2006
Gambling on Trade
In 2001, the Bush Administration set in motion the machinery to impose tariffs on steel imports. The purported reason was to secure fast track (trade negotiating) authority. How does that gamble look five years later?
May 23, 2006
Exchange rate pass through and dollar decline
Is there a direct relationship running from a change in the dollar's value and import and export prices and thence to consumer prices?
May 16, 2006
Is dollar depreciation a separate policy channel for trade balance adjustment?
The dollar is on the decline...more or less. Will this cause the long awaited adjustment?
May 12, 2006
March 2006 trade balance figures
Oil imports in the spotlight
May 01, 2006
New research on the current account adjustment process
Insights on how global current account imbalances might be resolved
April 29, 2006
New Research on the Sources of Current Account Deficits
Some excerpts from a recent conference on Current Account Sustainability in Major Advanced Economies
April 25, 2006
The Debate over the Impact of the Budget Deficit on the Current Account Deficit
What does the empirical literature say?
April 20, 2006
Is the Renminbi (Rmb) undervalued in price terms? Does it matter if it is?
With the visit of President Hu to the United States, Chinese currency misalignment is at the top of the agenda. What is "misalignment"?
April 12, 2006
February Trade Figures
A (semi-) Positive Surprise on the trade balance
March 30, 2006
The Full Employment Budget Surplus
The CBO's latest estimates
March 28, 2006
What would be the important effects?
March 21, 2006
Postscript to "Critique of Pure Dark Matter"
Mixed news for 4th quarter net income in the current account release
March 20, 2006
The politics of the deficit
Congress squawks about the horrible debt and then adds even more red ink.
March 11, 2006
The latest employment figures: implications for policy
Stronger employment growth in February than I and many others had been expecting.
March 10, 2006
The downward march of the trade balanceSome context for the the latest trade deficit numbers
March 07, 2006
Do (budget) deficits matter?Thinking about what happens to interest rates when foreign capital inflows slow
February 27, 2006
Tempest in a Sea Port
The United-Arab-Emirates-based company Dubai Ports World has graciously requested a new 45-day review in the hopes of allaying concerns about its proposal to take over the British-based company P&O, which if approved would allow DP World to operate 11 of the 43 terminals at the ports of 6 U.S. cities. Here I summarize a few of the issues that have been raised about this takeover.
February 23, 2006
A Critique of Pure Dark Matter
Net income on the balance of payments might be essentially zero in 2005q4
February 20, 2006
Tackling "Oil Addiction"?Cognitive Dissonance in the 2006 Economic Report of the President
February 18, 2006
The case against my former representative in Congress, Randy "Duke" Cunningham (R-CA), is pretty unbelievable.
February 16, 2006
Open Economy Macro in the 2006 Economic Report of the President
Beryl Sprinkel meets Ben Bernanke
February 14, 2006
Dick Cheney on economics
The vice president holds forth on the elasticity of tax receipts with respect to the tax rate.
February 10, 2006
December 2005 trade figures and implications
The trade deficit (total and ex-oil) widens again.
January 27, 2006
The 2005q4 GDP report and the trade balance
Little sign of the reversal in the trade deficit.
January 21, 2006
Fiscal Exposure and Medicare Part D
Even if the new Medicare prescription drug plan's implementation improves, that's just the beginning of our problems.
January 16, 2006
Long term prospects for U.S. net exports in perspective
Does the cross-border fragmentation of production mean that measured trade flows are irrelevant?
January 12, 2006
Trade figures for November
How good is the news, really?
January 09, 2006
Hazards of partial reading and partial equilibrium analysis
For some people, the answer to every problem is a tax cut
December 16, 2005
Current Account figures for 2005q3
Reading behind the numbers
December 03, 2005
Past and incipient expenditures for operations in Iraq
Larry Lindsey was right. And wrong.
November 29, 2005
What are prospects for Federal debt/GDP?
Did recent surge in tax revenues signal a meaningful improvement in fiscal prospects?
November 15, 2005
Facing the 900-pound gorilla
Sooner or later we have to do something about Medicare. Why not sooner?
November 13, 2005
Does it matter whether Bernanke is a Republican?
Mr. Dooley told us that the Supreme Court watches the election returns. So also must the Chair of the Federal Reserve.
November 11, 2005
Latest trade figures
Is trade deficit stabilization at hand?
by: Menzie Chinn
November 02, 2005
How anomalous is U.S. current account behavior?
Is there statistical evidence for the "global savings glut"?
by Guest Blogger: Menzie Chinn
October 19, 2005
Is the trade deficit set to stabilize as import prices rise?
Some thoughts on the latest trade price data.
October 16, 2005
How important is saving?
October 04, 2005
Fixing the Current Account Deficit
If the current account deficit matters, how can we fix it?
October 02, 2005
But you said that more saving was a good thing
After many of us have been arguing for some time that an increase in the U.S. personal saving rate was key for promoting long-run growth and reducing the trade deficit, the American consumer finally obliged with a 0.5% drop in consumption spending in August. But analysts such as Angry Bear and Macroblog see this as an ominous development. So which is right-- is more saving a good thing or a bad thing for the economy?
September 26, 2005
On the origin of American current account deficits
Here are some more thoughts on the debate over the source of the U.S. current account deficit and whether it matters.
September 20, 2005
The space pioneers
You have to wonder about the timing, if nothing else. Last week, Cato Institute researchers warned of a looming budget disaster if strong measures such as cutting the budget for the National Aeronautics and Space Administration in half were not taken. On Monday, NASA chief Michael Griffin unveiled a new $104 billion plan for sustained human exploration of the moon by 2018 as a preparatory step for getting people on Mars. Here's my suggestion for how to explore space without breaking the budget.
September 18, 2005
Pop quiz on the deficit
Here's a pop quiz for macroeconomic students from Economist's View on how to deal with the deficit.
August 13, 2005
Investigating charges of Medi-Cal fraud
There are some obvious steps we could take to make sure that state and federal contributions for medical assistance are spent as effectively as possible.
July 30, 2005
Which came first: the savings chicken or the deficit egg?
David Altig at Macroblog raises some very thoughtful questions about the relation between the drop in the U.S. saving rate and the current account deficit.
July 21, 2005
Unwinding the deficit spin
Updated tax data are in and the spinners will spin. But the numbers can speak for themselves.
July 16, 2005
Should we worry about all that debt held by foreigners?
I think we should, and here's why.
July 03, 2005
Where did that huge trade deficit come from?
Some have blamed the rest of the world for the rapidly growing U.S. current account deficit. But I believe that the true explanation is to be found here at home.