There has never been the slightest question about that.
This QE really drove these oil prices
- Thread starter wildchild
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If you're not 100% opposed to the Fed, then you fully support it.
Hyperinflation, it's coming...
Here's A Chart That Should Have You Just A Little Bit Worried
The Huffington Post | By
- If you're a frequent borrower of money, for stuff like education and cars and lip implants, you might think that low interest rates are good. But be warned: Sometimes they're not all that good.
Take right now, for instance. Interest rates are low, and they keep getting lower. Rock on, you might be thinking, more lip implants.
But falling interest rates are bad if they mean that you are about to lose your job. And occasionally that is what they mean.
That's what they meant during the financial crisis and Great Recession, when rates fell to record lows and everybody lost their jobs. That's probably not what falling rates mean right now. But they do give us reason to worry a little bit.
Here's what happens: Investors see the end of the world coming, so they frantically dump all their risky investments like stocks and barrels of oil and Russian bonds, and instead scramble for "safe" investments like bonds issued by the U.S. government.
When investors buy those U.S. Treasury bonds, that makes the interest rate on those bonds fall. Because bond-market math, that's why. And then that interest rate drags down other rates throughout the economy, such as mortgage rates.
Low interest rates don't themselves kill jobs, of course. But sometimes the stuff that investors are freaking out about -- a looming recession, for example -- does kill jobs. So low rates are sometimes a harbinger of bad times.
Here is a chart, from Yahoo Finance, showing what has been happening to U.S. Treasury interest rates lately:
This is the interest rate the U.S. government pays to borrow money for 10 years, to pay for things like wars and battleships and lip implants. As you can see, that rate has been getting lower for a while, and recently took a little swan dive below 2 percent. Rock on, you might be thinking, more wars. And more houses -- mortgage rates are tumbling, too, along with government bond rates, The Wall Street Journal noted on Wednesday.
But these rates are falling because investors are freaking out again, as Peter Eavis pointed out in The New York Times on Tuesday. Investors see the European economy in the dumper and worry. They see Greece getting ready to leave the euro and worry. They see China maybe on the edge of a financial crisis and worry. They see oil prices collapsing -- good news for consumers, but bad news for oil companies, and maybe a bad sign for global economic growth -- and worry.
So how much should you personally be worried about this? For now, not much. As you can also see from the chart, interest rates do tend to swoon from time to time without the world ending. And the U.S. economy finally seems to be up and running, with strong growth and a lot of new jobs. Low rates and cheap oil will help consumers.
Yet perpetually low rates are a sign that demand is still not all that strong. They suggest the economy can't stand on its own feet. They mean the economy could be vulnerable to a shock.
The Federal Reserve, for one, really, really, really wants to raise its own key short-term interest rate from zero, where it has been sitting for about the past six years. The Fed has been gearing up to raise rates this year, but might have to hold off given all the agita in markets right now.
The persistently low rate means the Fed won't be able to use its key policy medicine -- cutting interest rates -- in the next recession.
While low interest rates may not be cause for major concern yet, it would be better in the long run to see rates rising, because that would signify a strong economy and healthy demand for borrowing for cars and houses and wars.
Very nice Ricter. Thank you so much. This is consistent as well with our experience with former recessions here in the U.S. and elsewhere. How is it that folks can cling to belief in economic practice that by rights, and concrete evidence, should have been dead long ago is a mystery to me? I think, however, I may have stumbled upon part of the answer to that question right here in these ET Forums. I have gathered good evidence that some particularly hardheaded posters don't bother to read responses to their own posts carefully enough to respond intelligently to them. This may explain why they seem to be extremely slow to absorb any information that might, in the least, counter their own fixed opinions. Don't expect your rather clear chart, I guess it is Krugman's, to have much affect on them.Lol, now that you bring it up... enjoy.
"Let me jump right in here. How many people, I wonder — even among economists who have eagerly taken sides in the austerity debate — have a sense of what the overall picture looks like since the great turn to austerity in 2010? I don’t mean what happened in country X in year Y, which you imagine supports your position; I mean the overall shape of events across many countries and multiple years.
"Well, here’s a quick and easy picture. I’ve taken annual data on the growth of real GDP and of government purchases from Eurostat, using every country for which data are available 2010-2013. I was tempted to edit out minor countries like Malta, but decided to do this as cleanly as possible. What we get are 33 countries for 4 years, 132 observations. And they look like this (bear in mind that these are percentage changes, so you can’t read the slope of a trend line as a multiplier):
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"Does this picture make you think that Keynesian economics is nonsense? You can, if you like, argue that it’s a spurious correlation for some reason. But surely the raw observations are consistent with the view that in depressed economies, cutting government spending hurts growth.
"Of course, the fit isn’t perfect. In fact, the R-squared is only 0.31. That’s because in economics as in life, and as the bumper stickers don’t quite say, stuff happens. And that is why we have statistics. Government spending only explains part of the variation in growth, but the t-statistic is 7.7; for the uninitiated, anything over around 2 is statistically significant at the 95 percent level.
"As I said, you can, if you like, try to argue that this relationship is spurious, maybe not causal. But one form of argument that is really illegitimate is to comb through the data, pick out outliers, and claiming that the existence of these outliers — because stuff does, in fact, happen — disproves Keynesian logic. Unfortunately, you see a lot of that, including from economists who really should know better."
http://krugman.blogs.nytimes.com/2015/01/06/the-record-of-austerity/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
Really? Then why all the arguments in this very thread about how the price of oil falling isn't related to a pause/cessation of QE, but is instead being driven by demand being outpaced by supply?
Indeed, it seems a middle ground has a hard time existing around here!Paul Krugman and the Obama Recovery
- NEW YORK – For several years, and often several times a month, the Nobel laureate economist and New York Times columnist and blogger Paul Krugman has delivered one main message to his loyal readers: deficit-cutting “austerians” (as he calls advocates of fiscal austerity) are deluded. Fiscal retrenchment amid weak private demand would lead to chronically high unemployment. Indeed, deficit cuts would court a reprise of 1937, when Franklin D. Roosevelt prematurely reduced the New Deal stimulus and thereby threw the United States back into recession.
Well, Congress and the White House did indeed play the "austerian" card from mid-2011 onward. The federal budget deficit has declined from 8.4% of GDP in 2011 to a predicted 2.9% of GDP for all of 2014. And, according to the International Monetary Fund, the structural deficit (sometimes called the “full-employment deficit”), a measure of fiscal stimulus, has fallen from 7.8% of potential GDP to 4% of potential GDP from 2011 to 2014.
Krugman has vigorously protested that deficit reduction has prolonged and even intensified what he repeatedly calls a “depression” (or sometimes a “low-grade depression”). Only fools like the United Kingdom’s leaders (who reminded him of the Three Stooges) could believe otherwise.
Yet, rather than a new recession, or an ongoing depression, the US unemployment rate has fallen from 8.6% in November 2011 to 5.8% in November 2014. Real economic growth in 2011 stood at 1.6%, and the IMF expects it to be 2.2% for 2014 as a whole. GDP in the third quarter of 2014 grew at a vigorous 5% annual rate, suggesting that aggregate growth for all of 2015 will be above 3%.
So much for Krugman’s predictions. Not one of his New York Times commentaries in the first half of 2013, when “austerian” deficit cutting was taking effect, forecast a major reduction in unemployment or that economic growth would recover to brisk rates. On the contrary, “the disastrous turn toward austerity has destroyed millions of jobs and ruined many lives,” he argued, with the US Congress exposing Americans to “the imminent threat of severe economic damage from short-term spending cuts.” As a result, “Full recovery still looks a very long way off,” he warned. “And I’m beginning to worry that it may never happen.”
I raise all of this because Krugman took a victory lap in his end-of-2014 column on “The Obama Recovery.” The recovery, according to Krugman, has come not despite the austerity he railed against for years, but because we “seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result.”
That is an incredible claim. The budget deficit has been brought down sharply, and unemployment has declined. Yet Krugman now says that everything has turned out just as he predicted.
In fact, Krugman has been conflating two distinct ideas as if both were components of “progressive” thinking. On one hand, he has been the “conscience of a liberal,” rightly focusing on how government can combat poverty, poor health, environmental degradation, rising inequality, and other social ills. I admire that side of Krugman’s writing, and, as I wrote in my book The Price of Civilization, I agree with him.
On the other hand, Krugman has inexplicably taken up the mantle of crude aggregate-demand management, making it seem that favoring large budget deficits in recent years is also part of progressive economics. (Krugman’s position is sometimes called Keynesianism, but John Maynard Keynes knew much better than Krugman that we should not depend on mechanistic “demand multipliers” to set the unemployment rate.) Deficits were not increased enough in 2009 to escape from high unemployment, he insisted, and were falling dangerously fast after 2010.
Obviously, recent trends – a significant decline in the unemployment rate and a reasonably high and accelerating rate of economic growth – cast doubt on Krugman’s macroeconomic diagnosis (though not on his progressive politics). And the same trends have been apparent in the United Kingdom, where Prime Minister David Cameron’s government has cut the structural budget deficit from 8.4% of potential GDP in 2010 to 4.1% in 2014, while the unemployment rate has fallen from 7.9% when Cameron took office to 6%, according to the most recent data for the fall of 2014.
To be clear, I believe that we do need more government spending as a share of GDP – for education, infrastructure, low-carbon energy, research and development, and family benefits for low-income families. But we should pay for this through higher taxes on high incomes and high net worth, a carbon tax, and future tolls collected on new infrastructure. We need the liberal conscience, but without the chronic budget deficits.
There is nothing progressive about large budget deficits and a rising debt-to-GDP ratio. After all, large deficits have no reliable effect on reducing unemployment, and deficit reduction can be consistent with falling unemployment.
Krugman is a great economic theorist – and a great polemicist. But he should replace his polemical hat with his analytical one and reflect more deeply on recent experience: deficit-cutting accompanied by recovery, job creation, and lower unemployment. This should be an occasion for him to rethink his long-standing macroeconomic mantra, rather than claiming vindication for ideas that recent trends seem to contradict.
Yes, you're so "middle ground". Dancing around with pom-poms and praising the brilliance of Bernanke and Yellen over and over and over and over isn't middle ground by any stretch of the imagination.
"To be clear, I believe that we do need more government spending as a share of GDP – for education, infrastructure, low-carbon energy, research and development, and family benefits for low-income families. But we should pay for this through higher taxes on high incomes and high net worth, a carbon tax, and future tolls collected on new infrastructure. We need the liberal conscience, but without the chronic budget deficits."
Love it. We don't need Krugman anymore if common sense is going to manifest anyway.
It's new age religion, God has been replaced by the Laissez Fairey. With sufficient purity we will be saved.