Dollars and Jens
Saturday, May 30, 2009
Mankiw notes that Clive Granger has died. I was once told that the 1987 cointegration paper was the most highly cited paper in the history of Econometrica.

Friday, May 29, 2009
IV 06I 07II 07III 07IV 07I 08II 08III 08IV 08I 09
Gross domestic product1.
Nondurable goods.
Durable goods.
Change in private inventories-1.41-
Fixed investment-1.27-.57.47-.15-.97-.86-.25-.79-3.36-5.93
Net exports of goods and services1.33-1.201.662.03.94.772.931.05-.152.18
Government spending.

Consumer spending was revised downward, leading to less of an improvement in the headline number than was expected, due to a previously anticipated upward revision to inventory "investment". The GDI reportedly showed better profits but weaker pre-tax wages than the initial report. Consumption looks all set to be weak for a while.


Wednesday, May 27, 2009
Smart grid
Lynne Kiesling has an article at Reason on smart grids and state utility regulation.

Atlas shrugs, at least a little bit
Corporate bond prices are pricing in the unfavorable treatment bondholders may get when the new administration favors unions over the rule of law:
To gauge whether those cases have made debtholders wary of other companies with so-called favored political classes, Garman compared spreads, or bonds' extra yields over U.S. Treasury yields, for companies with collective bargaining agreements with the high-yield bond market as a whole.

While the two performed in line with each other since 2003, they diverged sharply in February, with spreads on companies with organized labor gapping nearly 11 percentage points higher than the market as a whole, according to Garman's research.

The gap in spreads has persisted and was about 9 percentage points as of mid-May, Garman said. The gap appeared shortly after strategists reported signs that bondholder negotiations with GM were unraveling.

While strategists had originally expected GM's bondholders to recover as much as 50 cents on the dollar in a bankruptcy, recovery prospects began dimming as the United Auto Workers pressed for more favorable treatment.

Tuesday, May 26, 2009
I started reading this article because it was about the GM bankruptcy, but I noted an interesting passage on a familiar financial foible toward the end:
Until early this decade, she said, most her savings was in CDs. But with interest rates low, she sought advice on a prudent way to eek out more interest from savings pieced together from decades of work and some inheritance from family members.
There are very much times and places in which the ability even to store value is a good deal, and there are even times and places where you can do little better than to store dollars, even if they're losing value. It is absolutely worth taking risk to increase returns if the extra return is commensurate with the risk, but an action taken out of frustration with what's available for safe returns on capital or wishful thinking about what "should be" available has created a lot of pain for investors throughout the centuries.

Sunday, May 24, 2009
Richard Fisher
An interview with Dallas Fed President Richard Fisher. I personally think of Lacker as the most hawkish member of the FOMC, but that may be incorrect, and I may overly conflate Fisher and his predecessor McTeer, who was no fan of inflation but has a little bit of Greenspan's appreciation of the power of higher productivity growth to alleviate inflationary pressures.

By "trim mean calculation", I have no doubt they mean the trimmed-mean PCE inflation rate calculation, which seems odd in the context of suggesting it would lead one to be a "deflation hawk", as even the normal (ex-food-and-energy) core reading of PCE inflation has been substantially lower than the trimmed-mean rate, which is the rate that has led me not to be terribly concerned (yet) with deflation.

I've assumed the Fed wanted to create inflationary expectations so as to lower the real interest rate, and was musing recently as to whether the Fed could have done everything else as it has but simply changed all references to "purchasing treasury securities" to "monetizing the federal debt", and whether that would have created the requisite inflationary expectations. I have also thought recently — though without making the connection; I was thinking in terms of a deliberate policy of devaluation of the dollar against other currencies — that the status of the dollar as a global reserve currency imbues some of our economic policy decisions with more tricky foreign policy repercussions. Perhaps the political independence of the Fed about which we need to be concerned is not simply the threat from domestic political interference but also from foreign pressure.

Friday, May 22, 2009
carbon pricing
Even if pricing carbon is a good idea in the abstract, it has to actually be implemented in the real world, and probably by the government.

Thursday, May 21, 2009
Edward Liddy, the finance industry executive brought out of retirement by the US government to run the nationalised insurer AIG, is to quit as soon as a replacement can be found, foregoing the chance of being paid for his work.
He's going to be hard to replace; I think we should give him a bonus to stay on.

TED spread
Three month LIBOR today is 0.66125, bringing the TED spread to about 50bp. So the credit markets have healed? Well, I read a suggestion a couple days ago that maybe this is just more evidence of a liquidity trap.

As a pure credit risk premium, it makes more sense to hold currency at 0% than to make a loan with a 1% annual default rate at 66bp. A 0 bound on interest rates becomes a 100bp bound on a 100bp credit risk. It seems possible to me that some more exotic kind of risk would allow these rates to keep coming down in response to elastic liquidity demand, but I'm inclined to view this as a normalized market. I firmly believe that this recession, if perhaps a bit severe yet, is qualitatively pedestrian at this point. Let monetary policy work, and keep most of the fiscal policy oriented toward not destroying the institutions responsible for the growth of the American economy.

sovereign credit
S&P lowers UK credit outlook to "negative".

Thursday, May 14, 2009
bounded rationality
A New Yorker article on self-control and its implications. It has the typical New Yorker article's tendency to go off on long-winded (no doubt "charming") tangents about the protagonists, but there's some interesting stuff in there amongst it.

Charlie Munger
There's an interview with Charlie Munger up; the whole thing is a pdf that you can find at that (html) link. I'll note that I'm probably more sympathetic to mark-to-market accounting and "academic economics" than he is. (In particular, I can't imagine him being a lot happier with the proposed alternatives to mark-to-market accounting.)

price gouging and behavioral economics
Is "price gouging" immoral, and should it be illegal?
Snyder also attack’s Zwolinski’s “nonworseness claim” and suggests rules for ethical rationing of necessary goods after a disaster. The “nonworseness claim” asserts that because us gouging someone is better than neglecting them altogether (i.e. closing shop or refusing to sell at any price), and neglecting them is within our rights, it must also be within our rights to gouge them.
The weekend after 9/11, I drove past a gas station on a turnpike, and it was closed, out of gas. I mused to myself that I should sue them for being so irresponsible as to charge a low enough price to run out of gas; what if I had been stranded because of that? By being given a franchise on the toll road, wasn't it taking on an obligation to provide its service?

He also has another post on this subject:
But I think there is more than just this anchoring heuristic going on in this case. It isn’t just the price increase relative to a reference transaction, but a price increase during a period of presumed increased hardship – the “large snowstorm.” I’d bet if they posed this alternative version, they’d get a significantly different answer:

A hardware store has been selling snow shovels for $15. The morning after Memorial Day, the store raises the price to $20.


A hardware store has been selling snow shovels for $15. The morning after a new store manager arrives, the store raises the price to $20.

To me, these versions don’t seem to trigger a sense of unfairness. On this topic, I still think the Kling conjecture is right: price increases in times of increased hardship are perceived as morally wrong by some people (not merely unfair), because of an embedded moral principle that says it is wrong to take advantage of people in distress (and price increases on necessary items during times of hardship is seen as ‘taking advantage of people’ unless there is a cost basis for the increase).

This is the most coherent explanation of "price gouging" as a psychosocial phenomenon that I've heard.


Thursday, May 07, 2009
Treasury bonds
Description: 30-Year Bond
Term: 30-Year
Series: Bonds of May 2039
Interest Rate: 4-1/4%
High Yield: 4.288%
Price: $99.361980
Allotted at High: 57.15%
Accrued Interest*: None
Total Tendered**: $32,382,388
Total Accepted**: $16,476,538
Issue Date: 05/15/2009
Dated Date: 05/15/2009
Original Issue Date: 05/15/2009
Maturity Date: 05/15/2039
CUSIP: 912810QB7
This went at a much higher yield than pre-auction trading in the secondary markets.

Update: The 30-year yield. Guess when the auction results were announced.

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