Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Showing posts for "the Center for Geoeconomic Studies"

Benchmarking the Fed’s Dual-Mandate Performance

by the Center for Geoeconomic Studies
The Dual Mandate

The Fed has a dual mandate to pursue price stability and maximum employment.  How should these be defined?  In January, the Fed set itself a long-run inflation target of 2%, while in June the midpoint of Fed board members’ and Reserve Bank presidents’ long-run unemployment predictions was 5.6%.  Our figure above shows actual inflation and unemployment performance relative to these targets going back to 2002.  What stands out is the divergence that opens up, particularly on the unemployment front, after Lehman Brothers failed in September 2008.  The sum of the deviations reached its peak in July 2009, as shown in the small box in the upper left of the figure.  Though it has since declined fairly steadily, it is still well above zero – zero being a benchmark for fulfilling the combined mandate.  This suggests that the Fed’s doves should continue to hold the upper hand. Read more »

More Evidence That LIBOR Is Hazardous to Economic Health

by the Center for Geoeconomic Studies

Central bankers necessarily spend a great deal of time studying economic and market data that they believe to be forward-looking indicators of the economy’s health.  One such is the so-called “LIBOR-OIS spread” – the spread between the London Interbank Offered Rate (the rate at which major banks can supposedly borrow from each other, unsecured by collateral, for three months) and the Overnight Indexed Swap rate Read more »

More Evidence That LIBOR Is Manipulated, and What It Means

by the Center for Geoeconomic Studies

Barclays’ admission that it deliberately understated the interest rates at which it could borrow between September 2007 and May 2009 suggests grievous flaws in the widespread process of using LIBOR (the London Inter-Bank Offered Rate) as a benchmark off which to price commercial loans, mortgages, and other forms of lending.  Our figure above illustrates this by comparing LIBOR with so-called NYFR Read more »

“Iceland’s Post-Crisis Miracle” Revisited

by the Center for Geoeconomic Studies
The Northern Lights are seen through a valley leading away from Iceland's Eyjafjallajokull volcano April 22, 2010. Lucas Jackson / Reuters The Northern Lights are seen through a valley leading away from Iceland's Eyjafjallajokull volcano April 22, 2010. Lucas Jackson / Reuters

Back in July 2010, we produced a post examining the “Icelandic Post-Crisis Miracle,” as proclaimed by Paul Krugman.  We showed that Krugman’s “miracle” was merely an artifact of comparing changes in Iceland’s real GDP with that of Estonia, Ireland, and Latvia since the strategically chosen 4th quarter of 2007. Read more »

Gloomy Jobs Picture Is off the Fed’s Charts

by the Center for Geoeconomic Studies
Unemployment Projections

When the Federal Reserve’s Open Markets Committee (FOMC) last met in April, the unemployment rate was on a declining path – having fallen to 8.2% in March from 9.1% the previous August.  Against this backdrop, the Committee was modestly sanguine on prospects for job growth going forward.  “The unemployment rate will decline gradually,” it predicted, “towards levels that it judges to be consistent with its dual mandate,” without need for new monetary stimulus measures. Read more »

Can Household Risk-Aversion Measures Predict Fed Policy?

by the Center for Geoeconomic Studies
risk aversion

The so-called Taylor Rule in monetary policy suggests how the Federal Reserve should adjust interest rates based on movements in inflation and economic output.  Although the Fed has never explicitly followed such a rule, it described fairly well the path of interest rate policy under much of Alan Greenspan’s tenure as chairman. Read more »

It’s the Jobs, Stupid

by the Center for Geoeconomic Studies
Consumer Confidence and Presidential Elections

The Conference Board’s consumer confidence measure has, since its inception in 1967, been a perfect predictor of presidential incumbent election performance.  As shown in the large figure above, every time the measure has averaged under 95 in the election year, the incumbent has lost; over 95, he has won.

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Is the Fed’s Zero-Rate Pledge Hostage to an Inflated Employment Target?

by the Center for Geoeconomic Studies
Labor Force Participation Rate

The Fed has a dual mandate to promote stable prices and maximum employment.  With current inflation near the Fed’s long-run target of 2% and unemployment well above estimates of its “natural rate,” Fed chairman Ben Bernanke and NY Fed President William Dudley have understandably stressed their commitment to the second part of the mandate.  Indeed, the Fed’s recent pledge to hold interest rates near zero through 2014 reflects their concern that unemployment will only decline slowly in the coming years, unlike in previous recoveries.  Read more »

Will Student Debt Add to America’s Fiscal Woes?

by the Center for Geoeconomic Studies
Federal Student Loans Outstanding

With a pair of new laws in 2008 and 2010, Congress fundamentally changed the student loan market, making the U.S. government the sole supplier of Federal student loans, rather than just the ultimate guarantor.  In itself, this does not affect the government’s net debt, because it acquires assets—student loans—which carry a market value.  This new direct lending does, however, add to the gross debt held by the public.  The $1.4 trillion in direct federal student loans that will be outstanding by 2020 will amount to roughly 7.7% of gross debt.  This is 6.3 percentage points higher than it would have been had the scheme not been nationalized.  To the extent that one worries about debt from the perspective of a “fiscal crisis,” in which government borrowing costs soar without warning, gross debt is more important than net debt, as student loans are not assets that can be readily sold to reduce borrowing requirements.

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Buffett Wants to Pay Higher Taxes—on Less Than 1% of His Income

by the Center for Geoeconomic Studies
The U.S. Tax Code: Poorly Designed, but Progressive

In a now-famous August 14, 2011 New York Times op-ed, billionaire Warren Buffett called for tax rates to be raised “immediately on taxable incomes in excess of $1 million, including, of course, dividends and capital gains.” The key word here is “taxable.” In Buffett’s case, his taxable income is a mere 0.9% of his income held within Berkshire Hathaway, of which he owns 22%. His share of its 2010 pre-tax income was $4.2 billion dollars, taxes on Read more »