Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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In the mountains

by Brad Setser
February 16, 2009

I am taking a few days off. Rachel Ziemba of RGE Monitor will be guest blogging, and Paul Swartz of the Council’s Center for Geoeconomic Studies will be adding a couple of posts as well. There is some chance I will chime in as well. I am certainly curious to see what the December TIC data will show …

Do pay attention to the blog bylines though. Not all posts that appear here this week will be written by me.


  • Posted by DJC

    Treasury Secretary Geithner put his foot in his big mouth in more ways than one. Someone better give him a lesson in diplomacy along with the lesson he needs in economics. Giethner is easily the worst of Obama’s cabinet picks.

    China is no more manipulating the Renminbi than the US is the dollar. What else do you call micromanaging interest rates, guaranteeing bank debt, engaging is currency swaps with Swiss Banks, and giving trillions of dollars to banks? Everyone of those things impacts the dollar. Moreover, there is no talk from this administration about Japan’s open threat to intervene in the Yen, or the Russian intervention in the Rouble.

    I am not in favor of any of this of course, I am just pointing out the US pot is calling the Chinese kettle black. And when it comes to free trade, the US and the EU are among the world’s biggest hypocrites.

    Moreover, Obama and Geithner better be careful of what they ask. China has already lost 20 million jobs, and it may easily lose 50 million more. Currencies of export based economies like Australia and Canada have been smashed. If China floated the Renminbi like we are asking, it could easily follow downward, and indeed I expect it would.

  • Posted by tyaresun

    Enjoy your richly deserved vacation. Avoid cliff diving though.

  • Posted by RebelEconomist
  • Posted by ndk

    If Brad’s going where I suspect he’s going, there won’t be much cliff diving — or going at all, for that matter. Won’t take long to bag that summit.

    In all seriousness, enjoy your time off, and I’m very sorry to hear of the budget issues in Kansas. If ever there were a state deserving of a better lot…

  • Posted by Rocked

    global imbalances in disorder, this has to end badly. which commodity will be the best performer in 5 year time frame?

    gold, oil, or agriculture? I’d like to move some money out of cash…

  • Posted by Cedric Regula

    Whilst Brad is goofing off I’ll post some new economics stuff to satisfy everyone’s thirst for the subject. This is a great time to read up on theories of the founders of modern economics. Two out of the three got rich in the ’20s, then lost it all in the ’30s. So buyer beware. It’s clear there is no General Theory of Economics.

    The unknown granddaddy , Irving Fisher. Everyone basically agreed with him.

    Then Milton Friedman. The best known monetarist. But his hopes of controlling M2 and regulating fractional reserve banking so M2 meant something were dashed by de-regulation. Paradoxically his preferred means of controlling the money supply fell prey to the “velocity” term in Fisher’s MV=PT equation, along with “high powered money” and “the money multiplier”. Then traders switch stocks and bonds into money and back again in an eye blink. So Milt’s theories have gone down the tubes.

    Then of course Keynes. Surprisingly, he was an advocate of The International Currency.

    These are all the Reader’s Digest versions, so they don’t take that long to read.

  • Posted by Cedric Regula

    Whoops, forgot the Friedman link.

  • Posted by Cedric Regula

    Then here is some actual economic data for 20 years to look at. It tabulates real and nominal interest rates vs inflation vs unemployment rate. It may give you some idea of who to believe of the 3 economists above. But this data is from functional economic times, so we get Fisher’s debt deflation spiral taking us all the way down to zero, we don’t there of course.

    I don’t know if this chart will post readable. Giving it a shot anyway.

    Table 1 Selected Statistics, 1960–1999, percentages (average or changes)
    Year or Average Over CPI Inflation Dec.–Dec. Fed Funds Rate “Real” Funds Rate M1 Growth Rate Adjusted M1B Growth Unemployment Rate
    1960–64 1.2 2.9 1.7 2.8 — 5.7
    1965–69 3.9 5.4 1.5 5.0 — 3.8
    1970–74 6.7 7.1 0.4 6.1 — 5.4
    1975 6.9 5.8 -1.1 4.7 — 8.5
    1976 4.9 5.0 0.1 6.7 5.8 7.7
    1977 6.7 5.5 -1.2 8.0 7.9 7.1
    1978 9.0 7.9 -1.1 8.0 7.2 6.1
    1979 13.3 11.2 -2.1 6.9 6.8 5.8
    1980 12.5 13.4 0.9 7.0 6.9 7.1
    1981 8.9 16.4 7.5 6.9 2.4 7.6
    1982 3.8 12.3 8.5 8.7 9.0 9.7
    1983 3.8 9.1 5.3 9.8 10.3 9.6
    1984 3.9 10.2 6.3 5.8 5.2 7.5
    1985–89 3.7 7.8 4.1 7.7 — 6.2
    1990–94 3.5 4.9 1.4 7.8 — 6.6
    1995–99 2.4 5.4 3.0 -0.4 — 4.9

  • Posted by Indian Investor

    @Cedric: Please have a look at this link to get a common sense guess at the current unemployment level.

  • Posted by Robert Bell

    CalculatedRisk often sends action photos of scenic places when he is on vacation.

    I’m just sayin’

  • Posted by Cedric Regula

    Here’s a 100 year history of our chief practitioners of economics, the Federal Reserve. Their stated objective to use interest rate policy to balance inflation and unemployment, thereby growing the economy at “maximum potential”.

    For reference, here is Maslow’s Pyramid. ZIRP and QE should mean we have already reached Peak Maslow’s Pyramid. Nothing to worry about, they know what they are doing.