Thursday, January 29, 2015
There is very little going the Treasury bond bears' way this year. They could not even be saved by a hawkish FOMC statement yesterday. Looking North, the Bank of Canada decision may be better explained by the downward revisions to job creation in 2014.
Wednesday, January 28, 2015
it is endogenous, not exogenous.) For example, we cannot say that austerity policies were not implemented in the euro periphery just because fiscal deficits continue. This has also come up in the argument by Scott Sumner that "Keynesians" were wrong in their predictions about a recession in the United States in 2013.
Saturday, January 24, 2015
The first part discussed currency pegs, and is found here.)
Wednesday, January 21, 2015
the Canadian economy is doomed for a long time, I think this was a policy error. Interest rates 25 basis points lower will have no measurable effect upon the economy, but it will most likely be interpreted as the beginning of a (very short) rate cut cycle. Since rate cut cycles are almost invariably associated with recessions, the correct question to ask: what does the Bank know? The biggest risk facing the economy is a loss of confidence in the ability of Canadian households to service their debts; increasing uncertainty is the last thing Canada needs. The weaker Canadian dollar will take quarters or even years to help growth (as a result of the J-curve), but confidence within the housing market could be lost within weeks.
Saturday, January 17, 2015
The book The Shifts and the Shocks: What We've Learned - And Have Still To Learn - from the Financial Crisis, by Martin Wolf (a prominent writer for the Financial Times) offers a comprehensive explanation of the malaise in the economies of the developed world, as well as suggested reforms. One thing that stands out is how he has given up on mainstream economics, and looks for guidance from heterodox economists. Although not his intention, his book underlines my suspicion that reforming increasingly sclerotic developed countries will not be easy.
Thursday, January 15, 2015
my fairly hawkish "base case scenarios" look like they are morphing into what I saw as the lower probability "crisis and panic" scenario.
Wednesday, January 14, 2015
The Canadian Labour Force Survey for December 2014 was released last week, and it dipped lower. The survey - the equivalent of the Household Survey in the United States - is noisy, but the overall picture remains of relatively weak job growth. Unfortunately, construction dominates the private sector contribution; other sectors have not been able to take over as a "job machine" during this expansion. This means that Canada has not been able to take advantage of avoiding the real estate collapse that hit south of the border and rebalance towards other drivers of growth. Instead, Canada has continued to "debalance", with construction remaining dominant. (Please see this article I wrote just over a year go to get further background on debalancing.)
[UPDATE 2015-01-15. There has been a wave of high profile layoffs and closures in Canada that have hit the news after this was written (link to the latest). It would take time for this to show up in the official data, but it could lead to recessionary psychology now being in place. An assumption behind this article was that the probability of a Canadian recession in 2015 was below 100%; I do not know whether the latest information puts that assumption in doubt. I prefer not to revise my text in order to account for new information.]