Recent Posts

Wednesday, October 1, 2014

Should A Central Bank Care About Loanable Funds?

Loanable funds theory appears innocuous: the idea that you can apply standard supply and demand curves to the market for financing. However, there are problems with this approach, as the result of how the financial markets operate in a modern economy. In this article, I look at a recent method of recasting loanable funds into a New Keynesian model, and I show why it is still questionable when put into this more modern format. Central banks are free to ignore "loanable funds" when setting interest rates, even within these mainstream models.


Sunday, September 28, 2014

Consequences Of A Basic Income Guarantee

The idea of a Basic Income Guarantee (hereafter known as BIG) has become increasingly a topic of interest. My views have been greatly influenced by Hyman Minsky and Modern Monetary Theory (MMT), where a guaranteed job was preferred to guaranteed income. (Minsky referred to this as an Employer of Last Resort programme; MMT refers to this as a Job Guarantee.) I explain why I view a BIG as being essentially unfeasible within Canada, using logic similar to their analyses.

Wednesday, September 24, 2014

Understanding The 30-Year Canadian Government Bond Yield

Chart: 30-Year CGB Yield
In "The Bank of Canada vs the bond market", Nick Rowe queries the low level of 30-year Canadian government bond yields, given where the Bank of Canada thinks neutral is. It is possible to understand this based on relative value considerations. Whether those relative value considerations make any sense is another matter entirely.


Tuesday, September 23, 2014

A MMT View On The Theory Of Hyperinflations

The post "CMMT - Cate's Modern Monetary Theory" (on Seeking Alpha; free registration required) by Vincent Cate attracted a fair number of comments on the Mike Norman Economics web site. In that post, he presents what he calls CMMT - Corrected Modern Monetary Theory - and he argues that this correction allows MMT to explain hyperinflation. One could probably argue that MMT - as well as mainstream economic theory - do not have standard models that deal with hyperinflation. But that is for the same reason that those bodies of thought do not have standard models to estimate the impact of barbarian incursions along the frontier. It is not to say that foreign incursions do not matter - as the Western Roman Empire can attest - but that such an event is not a serious concern for the industrial economies at present.

Sunday, September 21, 2014

Demand Creates Its Own Supply: Government Bond Edition

Keynes summarised Say's Law as "supply creates its own demand". That is a subject that is somewhat controversial, but I do not want to discuss that here. Rather, I am interested in what might be called the Anti-Say's Law: demand creates its own supply. Although it sounds fairly silly when applied to a market like pork bellies, it actually appears applicable to the government bond market. I have touched upon this topic in earlier articles, but I want to tie it into to my recent primer on stock-flow norms. This concept provides an alternative means of understanding current trends in the developed economies.

Tuesday, September 16, 2014

Drill, Baby, Drill!

Chart: North American Drilling Rig Count
One of the developments in the North American real economy which is of extreme importance for forecasting is the surge in oil and gas drilling activity. Although the number of people directly employed in drilling is minuscule, there are multiplier effects along the supply chain. What is ominous about this activity is the track record of fixed investment in North America since at least the early 1980s - every large surge in fixed investment turned out to be a bubble that precipitated a recession when it deflated.


Sunday, September 14, 2014

Book Review: The End Of Growth

Jeff Rubin's book The End Of Growth is a good introduction to the impact of Peak Oil on the economy and markets. It was published in 2012, and the Kindle version has been updated since then (note that I did not read the updated version). Although the book is not perfect, I think it has some advantages over other analyses of Peak Oil. Although Peak Oil has been proclaimed to be dead, I explain the advantages of starting to analyse it now - you want to understand the concept before it rises again from the grave.