Coppola Comment

Is the U.S. in recession? If so, when did the recession start, and what caused it?  The usual economic definition of "recession" is two successive quarters of negative GDP growth. But in Q1 2020, growth was positive, though it was apparently slowing sharply (more on this shortly): So using the standard economic definition, the U.S. is not yet in recession. But according to the Business Cycle Dating Committee of the National Bureau for Economic Research (NBER), the U.S. entered recession in February:  The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession.  February? The  New York Fed's nowcasting report  for February showed no sign of recession. The most recent nowcast shows the economy dropping off a cliff at the beginning of April:  Of course, even nowcasts have lagging data. The date of the collapse according to

The last week has been extraordinary, even by the standards of these extraordinary times. A flurry of Executive Orders from the new President of the United States has thrown the global order into chaos and sparked outrage throughout the world. But he has only done exactly what he said he would do. There is nothing in the Executive Orders signed so far that was not announced during the Presidential campaign, repeatedly and to loud cheers from his many supporters. The President was lawfully voted in by the people of the United States on the basis of the promises he made to them, and he is now following through on those promises. Frankly, I find this hard to criticise. If his decisions are illiberal, discriminatory and racist, that is because a substantial proportion of the American people are illiberal, discriminatory and racist. The problem is not the President, it is those who elected him. I do not understand why those who cherish liberal values and human rights convinced th

In many eyes, President-elect Trump is a loose cannon. He says things that upset people the world over. Many of these things perhaps should not be taken too seriously - after all, he is a showman. But it would be a mistake to dismiss his rhetoric on trade. There, he is in deadly earnest - and it does not bode well either for America or for the world.  Trump's trade agenda was set out in Peter Navarro & Wilbur Ross's paper   (pdf)  of September 2016. Peter Navarro's most famous work is the documentary " Death By China" which essentially blames China for all America's woes. Wilbur Ross is a businessman who made a fortune from buying up and restructuring manufacturing businesses, some of them protected by George Bush's trade tariffs . Both of them are unashamedly protectionist, labelling countries running large trade surpluses as "cheaters" and "manipulators" and demanding that the rules of international trade be changed to b

2016 has been an extraordinary year. Memorable for so many things: celebrity deaths,   the melting of Arctic sea ice , Trump, Brexit, terror attacks in Europe, drownings in the Med, destruction in Syria. The largest movement of people in recorded history. And - perhaps - the overturning of the political & economic paradigm established by Reagan and Thatcher. Are we seeing the end of elites and the triumph of the common man? Was the Brexit vote really the victory of "ordinary people"? Was Trump's election really due to a populist surge? I look at Trump's cabinet and I don't see a resurgence of populism. On the contrary, I see the triumph of the 1 percent. Trump's cabinet is made up almost entirely of old, white and extremely rich men. Many of them are former senior military personnel. The few women are rich, beautiful and - by American political standards - young. In short, the composition of Trump's government speaks not to pluralism, or even the

The Group of 30 central bankers and economists has produced a new report, "Fundamentals of central banking: lessons from the crisis". It traces the history of central banking theory and practice, including the economic thought that underlies it. And it draws from it some important lessons about the causes of the 2008 crisis and the reasons for the very long, slow recovery. I've discussed the main themes of the report here (Forbes). But in this post, I want to focus on a particular piece of economic history. This chart leapt out at me from the report: Note that this chart starts only two years after the Weimar hyperinflation, hence Germany's elevated inflation rate at the start. This is important, as we shall see. What struck me is how similar the profiles of the two countries are during the Depression. Both experienced Fisherian debt deflation - annualised CPI fall at peak was 10% for both countries. And both had very high levels of unemployment. German unem

In my last post , I pointed out that Greece's current depression is by no means the worst since World War II, as is often stated, and that the US's Great Depression was not the worst depression in history either. For reference, I'm putting up Tony Tassell's chart again. I'm frankly appalled by the comments on that post. The arguments used to justify the prevailing views amount to the following. 1. The other countries in the list aren't rich Western countries, so they don't count. Eh??? 2. Depression in a time of war isn't really depression. I doubt if the people of Syria would agree with this. However, in support of this point (and taking into account point 1), Christos Savva kindly provides this chart: What this chart shows us is that the two World Wars were bad for the GDP of Western countries, and REALLY bad for the GDP of the countries on the losing side. So if you want to avoid a really bad depression, make sure you always win w

We're used to hearing that the current Greek depression is the longest and deepest since World War II, aren't we? And that the worst depression in history was the US's Great Depression? Via the FT's Tony Tassell comes this chart: Looks like the fall of the Iron Curtain, the collapse of the Soviet Union and the first Gulf War did far more damage. Not to mention the numerous wars and crises in Africa. The current Greek depression just about makes it on to the bottom of this chart, and the other recent EU disasters don't even figure.  I can't imagine what it is like to live through a GDP collapse of nearly 80%. But there are people alive today in Georgia and Iraq who remember that dreadful time all too well. And the appalling collapse suffered by Latvia in 1990-3 made their 2009 recession seem mild by comparison, even though it was the deepest of any country in the EU at that time.  Nor are these all depressions of the past. Halfway up this chart is Syri

Researchers at the Federal Reserve recently produced a fascinating article in which they argued that severe recessions such as that in 2008-9 leave permanent economic scars.This set of charts shows the effect of the 2008-9 recession on real GDP trend growth for four economic areas - the US, the UK, the Euro area and Canada: This reminds me of the four-image game on the UK's satirical current affairs show " Have I Got News For You ". Spot the odd one out, and explain why.....and no, it isn't the one you think it is. Actually each chart has a claim to be the odd one out, which just goes to show how the economic effects of the financial crisis varied by country. Or perhaps more accurately, how the response to the crisis by monetary and fiscal authorities varied. These charts show a significant drop in trend RGDP for all four economic areas: Canada, which had neither a property market crash nor a banking crisis, shows the smallest fall. Interestingly - and c

  A Landmark - L.S. Lowry My latest at Pieria debunks the notion - heavily promoted by hawkish analysts and impatient journalists - that the FOMC's announcement that QE has ended means that interest rate rises are imminent. And it raises a worrying question. The FOMC -and others - talk about "normalising" policy. But what does "normal" even mean? Is there such a thing as a "normal" setting for interest rates? We do not know..... Read the post here .

Recently I wrote a post discussing the (sizeable) role of the Eurodollar market in the 2007-8 financial crisis, or rather in the credit boom that led to the crisis. In order to explain the vast increase in transatlantic two-way flows (round-trips) from 1997 to 2007, I used this diagram from Hyung Song Shin's 2011 paper on the "global banking glut": But there's a problem. This diagram appears to show that all money lent by both US and European banks came from US households. Where did they get their money? It wasn't wages. We know that US wages have been stagnating for two decades. No doubt some will suggest it came from Asian savers - the "global saving glut" that is apparently caused by thrifty Chinese households. But how could thrifty Chinese households provide US households with money? Most Chinese households save in yuan. It is Chinese government and corporations that lend to the US, and it is not households they lend to. Mainly, it is the US

My latest post at Pieria considers the sizeable role of the Eurodollar market in the unsustainable growth of credit that led to the 2007-8 financial crisis.  In a lecture presented at the 2011 IMF Annual Research Conference, Hyun Song Shin of Princeton University argued that the driver of the 2007-8 financial crisis was not a global saving glut so much as a global banking glut. He highlighted the role of the European banks in inflating the credit bubble that abruptly burst at the height of the crisis, causing a string of failures of banks and other financial institutions, and economic distress around the globe. European banks borrowed large amounts of US dollars through the money markets and invested them in US asset-backed securities via the US's shadow banking system. In effect, they acted as if they were US banks, but in Europe and therefore beyond the reach of US bank regulation...... What was it that drove the expansion of the Eurodollar market and encouraged European

This post is about the US, obviously - though the same considerations apply in the UK as well. The Fed’s large-scale asset purchases (LSAPs, popularly known as QE) have been tapering off for some time now and are expected to end this month. But even though the Fed won’t be making any new purchases, it will still have the largest balance sheet in history. All the securities it has purchased in three rounds of QE and Operation Twist are sitting on its balance sheet. And the banking system is awash with the excess reserves created as a consequence of those purchases. It is clear now that monetary base creation on this scale does not cause runaway inflation, as was feared by many. And it does appear to have prevented the US from experiencing severe deflation in the aftermath of the financial crisis. But as the US economy recovers, the question arises whether the Fed should start shrinking its balance sheet – unwinding QE. So should it unwind QE, and if so - how? Read on

At Forbes: On June 17, the US announced further sanctions against Russia because of its support for rebels in the Ukrainian civil war. The new sanctions are widely considered to be tough. But they are also difficult to understand. The extent of their legal and practical application is by no means clear. Yet – they are very clever. However they are interpreted, they are bad news for Russia. Find out here how they should be interpreted and why they amount to financial warfare.

Scott Sumner has been reading Piketty . And in the first of (apparently) several posts he picks Piketty apart, starting with this passage: "In my view, there is absolutely no doubt that the increase of inequality in United States contributed to the nation’s financial instability. The reason is simple: one consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since unscrupulous banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms." "Where does one begin?" cries Sumner. And he then proceeds to give five reasons why this particular passage is wrong: "1.  In my view there is plenty of doubt as to whether inequality contributed to the crisis