In his State of the Union1 speech, President Obama laid out a new program to assist homeowners by enabling mass refinancing to the current very low level of mortgage rates.  The Administration claims that tens of millions of families may benefit by this program with an average savings of around $3,000 per year.  The cost… Read more

Condensed minutes of FOMC (Federal Open Market Committee) meetings are released three weeks after each meeting.  Detailed transcripts for the meetings in a given calendar year are released five years after the end of that calendar year.  Thus, last month the detailed transcripts for the 2006 FOMC meetings were released.  These transcripts have received a… Read more

Dan already summarized the meat of last Friday’s jobs report, but I wanted to briefly comment on one fairly esoteric point.  The Friday release included an annual “benchmark revision” to the population, labor force and jobs numbers.  Each year the Bureau of Labor Statistics (BLS) updates historical data based on updates from the Census Department. … Read more

The US savings rate is really low and has been for some time.  For many years this was explained by the argument that people were getting wealthy through appreciation of their homes and stock portfolios, so the need for saving out of current income was low.  And sure enough, household net worth did expand nicely… Read more

Last September, I proposed (“The Warren Buffett Tax”) that the most effective way to extract a lot of tax revenues from Warren Buffett would be to impose a wealth tax.  My tongue-in-cheek proposal was this:  Tally up your assets and liabilities, calculate the difference (net worth) and then pay a tax of 20% on net… Read more

In his book Econoclasts1, historian Brian Domitrovic produces what he believes is the first historically rigorous account of the development of supply-side economics (that is, one that relies on primary sources).  He reviews contributions to supply-side theory by Nobel Prize winning economists Robert Mundell and Robert Lucas, as well as significant contributions from outstanding economists… Read more

In a terrific book published last year,  Antti Ilmanen1 has investigated the drivers of investment returns from a number of angles including asset class (that is, equities, fixed income, commodities), investment strategy (value, growth, momentum, leverage, carry), and risk driver (exposure to economic growth, inflation, liquidity).  The basic idea is that you obtain strong investment… Read more

In a previous article (December 10, Goodhart’s Law and Monetary Policy) we discussed Goodhart’s Law which says that once an observed empirical relationship begins to be relied upon, it will no longer work. In that article we applied the law to monetary policy. Goodhart’s Law also applies to bank capital regulations.  The Basel Committee on… Read more

Goodhart’s Law (named after economist Charles Goodhart) says that once an observed empirical relationship begins to be relied upon, it will no longer work.   This law, or a variant, comes up in a lot of fields, but especially finance and economics.  Consider the problem of forecasting the rate of inflation.    Price stability is a major… Read more

The Taylor Rule The Taylor Rule relates the target federal funds rate with the gap between actual and target inflation and between actual and capacity output.  The higher is inflation or the lower is the output gap, the higher is the target funds rate.  The rule is both descriptive and prescriptive.  It was originally proposed… Read more