The current U.S. economic expansion is in its fifth year. At this stage, the possibility of its ending has raised two explanations that can be labeled the “foreign flight’ and “consumer burnout†hypotheses. While both predict a recession, they rest on very different reasoning and have different implications for interest rates and exchange rate policy. The foreign flight hypothesis is also politically troubling since it can be easily tinged with xenophobia. (more…)
Archive for October, 2005
Two Views About a Possible U.S. Hard Landing: Foreign Flight versus Consumer Burnout
Sunday, October 23rd, 2005Time for the Fed to Take an Inflation Chill Pill
Tuesday, October 18th, 2005September’s headline consumer price inflation was 1.2 percent and it was 4.7 percent for the past year. However, core inflation, which excludes volatile food and energy prices, was just 0.1 percent in September and was only 2.0 percent for the entire year. Despite core inflation holding at this subdued rate for the past five months, the Federal Reserve has embarked on an interest rate-raising crusade. This campaign is on the verge of killing the patient, and it is time for the Fed to take an inflation chill pill. (more…)
The Questionable Legacy of Alan Greenspan
Sunday, October 16th, 2005Alan Greenspan will retire as Chairman of the Federal Reserve in January 2006, and his retirement promises a flood of swooning retrospectives. Writing anything else at this moment risks the charge of churlishly raining on the parade. However, there are good grounds for a more critical reading of Greenspan’s eighteen-year tenure at the Fed. (more…)
Global Imbalances: Stop Thinking Saving, Start Thinking Demand
Monday, October 10th, 2005The Economist magazine (September 24, 2005) recently ran a story about the threat posed by global financial imbalances. The front cover showed a picture of a teeter-totter (see-saw in English) atop the globe. On the upper-end of the teeter-totter was a small stars-and-stripes piggy bank representing thriftless America; on the lower-end was a plump piggy bank representing the thrifty rest of the world. The moral of the story was that the U.S. is saving too little, the rest of the world is saving too much, and the net result is a dangerous global saving imbalance that requires an adjustment of saving patterns. (more…)
Manufacturing meets Wal-Mart: The Economics of Global Out-sourcing
Saturday, October 1st, 2005General Motors and Ford have both recently announced plans to restructure their parts supply arrangements, the result of which will be the loss of thousands of middle-class manufacturing jobs. These plans involve slimming down the number of suppliers, as well as forcing domestic suppliers to match the lowest global price (the “China priceâ€) if they wish to retain business. (more…)