07-01-2003 17:06									#271
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quote: Originally posted by HershOstropoler If you can answer a question for a change: Are you denying that a central bank, by forcing interest rates below their natural market level, can create a self-reinforcing consumption and invest boom ? Yes or no.

HAHAHA.....their natural market level? I gave you too much credit.....you are a bigger chump than I thought.

I think that had the fed not followed the interest rate policy they did that the US economy would be in far worse shape than it is. You wanted tighter policy - you agreed above. The output gap is closing so very slowly as it is.....with tighter policy the threat of a very bad recession/Japanese scenario would have been huge.

And your reason for wanting tighter policy is that you say that the fed's 'loose' policy is precisely what makes the recession/japanese scenario more likely, as you said a second ago.

Priceless. Made my day, I thank you.

	07-01-2003 17:09									#272
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So there is no market level for interest rates ?

	07-01-2003 17:13									#273
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There is no natural level......christ.....such ideas belong in 19th century textbooks. Least I am walking recent textbook.

Answer the rest of the post Mr Slippery. Come on.

	07-01-2003 17:43									#274
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"natural" as market level without CB. Don't know what you read into it this time - a steady rate ?

"Answer the rest of the post Mr Slippery."

You first. "So there is no market level for interest rates ?"

	07-01-2003 18:05									#275
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Of course there is a market rate.......but there is no natural rate outside of irrelevant classical long run arguments, and you clearly implied that the CB drove the actual rate below what was "natural" in the short run.

Come on, lube up, and address my post above.

	07-01-2003 18:19									#276
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"Of course there is a market rate"

Good.

"....but there is no natural rate outside of irrelevant classical long run arguments"

Again, what do you mean by natural ? "steady" ?

"and you clearly implied that the CB drove the actual rate below what was "natural" in the short run."

Below the short run market rate without a rate-setting CB.

"Come on, lube up, and address my post above."

I will once we have settled this crucial premise. So can you give answers, or do you want to **** around semantics forever ?

	07-01-2003 18:30									#277
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Hehe he's rattled.

The only way you can talk about a natural rate is the rate that yields equilibrium in the real sector of the economy in the long run (when the classical dichotomy between real and monetary sectors holds). It is nonsensical to talk about a short run "natural" rate..........in the short run the prevailing rate is determined simultaneously by both real and monetary factors, and somebody (if not a CB) always has control over the money supply.

But you are right, I am being picky.......it is churlish of me to pick up on small mistakes like this you might make......I want you, if you can without contradicting yourself, to answer the material below. This is the last time I make this request........if you cannot respond I understand.

I think that had the fed not followed the interest rate policy they did that the US economy would be in far worse shape than it is. You wanted tighter policy - you agreed above. The output gap is closing so very slowly as it is.....with tighter policy the threat of a very bad recession/Japanese scenario would have been huge.

And your reason for wanting tighter policy is that you say that the fed's 'loose' policy is precisely what makes the recession/japanese scenario more likely, as you said a second ago.

Priceless. Made my day, I thank you.

	07-01-2003 18:54									#278
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If you think that riding on a specific meaning of an ambivalent word with a lot of conjecture and auto-ass kissing constitutes proof of an error then it does not surprise me you're leaving academia.

Now I don't think there's much merit in going through this again as you are either unwilling or incapable to consider what I already said, but anyway:

"I think that had the fed not followed the interest rate policy they did that the US economy would be in far worse shape than it is. You wanted tighter policy - you agreed above. The output gap is closing so very slowly as it is.....with tighter policy the threat of a very bad recession/Japanese scenario would have been huge."

First my main issue is too loose a policy from 1998-2000 (it isn't just the Fed at work there, but the Fed played a crucial role). It seems you're jumping from one time frame to another. As for the last two years, the Fed's ultra-easy policy has avoided a very bad recession at the price of further mounting imbalances and in turn brought the US closer to a japanese scenario. I know that's confusing for you. If you find it funny, fine, enjoy.

What you seem to construe as my opinion though is that current US short term rates are below a long term natural rate and hence... well... something. If you find that one funny, fine as well, I find it funny too.

"And your reason for wanting tighter policy is that you say that the fed's 'loose' policy is precisely what makes the recession/japanese scenario more likely, as you said a second ago."

You are a funny guy. I asked you "What scenario ? Japan or a sharp recession ?", now you lump two things together again. For me those are different scenarios with different reasons (see above).

I assume had you been born a little earlier, you'd have been an ardent defender of John Law.

	07-01-2003 19:19									#279
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Searching amonst your frenzied rhetoric I found one point.

So you think in "the last two years, the Fed's ultra-easy policy has avoided a very bad recession at the price of further mounting imbalances and in turn brought the US closer to a japanese scenario"

So you accept that the fed acted to stave of a recession.......yet you still think the fed acted wrongly. So your position, if I understand it, is that a "very bad recession" in your words is preferable to the current situation, with a very mild downturn, and some imbalances that will in all likelihood work themselves out without major catastrophe.

You a masochist Roland? Seems like you are willing to take a lot of recessionary punishment just to avoid something that isn't likely to occur. Thank god you are not in charge of monetary policy.

So I end with a challenge: Should the US avoid a Japanese scenario, as I believe is very likely, will you admit that the fed was correct to avert the potential recession you yourself indicated? After all, should policy not bring on a Japanese style slump the fed would have been right to avoid the recession you yourself said would otherwise have occurred (and I concur with this assessment). So there you have it:

1) US enters deflationary slump and I will admit publicly in any forum you care to choose that I was wrong and you were right.

2) Should the US tread water for a while then recover, and the imbalances we agree exist slowly work themselves out without any Doomsday scenario then you admit that fed policy was right, I was right, and you are a chump extraordinaire.

Yes? Or more rhetoric?

	07-01-2003 19:34									#280
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"Should the US avoid a Japanese scenario, as I believe is very likely, will you admit that the fed was correct to avert the potential recession you yourself indicated?"

I put the risk at 50 %. Just don't understand why a recession is so much worse to you than treading water for several years.

"1) US enters deflationary slump"

I don't put 100 % on this, remember ? You got all ilked up at me giving it a 50 % chance.

"2) Should the US tread water for a while then recover"

Well for how long ? The US could go along with ~1 % growth until 2005 or longer and "recover" - or hit a real recession, or do the Japan.

If you want a bet it should rather be on your output gap. Based on that you should predict some pretty stormy growth ahead, should you not ? I don't.

	07-01-2003 19:47									#281
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So let's postulate the 50/50 is reasonable (it isn't, but that doesn't matter right now). Let's also postulate that had the fed followed the policy you want that a Japanese scenario would be impossible.

So, you would be willing to endure in your words "very bad recession" in order to remove a 50/50 chance of a deflationary slump?

Yes or no......no rhetoric.

And if you'd like my response to the comparison between treading water and a recession, there can be no doubt that treading water is eminently preferable to a recession. I would predict 1 year of just below trend growth and then a return to trend.

Clearly given my expectations you would agree that the fed policy was right I presume? After all there would be no point paying a recession to avoid the scenario I outline.........which is the one all real economists expect. Yes or no.....no rhetoric.

	07-01-2003 19:54									#282
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"So, you would be willing to endure in your words "very bad recession" in order to remove a 50/50 chance of a deflationary slump?"

Yes.

"there can be no doubt that treading water is eminently preferable to a recession. I would predict 1 year of just below trend growth and then a return to trend."

Pretty optimistic. But what would make a bad recession IMO would make a prolonged treading water-phase.

"Clearly given my expectations you would agree that the fed policy was right I presume?"

Well then let's select a timeframe (say 2003-2006?) and put an accumulated growth number on it.

"...which is the one all real economists expect."

Whose usefulness on predictions is pretty much limited to being an excellent contrarian indicator.

	07-01-2003 19:56									#283
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"So your position, if I understand it, is that a "very bad recession" in your words is preferable to the current situation, with a very mild downturn, and some imbalances that will in all likelihood work themselves out without major catastrophe."

I think this sums up his position nicely.

	07-01-2003 19:59									#284
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"Nicely" if you remove the unwarranted assumptions. It's a cheap trick to mix your opponent's conclusions with your own assumptions.

	07-01-2003 19:59									#285
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quote: Originally posted by HershOstropoler "Clearly given my expectations you would agree that the fed policy was right I presume?" Well then let's select a timeframe (say 2003-2006?) and put an accumulated growth number on it.

I gave you my opinion, just below trend (say 0.5% below if you want a number) for 1 year then trend growth.

The question is, postulating that I am right do you accept that fed policy was correct, and that paying the recession that would have occurred without the fed acting the way it did would have been needless? Yes or No?

	07-01-2003 20:01									#286
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Well, OK, remove the "that will in all likelihood work themselves out without major catastrophe". It's still a nice summary.

You subscribe to the "no pain, no gain" school of economic thought.

	07-01-2003 20:03									#287
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quote: Originally posted by DanS "So your position, if I understand it, is that a "very bad recession" in your words is preferable to the current situation, with a very mild downturn, and some imbalances that will in all likelihood work themselves out without major catastrophe."

So Dan.

Lets keep it neat and postulate that fed policy averted a potential recession at the cost of building up some imbalances. Do you feel that recession should have been experienced to avoid the current imbalances and the chance (albeit small) of a Japanese scenario?

	07-01-2003 20:15									#288
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"I gave you my opinion, just below trend (say 0.5% below if you want a number) for 1 year then trend growth."

So 10 % 2003-2005 ? What about the output gap ? No catch-up ?

"The question is, postulating that I am right do you accept that fed policy was correct"

Post 2000 yes, before no.

	07-01-2003 20:20									#289
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To confirm Roland: should my scenario be realised you will accept that post 2000 expansionary policy was necessary to avert a recession that otherwise would have happened, and that your criticism of fed policy from this time period would in those circumstances be incorrect?

	07-01-2003 20:21									#290
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Spike: Good God no. Inviting recession, except in the direst of circumstances ('81-'82) seems like asking for pain. I thank my lucky stars for looking back on ~3% growth. In context, I'd say we're kicking ass.

Let's line up those imbalances...

1) Stock market bubble... We're working through it very orderly;
2) Real estate bubble... A mixed bag, SF already mostly corrected;
3) Current Account deficit... Orderly dollar depreciation in progress;
4) Low savings... Don't know what to say about this
5) Capital spending... Slowly recovering

	07-01-2003 20:22									#291
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"necessary to avert" is uncontested anyway. So I'd say:

"Should your scenario be realised over the next few years I will accept that post 2000 expansionary policy to avert a recession that otherwise would have happened was the right choice."

	07-01-2003 20:24									#292
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quote: Originally posted by HershOstropoler "Should your scenario be realised over the next few years I will accept that post 2000 expansionary policy to avert a recession that otherwise would have happened was the right choice."

BINGO!!!!!

I will remember this......I have a long memory.

DanS: Good chap.

	07-01-2003 20:34									#294
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Good. What's your counteroffer ?

	07-01-2003 20:40									#295
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The one I made earlier. I know you are not predicting 100% chance of Japan happening in the US, but if it does you are right and I am wrong.

'Snot gonna happen though.

And what is more, most people would put the probability of Japan at far less than 50/50.........I find it hard to believe that even a masochist such as yourself would bear a recession just to avoid a 25% (pretty generous even at that) chance of Japan.

Unless things really start to move the way you predicted I don't want to see any more criticism of post 2000 monetary policy. We will leave pre-2000 for another day.

	07-01-2003 20:44									#296
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"Unless things really start to move the way you predicted I don't want to see any more criticism of post 2000 monetary policy."

Like you can forbid my mouth.

	07-01-2003 20:51									#297
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Well it is a free country.

Say, are you a sado-masochist or just a masochist?

	07-01-2003 20:53									#298
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I'm just a realist.

	07-01-2003 21:00									#299
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We'll see.

Say where is the cutoff point probability wise?

So you think a "very bad recession" would have been preferable to a 50/50 chance of a Japanese slump.

Give me the probability of such a slump conditional upon actual policy that would be necessary to make you indifferent between masochistically bearing the recession and taking the chance of a slump.

We can then use this probability, ex ante, as a test of the quality of your opinions.

	07-01-2003 21:14									#300
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"Give me the probability of such a slump conditional upon actual policy that would be necessary to make you indifferent between masochistically bearing the recession and taking the chance of a slump."

You seem to think there is only a cost of recession. There's also a cost of desperately avoiding a recession that is not induced by a tightening CB but by an artificial boom running out of steam.

"I find it hard to believe that even a masochist such as yourself would bear a recession just to avoid a 25% (pretty generous even at that) chance of Japan."

Based on your assumptions probably not. Based on my assumptions the recession is not a masochistic choice, but like the question of going to the dentist or labouring with the toothache.