Things to Read on the Morning of April 14, 2014

April 14, 2014

Must-Reads:

  1. Samuel G. Hanson et al.: Banks as Patient Fixed Income Investors: “We examine the business model of traditional commercial banks in the context of their co- existence with shadow banks. While both types of intermediaries create safe “money-like” claims, they go about this in very different ways. Traditional banks create safe claims with a combination of costly equity capital and fixed income assets that allows their depositors to remain “sleepy”: they do not have to pay attention to transient fluctuations in the mark-to-market value of bank assets. In contrast, shadow banks create safe claims by giving their investors an early exit option that allows them to seize collateral and liquidate it at the first sign of trouble. Thus traditional banks have a stable source of cheap funding, while shadow banks are subject to runs and fire-sale losses. These different funding models in turn influence the kinds of assets that traditional banks and shadow banks hold in equilibrium: traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk, but are relatively illiquid and have substantial transitory price volatility.”

  2. Barry Eichengreen: It’s Not a Savings Glut, It’s a Tolerance for Holding Risky Investment Shortfall: “The data show little evidence of a savings glut…. It is plausible that the wealthy consume smaller shares of their income…. But to affect global interest rates, these trends have to translate into increased global savings…. A second explanation for low interest rates is a dearth of attractive investment projects. But this does not appear to be the diagnosis of stock markets…. Capital expenditure has been insufficient to prevent rates from trending down for more than three decades…. If the disorder has multiple causes, then there should be multiple treatments… tax incentives for firms to hire the long-term unemployed; more public spending on infrastructure, education, and research to compensate for the shortfall in private capital spending; and still higher capital requirements for banks and strengthened regulation of nonbank financial institutions…. Finally, central banks should set a higher inflation target…”

  3. Owen Zidar Weekend Links: “Larry Summers gave a talk at INET (starts at 45 min and goes to 1:38 or so) with some especially interesting hypotheses about the changing structure of investment (from GE’s high capital investment model to Google’s abundance of cash) and reflections on the agriculture transition (around 1:21) and the associated difficulties with large shifts in the industrial composition of employment… http://new.livestream.com/INETeconomics/HumanAfterAll/videos/47888551“

Should-Reads:

  1. Raghuram Rajan: India’s Rajan Calls for More International Monetary Cooperation: “This would mean that while exiting from unconventional monetary policies, central banks would pay attention to conditions in emerging markets [in] deciding the timing of moves while keeping the overall direction of moves tied to domestic conditions…. [He fears the Fed is sending] the probably unintended message that [emerging] markets were on their own…”

  2. Josh Marshall: Into the ‘Truther Jungle: “In these days of partisan division and epistemic siloing we all live in bubbles of a sort. But some, quite simply, do so so much more than others…. Some are still living in that own private Ohio. Today though the long twilight struggle between numbers and the power of positive thinking has moved on to the fresh fields of ObamaCare…. Twitter is not a place to go in search of balance or circumspection. But it is a good place to get in touch with the Id of each party…. The numbers from HHS and the states are fake. No one has paid their premiums. No young people have signed up because, well, where are the numbers? Why isn’t Obama releasing them? Everybody has lost their insurance and prices are skyrocketing…. What is notable is the total shock that there’s not total unanimity that the program is failing. As we’ve noted in reporting over the last week, conservative policy hands are pretty much all coming around to the conclusion that the ACA isn’t collapsing and is here to stay…. But those policy hands (and to an increasing degree, party strategists) are coming around to see that the policy isn’t failing of its own accord and the nature of the opposition is not such that it can be easily repealed…. They’re not suspecting that there haven’t been over 7 million private sector sign ups or still insisting that the 85 million people who lost their insurance are being held at FEMA internment camps in Idaho and Upstate New York…”

Should Be Aware of:

  1. Paul Krugman: Low Inflation and Structural Illusions: “The suggestion that only the short-term unemployed matter for wage determination, that the long-term unemployed have been written off, is rapidly congealing into orthodoxy. And it might be true. But I’m with Mike Konczal here: it’s far from being a well-established fact…. There is strong evidence for downward nominal wage rigidity, which is binding for many workers at low inflation; we are constantly told that these days inflation expectations are ‘anchored’; and we know from historical experience with prolonged large output gaps (PLOGs) that countries very rarely go into actual deflation. All of this suggests that using a wage or price equation estimated over the 70s and early 80s could be very misleading if applied to today’s environment…. We may well be mistaking the normal behavior of a low-inflation, depressed economy for a structural rise in the natural rate of unemployment…”

  2. Martin Wolf: Only the ignorant live in fear of hyperinflation: “Some years ago I moderated a panel at which a US politician insisted that the Federal Reserve’s money printing would soon cause hyperinflation. Yet today the Fed’s main concern is rather how to get inflation up to its target. Like many others, he failed to understand how the monetary system works. Unfortunately ignorance is not bliss. It has made it more difficult for central banks to act effectively…”

  3. Joe Coscarelli: Ezra Klein Interview: Vox Launch: “I am ecstatic over that kind of mockery. If media professionals look at this and think, That’s ridiculous, I already know all of this, that’s wonderful for us. It’s great on two levels. One is that if we are not aiming beneath our colleagues’ knowledge level, we’re making a huge mistake. We’re leaving tons of readers behind. Two: The more folks in the media feel like it’s beneath them to answers questions like, ‘What is marijuana?’ or ‘What is Ukraine?’ the more we don’t have to compete with them. I am very concerned about the card stacks delivering on their promise. And that promise is that if you read them you’ll really understand what’s going on. You don’t have to read everything; there’s a table of contents. We want to be able to take you from not knowing anything about a subject to having a working understanding of it. That means beginning at the beginning…. I think it’s weird that the news cedes so much ground to Wikipedia. That isn’t true in other informational sectors. If you get a rash, there is a page on Wikipedia about rashes. But you don’t go to that page. You go to the page on WebMD or the Mayo Clinic or whatever. That page is kept up by people who are experts in rashes. You go there because of the quality of writing and information and the organization standing behind it. I’ve always thought it was weird that we don’t do more of that for our readers in the news…”

And:

April 14, 2014

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