Archive for April 2008

Central Bank Watch

Fed Pausing

April 30, 2008

In three respects, the FOMC statement confirms a pause in the rapid-fire reduction of the Federal funds rate to 2.0% from 5.25% as recently as September 17th. Stories in the business press had suggested this would be the case. For one thing, the statement declares for the first time that a “substantial easing” of policy […] More

Larry's Blog

What Recession?

April 30, 2008

Economists have earned a reputation for calling U.S. recessions only after a downturn is well under way and, oftentimes, close to its end. Determined not to reinforce that perception, private and public-sector analysts began using the R-word frequently at the first hint of significant trouble. Even foreign officials have jumped on the recession bandwagon. The […] More

Beyond Fed Easing

April 29, 2008

It is extremely likely that the Federal Reserve will cut its key interest rates tomorrow by 25 basis points. Articles in the business press have said that is the most likely outcome, and monetary officials have said nothing to suggest that a different outcome is possible or probable. The speculative component of Fed watching surrounds […] More

Larry's Blog

A Xenophobic America

April 28, 2008

If you haven’t read it already, I recommend an Op-Ed article in today’s Financial Times by former U.S. Treasury Secretary and former Harvard President Larry Summers in which he takes free traders to task for misunderstanding what motivates proponents of “fair trade” or even no trade. Trade xenophobics do not believe as they do because […] More

Currency Markets in the News

A Tough Play for the ECB

April 26, 2008

The European Central Bank had increased its benchmark interest rate in eight steps between December 2005 and June 2007 from 2.0% to 4.0%. It has tightened monetary policy no further proactively since the global credit crisis began last August, but monetary conditions in the region have become less generous nonetheless as a result of of […] More

Bonds and Stocks

Who's Afraid of a U.S. Recession?

April 24, 2008

August 9th, 2007 was the day investors caught their first scent of the rot in the subprime mortgage lending market. Many other parts of the global financial system spoiled subsequently. Well-respected analysts have called this debacle the worst financial market breakdown since the 1930’s, and a 62% decline in new home sales from peak underscores […] More

Larry's Blog

Democratic Party Follies

April 23, 2008

The Democratic Party’s method of selecting a presidential candidate is deeply flawed because it does not parallel the way U.S. presidents are elected. In November, each state is allocated a total of electoral votes equal to the number of congressmen and senators from that state. The total bloc of electoral votes in each state is […] More


Market Extremes

April 22, 2008

Greenspan said it first. He entitled his memoir, “Age of Turbulence,” and that was well before August 2007, when most markets seemingly went haywire. The euro broke above $1.60 for the first time today, just 55 days after it initially climbed above $1.50 on February 27th. The euro’s initial parity at end-1998 was $1.1720, and […] More

Larry's Blog

Watch Out For That Primrose Path

April 21, 2008

The FOMC is authorized to use monetary policy to promote growth and preserve price stability. As every serious student of economics learns, that dual mandate creates an immediate problem. Satisfying two objectives with one policy tool is like trying to solve an algebra problem that has two unknowns but only one equation. For a sound […] More

Larry's Blog


April 19, 2008

From late afternoon on Sunday to late afternoon on Friday, international financial markets and the stream of information that feeds it never take a breather. There is only one holiday observed in every country, January 1st. In 1989, the Bank of Japan under newly installed Governor Mieno raised benchmark interest rates on Christmas Day. Investors […] More