"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Thursday, February 26, 2015

Wednesday, February 25, 2015


House Republicans Press Janet Yellen on Stimulus Campaign By BINYAMIN APPELBAUM

WASHINGTON — House Republicans on Wednesday peppered Janet L. Yellen, the Federal Reserve chairwoman, with pointed questions about the central bank’s stimulus campaign and its responsibilities as a financial regulator.

Republicans, who control Congress but not the agencies that interpret and execute legislation, appear frustrated with the course of economic policy. They want the Fed to retreat more quickly from its stimulus campaign and to ease some of the restrictions that a Democrat-controlled Congress imposed on the financial industry after its 2008 collapse.

Ms. Yellen, for her part, pushed back more strongly than at past hearings, sometimes speaking over her questioners to make a point. She defended the Fed’s actions and warned against proposals to constrain its independence.

The hearing opened with a sharp exchange between Ms. Yellen and Jeb Hensarling, the Texas Republican who is chairman of the Financial Services Committee.

Mr. Hensarling backs legislation requiring the Fed to adopt a mechanical rule for setting its benchmark short-term interest rate. Such a rule would have limited the stimulus campaign the Fed has undertaken since the Great Recession.

He quoted a snippet of Ms. Yellen’s remarks at a 1995 Fed meeting at which she praised rules that mechanically dictate how the central bank should balance the sometimes-divergent priorities of moderate inflation and minimal unemployment. That, he quoted her as saying, “is what sensible central banks do.”

He then asked Ms. Yellen, “Do you no longer believe that a rules-based policy like the Taylor Rule is what sensible central banks do?” The rule is a formula written by the Stanford economist John Taylor that specifies interest rates based on inflation and the gap between actual and potential economic output.

But the context of that 1995 quote is important. Ms. Yellen was then pushing the Fed to pay more attention to job growth, and she was expressing a preference for rules that considered unemployment and inflation, as opposed to rules focused solely on the pace of inflation.

That, she said at the time, “is an example of the type of hybrid rule that would be preferable in my view, if we wanted a rule.”

She continued, “I think the Greenspan Fed has done very well by following such a rule, and I think that is what sensible central banks do.”

The Yellen Fed regards job growth as its priority, a transformation so complete that hewing to a Taylor-style rule actually would curb the Fed’s stimulus campaign. Ms. Yellen has said in other forums that she sees rules as useful reference tools, but that policy should be shaped by circumstances.

On Wednesday, pressed by Mr. Hensarling, she responded sharply.

“I don’t believe that the Fed should chain itself to any mechanical rule,” she said. “I did not believe that in 1995. I do not believe it now.”

Democrats argue that Mr. Hensarling’s proposal is an attempt by Congress to meddle in monetary policy.

“I think it’s important to have transparency but not at the expense of the independence of the Fed,” said Representative Al Green, a Texas Democrat.

Representative Scott Garrett, a New Jersey Republican, said in turn that Congress had intended to shield the Fed from political pressure “to juice the economy,” while in the current situation, Republicans were seeking to curb its stimulus campaign.

Like Ms. Yellen, he suggested that circumstances had changed and that the rules should adapt.

Monday, February 23, 2015


Reading The Greek Deal Correctly by James K. Galbraith

On Friday as news of the Brussels deal came through, Germany claimed victory and it is no surprise that most of the working press bought the claim. They have high authorities to quote and to rely on. Thus from London The Independent reported:
several analysts agreed that the results of the talks amounted to a humiliating defeat for Greece.
No details followed, the analysts were unnamed, and their affiliations went unstated – although further down two were quoted and both work for banks. Many similar examples could be given, from both sides of the Atlantic.
The New Yorker is another matter. It is an independent magazine, with a high reputation, written for a detached audience. And John Cassidy is an analytical reporter. Readers are inclined to take him seriously and when he gets something wrong, it matters. Cassidy’s analysis appeared under the headline, “How Greece Got Outmaneuvered” and his lead paragraph contains this sentence:
Greece’s new left-wing Syriza government had been telling everyone for weeks that it wouldn’t agree to extend the bailout, and that it wanted a new loan agreement that freed its hands, which marks the deal as a capitulation by Syriza and a victory for Germany and the rest of the E.U. establishment.
In fact, there was never any chance for a loan agreement that would have wholly freed Greece’s hands. Loan agreements come with conditions. The only choices were an agreement with conditions, or no agreement and no conditions. The choice had to be made by February 28, beyond which date ECB support for the Greek banks would end. No agreement would have meant capital controls, or else bank failures, debt default, and early exit from the Euro. SYRIZA was not elected to take Greece out of Europe. Hence, in order to meet electoral commitments, the relationship between Athens and Europe had to be “extended” in some way acceptable to both.
But extend what, exactly? There were two phrases at play, and neither was the vague “extend the bailout.” The phrase “extend the current programme” appeared in troika documents, implying acceptance of the existing terms and conditions. To the Greeks this was unacceptable, but the technically-more-correct “extend the loan agreement” was less problematic. The final document extends the “Master Financial Assistance Facility Agreement” which was better still. The MFFA is “underpinned by a set of commitments” but these are – technically – distinct. In short, the MFFA is extended but the commitments are to be reviewed.
Also there was the lovely word “arrangement” – which the Greek team spotted in a draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday afternoon and proceeded to deploy with abandon. The Friday document is a masterpiece in this respect:
The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.
If you think you can find an unwavering commitment to the exact terms and conditions of the “current programme” in that language, good luck to you. It isn’t there. So, no, the troika can’t come to Athens and complain about the rehiring of cleaning ladies.
To understand the issues actually at stake between Greece and Europe, you have to dig a little into the infamous “Memorandum of Understanding” signed by the previous Greek governments. A first point: not everything in that paper is unreasonable. Much merely reflects EU laws and regulations. Provisions relating to tax administration, tax evasion, corruption, and modernization of public administration are, broadly, good policy and supported by SYRIZA. So it was not difficult for the new Greek government to state adherence to “seventy percent” of the memorandum.
The remaining “thirty percent” fell mainly into three areas: fiscal targets, fire-sale privatizations and labor-law changes. The fiscal target of a 4.5 percent “primary surplus” was a dog as everyone would admit in private. The new government does not oppose privatizations per se; it opposes those that set up price-gouging private monopolies and it opposes fire sales that fail to bring in much money. Labor law reform is a more basic disagreement – but the position of the Greek government is in line with ILO standards, and that of the “programme” was not. These matters will now be discussed. The fiscal target is now history, and the Greeks agreed to refrain from “unilateral” measures only for the four-month period during which they will be seeking agreement.
Cassidy acknowledges some of this, but then minimizes it, with the comment that the deal “seems to rule out any large-scale embrace of Keynesian stimulus policies.” In what document does any such promise exist? There is no money in Greece; the government is bankrupt. Large-scale Keynesian policies were never on the table as they would necessarily imply exit – an expansionary policy in a new currency, with all the usual dangers. Inside the Euro, investment funds have to come from better tax collection, or from the outside, including private investors and the European Investment Bank. Cassidy’s comment seems to have been pulled from the air.
Another distant fantasy is the notion that the SYRIZA team was “giddy” with political success, which had come “practically out of nowhere.” Actually SYRIZA knew for months that if it could force an election last December, it would win. And I was there on Sunday night, February 8, when Prime Minister Alexis Tsipras opened Parliament with his version of the State of the Union. Tsipras doesn’t do giddy. And Yanis Varoufakis’s first words to me on arrival at the finance ministry just before we went over to hear him were these: “Welcome to the poisoned chalice.”
Turning to the diplomatic exchanges, Cassidy concludes that Tsipras and Varoufakis “overplayed their hand.” An observer on the scene would have noticed that the Greek government remained united; initial efforts to marginalize Varoufakis were made and rebuffed. Then as talks proceeded, European Commission leaders Jean-Claude Juncker and Pierre Moscovici went off-reservation to be helpful, offering a constructive draft on Monday. Other governments softened their line. At the end-game, remarkably, it was the German government that split – in public – with Vice Chancellor Sigmar Gabriel calling the Greek letter a basis for negotiation after Finance Minister Wolfgang Schäuble said it wasn’t. And that set up Chancellor Angela Merkel to make a mood-changing call to Alexis Tsipras. Possibly the maneuver was choreographed. But still, it was Schäuble who took a step back in the end. It seems that none of these facts caught Cassidy’s attention.
Finally, in the run-up to these talks did the Greek side fail to realize that they had no leverage, giving – as Cassidy writes – all the advantages to Schäuble once “he realized that Varoufakis couldn’t play the Grexit card”?   In truth the Greeks never had any intention of playing any cards, nor of bluffing, as Varoufakis wrote in The New York Times and as I had written two days after the election, in Social Europe:
What leverage does Greece have? Obviously, not much; the heavy weapons are on the other side. But there is something. Prime Minister Tsipras and his team can present the case of reason without threats of any kind. Then the right and moral gesture on the other side would be to … grant fiscal space and to guarantee Greek financial stability while talks are underway. If that happens, then proper negotiations can proceed.
That appears to be what happened. And it happened for the reason given in my essay: in the end, Chancellor Merkel preferred not to be the leader responsible for the fragmentation of Europe.
Alexis Tsipras stated it correctly. Greece won a battle – perhaps a skirmish – and the war continues. But the political sea-change that SYRIZA’s victory has sparked goes on. From a psychological standpoint, Greece has already changed; there is a spirit and dignity in Athens that was not there six months ago. Soon enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal, all of which have elections coming. It is not likely that the government in Greece will collapse, or yield, in the talks ahead, and over time the scope of maneuver gained in this first skirmish will become more clear. In a year the political landscape of Europe may be quite different from what it appears to be today.

Sunday, February 22, 2015

Varoufakis and Krugman

Afternoon Must-Read: Yanis Varoufakis: Confessions of an Erratic Marxist in the Midst of a Repugnant European Crisis by Brad DeLong

Greece Did OK by Krugman
Now that the dust has settled a bit, we can look calmly at the deal — if it really is a deal that survives through tomorrow, which some people doubt. And it’s increasingly clear that Greece came out in significantly better shape, at least for now. 
The main action, always, involves the Greek primary surplus — how much more will they need to raise in revenue than they can spend on things other than interest? The question these past few days would be whether the Greeks would be forced into agreeing to aim for very high primary surpluses under the threat of being pushed into immediate crisis. And they weren’t. 
One way to see this is through careful parsing of the language, as done here. That’s quite useful. But I’d argue that in an important sense we’re past that kind of word-chopping. Instead, we need to think about what happens substantively from here out. 
Right now, Greece has avoided a credit cutoff, and worse yet an ECB move to pull the plug on its banks, and it has done so while getting the 2015 primary surplus target effectively waived. 
The next step will come four months from now, when Greece makes its serious pitch for lower surpluses in future years. We don’t know how that will go. But nothing that just happened weakens the Greek position in that future round. Suppose that the Germans claim that some ambiguously worded clause should be interpreted to mean that Greece must achieve a 4.5 percent of GDP surplus, after all. Greece will say no, it doesn’t — and then what? A couple of years ago, when all the VSPs of Europe believed utterly in austerity, Greece might have faced retaliation thanks to wording issues; not now. 
So Greece has won relaxed conditions for this year, and breathing room in the run-up to the bigger fight ahead. Could be worse.

Saturday, February 21, 2015

Greek Deal - Monday and four months

Naked Capitalism is pessimistic

Yves Smith:

"“Moreover, Syriza has already shown a propensity to overpromise and underdeliver.”"

They've been in office three weeks!!!

Say Greece caved. We'll see if they're wrong again.

Greek Deal by Robert Waldmann

I am trying to understand what, if anything, was agreed by Greece and the rest of the EU yesterday. I’m not sure they even agreed to kick the can down the road.
I think Matt O’Brien wrote a very good explainer for wonkblog at the Washington Post (as usual — he is well worth following). His bottom line seems to be that, while the agreement presents itself as a Greek surrender, they haven’t conceded the key point.
Greece got Europe to concede that it “will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account.” In other words, Greece won’t have to do the austerity it was supposed to this year.
However, the rest of Europe hasn’t conceded yet either, since they have not agreed to rollover any loans Liz Aderman and James Kanter report for the New York Times
On Monday, Greece must send its creditors a list of all the policy measures it plans to take over the next four months. If the measures are acceptable, European finance ministers could sign off on an extension of the bailout agreement on Tuesday.
So the result of the dramatic agreement is that Greece hasn’t promised further austerity in exchange for a bailout and the rest of Europe hasn’t promised a bailout. They have delayed for four more days deciding whether to delay for four more months the inevitable concession that Greece will not pay its foreign debts.

Frances Coppola:
Greece and the EU: a question of trust
"I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.
"But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago."
While this deal isn't the best one, or the most moral one, it was likely the best political deal to be had. Syriza will need the four months to attempt a restructuring of its fiscal management - no government could implement a fiscal plan in a few weeks. And the apparent Schaueble plan was an implicit ultimatum: Syriza U-turn to the status quo, or deal with the capital flight that would start in earnest next week.
So all in all, given the political reality, this was likely the best possible outcome. I hope Syriza will find a way to build on this moment.

Thursday, February 19, 2015

Krugman on Greece

Germany is bringing on the Golden Dawn?

Insert German Curse Word Here

by Krugman

Germany says no to Greek request.To be fair, I think news reports describing the Greek letter as a complete u-turn and capitulation are wrong. I see this:

and it looks to me as if Greece is quite carefully not committing to the original fiscal targets; it will attain “appropriate primary fiscal surpluses”, which almost surely means less than 4.5 percent of GDP. So if the German complaint is that Greece is not agreeing to lock in total surrender to the preexisting austerity plan, this appears to be right. Instead, Greece appears to be seeking to buy some time to put together an economic strategy (remember, this is a new government without a deep bench of technocrats), and to negotiate terms later. Germany, on the other hand, is trying to force Syriza into complete abandonment of its election promises right now, today.
Do the Germans really think that’s a likely outcome? I suspect not. This looks to me like an attempt to force Greece out of the euro, right now. German policy is objectively pro-Grexit.
It’s also, given the likely fallout, objectively pro-Golden Dawn.
The role of the ECB is critical here, and Peter Doyle says what I’ve been meaning to say, but better:
[I]n the event that Euro-Greek negotiations fail, the ECB should unequivocally continue to provide full ELA to Greece. Furthermore, it should make that position clear now, while negotiations on the program continue. This would determine that Euro policymakers must not only resolve Greece without the ECB stick corralling them but must also find themselves another Euro enforcement mechanism.
Crunch time.

Economist comes out for NGDP path level target

Shit is getting real.

The economist on good and bad deflation by Scott Sumner

The Economist magazine has a very good editorial discussing good and bad deflation, and worries that the world is now experiencing (at least in part) the bad type. They conclude by urging central bankers to rely on a less ambiguous indicator:
Change the target
Policymakers should be more worried than they appear to be, and their actions to avert deflation should be bolder. Governments need to boost demand by spending more on infrastructure; central banks should err on the side of looseness. (Next month the ECB will start quantitative easing—and about time too.) Now is also the moment to consider revising the monetary rule book—in particular, to switch the central bankers’ target from the inflation rate that most now favour to a goal for the level of nominal GDP, the total value of spending in an economy before adjusting for inflation. With such a target there is no need to distinguish between good and bad price shocks. And the change in rules would itself send a signal that policymakers are serious about banishing the threat of deflation.
Central bankers change course slowly, and their allegiance to inflation targets runs deep. Conservatism often serves them well. But in this case it could cost the world economy dearly.
Notice that they advocate “level” targeting, which is very important in a world where the zero bound seems to occur with increasing frequency.
HT:  Peter Spence, Frank McCormick
PS. I also recommend Edward Hugh’s post on Spanish deflation.

Mad Men finale episodes

promo video

Garofalo on Broad City!

Tuesday, February 17, 2015

preservation of money-claims

"The Idea Was to Create a Modern Gold Standard" by JW Mason
The euro is a project to roll back social democracy and to reimpose the "discipline of the market" on the state -- or in other words to restore the logic of the gold standard, whose essential condition was that preservation of money-claims had priority over democratic government.

Monday, February 16, 2015

Carthaginian Peace

Athenae Delenda Est by Krugman
OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:
The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.
Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP. 
There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing. 
I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work. 
Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I. 
Either way, the lack of wisdom is astonishing and appalling.
It was pointed out that Varoufakis alluded to the Melian dialogue.


Yanis Varoufakis: No Time for Games in Europe

Saturday, February 14, 2015


Strange to learn that a favorite author is currently teaching at my alma mater.


Greece’s Excess Burden by Krugman

What’s the state of the Greek crisis? I have no idea, or at any rate no idea beyond what any diligent reader of press reports might glean. I do, however, have a pretty good idea of what Greece is asking for on the fiscal side, and it might be useful to talk about the arithmetic behind that position.

Here’s the basic point: Greece has, through incredible sacrifice, managed to achieve a primary budget surplus — a surplus excluding interest payments — despite a depression-level slump. That surplus is believed to be currently running at about 1.5 percent of GDP. The Greek government is not calling for a return to primary deficits; as I understand it, it is merely proposing that it be allowed to stabilize the surplus at that level, as opposed to raising it to 4.5 percent of GDP, a number that has few precedents in history.

Now, you might think that 3 percent of GDP is not that big a deal (although try finding $500 billion a year of spending cuts in the United States!) Given the macroeconomics, however, it is much bigger than it looks. Much like the reparations the Allies tried to extract from Germany after World War I — although for somewhat different reasons — forcing Greece to run huge primary surpluses at this point would impose a very large “excess burden” over and above the direct cost of the surpluses themselves.

First, austerity has a very negative effect on output in a country that does not have its own currency, and therefore cannot offset the fall in demand with monetary policy. The attached figure shows what was supposed to happen to Greek GDP according to the original 2010 request for a stand-by arrangement – that is, the original austerity-and-internal-devaluation plan — compared with what actually happened. There’s little question that the huge shortfall reflects the adverse effects of austerity, which the IMF admits it greatly understated. At this point a reasonable estimate for the Greek multiplier is on the order of 1.3.

This multiplier effect has immediate fiscal implications. Suppose that Greece were to spend somewhat more than contemplated under the current agreement; the primary surplus would surely be less than would otherwise be the case, but the effect would be much less than one-for-one. We can summarize the actual effect of higher government spending (ΔG) on the primary surplus (ΔPS) as follows:

ΔPS = -ΔG*(1-μτ)

where μ is the multiplier and τ is the marginal effect of a one-euro rise in GDP on revenues and/or cyclically linked spending like unemployment benefits. Say μ = 1.3 and τ=0.4, both more or less in the middle of the evidence; then higher spending would reduce the primary surplus by less than half the initial spending rise.

Or to turn this around, to achieve the extra three points of surplus the troika is demanding, Greece would actually have to find more than 6 points of GDP in spending cuts or tax hikes. And note that the multiplier is almost surely greater than one; this means that the fall in government spending would induce a fall in private spending too, which is an additional excess burden from the austerity.

The point, then, is that by demanding that Greece run even bigger primary surpluses, the troika is in effect demanding that Greece make sacrifices on the order of an additional 7.5 or 8 percent of GDP as compared with the standstill the Greek government proposes.