Cullen Roche: Pragmatic Capitalism

Share the post "Let’s Talk About Helicopter Drops (Again)" I was intrigued by this Martin Wolf piece in the FT which discusses the need for helicopter drops to bolster the global economy.  Señor Wolf writes: If the fiscal authorities are unwilling to behave so sensibly — and the signs, alas, are that they are not — central banks are the only players. They could be given the power to send money, ideally in electronic form, to every adult citizen. Would this add to demand? Absolutely. Under...

Share the post "Bernie Sanders and the Santa Claus Growth Plan" Drama. Major drama in political economics. In case you haven’t been paying attention: Gerald Friedman released some estimates about the Bernie Sanders growth plan with an expected 5.3% GDP. You can read the document here. 4 former Council of Economic Advisers wrote a letter to Sanders saying the plan was wildly unrealistic and undermined progressive economics. Paul Krugman agreed with this calling the plan “voodoo” and stating...

Share the post "Let’s Talk About the Bubble in Catastrophizing" There’s a bubble in catastrophizing.  This is the tendency to always assume the worst.  Which is weird because the worst rarely plays out. In fact, even in worst case scenarios the financial markets have tended to stabilize fairly fast. Larry Swedroe had a good piece today on the trend in catastrophizing everything noting 3 particularly scary instances: From 1973 through 1974, the S&P 500 Index lost a total of 37%. Over...

Share the post "Let’s Talk About Berngate" There’s a big fuss on the political left over some claims that the Bernie Sanders campaign has made about potential future economic growth.  Paul Krugman had a good rundown: On Wednesday four former Democratic chairmen and chairwomen of the president’s Council of Economic Advisers — three who served under Barack Obama, one who served under Bill Clinton — released a stinging open letter to Bernie Sanders and Gerald Friedman, a University of...

Share the post "The Fed Doesn’t Own a Helicopter" Josh Brown has a very good post questioning an assertion by Ray Dalio regarding helicopter drops.  Dalio said: “We can say that the range will extend from classic fiscal/monetary policy coordination – in which debt to finance government spending will be monetized – to sending people cash directly – i.e., helicopter money – and will likely fall somewhere between these two -i.e., sending people money tied to spending incentives,” Dalio is...

Share the post "Say it With me now: Interest on Reserves isn’t Sterilization!" Here’s a very excellent Ben Bernanke blog post on interest on reserves.  In one section he trolls Joe Stiglitz a bit who stated that banks might be sitting on reserves due to interest on reserves (something I also criticized in this post): “This claim, made even by some good economists, is puzzling. Before December, the Fed paid banks one-quarter of one percent on their reserves. If the Fed had not paid...

Share the post "What Have We NOT Learned Since 2008?" Paul Krugman has a post up highlighting some of the lessons we’ve learned since 2008.  He’s using a Liquidity Trap model, which, regular readers know I’ve been very critical of (see here and here for some exciting reading on this).*  But I wanted to highlight a different point – what have we NOT learned since 2008 which is still holding us back: The money multiplier myth is still rampant.  Unfortunately, Paul Krugman’s Liquidity Trap...

Share the post "Why Would Anyone Buy a Negative Interest Bearing Bond?" Good question here from the Q&A section about negative yielding bonds: Hi Cullen. The Economist had a good article explaining why people buy negative yielding bonds. http://www.economist.com/blogs/economist-explains/2016/02/economist-explains-6 Do you agree with their explanation? The Economist’s explanation is a bit odd as it leaves out the main reason that someone might want to buy a negative yielding bond –...

Share the post "Central Banks Didn’t Eat Your Lunch" One of the consistent trends you’ll find in my econ and finance work is that I don’t think much about Central Banks. In other words, I think mainstream macro puts far too much emphasis on the efficacy of things that Central Bankers do.  This is why I said QE wouldn’t do much back in 2009 and it’s also why I’ve consistently argued that the Federal Reserve wasn’t the primary cause of the stock bull market of recent years. Of course, none...

Share the post "We’re in Uncharted Waters" Last year I expressed the concern that the global economy of the future might be excessively influenced by a black box economy – China.  But as 2016 has picked up the turmoil that 2015 started, it’s become clear that this is not the global economy of the future.  It is the global economy we are dealing with now.  And the fears over China have created a market environment of uncertainty – the market’s worst enemy. A lot of people keep asking me...