It’s important to distinguish between “good” and “bad” deflation, the former being a byproduct of improved technology, higher productivity, and other factors that can generally be lumped under the heading of “progress.” Bad deflation, by contrast, is the blowback from a shock of one form or another that produces a financial crisis, such as the one that occurred in 2008.
READING ROOM FOR MONDAY: 10.25.2010
►Wall Street focuses on the ‘three Es.’
Julianne Pepitone/CNNMoney/Oct 24
Investors are bracing for an onslaught of news this week: The earnings avalanche continues, midterm elections are approaching and economic data are due in a bunch of sectors. Those “three Es” are a lot for investors to digest individually, and this week’s triple-whammy could bring volatility to a market that’s been behaving somewhat normally.
BOOK BITS FOR SATURDAY: 10.23.2010
● Shock of Gray: The Aging of the World’s Population and How it Pits Young Against Old, Child Against Parent, Worker Against Boss, Company Against Rival, and Nation Against Nation
By Ted Fishman
Radio interview with author via NPR
By the year 2030, one billion people on the planet will be over the age of 65. Plus, for the first time in history, the number of those who are older than 50 will be greater than those under 17. Ted Fishman has traveled around the world to find out what effects this aging trend will have on families and communities, nations and economies. Host Liane Hansen speaks with Fishman about his new book Shock of Gray.
QE2 AND HISTORY
In my previous post, I wrote that the case for a second round of quantitative easing (QE2) is warranted, given the current economic climate. Why should we expect QE2 to help more than it hurts? The answer is based in part on interpreting recommendations by Milton Friedman in the late-1990s regarding Japan’s struggle with deflation as it relates to current conditions. Of course, Japan never really conquered its deflationary problems, but that’s due in no small degree to the fact that Japan never really embraced Friedman’s advice wholeheartedly. Without going into detail here, let’s just say that Japan’s focus was on price stability rather than engineering a dose of inflation to correct for the deflationary bite. The distinction was and remains a critical factor for assessing what’s happened in the Japanese economy, and why, ever since.
REVISITING FRIEDMAN’S ADVICE
Economist Scott Sumner makes a good point: “For decades the Fed has steered the economy along a path of two to three percent inflation. The policy has not been controversial. Sometimes they ease, and sometimes they tighten.” But the policy has become controversial these days. What’s changed? Again quoting Sumner: “Recently inflation has run closer to 1%, and Bernanke has suggested pushing the rate back up to 2%.” Those are fighting words in some circles.
SUPERBOWL OF INDEXING CONFERENCE
I’ll be speaking at the 15th annual Superbowl of Indexing conference in Phoenix on Monday, Dec. 6. In particular, I’ll be one of several panelists on the asset allocation seminar at 2:30pm. If you’re also attending, please drop by and say hello. For more information about the conference, which runs Dec. 5-8, you can find all the details here.
THE TRENDLESS TREND IN JOBLESS CLAIMS ROLLS ON
If you’re feeling the sting of statistical whiplash from watching the trendless trend for weekly jobless claims, you’re not alone. Whenever this crucial measure of the labor market show signs of progress, it doesn’t take long to reverse the good news with a fresh round of discouraging numbers. But just when you’re set to throw in the towel and accept a darker fate on this measure, it surprises on the upside. That frustrating state of affairs summarizes what’s been unfolding with initial jobless claims in 2010, and there’s no reason to think anything’s changed with this morning’s news that new filings for jobless benefits dipped last week.
BUFFETT RECOMMENDS INDEXING…AGAIN
He said it again. Yes, Warren Buffett, one of the greatest active investors of all time, thinks indexing is a good idea for most folks. The Oracle of Omaha gave index funds a plug in a new article in Fortune.
READING ROUNDUP FOR WEDNESDAY: 10.20.2010
►Britain to slash welfare in austerity gamble
Sumeet Desai/Reuters/Oct 20
Britain will on Wednesday take an axe to its welfare state as part of an 80 billion-pound cut in public spending that could seal the fate of both the economy and the coalition government…Economists are split between those who say the drastic action is needed and those who argue it will tip Britain back into recession. Almost all agree, however, that growth will slow and the Bank of England will have to keep monetary policy super-loose for the foreseeable future.
THE MONETARY ROCK & THE HARD PLACE
China’s central bank raised its benchmark interest rate by 25 basis points yesterday in a bid to slow inflation’s momentum. The country’s inflation rate in August was reported at 3.5%, higher than the government’s 3% target, and the September update is likely to report a rise. Meanwhile, the Chinese economy is reportedly growing at 9%-plus.