Henry Paulson: Rogue Treasury Trader?

Henry Paulson: Rogue Treasury Trader?: "Paulson “truly meant” to the use the $700 billion in TARP money to buy assets from the banks, not to buy shares in the banks, because he saw it as “a fundamentally bad idea to have the government involved in the ownership of banks.” He changed his mind when markets deteriorated and “he well understood that directly adding capital to the banking system provided much greater leverage.”"

Econbrowser: Causes of the Oil Shock of 2007-08

Econbrowser: Causes of the Oil Shock of 2007-08: "some degree of significant oil price appreciation during 2007-08 was an inevitable consequence of booming demand and stagnant production. It is worth emphasizing that this is fundamentally a long-run problem, which has been resolved rather spectacularly for the time being by a collapse in the world economy. However, the economic collapse will hopefully prove to be a short-run cure for the problem of excess energy demand. If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourselves back in the kind of calculus that was the driving factor behind the problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration."

A special report on the rich: An end to inequality? | More or less equal? | The Economist

A special report on the rich: An end to inequality? | More or less equal? | The Economist

Paul Kedrosky's Infectious Greed

Paul Kedrosky's Infectious Greed
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Economist's View

Economist's View:

...the previous decades can be broken into a recent time period in which expectations appear to be well-anchored, the time period 1993 through 2008 is cited in the linked discussion, and a time period in the late 1960s and the 1970s when inflation expectations do not appear to be anchored (based upon Orphanides and Williams 2005).

...But past history shows us that expectations can move from one state to the other, from untethered to tethered, and there's no reason that cannot happen again, but in the other direction. So here I agree with Martin Wolf, it's dependent upon the credibility of policymakers. So long as people believe that the Fed is committed to preventing an outburst of inflation, and that they are capable of carrying through on that commitment, expectations will remain well-anchored. But if people believe that that Fed's hands are tied because of the harm reducing inflation would bring to the real economy, an out of control deficit, or due to political considerations that force them to accept inflation they could and would battle otherwise, then we have a different situation and long-run inflation expectations will change accordingly.

So there is nothing at all - except the credibility of the central bank - that guarantees expectations will remain anchored. I still believe that the Fed can and will prevent an inflation problem from developing, and I am not alone, but there are respected analysts who see it otherwise, or who are at least very worried, and that means the public can't be too far behind (the original is quite a bit longer, and explains the argument in more detail):

anchored inflation expectations

FRB: Speech, Bernanke--Inflation Expectations and Inflation Forecasting--July 10, 2007: "long-run inflation expectations do vary over time. That is, they are not perfectly anchored in real economies; moreover, the extent to which they are anchored can change, depending on economic developments and (most important) the current and past conduct of monetary policy. In this context, I use the term 'anchored' to mean relatively insensitive to incoming data. So, for example, if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored."

Lessons from the New Deal

http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.LiveStream&Hearing_id=f5afa171-b136-4f39-9b81-27937a9bbd3b
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