Top of the News: Boeing’s news about a production cutback — and an “unprecedented” decline in global air travel — finally arrived as an unwelcome guest at the party on Wall Street, at least temporarily taking away the punch bowl. It’s one more sign about how this recession and the rest of the Great Disruption is all about discontinuity. We’re not going back to the ’90s or the mid-2000s. Not that Washington and Wall Street won’t keep trying to defibrilate the unsustainable, especially in the financial sector.
Manufacturing doesn’t get the same break — maybe because Obama econ guru Larry Summers was consulting for a hedge fund rather than the Big Three while also president of Harvard. The Obama administration now seems set to push General Motors into a “surgical” bankruptcy reorganization. (Wonder who will lose more, workers or the CEO?). The New York Times reported today that the Treasury Department has told GM to prepare for a filing by June 1.
The Back Story: In the Great Depression, the Fed fueled devastating deflation by tightening credit (the orthodoxy then, which tells you something about orthodoxies). This time Ben Bernanke has been determined to not repeat that mistake, so the central bank has slashed interested rates and printed money. Does that mean inflation is unavoidable? Here’s the ‘no’ argument, from economists Robert Hall and Susan Woodward:
The Fed can control inflation by simply varying the interest it pays or charges banks on their reserve holdings. “The policy for the reserve rate should be basically the same as the successful policy for the Fed funds rate that delivered exceptional stability to the economy from the mid-1980s until the current crisis…When the economy seemed headed for overheating and excess inflation, it raised the funds rate to cool the economy off. When the economy stumbled, as in 2001 and in 2008, the Fed cut the funds rate to low levels. The resulting record on inflation was outstanding…” Easy for them to say — this was also a time of growing dependence on bubbles. But worth reading.
Today’s Econ Haiku:
Ironic, to balk
At lesbian books when your
Name is Amazon