Treasury blocks Russia from paying debt as West prepares new sanctions
https://www.politico.com/news/2022/04/05/treasury-russia-debt-u-s-accounts-00022979
Tag: economics
America’s inflation problem is weirdly hard to fix
“Inflation is at a 40-year high in the United States and accelerating around the globe. The situation may very well get worse before it gets better, as Russia’s war on Ukraine stands to exacerbate price pressures, as does a new round of lockdowns in China due to Covid-19.
Among economists and experts, there’s no strict consensus about what exactly is to blame. There are certain factors widely agreed upon that we’ve been hearing about for months: supply chain woes, rising oil prices, shifting consumer demands. These concerns have hardly subsided. But there are other arenas where there’s more disagreement, such as the role government stimulus has played in increasing prices, and the possibility that corporate greed is an important factor.
There’s also no clear agreement on what the solution is. The Federal Reserve is starting to make moves to try to tamp down inflation, but it’s going to take time for that to have an impact. It’s still uncertain how aggressive the Fed will be or what risks those fixes could pose for the broader economy. The White House is trying to combat price increases, but there’s not really a ton it can do.
“They’re actually doing the right thing, they just don’t have many tools,” said Jason Furman, a Harvard economist and former adviser to President Barack Obama. He said one thing they can do and are doing is to be “realistic in leveling with people” that of course they don’t like inflation, and this isn’t a problem that will solve itself overnight.
While a lot is unknown, one thing seems pretty clear to most: Much of this is the result of factors that have been brewing for quite some time; some back to the start of the pandemic, many even longer. As for when it will be over, we’re likely to be in this situation for a while.”
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“As much as many people say that they feel bad about the economy right now, the economy is actually pretty decent. Unemployment is relatively low, many people still have quite a bit of money to spend, and the recovery, in a lot of ways, looks pretty solid. But again, therein lies part of the problem: People have money to spend, but not so many places to spend it. “There are multiple things that are happening all at once right now. The pandemic is still going on, we still have supply chain bottlenecks around the globe, parts of the economy are getting up to speed,” Amarnath said.”
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“Expectations play a role here — when everybody thinks inflation is happening, then businesses start charging more and workers start charging more money to compensate, which makes the whole thing worse.
“Once you have inflation, there’s some self-perpetuation of it,” Furman said. “There’s some passthrough of wages to prices, and some passthrough of prices to wages. Inflation expectations matter.””
I Keep Hoping Larry Summers Is Wrong. What if He’s Not?
https://podcasts.apple.com/gb/podcast/i-keep-hoping-larry-summers-is-wrong-what-if-hes-not/id1548604447?i=1000555567714
EU closes in on Russian oil ban — but how tough will it be?
“An immediate, full-blown ban imposed by the EU on oil is still a no-go for economic powerhouse Germany. Berlin has indicated to other EU capitals it’s ready to consider cutting Russian oil — even if it is not yet able to abandon imports of gas — but only under specific conditions, which are now being discussed with the European Commission.”
Is High Inflation the New Normal?
“Partisans in the inflation battle frequently fail to acknowledge that their stories are not mutually exclusive. If public policy boosts demand while production bottlenecks hamper supply, there is no question about what happens to prices—up they go. Digging further into the debate provides additional reasons to eschew confident assertions.
Orthodox economic theory says fiscal and monetary stimulus can increase total spending, or what economists call aggregate demand. We’ve certainly had lots of both. The American Rescue Plan Act, signed into law by President Joe Biden on March 11, 2021, had a top-line figure of $1.9 trillion. Expansionary fiscal policy, meaning increased government spending to boost output and employment, requires deficit spending, because financing outlays with taxes blunts the effects on aggregate demand.
At the same time, the Fed’s balance sheet has surged. Total assets held by the central bank grew from roughly $4 trillion in early 2020 to $8.9 trillion as of late January. Driven by these asset purchases, the M2 money supply—cash, checking accounts, and “near monies,” such as savings accounts and money market mutual funds—grew from $15.5 trillion in early 2020 to more than $21.6 trillion today. So Americans definitely have more money to spend.
It is also true that fiscal and monetary expansion don’t boost supply of the goods people might want to buy with that money. Widespread COVID-prevention policies threw a wrench into the economy’s gears. Transportation gridlocks on sea, on land, and in the air make production and distribution harder. Major inputs, such as semiconductors, are frustratingly scarce. There are also frictions in labor markets, such as recently boosted unemployment benefits and union disputes over vaccine mandates. The combined effect is rising prices, independent from demand considerations.
A supply-and-demand double whammy could explain inflation. But both stories have problems.
On the demand side, all that stimulus might not be as expansionary as it appears. “We know from experience that budget deficits, by themselves, are not very inflationary,” writes Scott Sumner, the doyen of the market monetarist school, in his new book The Money Illusion (University of Chicago Press). Sumner cites the absence of major inflation during the Reagan and Obama administrations, both of which presided over growing budget deficits.
Nor was money especially loose during the early stages of the pandemic. As the money supply ballooned, the velocity of money—its average rate of turnover—cratered. People held on to that extra money. According to data from the Federal Reserve Bank of St. Louis, money demand increased by 22.5 percent from the fourth quarter of 2019 to the first quarter of 2020. Velocity remained depressed as the money supply continued growing. Since supply outpaced demand, monetary conditions did loosen. But Fed policy did not open the liquidity floodgates, as many initially supposed.
As for the supply of goods, congested production and slowed distribution clearly are making inflation worse. But this explanation is prone to just-so stories. Supply conditions vary greatly by sector. Aggregate data, constructed to get a fuller picture, is not as clean on the supply side as on the demand side.
We also have to consider politics. Behind the inflexible insistence that supply problems matter most lies a possibly partisan reluctance to indict policy makers and technocrats.
The doves are down, but they are not out for the count. Market inflation expectations peaked in mid-November. As of January, bond traders forecast 2.8 percent per year for the next five years, meaning they are not convinced runaway inflation is our destiny. “Predictions are hard, especially about the future,” a wise man once said. Much will depend on how fast supply constraints loosen and Fed policy tightens.”
Biden’s Plans To Fix the Pay Gap Won’t Actually Help Women
“evidence that this actually helps women is mixed. Meanwhile, such restrictions would have unintended consequences.
“For example, employers who can’t ask about prior salary might assume that a female candidate would accept less money than a man, because women make less on average,” as The New York Times has previously noted. In this scenario, a ban on salary history discussions could lead to women getting lowballed in job offers.
Salary history bans could also cost people—particularly women and younger workers—some job offers. It’s not hard to imagine an employer choosing to hire someone whose salary requirements seem slightly lower than an equally qualified candidate with higher requirements. In this case, prior salary disclosure could mean the difference between getting a job or not.
In other cases, where an employer has a strong preference for a particular candidate, the company may be prepared to offer a higher salary than the baseline in order to recruit them. Without knowing the candidate’s salary history, however, the employer may be lost as to what to offer. They might offer lower than the candidate currently makes, leading the candidate to reject the job that could have otherwise been a good fit.
Which is all to say that surely some women may actually benefit from past salary disclosure—especially now that young women are out-earning their male counterparts.
In general, letting employers and prospective employees exchange more information, not less, seems likely to lead to the best matches and the most satisfaction.”
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“Today’s rhetoric about wider disparities in male and female incomes tends to 1) rely on research looking at incomes across professions and positions and 2) ignore explanations other than discrimination that might explain pay disparities—things like gender differences in types of work, work schedules, and years in the workforce. Politicians and media then use this distorted picture to spawn outrage and get kudos for addressing the issue, even if nothing they’re doing can actually “fix” the complicated causes behind disparities.
There may be a broader discussion to have about whether female-heavy industries are undervalued or how choosing to have children may harm women’s salary prospects more than men’s. But the issue is nowhere near the simplistic narrative that many modern progressives often make it out to be, in which sexist bosses and companies simply choose to pay women less than men for the same work and everything can be fixed with federal mandates.”
How I (and US policymakers) got inflation wrong
“At the time I wrote my July 2021 piece, “Don’t worry about inflation,” a prescient copy editor noted that this headline might look bad if I was wrong and inflation got increasingly worse. I responded that I stood by it, and if I was wrong, I would write a groveling follow-up piece.
So here we are.”
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“I unfairly dismissed the most boring, Econ 101 explanation for why inflation happens: that there was too much money sloshing around for the amount of stuff the economy was able to produce — meaning the price of that stuff went up.”
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“Past stimulus checks during non-pandemic episodes have been disproportionately spent on durable goods, rather than services, suggesting that the stimulus checks might have accelerated this phenomenon just as the virus did. And because prices of goods tend to be less “sticky” than prices of services (meaning they tend to rise and fall more easily), this especially contributed to inflation.
This surge in spending led to big, well-publicized shortages in certain areas, most famously cars, as demand for durable goods outstripped the economy’s ability to produce them (sick workers limiting production was a factor, too, if a smaller one). That provoked localized price spikes on a few goods. And because oil producers slowed production in expectation of a big post-Covid recession, they too struggled to keep up with demand, so gas prices rose — which Putin’s invasion of Ukraine only worsened.
For a while, many commentators thought you could wave off inflation fears by saying it was just limited in a few sectors. But at this point, an “inflation in a few places” theory doesn’t really fly.
Some goods, like oil and cars, have specific narratives like a chip shortage or low drilling that could explain inflation. But as Bloomberg’s John Authers has detailed, inflation is still rising even if you exclude those goods. The Dallas Fed’s “trimmed mean” inflation measure, which purposely removes “outliers” where prices are rising extremely fast or extremely slow from the data, started to shoot up recently, too.”
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“Due to a combination of rapidly growing wages through all of 2021, plus trillions in government fiscal support, there has just been too much money around combined with insufficient goods and services to spend it on.
That’s led to not just inflation but accelerating inflation, as wage increases contribute to price increases and higher expectations of future inflation contribute to higher immediate inflation. That’s why you’ve started to see inflation in categories beyond just gas and cars. It’s a situation similar to what NAIRU would predict, except I would argue it’s not really about low unemployment.”
Economic Penalties for Putin’s Aggression Threaten To Impoverish the World
“two consecutive presidents, first Donald Trump and then Joe Biden, wedded to economic nationalism. “When we use taxpayers’ dollars to rebuild America, we are going to do it by buying American: buy American products, support American jobs,” Biden vowed in the recent State of the Union address. He’s unlikely to get much pushback from the public; while support for free trade rose under Trump it has since declined, according to Gallup. More Americans (61 percent) see trade as good for economic growth than see it as a threat (35 percent), but the numbers swing more as a matter of partisan politics than according to principled commitment.
That’s a shame because free-trade advocates are correct. While a strong case can be made that free trade is a basic human right involving consensual relations among individuals, it’s also a miraculous cure for misery. Over the last half-century or so, economists have rediscovered comparative advantage and that “trade openness is a necessary—even if not sufficient—condition for economic growth and reducing poverty,” as Pierre Lemieux wrote for the Cato Institute’s Regulation in 2020.”
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“Economic and financial sanctions may cause Russia pain and add to the cost of invading Ukraine. But as governments around the world raise barriers and try to insulate themselves from future uses of weaponized trade and finance, the result is certain to be a world that is poorer and less free.”
To Beat Putin, Europe Needs America’s Clean Energy
“The European Union is dependent on Russia for almost half of its natural gas and a quarter of its oil. Germany alone imports 55 percent of the gas it consumes from Putin’s petro-state. As part of its invasion strategy, Russia thought it could use its natural gas and oil to blackmail Europe into passivity. Europe is belatedly beginning to shut off the Russian spigot, but it will pay a heavy economic price for the delay.
And for Europe’s energy switch to succeed, the United States must step up.
Just as we were the Arsenal of Democracy when fascism threatened Europe 80 years ago, today we must become the Arsenal of Clean Energy. That means we should finance and export clean energy to Europe in large quantities as quickly as possible. This approach would help protect our own security and economic interests, as well as the sovereignty, democracies, and economies of Europe, all while working to combat climate change.
Our goals should be: 1) make European energy secure; 2) help shift European countries to cleaner energy; and 3) create a massive clean energy market that strengthens supply chains and job creation in the U.S.”
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“starts with an energy version of the “Candy Bombers” who supplied Berlin during the Soviet Union’s blockade in 1948. In this case, we could provide a temporary natural gas lifeline to Europe as they wean themselves off Russian energy. America has some additional capacity, and more coming online very soon, to send liquefied natural gas to Europe. We should combine a near-term increase in U.S. gas production and exports to Europe with assistance for European countries to, over the medium-term, reduce their reliance on natural gas by switching to other, lower-carbon fuels and increased energy efficiency.
Second, to ensure this lifeline leads Europe to a safe and sustainable future, the United States needs to create an American clean energy sovereignty fund. We should commit to $10 billion per year for the next decade to finance the export of U.S. hydrogen, nuclear, and carbon capture technology that can be deployed across Europe. The new technologies should be supported by both U.S. and European supply chains and workers to ensure economic growth across both continents. This government-backed entity would provide a significant cost-share for countries importing U.S. clean energy, particularly technologies that will be primarily made in and exported from the U.S.
As we are seeing now with Germany’s reconsideration of its decision to close its nuclear plants, even renewable-heavy countries need firm clean energy provided by technologies like nuclear power. This is even more important in industrial areas of Eastern Europe that need both the steady electricity and high heat that nuclear, or hydrogen, can provide.
Finally, as all of Washington knows by now, personnel is policy. To underscore the urgency of this mission, the Biden administration should create a new, senior position at the National Security Council to manage clean, firm energy and coordinate the alphabet soup of agencies involved. This position would oversee a new “Team Energy” of public and private sector experts who can cut through the bureaucracy.”