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Tag Archives: Debt

Is the Fed Fisherian?

window.MathJax = { tex: { tags: 'ams' } }; The current situation, and puzzling inertiaInflation has been with us for a year; it is 7.9% and trending up. March 15, the Fed finally budged the Federal Funds rate from 0 to 0.33%, (look hard) with slow rate rises to come.  A third of a percent is a lot less than eight percent. The usual wisdom says that to reduce inflation, the Fed must raise the nominal interest rate by  more than the inflation rate. In that way the real...

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Will inflation persist?

window.MathJax = { tex: { tags: 'ams' } }; (Note: this post uses Mathjax equations. If you see garbage, come back to the original.) IntroductionWill inflation persist? One line of thought says no: This inflation came from a one-time fiscal blowout. That "stimulus'' being over, inflation should stop. In fiscal language, we had a one-time big deficit, that people do not expect to be repaid by future surpluses. That gives rise to a one-time price-level increase, paying for the...

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The Ghost of Christmas Inflation

This is part of an ongoing series of essays on inflation.  This one is at Project Syndicate. The next post is somewhat longer and more academic with the same themes. The Ghost of Christmas InflationInflation continues to surge. From its inflection point in February 2021 to last month, the US consumer price index has grown 6% – an 8% annualized rate. The underlying cause is no mystery. Starting in March 2020, the US government created about $3 trillion of new bank reserves (an...

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The ECB’s dilemma

I have been emphasizing the Fed's dilemma: If it raises interest rates, that raises the U.S. debt-service costs. 100% debt to GDP means that 5% interest rates translate to 5% of GDP extra deficit, $1 trillion for every year of high interest rates. If the government does not tighten by that amount, either immediately or credibly in the future, then the higher interest rates must ultimately raise, rather than lower, inflation. Jesper Rangvid points out that the problem is worse for the...

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Debt Video

 This is a short video summarizing papers r<g? and (better) section 6.4 of Fiscal Theory of the Price Level. Do low interest costs on the debt mean the government never has to pay it back? If the government doesn't have to repay debts, why do any of us citizens have to repay debts? Let the government borrow, pay off our student, mortgage, and auto debt. Let it send us checks and we can all stop working, paying taxes, and just order things from Amazon. Hmm. Something is wrong...

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Inflation speculation

I'm working madly to finish The Fiscal Theory of the Price Level. This is a draft of Chapter 21, on how to think about today's emerging inflation and what lies ahead, through the lens of fiscal theory. (Also available as pdf). I post it here as it may be interesting, but also to solicit input on a very speculative chapter. Help me not to say silly things, in a book that hopefully will last longer than a blog post! Feel free to send comments by email too. Chapter 21. The Covid...

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Build back sausage

Inspired by Casey Mulligan's blog post, I went to read some of the "Build Back Better" bill. (Is it just me, or doesn't "Build Back Better" sound a lot like "Make America Great Again?") Heavens, not the whole thing -- that's way beyond me. I just read the first half of the child care tax credit, starting on p. 241. I was also inspired by PBS, which, coincidentally, I'm sure,  announced last week a Child Care Crisis. Well, what is the federal government going to do about this...

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What’s in the reconciliation bill? A conversation with Casey Mulligan.

 A podcast discussion with Casey Mulligan. What's in the reconciliation bill? How will it work? Link to the podcast page, with lots of other formats. Yesterday Casey tweeted that he had read the entire 2,400 page bill. Casey does this sort of thing, as explained in his book "Your'e hired." I have been trying to figure out what's in it for a while. The media coverage is basically absent. (See this great Marginal Revolution post and Bloomberg column (gated,...

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