Worthwhile Reads – February 2nd, 2015

Nouriel Roubini writes today about unconventional monetary policy for the World Economic Forum. The big take away being:

“Simply put, we live in a world in which there is too much supply and too little demand. The result is persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing.

The inability of unconventional monetary policies to prevent outright deflation partly reflects the fact that such policies seek to weaken the currency, thereby improving net exports and increasing inflation. This, however, is a zero-sum game that merely exports deflation and recession to other economies.

Perhaps more important has been a profound mismatch with fiscal policy. To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies. Indeed, the eurozone, the UK, the US, and Japan are all pursuing varying degrees of fiscal austerity and consolidation.”

Can Greece be saved by the new finance minister’s  studies of video game economies:

“Actual economies don’t have a natural tendency toward equilibrium, and the fact that Europe’s slump is really deep and long-lasting simply proves that Europe is in a really deep and long-lasting slump. But it’s not, in his view, something Europeans need to suffer through. It reflects blunders made by leaders at the top — blunders that could conceivably be reversed.”

The New York Times checks in with three Chicagoans who were featured last year by Fed Chair Janet Yellen in her defense of her policies. These three show how much work still needs to be done as their lives have marginally improved.

Finally, Tim Duy worries about dropping inflation and the position it is putting the Fed in as unemployment drops but wages stay stagnant.

“Not only is core-PCE inflation on a year-over-year basis trending away from the Fed’s target:PCE Inflation Measures

but the deceleration in recent months is truly shocking:

Core PCE, 3 Month Change

…Bottom Line: Below trend inflation as the economy nears full-employment is a very uncomfortable position for the Federal Reserve.”

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