Barnett Keynote on BREXIT at UK Conference on Uncertainty, Risk Measurement and COVID-19 Challenges

CFS Director of Advances in Monetary and Financial Measurement (AMFM) Professor William A. Barnett delivered the keynote lecture “Is the BREXIT Bifurcation Causing Chaos in the United Kingdom?”

Bill’s remarks explore:

  • Why is Brexit changing economic risk without a source of external shocks?
  • Mathematical properties of chaos with relevance to BREXIT and U.S. monetary policy.
  • Why chaos is not necessarily bad. It is normal in nature (weather, climate, etc.) and is relevant to science and economics. Chaos contains useful information.
  • The United Kingdom and United States economies have undergone significant structural and policy changes in the past decades rendering chaotic dynamics more relevant.
  • Meaningful policy implications stem from the existence of Shilnikov Chaos.
  • Shilnikov chaos, produced by interest rate feedback policy with sticky prices, explains the downward drift of interest rates over the past 20 years.
  • Interest rate feedback policy rules need to be augmented by simultaneous use of a second policy instrument focused on the long run to avoid unintentional downward drift of interest rates to their lower bound.

For the slide deck…
http://www.CenterforFinancialStability.org/speeches/UK_bifurcation_Barnett.pdf
For the lecture…
https://www.youtube.com/watch?v=W2URCxL5owU&ab_channel=KUDepartmentofEconomics%20

FT Letter: Investors shouldn’t bet too much on macro forecasts

Today my letter in the Financial Times (FT) responds to Howard Marks’ “Investors must not bet too much on macro forecasts.”  Marks offers a superb road map for navigating future inflation twists and turns.

However, he misses how macro rules of nature can often be measured – helping investors and public officials better achieve their respective goals.

Monetary measurements represent simply one meaningful mapping.

To view “Inflation was inevitable after the Fed fuelled monetary growth”:
https://www.ft.com/content/2f7f1bad-ed6b-4a6a-9123-0eb024541c8a

We look forward to any comments you might have.

Now, Inflation is Clear and Global

Across the board higher consumer price inflation in the United States removes any ambiguity or doubt regarding the existence of price pressures beyond transitory or base effects.

Overall consumer prices increased by 5.4% on the year ending in June. Core inflation increased by 4.5% over the same period.  In fact, in the last 4 months, both overall and core inflation exceeded market expectations and increased relative to the previous month’s release.

The phenomenon also extends well beyond simply the United States. It is global.

A diffusion index of every inflation release relative to the prior release for 49 countries shows an upward impulse since the beginning of the year. More pointedly, a diffusion index of reported inflation relative to expectations for the same complex of countries illustrates how actual inflation has been exceeding expected inflation especially since May 2021.
(see Figures 1 and 2… www.CenterforFinancialStability.org/amfm/studies/Global_inflation_071421.pdf)

The Center for Financial Stability (CFS) has been clear about risks and financial stability implications.  Our first email on April 22, 2020 noted how the initial impulse in the signal from CFS broad money would be a period of disinflation followed by inflation.

Inflation Fears Offers the Fed a Chance to Modernize with Money
http://www.centerforfinancialstability.org/research/Modernize_Money_042621.pdf
Post-Pandemic Economic Risks
http://www.centerforfinancialstability.org/research/Post_Pandemic_Economic_Risks_050521.pdf

June CFS Divisia money and financial liability data will be released on August 2 at 9:00 AM ET.

The present global macro backdrop for investors and officials is one of the most challenging and complex in decades. We look forward to any comments you might have.

Post-Pandemic Economic Risks

Professor William A. Barnett – Director of Advances in Monetary and Financial Measurement at CFS – evaluates present economic policy risks within the context of the ten-year period beginning in 1941.

The post-pandemic period could see a similar conflict between Treasury’s desire to minimize the cost of government debt finance and the Fed’s need to moderate inflation.

A primary harbinger of inflationary pressures would be a surge in liquid monetary assets held in the economy.

Unfortunately, there has been a steady decline in the quality and quantity of money market data available from the Fed – a void that has been partially filled by CFS.

To view the full article:
http://www.centerforfinancialstability.org/research/Post_Pandemic_Economic_Risks_050521.pdf

Inflation Fears Offers the Fed a Chance to Modernize with Money

Investors and the public are right to worry about inflation. Yet, measures to predict the impact of Fed policies on inflation, the economy, and financial stability are of deteriorating quality and being disregarded.

Market participants and especially officials must recognize that quantities of money matter now more than ever. Gyrations of the Fed’s balance sheet are at heights not witnessed in over 100 years.

Here, the Fed is moving in the opposite direction of its Congressional mandate (Section 2A) by increasing the money supply far in excess of long-run growth.

Since 2012, the Center for Financial Stability (CFS) has offered the public alternative monetary measures – pioneered by Professor William A. Barnett.

From this work, we now know that measuring activity in the financial system better predicts both inflation as well as financial instability risks.

We look forward to any comments you might have.

To view the full article:
http://www.centerforfinancialstability.org/research/Modernize_Money_042621.pdf

Bubbles, Quantities and Short Sales podcast

My friend and former Salomon Brothers colleague, Larry Bernstein hosts an engaging “What Happens Next?” weekly podcast.

We spoke about bubbles, monetary quantities and short sales – covering:

– future implications for financial markets… why it’s a bubble and
– public policy, regulatory risks, and what to do.

To listen to the podcast:
https://www.whathappensnextin6minutes.com/sessions/gamestop-and-antitrust/#goodman

To view the remarks:
http://www.centerforfinancialstability.org/research/Bubbles_Shorts_021721.pdf

FRED Publishes 100+ Years of CFS/Johns Hopkins Data on the Fed’s Balance Sheet

The Federal Reserve Bank of St. Louis FRED database, the premier source for free U.S. financial data, now includes data of the Federal Reserve System’s weekly balance sheet back to the Fed’s beginning in 1914. The data come from a paper and data set I compiled with five students of CFS Special Counselor Steve Hanke.

The students — Cecilia Bao, Andrew Chen, Nicholas Fries, Justin Gibson, and Emma Paine — were undergraduates who have all since graduated from Johns Hopkins University. As part of their work for Hanke’s course Research in Applied Economics, they wrote papers dividing the Fed’s history into three periods, with each paper using the corresponding data. I served as an adviser and outside reader. We then combined the data into one big data set.

Previously, some monthly balance sheet data from the Fed’s early years were digitized, along with full data from recent years. Full weekly data from the beginning, integrated with recent data, were however unavailable in any readily usable form. The students put in many hours digitizing the data, a task that any of thousands of professional economists could have done over the last 30 or even 50 years but none were enterprising enough to do.

Here is the announcement from FRED about the data set and here are the data series. For the original papers, see Chen and Gibson, Bao and Paine, Fries, and our joint paper. For the data from the joint paper, see here.

Thanks To A New Way Of Counting Money… This Is The Best Outlook For GDP In Years

My friend and former colleague, Raul Elizalde wrote a thoughtful piece for Forbes – “This Is The Best Outlook For GDP In Years, And We Know It Thanks To A New Way Of Counting Money.”

Raul nicely frames CFS Divisia and key issues in plain and direct language. He then offers his perspective on financial markets by incorporating CFS Divisia.

Raul is the founder, president, and CIO at Path Financial.

To view the full article:
https://www.forbes.com/sites/raulelizalde/2021/02/10/this-is-the-best-outlook-for-gdp-in-years-and-we-know-it-thanks-to-a-new-way-of-counting-money/?sh=b3a4983122c2

Robinhood and GameStop: Essential issues and next steps for regulators and investors

The hullabaloo surrounding the run up in the price of GameStop (GME) and the activities of Robinhood have generated front page news, calls for action, and allegations of wrongdoing.

However, lost in the headlines and struggles between good and bad or big and little is the issue of greatest concern to all – financial stability.

A group of Center for Financial Stability (CFS) experts
1) examine essential issues as well as
2) propose next steps.

As these are complex and multipronged challenges, we look forward to any comments you might have.

To view the full article:
www.CenterforFinancialStability.org/research/GME_Robinhood_020421.pdf

Today’s WSJ: “Corporate Debt ‘Relief’ Is an Economic Dud”

Today, The Wall Street Journal published an op-ed titled “Corporate Debt ‘Relief’ Is an Economic Dud.

CFS Board Member and former FDIC Chair Sheila Bair and I note how:

Conservatives accuse progressives of wanting to destroy capitalism. Yet a greater threat than Bernie Sanders is the prospect of serial market bailouts by monetary authorities.

The creation of the corporate facilities last March marked the first time in history that the Fed would buy corporate debt. The plan went far beyond previous quantitative easing.

– There is not much evidence that all of that cash went toward creating and preserving jobs in the U.S.
– Corporate facilities merely intensified the damage that monetary interventions had already dealt to U.S. capital allocation.

Capitalism doesn’t work unless capital costs something and markets don’t work unless they are allowed to rise and fall.  Corporate facilities should not become part of the Fed’s standard tool kit. Let them die.

We look forward to any comments you might have.

To view the full article:
https://www.wsj.com/articles/corporate-debt-relief-is-an-economic-dud-11609975810?st=3v9nhfz6u4los6q&reflink=desktopwebshare_permalink