Tag: Free exchange

OXFORD Dictionaries has just named «post-truth» its word of the year. The timing certainly seems apt. Among the many recriminations unfolding in the wake of the American election are darts aimed at the press which, some argue, did an inadequate job during the campaign sorting truth, from half-truth, from innuendo, from outright fabrication. Interestingly, among those groups in the crosshairs is Facebook, which is now struggling to work out what its journalistic responsibilities are in this strange new digital age.

Facebook, which has nearly 2b monthly active users, is a media goliath. Users spend much of their time at the site interacting with friends and family, or sharing photos and videos. Yet Facebook is also an increasingly important location for the publication and sharing of news. According to a study conducted by the Pew Research Centre, 44% of American adults said they get some news from Facebook. Some of that news, as it turns out, is fake….Continue reading

IT HAS not yet been a week since Americans elected Donald Trump their next president, and already there is a lot to digest. While Mr Trump’s initial personnel decisions deserve plenty of scrutiny, the global market reaction to the election also demands attention.

This morning, the decline in bond prices that began last week continued. In America, the 10-year government bond yield rose above 2.26%, the highest level since the end of 2015, while the 30-year bond yield reached 3%. Treasuries are faring worse than many other bonds, however. Yields are going up nearly everywhere, but emerging markets and the euro-area periphery are experiencing especially large moves. (It is, as my colleague Buttonwood quipped on Twitter, a «Trump tantrum».) What is happening here, and why?

The conventional wisdom is that markets are pricing in an expected move toward expansionary policy in America. Mr Trump is expected to cut taxes dramatically, increasing the American budget deficit, while also spending more on infrastructure and defence. That boost is coming at a time when America’s economy, while still…Continue reading

AFTER the Brexit referendum and the election of Donald Trump, and the subsequent market reactions, I think we are closing in on a decent theory of the way liquidity traps end.

That might be going too far. Markets have not had that much time to process the American election outcome, and what time they have had has sent some mixed signals. Yet among the clearest market moves since the morning of November 9th has been a sharp drop in Treasury prices, accompanied by a sharp rise in implied inflation expectations as determined from inflation-protected Treasury securities. Now: sharp is relative. But markets are showing signs of that they expect reflation under Mr Trump. And they have reason to. Mr Trump seems keen on massive tax cuts and a big increase in government spending (on defence, and perhaps also on infrastructure). Mr Trump might just represent macroeconomic regime change.

Let’s back up. The theory of liquidity traps first began to develop in the 1930s, when John Hicks picked up where John Maynard Keynes left off, in response to events of the Depression. Keynes explained that when an economy was operating at less than full employment, then a rise in government…Continue reading

FROM late January, Donald Trump will have all the authority of the American executive, and the support of a unified Republican Congress, behind him. He will, therefore, be in a position to deliver profound and lasting change. The near-term economic effect of a Trump presidency is perhaps not of foremost concern to vulnerable racial and religious minorities in America, or to nervous Nato allies in eastern Europe. But the economic consequences of Mr Trump’s presidency could be enormous, and costly.

In the short run, the market reaction will receive most attention. Mr Trump will not be president until early in 2017, and so it falls to markets to anticipate, and price in, expected policy changes. Stockmarkets are set to open down today, and the election could presage a longer slump if investors feel that the uncertainty generated by Mr Trump’s victory will harm growth and corporate profits. But volatility, rather than a bear market, might be the more probable outcome, given the lack of clarity as to what Mr Trump will prioritise in office. Bond prices will probably wobble a lot as markets seek insurance against risk. Normally, American bonds are the world’s great safe haven….Continue reading

LIBERAL democracies, while not exactly on the brink of a descent into fascism, are facing a period of crisis. Tomorrow, when Americans go to the polls, one of the major-party candidates will be a man whose campaign has dispensed with the notion that its talking points should bear any resemblance to truth, and who has routinely promised to take measures in office which would violate the spirit or letter of the law and constitution. In Britain, meanwhile, parts of the public reacted with fury when a British court carried out its constitutional role as it saw fit, suggesting its judgment concerning the role of Parliament in invoking Article 50 was a betrayal of the people. These developments seem to presage something far worse—maybe, some worry, the end of functional democracy and its replacement by fascism. In the Financial Times today, Mark Mazower finds parallels in Germany before the Nazis…Continue reading

With the Federal Reserve set to raise interest rates in December, my colleague R.A. argues that:

Fed members argue that they are choosing to raise rates now, before inflation has returned to target, so that inflation will not jump above 2%, forcing them to raise rates in a much more rapid manner. If the choice is between above target inflation and a recession, the Fed will take the latter. They are prepared to risk keeping inflation from ever getting to target in the first place (and also a recession) by raising rates with inflation below 2%…

and that:

…recent experience has probably distorted central bankers’ perspective, and made them excessively quick to see inflation in the data and react to it

His criticism of the Fed combines multiple lines of argument. One is that central bankers are too keen to spot inflation in the data. That is probably…Continue reading