So, on vacation — but in the middle of a banking crisis. Will weigh in with a newsletter tomorrow, but where my thinking is right now. The banking mess is, as far as I can tell, sufficient reason for the Fed to pause until we know more 1/ Before banks started exploding, we had seen a substantial decline in underlying inflation — but unclear how far we were from target and whether inflation was still falling or moving sideways 2/

More SVB: I think we can learn a lot about what happened from this 2001 Barry Ritholtz interview with SVB's CEO, which describes it as "the only bank dedicated to the global innovation sector" — which is indeed how it portrayed itself 1/ ritholtz.com/2021/08/mib-gr… SVB did indeed provide services to startups — loans, investment guidance, etc. But that wasn't where it made most of its money. Instead, it basically just attracted deposits and put the funds in long-term securities, a simple carry trade that went very wrong 2/

OK, some very early morning thoughts on SVB, and why it probably isn't a harbinger for the banking system as a whole — why this is unlikely to be another Lehman moment 1/ SVB was founded 40 years ago, but its big expansion is much more recent; deposits surged during the pandemic 2/

Last week CBO issued its latest budget projections. And every report I saw conveyed the impression that they were bad news, reinforcing the case that Medicare and Social Security are unsustainable. But that's not what we learned 1/ CBO's main projections were for 10 years, but it also updated its long-run budget projections. Here's how those projections for Medicare changed since last July 2/

We're talking about Medicare and Social Security again — thanks, Rick Scott! — and even as Republicans reenact the Monty Python "run away" scene, some of the Very Serious People are popping up to resume their entitlement-bashing 1/ And entitlement spending is indeed expected to rise substantially in the decades ahead. But important to bear in mind this, from CBO long-run budget outlook: 2/

I suppose I should preregister some views about the upcoming CPI report, so I don't get accused of making excuses when (as seems likely) it shows a significant uptick. Because it probably will — for reasons that tell us little about how we're actually doing on inflation 1/ The key point: Some of the temporary factors that were holding inflation down, especially falling used car prices, are probably over. On the other side, official shelter prices are still rising fast, even though market rents are probably falling, because of known lags 2/

Amid the desperate attempts by Fox News and its subsidiary, the Republican Party, to insist that Biden's true claims about GOP efforts to cut Medicare and Social Security are false, worth remembering some history 1/ Ronald Reagan tried to make significant cuts in Social Security in 1981, but backed down in the face of a huge public backlash 2/ nytimes.com/1981/05/13/us/…

I don't think anything I've written in the past year has generated as much hate mail as this newsletter saying that we weren't in a recession 1/ nytimes.com/2022/07/26/opi… We should take today's employment report with a grain of salt — lots of people who know these numbers well warned in advance of statistical noise. But it's clear that we have, in fact, been experiencing a ... Biden boom 2/ nytimes.com/2020/11/19/opi…

Some further notes on inflation in the wake of the ECI report. We can quibble about details on the numbers, but two things seem clear: compensation growth has fallen substantially, but is still probably too high to be consistent with 2 percent inflation 1/ But I'd argue that efforts to estimate underlying inflation, while of some value, are currently missing a lot of the point. If an inflation measure can change as fast as various core measures have lately, in what sense is it even "underlying"? 2/

I'm not writing much about Mint the Coin etc, bc I think the Biden plan is to give Rs as much rope as possible to hang themselves, while keeping their contingency plans quiet. But I do think I should say something about 2 bad arguments against the coin and other strategies 1/ 1 argument is they're gimmicky and undignified. Yes, they are. So is having a financial crisis because a faction in Congress refuses to allow the govt to pay bills it has already incurred. You don't refuse to wear a helmet in a construction zone bc you think it looks dorky 2/

Like many economic observers, I'm waiting anxiously for tomorrow's release of the Employment Cost Index. But there may be a big problem of interpretation, illustrated below (I'll explain in a minute) 1/ The ECI comes out only quarterly, which is annoying, but also means that it's lagging data. Many of us trying to assess underlying inflation have lately been focused on 3-month rates of change, which matched up with quarterly data. But ... 2/

What with everything else going on, haven't commented on proposed currency union between Argentina and Brazil. But it's a nice opportunity to apply the theory of Optimum Currency Areas — which tells us that it's a terrible idea 1/ ft.com/content/59cc26… A shared currency may make sense between economies that are each others' major trading partners and are similar enough that they won't face large "asymmetrical shocks". So, here's the destination of Brazil's exports 2/

Some notes on inflation. First, clearing up a misconception: no, measures like "supercore" that exclude food, energy, shelter and used cars aren't finding disinflation by throwing out the inflation 1/ Headline inflation is actually being held down by some clearly one-off things, like falling gas prices, but also being exaggerated by shelter prices that reflect a rent surge that ended many months ago. Overall it's more or less a wash, and the disinflation is real 2/

I've been a bit behind on commenting on this widely cited recent analysis, but thought I might still have something to contribute. Warning: very wonkish, not for normal humans 1/

https://twitter.com/jan_eeckhout/status/1617478919560794112

First off, I basically agree with Eeckhout's conclusion: underlying inflation has fallen fast, although not quite ready to say that it's 2 percent. Also agree with the general point about the need to smooth but not too much: monthly is too noisy, annual too far behind reality 2/

According to Jeff Stein, the Biden admin strategy on the debt ceiling is to stare Rs down: make no concessions and dare them to provoke a crisis. I hope it works; if it does, one main reason will be the near-extinction of the Very Serious People 1/ washingtonpost.com/us-policy/2023… Back in 2011, there was a bizarre elite consensus that we were in a fiscal crisis; as Ezra Klein pointed out at the time, this consensus was so strong that the media dropped the conventions of reportorial objectivity and openly sided with the deficit scolds 2/

One thing I've been noticing in my correspondence is how many people think inflation is still running wild; the big deceleration in the 2nd half of 2022 hasn't broken through to public consciousness 1/ Several reasons for this. Too many media reports focus on yoy inflation, so miss the big turn. Traditional core inflation still reflecting rent increases from a year ago. And asymmetric reporting: breathless coverage of rising inflation, disinflation not so much 2/

We're coming up on the 2nd anniversary of Biden's inauguration, and I have a few (not very original) thoughts about his economic policy 1/ The opening salvo was the American Rescue Plan, which came in for immense criticism as "the most irresponsible fiscal policy in 50 years". Soaring inflation seemed to vindicate the critics 2/

Like many others, I'm experiencing a fair amount of MAGAfreude — pleasure in watching horrible Republicans destroy each other. But there may be collateral damage 1/ In particular, I was baffled by the failure of Democrats to use the lame duck to raise the debt ceiling. Maybe the idea was that Rs could be shamed into avoiding a crisis later this year 2/

Not about economics or politics, at least directly, but I thought this was interesting and ties into how I've been trying to understand the Ukraine War 1/ nytimes.com/2023/01/03/wor… Even before the war I learned a lot from Phillips O'Brien's take on WW2, which emphasized materiel rather than famous battles 2/ cepr.org/voxeu/columns/…

Continuing this discussion. Again, Olivier is tapping into an important point often missed in monetary/macroeconomics: in the end, it all comes down to individual motives and decisions 1/

https://twitter.com/ojblanchard1/status/1609000406184591360

A business that raises its prices doesn't do so because the Fed has increased the money supply. The chain of events that leads to that price rise may have started with the Fed, but the firm is responding to its own market conditions 2/

A very good point from Olivier, but the replies make it clear that many people don't get it. Maybe an old analogy can help clarify 1/

https://twitter.com/ojblanchard1/status/1608967176232525824

I think this came from Martin Baily in the 70s. Anyway, one way to think about inflation is that it's like a sports event where everyone stands up to get a better view of the action — which is collectively self-defeating 2/