<![CDATA[Hedgehogs.net: '' related content]]> http://www.hedgehogs.net/tag/economic+theories?view=rss http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11397093/roger-farmers-economic-window-thought-for-the-day Wed, 15 Oct 2014 06:58:24 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11397093/roger-farmers-economic-window-thought-for-the-day <![CDATA[Roger Farmer's Economic Window: Thought for the Day]]> ]]> 11397093 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11395271/microdocumentary-the-truth-about-boom-and-bust-cycles Sun, 12 Oct 2014 03:15:39 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11395271/microdocumentary-the-truth-about-boom-and-bust-cycles <![CDATA[Microdocumentary: The Truth About Boom And Bust Cycles]]> Most believe that expansionary monetary policy helps ease crises. Austrian School economists argue that central banks don't help in smoothing the amplitude of the cycles, but rather are the cause of cycles. Read More...

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http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11393680/peru-maintains-rate-but-will-ease-if-necessary Fri, 10 Oct 2014 02:23:16 +0100 http://www.hedgehogs.net/pg/blog/CentralBankNews/read/11393680/peru-maintains-rate-but-will-ease-if-necessary <![CDATA[Peru maintains rate, but will ease if necessary]]>     Peru's central bank maintained its monetary policy reference rate at 3.50 percent, as expected, but maintained an easing bias by saying it "will implement additional monetary easing measures if it is necessary. "
    The Central Reserve Bank of Peru, which has cut its rate by 50 basis points this year, most recently in September, also said current and leading indicators "continue to show a weak economic cycle, with lower GDP growth rates than the potential output, although some signals of recovery have been observed in September."
    Peru's inflation rate rose to 2.74 percent in September from 2.69 percent in August, within the central bank's target range of 2.0 percent, plus/minus one percentage point, and expectations remain anchored to the range.
    Last month the central bank's president, Julio Velarde, forecast Peru's economy would likely expand between 3.5 and 4 percent this year, below the bank's August estimate of around 4 percent. The central bank has trimmed its growth forecast several times this year from an initial estimate of 6 percent as exports have declined.
    In the second quarter, Peru's Gross Domestic Product expanded by an annual 1.7 percent, down from 4.8 percent in the first quarter.
    The central bank issued the following statement:


"The Board of the Central Reserve Bank of Peru approved to maintain the monetary policy
reference rate at 3.50 percent.
This level of the reference rate is compatible with a projected rate of inflation within the target
range in 2014 and with inflation converging to 2.0 percent in 2015. This forecast takes into
account that: i) current and advanced indicators of economic activity continue to show a pace
of growth below their potential; ii) inflation expectations remain anchored within the inflation
target range; iii) recent international indicators show mixed signals of recovery in the world
economy, as well as higher volatility in financial and exchange markets, and iv) the supply
factors that led inflation to increase are moderating.
2. Inflation in September showed a rate of 0.16 percent, as a result of which inflation in the last
12 months rose from 2.69 percent in August to 2.74 percent in September, within the target
range. Inflation without food and energy recorded a rate of 0.09 percent, as a result of which
the interannual rate of inflation rose from 2.56 percent in August to 2.57 percent in
September.
3. Current and advanced indicators of activity continue to show a weak economic cycle, with
lower GDP growth rates than the potential output, although some signals of recovery have
been observed in September.
4. In October, the BCRP has continued lowering the rate of reserve requirements in domestic
currency –from 11.0 to 10.5 percent– with the aim of supporting the growth of credit in soles.
5. The Board oversees the inflation forecasts and inflation determinants, and will implement
additional monetary easing measures if it is necessary.
6. The Board of the Central Bank also approved to maintain the annual interest rates on lending
and deposit operations in domestic currency (not included in auctions) between the BCRP
and the financial system, as described below:
a. Overnight deposits: 2.30 percent.
b. Direct repos and rediscount operations: 4.30 percent.
c. Swaps: a commission equivalent to a minimum annual effective cost of 4.30 percent.
7. The Board will approve the Monetary Program for November on its meeting of November 13,
2014"

    www.CentralBankNews.info



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http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390628/house-prices-real-prices-and-pricetorent-ratio-decline-in-july Thu, 02 Oct 2014 21:18:56 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390628/house-prices-real-prices-and-pricetorent-ratio-decline-in-july <![CDATA[House Prices: Real Prices and Price-to-Rent Ratio decline in July]]> I started 2014 expecting a slowdown in year-over-year (YoY) prices as "For Sale" inventory increases, and the price slowdown is very obvious! The Case-Shiller Composite 20 index was up 6.7% YoY in July; the smallest YoY increase since November 2012 (the National index was up 5.6%, also the slowest YoY increase since November 2012.

I expect YoY prices to slow further over the next several months.

It is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $280,000 today adjusted for inflation (40%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to February 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to September 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to July 2002 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to March 2003.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to December 2002 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels.

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11390628
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390593/house-prices-real-prices-and-pricetorent-ratio-decline-in-july Thu, 02 Oct 2014 21:00:23 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390593/house-prices-real-prices-and-pricetorent-ratio-decline-in-july <![CDATA[House Prices: Real Prices and Price-to-Rent Ratio decline in July]]> I started 2014 expecting a slowdown in year-over-year (YoY) prices as "For Sale" inventory increases, and the price slowdown is very obvious! The Case-Shiller Composite 20 index was up 6.7% YoY in July; the smallest YoY increase since November 2012 (the National index was up 5.6%, also the slowest YoY increase since November 2012.

I expect YoY prices to slow further over the next several months.

It is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $280,000 today adjusted for inflation (40%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to February 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to September 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to July 2002 levels, the Composite 20 index is back to June 2002, and the CoreLogic index back to March 2003.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to December 2002 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are mostly back to early 2000 levels.

]]>
11390593
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390018/there-is-no-graceful-exit-for-the-fed-mark-zandi Thu, 02 Oct 2014 19:25:47 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11390018/there-is-no-graceful-exit-for-the-fed-mark-zandi <![CDATA[There Is No Graceful Exit for the Fed, Mark Zandi]]> Mark Zandi, Chief Economist of Moody's MCO -0.2% Analytics, doesn't get it. Like most economists today he looks at the world through the lens of a Keynesian economist. Through that lens, owing to the easy monetary policies of an ... Read More...

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http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11386758/interview-on-the-global-economy-and-economics Mon, 29 Sep 2014 18:47:47 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11386758/interview-on-the-global-economy-and-economics <![CDATA[Interview: On The Global Economy and Economics]]>

By Michael Pettis

read more...

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http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11381228/leading-economic-index-and-the-stock-market Tue, 23 Sep 2014 22:12:39 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11381228/leading-economic-index-and-the-stock-market <![CDATA[Leading Economic Index and the Stock Market]]> More
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http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11378866/wheres-the-growth Tue, 23 Sep 2014 15:41:02 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11378866/wheres-the-growth <![CDATA[Whereâs the Growth?]]> It’s About Your Presuppositions
Where’s the Growth?
USA: Secular Stagnation or Public Sector Drag?
Land of the Setting Sun
Draghi’s Turn at Abenomics?
The Failure of Monetary Policy
Washington DC, Dallas, Chicago, Athens (Texas), and Boston

read more...

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11378866
http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11376345/deflationary-spiral-nonsense-keynesian-theory-vs-practice-eurozone-policymakers-concerned-about-falling-prices Tue, 16 Sep 2014 22:11:20 +0100 http://www.hedgehogs.net/pg/newsfeeds/hhwebadmin/item/11376345/deflationary-spiral-nonsense-keynesian-theory-vs-practice-eurozone-policymakers-concerned-about-falling-prices <![CDATA[Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices]]> Price Deflation Hits Italy First Time in 55 Years

The Italian National Institute of Statistics (ISTAT) reports that consumer price inflation declined by 0.1% from August 2013 to August 2014.
Italian consumer prices fell 0.1 percent year-on-year in August of 2014, matching preliminary estimates. The country’s annual inflation rate touched the negative territory for the first time in nearly 55 years due to a drop in energy prices.

Year-on-year, prices of energy fell 3.6 percent in August, mainly driven by a 1.2 percent drop in cost of non-regulated energy products. Additional downward pressures came from food cost (-0.5 percent), mainly unprocessed food (-1.8 percent) and communication (-9.0 percent). Meanwhile, prices of services slowed (0.6 percent in August compared with a 0.7 percent increase in July).
Italy CPI 2000 - 2014



Eurozone Policymakers Concerned About Falling Prices

A Financial Times headline portrays falling prices as a negative thing: Deflation Takes Shine Off Sales for Italy’s Shopkeepers.
The appearance of deflation in Italy suggests a worrying spread from Spain, another peripheral eurozone economy, where it reared its head this year. Deflation is now stalking the home of Rome-born Mario Draghi, the European Central Bank president, who has sounded the alarm about the need to restore growth across the continent and has taken aggressive and unorthodox measures to do so.

Matteo Renzi, the youthful prime minister who gained power in February with an agenda of radical economic and political reform, acknowledged last week that growth would in fact be “around zero” this year.


The hope is that lower prices will start luring Italians back to the shops. But policy makers – particularly Mr Draghi and other ECB officials – do not seem to be betting on the resurgence of the Italian consumer.

They have been more focused on – and fearful of – the worst case: that the country, along with the eurozone more generally, could fall into a deflationary spiral, in which consumers hold off purchases in the expectation that prices will fall even further. Deflation would also raise the real value of Italy’s monumental €2.1tn public debt load, causing angst among investors.

“Even if you think the probability of damaging deflation is low, if it were to happen it’s a disaster,” says Erik Nielsen, global chief economist at UniCredit, the Italian bank. “The ECB was right to take out an insurance policy against it,” he adds, referring to measures including interest rate cuts the central bank took this month.
Deflationary Spiral Nonsense

The idea that falling prices are bad for the economy is ridiculous. Taking out insurance against falling prices is even more absurd.

Ask any consumer if he wants lower gas prices, lower food prices, lower hotel prices, lower computer prices, or lower prices on any consumer items and the answer will be yes.

Next, ask any consumer who needs a coat, computer, TV, or any other needed item if he would he wait a year to buy one because prices were falling.

Assuming the consumer had enough money to buy any needed item, he would buy that item now.

Thus, the entire deflationary spiral concept of consumers delaying purchases because prices are falling is ridiculous.

Keynesian Theory vs. Practice

Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it's precisely the opposite.

If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

In general, people like bargains, and when bargains get big enough, people do not wait for even bigger bargains. Consider Christmas shopping. Most do not wait until after Christmas when bargains are even bigger than before Christmas. 

Yet, these ridiculous myths of consumers waiting because prices are falling as opposed to consumers waiting for prices they can afford have been repeated so many times that people actually believe them.

Delays For Other Reasons

People do delay purchases if they don't have a job, or the money, or they perceive prices are simply too high.

The problem is typically debt, not falling prices. If consumers have too much debt or too little income they cannot buy. If businesses have too much debt they cannot expand. If governments have too much debt, they eventually run into problems.

Assets vs. Consumer Goods

Asset prices are different. Consumers will buy houses, stocks, bonds, land, and other assets they if they perceive central bank inflation will bail them out with ever-increasing asset price inflation.

Eventually prices get ridiculously stretched. Then when the greater fool stops buying, bubbles burst, asset prices fall, and then debt deflation takes over. Debts cannot be paid back, businesses cannot hire, and consumers out of a job cannot shop.

Keynesian Nonsense

Keynesian economists want government to pick up the slack when businesses fail. That's nonsense. Several decades of Keynesian and Monetarist attempts to jump start the Japanese economy with nothing to show for it but debt to the tune of 250% of GDP should be proof enough.

Falling prices are never the problem. Rather it's central-bank sponsored inflation that causes asset bubbles and promotes debt and malinvestment that is the problem.

The solution, that no central bank cares to promote, is to not sponsor assets bubbles in the first place. Once in asset bubbles, the best thing to do is let the bust play out.

Assuming Japan remains on its current path, the upcoming collapse in the Yen will provide the final proof that Keynesian economics is pure idiocy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com ]]>
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