In 1720, the very same year that England was experiencing
the “South Sea Bubble” (see our post),
France was experiencing a bubble as well—the “Mississippi Bubble.” France’s
bubble was brought on by government debt and the advice of the head of the
country’s finance ministry, John
Law (Scottish mathematician, convicted murderer [a duel], gambler, and financial
genius), to create paper money and a bank and to invest in his Mississippi
Company. (Indeed, at the height of the trading frenzy for shares of stock in
Law’s company, a hunchbacked man rented his back out as a desk in the “Street of Speculators”
and earned a considerable sum.) Over a three-year period (1718-20), things went
very wrong and too much money was printed (the regent’s decision, not Law’s). The
text accompanying this portrait of Law describes
him as an:
18th century Scotsman, credited by
some historians as being “the father of inflation.” Law turned gambling IOUs
into “gold counters,” then state debts into paper money, and finally sold all
France down the river on the “Mississippi Bubble.”
Basit Zafar, Max Livingston, and Wilbert van der Klaauw
The payroll tax cut, which was in place during all of 2011 and 2012, reduced Social Security and Medicare taxes withheld from workers’ paychecks by 2 percent. This tax cut affected nearly 155 million workers in the United States, and put an additional $1,000 a year in the pocket of an average household earning $50,000. As part of the “fiscal cliff” negotiations, Congress allowed the 2011-12 payroll tax cut to expire at the end of 2012, and the higher income that workers had grown accustomed to was gone. In this post, we explore the implications of the payroll tax increase for U.S. workers.
Andrew Haughwout, Donghoon Lee, Wilbert
van der Klaauw, and Joelle Scally
This morning, the New York Fed released its Quarterly
Report on Household Debt and Credit for 2013 Q1.
The report uses the FRBNY Consumer Credit Panel to show that outstanding
household debt declined approximately $110 billion (about 1 percent) from the
previous quarter. The drop was due in large part to a reduction in
housing-related debt and credit card balances. Meanwhile, delinquency rates for
each form of consumer debt declined, with the overall ninety-plus day
delinquency rate dropping from 6.3 percent to 6.0 percent.
debate over whether there’s a case for limiting capital flows has intensified
recently—both in media and academic forums. The traditional view has generally
been that the voluntary exchange of funds across borders makes everyone better
off: Borrowers have access to cheaper credit while lenders enjoy higher returns
on their investments. But, as a recent article in The Economist
highlights, this view has been revisited. In this post, we review arguments on
this issue and discuss how our recent research contributes to the debate.
These two fine old entities—the New York Fed and Grand
Central Terminal—have at least three things in common: they are both about
100 years old, they both feature beautiful vaulting in some part of their
structure by the same “designer” masons, and they both go very deep into the
We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years. But how do they reach this conclusion? Why is it that the equity premium is so high? And more importantly: Can we trust their models?
One of the most interesting phenomena marking the recent financial crisis was the disruptions in the interbank market, where banks borrow and lend reserves to each other. This post draws upon my paper with Douglas Gale, “Liquidity Hoarding,” to discuss this practice by banks during times of increased uncertainty about future liquidity needs and its consequences for the efficient transfer of liquidity in the interbank market.
An important measure of success for monetary policy is a central bank’s ability
to anchor inflation expectations; inflation expectations influence actual
inflation and, hence, the achievement of a given inflation goal. This notion has
special significance for Japan, where CPI inflation has been intermittently
negative since 1994 and where it is widely believed that expectations of future inflation have been persistently negative (that
is, ongoing deflation is expected). In this post, we describe and evaluate an
alternative, market-based measure of Japanese inflation expectations based on
international price parity conditions. We find that recent inflation
expectations have attained a level substantially higher than their previous
peaks over the past three years.
M. Henry Linder, Richard W. Peach, and Sarah K. Stein
Correction: This post was updated on April 25 to correct the label on the y-axis in the top panel of the "Gauging Hurricane Impact" chart. We also corrected the explanatory text in the preceding paragraph.
The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce has reported that real Gross Domestic Product (GDP) increased at a very sluggish 0.4 percent annual rate in the final quarter of 2012. A natural question to ask is to what extent, if any, did superstorm Sandy contribute to this weak performance. While not a particularly intense storm, it was the largest Atlantic storm on record with a diameter of roughly 1,100 miles. The storm severely disrupted economic activity from late October until well into November along the eastern seaboard from the Mid-Atlantic region into New England, an area that is densely populated and that represents a significant portion of total economic activity of the entire country. Nonetheless, we suggest that superstorm Sandy likely had a relatively modest impact on the fourth-quarter growth rate, and that we cannot even be certain of the sign of that impact.
First there was Newspeak (from
George Orwell’s book 1984), which
intended to bend the thinking of the masses, then there was doublespeak (derived
from Newspeak, meaning a deliberate disguising or distortion of meaning, and
with its very own achievement award), and
then there was Fedspeak (and likely many other “-speaks”).