Wednesday, April 27, 2005

Explaining the trade deficit

The Global Savings Glut
We are all taught that saving is good -- indeed, Americans are often chided for spending too much and saving too little. But what if the problem of today's global economy is that people elsewhere -- in Europe, Asia and Latin America -- are saving too much and spending too little? Former Princeton University economist Ben Bernanke argues that this is precisely the case. He calls it "the global savings glut."

It's not so much that we consume too much and save too little here in the US, it's that the rest of the world does the opposite. Combine that with the US being a better place to invest and you get the growing trade deficit.

To say a country has surplus saving is simply another way of saying that it lacks good investment opportunities at home or discourages its citizens from consuming. Asian countries favor export-led growth, deemphasizing local consumption. Latin America's volatile politics deter investment. Europe's heavy taxes and regulations do likewise. Whatever the problems, Americans can't fix them.

Tuesday, April 12, 2005

Predictions from Online Futures Markets

The Smart Money

If you listened to journalists during last year's presidential campaign, you heard about a tight race with oscillating polls and shifting momentum. The weekend before the election, we painstakingly analyzed the battleground states and bravely proclaimed them too close to call.

But if you watched the Intrade market throughout the campaign, you saw the traders serenely betting on a Bush victory. Most remarkably, the weekend before the election, the traders correctly called the winner in every one of the 50 states.

The markets are at it again. Who will be the next Pope?

Tuesday, April 05, 2005

Implementing Monetary Policy

From someone that actually does it, here's his description of how the Fed implements monetary policy.

Since many of you plan to work in the financial markets, I thought that you might find it interesting to hear some of the details of how U.S. monetary policy is actually implemented and how policy decisions affect asset prices and yields. I will begin by discussing how the Federal Reserve influences the federal funds rate, the one market interest rate over which it has fairly direct control. I will then discuss the effects of changes in the federal funds rate on the asset prices and yields that matter the most for economic activity and inflation.

Remarks by Governor Ben S. Bernanke