John Cochrane utgreier om forholdet mellom gjeld og inflasjon. En kobling mange finner svak.

20110920 Cochrane4VERYSMALL
I den siste utgaven av National Affairs har John Cochrane staket ut sin intensjon i tittelen av artikkelen Inflation and Debt
. I grafen over viser Cochrane forholdet mellom NBNP og pengemengden (M1, M2) de siste 21 årene. Det er vanskelig å se noen sterk korrelasjon og dette er utgangspunktet til at gjeld burde få mer oppmerksomhet i diskusjonen om fremtidig inflasjon enn hittil. John:

[…] As a result of the federal government’s enormous debt and deficits, substantial inflation could break out in America in the next few years. If people become convinced that our government will end up printing money to cover intractable deficits, they will see inflation in the future and so will try to get rid of dollars today — driving up the prices of goods, services, and eventually wages across the entire economy. This would amount to a «run» on the dollar. As with a bank run, we would not be able to tell ahead of time when such an event would occur. But our economy will be primed for it as long as our fiscal trajectory is unsustainable.

Needless to say, such a run would unleash financial chaos and renewed recession. It would yield stagflation, not the inflation-fueled boomlet that some economists hope for. And there would be essentially nothing the Federal Reserve could do to stop it.

Disse to paragrafene er basert på antakelsen om «If people become convinced that our government will end up printing money to cover intractable deficits…» Mer presist så trykker sentralbanken penger, men det er detaljer i alt dette. Han fortsetter:

The key reason serious inflation often accompanies serious economic difficulties is straightforward: Inflation is a form of sovereign default. Paying off bonds with currency that is worth half as much as it used to be is like defaulting on half of the debt. And sovereign default happens not in boom times but when economies and governments are in trouble.

Most analysts today — even those who do worry about inflation — ignore the direct link between debt, looming deficits, and inflation. «Monetarists» focus on the ties between inflation and money, and therefore worry that the Fed’s recent massive increases in the money supply will unleash similarly massive inflation. The views of the Fed itself are largely «Keynesian,» focusing on interest rates and the aforementioned «slack» as the drivers of inflation or deflation. The Fed’s inflation «hawks» worry that the central bank will keep interest rates too low for too long and that, once inflation breaks out, it will be hard to tame. Fed «doves,» meanwhile, think that the central bank can and will raise rates quickly enough should inflation occur, so that no one need worry about inflation now.

Deretter tar han Keynesianere og Monetarister til dags, begge har nedprioritert underskudd og gjeld som kilder (viktige sådan) til inflasjonsbekymringer:

The Federal Reserve, and most academic economists who opine on policy, have an essentially Keynesian mindset. In this view, the Fed manages monetary policy by changing overnight interbank interest rates. These rates affect long-term interest rates, and then mortgage, loan, and other rates faced by consumers and business borrowers. Lower interest rates drive higher «demand,» and higher demand reduces «slack» in markets. Eventually these «tighter» markets put upward pressure on prices and wages, increasing inflation. Higher rates have the opposite effect.
[…]
The Fed describes its recent «unconventional» policy moves using this same general framework. For example, the recent «quantitative easing» in which the Fed bought long-term bonds was described as an alternative way to bring down long-term interest rates, given that short-term rates could not go down further.

One serious problem with this view is that the correlation between unemployment (or other measures of economic «slack») and inflation is actually very weak. The charts below show inflation and unemployment in the United States over the past several decades. If «slack» and «tightness» drove inflation, we would see a clear, negatively sloped line: Higher inflation would correspond to lower unemployment, and vice versa. But the charts show almost no relation between inflation and unemployment. From 1992 to 2001, inflation and unemployment declined simultaneously. More alarming, from 1973 to 1975, and again from 1978 to 1981, inflation rose dramatically despite high and rising levels of unemployment and other measures of «slack.»

Måten å forklare denne korrelasjonen mellom ledighet og inflasjon bedre er å introdusere forventninger (noe jeg har gjort på en tavle ca. 200 ganger og ca 200 ganger hørt «hva er den lille e’n for?») Det finnes problemer med dette også:

To Bernanke, costs, slack, and expectations drive inflation — and not the money supply, or the national debt. In this view, monitoring the «stability» of long-term expectations is vital, as is making sure that expectations stay «anchored.» We do not want people to respond to little blips of inflation with a fear that long-term inflation is about to break out.

So how does the Fed know whether expectations are stable? The central bank’s more extensive reports mirror the logic of the quote above: They point to surveys, forecasts, and low long-term interest rates. But the trouble is that surveys, forecasts, and long-term interest rates did not anticipate the inflation of the 1970s. For example, the chart below plots the interest rate on ten-year Treasury notes and the inflation rate over the past four decades. If long-term interest rates offered reliable warnings of inflation, we would see the interest rates rise before increases in inflation. That does not happen. Apparently «anchors» can get unstuck quickly, and inflation can surprise the bond market as well as the Fed.

Inflasjonsforventninger kan se robuste ut på papiret, men det skal ikke mye til, ifølge Cochrane, før ankeret ryker:

Major explosions of inflation around the world have ultimately resulted from fiscal problems, and it is hard to think of a fiscally sound country that has ever experienced a major inflation. So long as the government’s fiscal house is in order, people will naturally assume that the central bank should be able to stop a small uptick in inflation. Conversely, when the government’s finances are in disarray, expectations can become «unanchored» very quickly. But this link between fiscal and monetary expectations is too often unacknowledged in our conventional inflation debates — and it’s not only the Keynesians who ignore it.

Hva med Monetaristene:

While I also worry about inflation, I do not think that the money supply is the source of the danger. In fact, the correlation between inflation and the money stock is weak, at best. The chart below plots the two most common money-supply measures since 1990, along with changes in nominal gross domestic product. (M1 consists of cash, bank reserves, and checking accounts. M2 includes savings accounts and money-market accounts. Nominal GDP is output at current prices, which therefore includes inflation.) As the chart shows, money-stock measures are not well correlated with nominal GDP; they do not forecast changes in inflation, either. The correlation is no better than the one between unemployment and inflation.

Grafen han sikter til er den jeg har øverst i denne posten. Hvis du nå er nysgjerrig på hvilke kanaler underskudd og gjeld påvirker inflasjon må du lese i artikkelen. For mye og komplisert til å brytes opp i sitater her. La meg bare sitere deloverskriftene: FISCAL INFLATION, INFLATION AND INTEREST RATES, A RUN ON THE DOLLAR, THE IMPOTENT CENTRAL BANK og AVOIDING THE CRISIS. fra det siste delkapittelet:

We stand at the brink of disaster. Today, we face the possibility of a debt crisis, with the consequent financial chaos and inflation, that the Fed cannot control. In order to address this danger, we have to focus on its true nature and causes. The current inflation debate, focused on tinkering with interest rates and Fed announcements, completely misses the mark. Our desire to avoid a dangerous inflation should point us in the same direction as just about every other economic indicator and concern: It should point us toward finally bringing our deficits and debt under control and spurring long-term growth.

Hans løsning på dette, i et nøtteskall, er derfor rettet mot statsfinansene:

Our largest long-term spending problem is uncontrolled entitlements. Our entitlement programs require fundamental structural reforms.

Over decades, growth comes only from more people and more productivity — more output per person. Productivity growth fundamentally comes from new ideas and their implementation in new products, businesses, and processes.
Our tax rates are too high and revenues are too low. We should aim for a system that does roughly the opposite — raising the necessary tax revenue with the lowest possible tax rates, especially in those areas in which high rates create disincentives to work, save, invest, and contribute to economic growth.

Regulatory and legal roadblocks can be even more damaging to growth than high tax rates, tax expenditures, and spending. The uncertain threat of a visit from the Environmental Protection Agency, National Labor Relations Board, Equal Employment Opportunity Commission, Securities and Exchange Commission, or the new Consumer Financial Protection Bureau can be a greater disincentive to hiring people and investing in a business than a simple and calculable tax.

Av disse tre, starter det sterkt og slutter svakt.

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