They go up, they go down. It doesn't sound confusing. But it is. Even for economists. Just ask James Bullard, the president of the St. Louis Federal Reserve.
Let's step back for a moment. What does the Federal Reserve do exactly? The story you usually hear is all about interest rates. The Fed raises rates when the economy is too hot, and lowers them when it's too cool. But there's a problem. The Fed can't cut short-term interest rates now. They've been stuck at zero since 2008. But longer-term interest rates aren't. So the Fed has tried to push those longer rates down to spur stronger growth.
The big question now is whether the Fed should do more. This shouldn't be a big question if the Fed believes its own economic projections -- which show inflation staying too low and unemployment too high for years to come. So why did the Fed basically sit pat at its latest meeting? For one, Ben Bernanke wants to see more data confirming a slowdown before doing more. For another, James Bullard -- and some other FOMC members -- don't think the Fed needs to do more.
Bullard thinks Europe is doing the Fed's job for it. Or something. Here's what Bullard had to say recently about why he doesn't think further easing is called for:
Treasury yields have gone to extraordinarily low levels. That took some
of the pressure off the FOMC since a lot of our policy actions would be
trying to get exactly that result.
In other words, the Fed doesn't need to push down long-term interest rates because long-term interest rates have already been pushed down by investors looking for a financial safe haven. This would be right if the point of Fed policy was lower interest rates. But the point of Fed policy isn't lower interest rates.
The point is more growth. Lower interest rates only matter insofar as they promote more growth. Lower interest rates do not matter unto themselves. Think about it this way. Interest rates might fall for good or bad reasons. The Fed buying bonds is a good reason. Investors buying bonds due to fears of eurogeddon is a bad reason. They are not equivalent.
Don't take my word for it. Ask the markets. The chart below from Bloomberg gives us a sense of how much inflation markets have expected in five years time.
So-called breakevens just take the borrowing costs on normal Treasury bonds and subtract the borrowing costs from inflation-protected Treasury bonds. That difference should be a decent proxy of expected inflation. That's not always the case because inflation-protected Treasury bonds are traded so little that they're prone to fairly violent swings.
But why do we care about inflation? Well, when the Fed pushes up growth, it also pushes up inflation. Breakevens have jumped dramatically whenever the Fed has eased -- whether that was QE2 in late 2010, Operation Twist in late 2011, or extended guidance in early 2012. But breakevens are falling dramatically now. In other words, markets expect less growth and less inflation right now. That's a weeee bit different than what happens when the Fed eases.
And that brings us to the paradox of interest rates. (Feel free to skip to the next paragraph for the big reveal, if your'e so inclined.) Take a look at the breakeven chart again. Whenever the Fed eases, it says that it's trying to reduce long-term borrowing costs. For breakevens to rise while Treasury yields fall, inflation-protected Treasuries would have to fall even more. Now, that's happened a bit. But not enough to explain the rise in breakevens.
In other words, Treasury yields rise when the Fed eases. Huh? Isn't the whole point to lower interest rates? Technically, yes. But if the Fed succeeds in reducing borrowing costs, that increases inflation. And when inflation increases, investors demand higher yields on Treasuries. So if the Fed succeeds, we'd expect interest rates to rise. If the Fed fails, we'd expect interest rates to fall. It's an upside down world.
There's no big mystery why our economic recovery hasn't felt like much of one. The Fed has run far too tight a policy for far too long. The worst part is that too many Fed officials don't seem to understand that. They think policy has been loose. That's a shame.
Maybe it's time for them to start doing the opposite.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced. Winning first prize, Anuar Patjane Floriuk of Tehuacán, Mexico, will receive an eight-day photo expedition for two to Costa Rica and the Panama Canal for a photograph of divers swimming near a humpback whale off the western coast of Mexico. Here, National Geographic has shared all of this year’s winners, gathered from four categories: Travel Portraits, Outdoor Scenes, Sense of Place, and Spontaneous Moments. Captions by the photographers.
Before it became the New World, the Western Hemisphere was vastly more populous and sophisticated than has been thought—an altogether more salubrious place to live at the time than, say, Europe. New evidence of both the extent of the population and its agricultural advancement leads to a remarkable conjecture: the Amazon rain forest may be largely a human artifact
The plane took off in weather that was surprisingly cool for north-central Bolivia and flew east, toward the Brazilian border. In a few minutes the roads and houses disappeared, and the only evidence of human settlement was the cattle scattered over the savannah like jimmies on ice cream. Then they, too, disappeared. By that time the archaeologists had their cameras out and were clicking away in delight.
Below us was the Beni, a Bolivian province about the size of Illinois and Indiana put together, and nearly as flat. For almost half the year rain and snowmelt from the mountains to the south and west cover the land with an irregular, slowly moving skin of water that eventually ends up in the province's northern rivers, which are sub-subtributaries of the Amazon. The rest of the year the water dries up and the bright-green vastness turns into something that resembles a desert. This peculiar, remote, watery plain was what had drawn the researchers' attention, and not just because it was one of the few places on earth inhabited by people who might never have seen Westerners with cameras.
Paul faced danger, Ani and Ray faced each other, and Frank faced some career decisions.
This is what happens when you devote two-thirds of a season to scene after scene after scene of Frank and Jordan’s Baby Problems, and Frank Shaking Guys Down, and Look How Fucked Up Ray and Ani Are, and Melancholy Singer in the Dive Bar Yet Again—and then you suddenly realize that with only a couple episodes left you haven’t offered even a rudimentary outline of the central plot.
What if Joe Biden is going to run for the Democratic nomination after all?
Most Democrats seem ready for Hillary Clinton—or at least appear content with her candidacy. But what about the ones who who were bidin’ for Biden? There are new signs the vice president might consider running for president after all.
Biden has given little indication he was exploring a run: There’s no super PAC, no cultivation of a network of fundraisers or grassroots organizers, few visits to early-primary states. While his boss hasn’t endorsed Clinton—and says he won’t endorse in the primary—many members of the Obama administration have gone to work for Clinton, including some close to Biden.
But Biden also hasn’t given any clear indication that he isn’t running, and a column by Maureen Dowd in Saturday’s New York Times has set off new speculation. One reason Biden didn’t get into the race was that his son Beau was dying of cancer, and the vice president was focused on being with his son. But before he died in May, Dowd reported, Beau Biden tried to get his father to promise to run. Now Joe Biden is considering the idea.
Even when they’re adopted, the children of the wealthy grow up to be just as well-off as their parents.
Lately, it seems that every new study about social mobility further corrodes the story Americans tell themselves about meritocracy; each one provides more evidence that comfortable lives are reserved for the winners of what sociologists call the birth lottery. But, recently, there have been suggestions that the birth lottery’s outcomes can be manipulated even after the fluttering ping-pong balls of inequality have been drawn.
What appears to matter—a lot—is environment, and that’s something that can be controlled. For example, one study out of Harvard found that moving poor families into better neighborhoods greatly increased the chances that children would escape poverty when they grew up.
While it’s well documentedthat the children of the wealthy tend to grow up to be wealthy, researchers are still at work on how and why that happens. Perhaps they grow up to be rich because they genetically inherit certain skills and preferences, such as a tendency to tuck away money into savings. Or perhaps it’s mostly because wealthier parents invest more in their children’s education and help them get well-paid jobs. Is it more nature, or more nurture?
Two hundred fifty years of slavery. Ninety years of Jim Crow. Sixty years of separate but equal. Thirty-five years of racist housing policy. Until we reckon with our compounding moral debts, America will never be whole.
And if thy brother, a Hebrew man, or a Hebrew woman, be sold unto thee, and serve thee six years; then in the seventh year thou shalt let him go free from thee. And when thou sendest him out free from thee, thou shalt not let him go away empty: thou shalt furnish him liberally out of thy flock, and out of thy floor, and out of thy winepress: of that wherewith the LORD thy God hath blessed thee thou shalt give unto him. And thou shalt remember that thou wast a bondman in the land of Egypt, and the LORD thy God redeemed thee: therefore I command thee this thing today.
— Deuteronomy 15: 12–15
Besides the crime which consists in violating the law, and varying from the right rule of reason, whereby a man so far becomes degenerate, and declares himself to quit the principles of human nature, and to be a noxious creature, there is commonly injury done to some person or other, and some other man receives damage by his transgression: in which case he who hath received any damage, has, besides the right of punishment common to him with other men, a particular right to seek reparation.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
A new EPA rule is designed to withstand legal challenges from Republicans while convincing world leaders to follow suit.
President Obama’s plan to reduce greenhouse-gas emissions is aimed at three major constituencies. First, there’s the plan’s immediate goal: significant decreases in the emissions in the U.S. between now and 2030. Second, the rule arrives as the world gears up for global emissions talks in Paris in December, and American action is seen as necessary to convince other countries to act. And third, Obama views the fight against climate change as an essential part of his legacy, alongside the Affordable Care Act.
“We’re the first generation to feel the impact of climate change, and the last generation that can do something about it,” Obama said at a press conference at the White House on Monday, repeating a line he’s used before. The president emphasized the moral case for reducing emissions throughout the speech, invoking Pope Francis’s call for action, and scolding “cynical” critics who charged his plan would hurt minorities and the poor. “If you care about low-income minority communities, start protecting the air they breathe and stop trying to rob them of their health care.”
Writing used to be a solitary profession. How did it become so interminably social?
Whether we’re behind the podium or awaiting our turn, numbing our bottoms on the chill of metal foldout chairs or trying to work some life into our terror-stricken tongues, we introverts feel the pain of the public performance. This is because there are requirements to being a writer. Other than being a writer, I mean. Firstly, there’s the need to become part of the writing “community”, which compels every writer who craves self respect and success to attend community events, help to organize them, buzz over them, and—despite blitzed nerves and staggering bowels—present and perform at them. We get through it. We bully ourselves into it. We dose ourselves with beta blockers. We drink. We become our own worst enemies for a night of validation and participation.