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Showing posts from June, 2020

Britain was not "nearly bust" in March

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"Britain nearly went bust in March, says Bank of England", reads a headline in the Guardian. In similar vein, the Telegraph's Business section reports "UK finances were close to collapse, says Governor": Eh, what? The Governor of the Bank of England says the UK nearly turned into Venezuela? Well, that's what the Telegraph seems to think:  The Bank of England was forced to save the Government from potential financial collapse as markets seized up at the height of the coronavirus crisis, Governor Andrew Bailey has said. In his most explicit comments yet on the country's precarious position in mid-March, Mr Bailey said 'serious disorder' broke out after panicking investors sold UK government bonds in a desperate hunt for cash. It left Britain at risk of failing to auction off the gilts needed to fund crucial spending - and Threadneedle Street had to pump £200bn into markets to restore a semblance of order. Reading this, you would think that the UK gov…

The true story of NI autocredits

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There's yet another bizarre claim doing the rounds in Waspiland. Or, more correctly, among the hardline Back to 60 fringe of the broader women's state pension movement. I try to ignore most of the ridiculous claims made by Back to 60 campaigners, because they aren't going to listen to me and I will simply end up with a sore head and a very frayed temper. But this one is more complex - and confusing - than most, and it doesn't only affect women. So it is worth explaining. 
As always, the story starts with the unequal state pension ages of men and women. When the present state pension system was introduced in 1946, women's state pension age was set at 60, and men's was 65. To qualify for a full state pension, women had to make 39 years of NI contributions: because their state pension age was 5 years later, men had to make 44 years of contributions. 
During the inflationary 1970s, unemployment gradually rose to the highest levels since the Great Depression. Youth un…

Pandemic economics: the role of central banks and monetary policy

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Below are the slides from my presentation at Beyond Covid on 12th June. The whole webinar can ve viewed here.
The pandemic seems to me to resemble the "nuclear disaster" scenarios of my youth: hide in the bunker, then creep out when the immediate danger is over, only to find a world that is still dangerous and has fundamentally changed in unforeseeable ways. 
Rabbits hiding from a hawk is perhaps a kinder image, though hawks don't usually leave devastation in their wake. And I like rabbits. So this presentation is illustrated with rabbits, not nuclear bombs. 


This is where we were in March/April/May. Hiding in our homes, waiting for the danger to pass:


And this is what central banks should have been doing then:


To their credit, this is exactly what they did. By supporting sovereign finances and warding off a financial crisis, they enabled fiscal authorities to take the extraordinary measures needed to keep people and businesses alive in their burrows. 

Some economists mistaken…

So when did this recession start, exactly?

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Is the U.S. in recession? If so, when did the recession start, and what caused it? 
The usual economic definition of "recession" is two successive quarters of negative GDP growth. But in Q1 2020, growth was positive, though it was apparently slowing sharply (more on this shortly):

So using the standard economic definition, the U.S. is not yet in recession.
But according to the Business Cycle Dating Committee of the National Bureau for Economic Research (NBER), the U.S. entered recession in February:  The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. February? The New York Fed's nowcasting report for February showed no sign of recession. The most recent nowcast shows the economy dropping off a cliff at the beginning of April: 

Of course, even nowcasts have lagging data. The date of the collapse according to this ch…