Inflation and unemployment rate, are they associated?

The unemploymwent rate goes up with the grey bars, it de3fines recession.  The blue line, inflation YoY ,by the deflator, mostly goes up just prior to the recession. Leiser and Krill think that is a wrong assumption and common people are fooled by the relationship.:

On misunderstanding economics: Most of us have long lamented the general public's lack of understanding of economics. A new paper by David Leiser and Zeev Kril sheds interesting light upon this. The human mind, they say, "is not particularly equipped to think about economics"...

Faced with this..., say Leiser and Krill, people resort to metaphors - the most notorious being that governments should manage the public finances as if it were a household. Worse still, they are often overconfident about the applicability of these metaphors. ...

There is, though, another heuristic laypeople use, which Leiser calls the "good begets good heuristic" (pdf). He shows that people believe that good things cause good things to happen, and bad things to cause bad things. For example, they think a rise in unemployment is associated (pdf) with a rise in inflation because both are bad... What might be more problematic is that people think government spending is bad, and so associate it with rising unemployment.

I did not read the paper.  But it seems clear to me that inflation precedes a recession. If Leiser and Krill can prove that the chart above is wrong, then fine.

Does government spending associate with the grey bars above?   They land at presidential regime changes, and are almost always caused by bedly estimate3d costs of the previous regime.
So there is pleny of evidence the Leiser and Kril have no clue.

Well...

Obamacare going broke

Yahoo: Nearly half of the 23 non-profit insurance plans created under Obamacare in 2011 at a cost of $2.4 billion have announced they will close by the end of the year.

Utah’s Arches Health Plan on Tuesday became the 10th health insurance co-op to announce that it was closing its doors. The move comes soon after the Obama administration’s decision on Oct. 1 to provide just 12.6 percent of the $2.87 billion that insurers were seeking to offset losses caused by unexpectedly high coverage costs

Italics mine.

The costs were high and expected, calculated and known by health experts for years.   Nor was the Kanosian, Obamacare fraud unexpected, experts knew the Pelosi had rigged an unworkable scam.

There is no such thing as a natural negative interest rate

Yet another Krugman: 

Laubach and Williams find that the natural rate has plunged in recent years, and is now very, very low. The particular statistical method they use is reasonable, but in any case — as they document — the result pops out for pretty much any plausible methodology. ...

L-W attribute the decline in the natural rate largely to the slowing of potential output, which in turn reflects demography and what looks like a slowdown in technological progress. That’s more speculative. But the low natural rate is as solid a result as anything in real time can be.

 Krugman shows the chart to the left. He is quoting Laubach and Williams from the Federal Reserve research division.

The MIT Basket Weaving assumption is that we live forever, have instantenous knowledge3 from the Fed target, and we make infinitely indivisible purchase.  These are the Euler aswumptions and let the Basket Weavers use Newton's grammar.  Under these assumption the economic matrix is symmetrical, transactions are micro reversible.  None of these assumptions apply.  What applys is Peter Keevosh working this problem:

Fifteen young ladies in a school walk out three abreast for seven days in succession: it is required to arrange them daily, so that no two shall walk twice abreast.

The Fed cannot get 15 school girls a walking because the Fed has to deal with the US Senate as a required, but dysfunctional member bank.  So we have all the private member banks betting on deposits and the US Senate betting on a six year loan at 1/2% and a 15% tax on the bond industry in the form of remits.   So the Fed is changing rates on a yearly schedule because its main member bank, the US Senate, works a yearly budget, not a quarterly. Hence the short term rates, as seen by the Fed, are non existant; the bond market has adapted to tyhe slow update schedule at the Fed. In a Euler model the symmetry requires the model generate negative rates.  Interesting but mis-named.

Do we ever get negative rates?  For a month or two when we are crashing.  The MIT Basket Weavers have a recession scheduled for Q1 2016, watch the yield curve during the planned crash.

Uh Oh, steel demand is collapsing

Yahoo: The steel industry's dire straits are in the spotlight this week, with both China and the U.K. warning about the hit from the dramatic slump in demand, particularly from the world's second-biggest economy.

The World Steel Association forecasts that global steel demand will decrease by 1.7 percent in 2015, before growing by 0.7 percent in 2016. However Chinese demand is seen falling both this year and next, by 3.5 percent and 2 percent respectively, following a demand peak in 2013. Steel prices have held at $170 per ton since October 8, having fallen sharply over the last year from above $400 per ton.

On Wednesday, the deputy head of the China Iron and Steel Association warned that demand for the ferrous metal was waning fast. 

One more sign the Kanosians have generated another recession. And this from the Atlanta Nowcast machine:

Atlanta Fed: The Crowd’s Q3 GDP Expectations Are Too High

Expectations are in need of a haircut for tomorrow’s preliminary release of the government’s third-quarter US GDP report, according to yesterday’s update of the Atlanta Fed’s unofficial estimate. In contrast with Econoday.com’s consensus forecast for a 1.7% rise in Q3 output, yesterday’s update of the unofficial GDPNow model forecast sees Q3 growth at a tepid 0.8%, down a tick from the bank’s Oct. 20 nowcast of 0.9% and far below Q2’s strong 3.9% rise.

The Atlanta Fed advises: “The model’s nowcast for the contribution of inventory investment to third-quarter real GDP growth declined from -1.9 percentage points to -2.0 percentage points after [yesterday’s disappointing] report on durable goods manufacturing from the U.S. Census Bureau.”

So it looks like we will need another batch of Chinese home buyers to stave off the recession. But how long will Chinese home buyers tolerate a government full of Kanosian nutcases.

Krugman and Bernanke, still the consummate liars

In his interview with Martin Wolf, Ben Bernanke expresses exasperation with claims that quantitative easing is a giveaway to the rich (at the same time that it hurts savers — go figure):

This is the fourth or fifth argument against quantitative easing after all the other ones have been proven to be wrong.

It is, indeed, kind of amazing. In the eyes of critics, QE is the anti-Veg-O-Matic: it does everything bad, slicing and dicing and pureeing all good things. It’s inflationary; well, maybe not, but it undermines credibility; well, maybe not but it it causes excessive risk-taking; well, maybe not but it discourages business investment, which I think is a new one.

Manure.n  Look at tyhe GINI index, it just up and nearly exactly follow3s the QE purchases.  We see the same effect in 1992,

Here is is, the GINI index.  The higher the value the richer the rich.  Se it jump in 1992? That was when the MIT BNumbskulls advocate dropping rates below their market clearing value. The would be a Krugman, MIT fraud.  Then we see the second largest jump in GINI in late 2011.  The jump exactly coi8ncided with Bernankes's QE.

The Fed is dead, has been dead for 30 years.  It only excists because a bunch of embarrased MIT profs discovered their math is complete horse shit, and its currently being replace by the maximum liklihood theory of  self adapting statistics.  That is forty years of a bunch of idiots from MIT thinking the world is full of Euler police, enforcing price controls.

Modern technology has eliminated the need for central banking, and it is central bankers who are stupidly dragging down the economy as the transaction cost of using their money has gone way up.

Corporations report a pending recession

WSJ: Quarterly profits and revenue at big American companies are poised to decline for the first time since the recession, as some industrial firms warn of a pullback in spending. From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year.

Some of them say they are already experiencing a downturn. “The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co., told investors and analysts earlier this month. Caterpillar Inc. last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M Co., whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares. Industrial companies are being buffeted on multiple fronts. The slump in energy prices has gutted demand for drilling equipment and supplies. Economic expansion is slowing in China and major emerging markets such as Brazil, which U.S. companies have relied on for sales growth. And the dollar’s strength also has eroded overseas profits. Profit and revenue are falling in tandem for the first time in six years, with a third of S&P 500 companies reporting so far. Analysts expect the index’s companies to book a 2.8% decline in per-share earnings from last year’s third quarter, according to Thomson Reuters. Sales are on pace to fall 4%—the third straight quarterly decline.

The last time sales and profits fell in the same quarter was in the third period of 2009. If you look at kind of the broad industrial-production index, you see industrial production sequentially coming down,” said Fredrik Eliasson, chief sales and marketing officer at railroad operator CSX Corp. U.S. manufacturing production rose in September at its slowest pace in more than two years, the Institute for Supply Management reported earlier this month. And truckload carriers have warned that they aren’t witnessing the usual uptick in retailer demand as the holiday season approaches, thanks to stubbornly high inventories, said Alex Vecchio, a transportation analyst at Morgan Stanley. “Transportation companies are typically a leading indicator, and our data is not good,” Mr. Vecchio said.

Obamacare going broke say the experts

Read the whole art5icle.  The part I quoted states the conditions for insurers to stay viable qwith Obamacare.  They are not signing up the healthy, and Obamacare needs those folks to pay for the sick.  These are the experts doing the analysis, not a bunch of know-nothing Kanosians.

WSJ: Among this population of the uninsured, HHS reports that half are between the ages of 18 and 34 and nearly two-thirds are in excellent or very good health. The exchanges won’t survive actuarially unless they attract this prime demographic: ObamaCare’s individual mandate penalty and social-justice redistribution are supposed to force these low-cost consumers to buy overpriced policies to cross-subsidize everybody else. No wonder HHS Secretary Sylvia Mathews Burwell said meeting even the downgraded target is “probably pretty challenging.”

The HHS survey shows three of four ObamaCare-eligible uninsured people think having coverage is important—but four of five say they couldn’t fit their share of the premiums into their budgets even after the subsidies. They’re not poor; they tend to have jobs in industries like construction, retail and hospitality but feel insecure financially; and they prioritize items like paying down debt, car repairs or saving to buy a home over insurance.

The law’s failure to appeal to the young and rising middle class is already cascading through the insurance markets. Researchers at the Robert Wood Johnson Foundation and Urban Institute recently published a remarkable study of the industry barometer called medical loss ratios, or MLRs, and the pressure is building fast.

MLRs measure the share of premium revenue that flows to reimbursing medical claims. ObamaCare sets an MLR floor of 80% for patient care, with one-fifth left over for overhead like administration and profits, and the pre-ObamaCare 2010-13 historical trend for the individual market ranged from 79% to 86%.

The researchers found that in 2014—the first full year of claims experience in ObamaCare—average MLRs across all health plans sold on 16 state exchanges roamed from 90% to 99%. Average MLRs in 11 states climbed to 100% or more, reaching as high as 121% in Massachusetts. A business can’t stay solvent for long spending $1.21 for every $1 that comes in.

The Cal Legislature builds a Choo Choo

LA Times: The monumental task of building California's bullet train will require punching 36 miles of tunnels through the geologically complex mountains north of Los Angeles.

Crews will have to cross the tectonic boundary that separates the North American and Pacific plates, boring through a jumble of fractured rock formations and a maze of earthquake faults, some of which are not mapped.

It will be the most ambitious tunneling project in the nation's history.

State officials say the tunnels will be finished by 2022 — along with 300 miles of track, dozens of bridges or viaducts, high-voltage electrical systems, a maintenance plant and as many as six stations. Doing so will meet a commitment to begin carrying passengers between Burbank and Merced in the first phase of the $68-billion high-speed rail link between Los Angeles and San Francisco.

However, a Times analysis of project documents, as well as interviews with scientists, engineers and construction experts, indicates that the deadline and budget targets will almost certainly be missed — and that the state has underestimated the challenges ahead, particularly completing the tunneling on time.

"It doesn't strike me as realistic," said James Monsees, one of the world's top tunneling experts and an author of the federal manual on highway tunneling. "Faults are notorious for causing trouble."

Obamacare success?

These numbers show success according to Krugman.  However, let us not3 that Texas which refused both the exchange and the Medicaid expansion has outperformed all the public sector states by doulble.  So Texas seems to be doing this right.


For example4, Krugman's own state, New York, has grown by a mere 1.5% since the crash, but Texas has grown by 4.2%.  Is it weather or better government? California which has both the exchange and medicaid expansion only grew2 by 2.1% over the whole period.

Russia wins a pipeline in this deal

Zero Hedge on the US Middle East policy: For those unfamiliar with the situation on the ground, we encourage you to read “Who Really Controls Iraq? Inside Iran's Powerful Proxy Armies,” in which we outline the extent to which Tehran effectively controls both the Iraqi military and the politicians in Baghdad.
The US allows this because i) there’s really not much Washington can do about it, and ii) even if there was, it would mean first trying to root out Iranian influence on the political process and second attempting to separate the Shiite militias from the Iraqi regulars, which would only serve to weaken the country’s ability to resist Sunni extremists like ISIS. The other important thing to understand about Iran’s proxy armies in Iraq is that they are the very same militias fighting alongside the Russians in Syria (we mean “very same” in the most literal sense possible as they were called over the border by Quds commander Qassem Soleimani himself). This means they are Washington’s allies in Iraq but as soon as they cross the border into Syria, they become the targets of US-supported and supplied rebels battling at Aleppo. Obviously, that makes absolutely no sense and is emblematic of just how schizophrenic Washington’s Mid-East strategy has become. It’s also worth noting that these are the same Shiite militias who, with Tehran’s blessing, attacked US troops in Iraq after George Bush destroyed the US-Iran post-9/11 alliance by putting the country in his infamous “Axis Of Evil" (see here for more). 

Does the Fed cause inflation?

The implicit price deflator, change YoY, is inflation.

 Yes, the 1972 Nixon shock caused inflation. Otherwise the general trend is less inflation until now when inflation is zero.

When does inflation go up? Just before a recession. When do recessions happen? At the boundaries between presidential election changes in DC.  Who causes temporary inflation? DC, that is who. The result is a recession and a lowering of aggregate growth rates.  Our mal-proportioned government in DC is inefficient, it is the cause of the stagnations.

So much for inflation targeting

Here is headline consumer inflation, YoY, for 2015. Prices are stable.

2015

-0.09%

-0.03%

-0.07%

-0.20%

-0.04%

0.12%

0.17%

0.20

-0.04%

NA

NA

NA

NA

The Fed cannot adjust prices, we have a 100 Trillion derivative industry that does that.

Thew Fed has been lowering and raising rates

Look at the red line, the one year treasury rate. It shot up while the Fed was desperately buy short term debt, trying to keep it down. Look at the change in  its balance sheet.   The one year rates collapsed over the China thing, but we can see a four fold variation in  that rate. Then, the effective rate, the blue, it has been trying to raise that for a year  with the reverse repurchase thing.

The Fed is in a maze and clueless.  The effective rate is determined by GSEs who have grown enormously since 2001.  They get low deposit rates by regulation. But they are a profit center for Treasury which own Fanny and Freddy since they went bankrupt.  And the Fed owns GSE assets, but net goes to treasury.  Member banks take deposits from GSEs, so right away we have three loops entertwined.  None of the MIT Basket Weaving math will work, we are going to get a repeating sequence, multiple equilibria Farmer calls it. 

Helicopter time says Mark Thoma

Economists View: Quantitative easing has had a difficult time stimulating demand (which would put pressure on prices and raise inflation). The money mostly piles up in banks instead of turning into new loans and new spending. Helicopter money would, I think, do much better, especially if it was distributed to people with a very high propensity to spend the money (so it would have much better distributional consequences as well). But central banks seem afraid to try this, or even consider it seriously.

Or call it monetary regime change.  The US economy does this every generation.  The last time was the Nixon shock when we left the gold standard in 72.

My question to the Kanosians is: If helicopter fights work, then why not fly them yearly, in both directions?

Obama to bail out the Kanosians

Obama Administration Draws Up Plan to Help Puerto Rico With Debt
By MARY WILLIAMS WALSH, MICHAEL CORKERY and JULIE HIRSCHFELD DAVIS
OCT. 21, 2015
Looking for a way to help debt-ridden Puerto Rico, administration officials on Wednesday proposed an ambitious — if politically perilous — plan that stops short of a direct federal bailout but that its backers hope is sweeping enough to keep the island from becoming America’s Greece.
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The plan would create a new territorial bankruptcy regime and impose new fiscal oversight on Puerto Rico, which is mired in the depths of a decade-long recession, running out of cash and struggling to make payments on $72 billion of debt. It represents an urgent bid by President Obama to offer a way forward. But it requires cooperation from a Republican-led Congress bent on imposing spending restraint.
In describing the package on Wednesday, administration officials emphasized that they had exhausted the limits of their own authority to help Puerto Rico, and needed quick action by Congress to avoid a catastrophe.
“Administrative actions cannot solve the crisis,” Jacob J. Lew, the Treasury secretary, said in a joint statement with Jeffrey D. Zients, the National Economic Council director, and Sylvia Mathews Burwell, the health and human services secretary.

First Puerto Rico then Illinois and New York.  California is last.

Banker bot is arriving

The story is about big banks adapting to the new smart payment systems.  But it won't be smart phones, but smart cards.

Citi announced the creation of a financial technology unit that will focus on making the US bank ready for a “mobile-first future,” according to an internal memo obtained by the Wall Street Journal. The move is reportedly the first step in a company-wide reorganization that will place smartphone-based banking at the forefront of Citi’s strategy, according to PYMNTS.
The unit was designed to create a fresh mobile banking solution for Citi.

• Citi has long tried to keep itself at the forefront of banking technology. The bank launched its smartphone app in 2007, making it the first major US bank to do so.
• Citi hopes to roll out its new product to US users in late 2016. A global rollout is expected soon after.
• Heather Cox, Citi’s current head of client experience, digital, and marketing, will lead the unit. Cox was Capital One's head of card operations before moving to Citi in 2014. Last week, Capital One became the first large US bank to launch a native mobile wallet for Android users. 

This story was originally sent to professionals just like you in this morning's PAYMENTS INSIDER Newsletter by BI Intelligence, a subscription research service from Business Insider. Get 14 days risk free »
Citi is adjusting its model to reflect a significant shift in transaction activity to digital channels. In the bank’s Q3 earnings call, CEO Mike Corbat noted that Citi has closed or sold over 200 branches and plans to exit about 50 more by the end of Q1 2016. Instead, it's doubling down on encouraging customers to embrace digital channels. So far, this strategy has been successful for the bank. In Q2 2015, operating expenses fell 3% while average checking account balances rose.

Kanosians in action

CNBC: The rich are getting richer in America. Some 134 Americans raked in more than $50 million last year, according to data released Tuesday by the Social Security Administration. The total rose about 20 percent from 110 in 2013. 
The number of Americans making between $20 million and $50 million also jumped, hitting 776 in 2014. That marked an increase from 565 in the previous year.

The Obamacare recession

According to Political Calculations. Exactly what the professional healthcare economists said would happen.

Inflation in healthcare is a delayed observation because of the long billing cycle. The inflation implied in the chart is already halting public sector employment in the largest states as that inflation affects all retiree healthcare spending. Expect New York to start its unemployment spiral.

Job gains by state.

According to Zero Hedge.  Texas outpaces, naturally.  Texas growth has averaged over 4% during the cycle, over twice the growth of New York.  That is not an optimum currency zone.

How did California and New York get those job gains? Hiring health care workers. That hiring is driven by Obamacare taxes, and taxes are rising at 8% a year!! 

This is so skewed, the 2016 Q1 recession almost certain.  Our current growth rate is under one percent according to the Atlanta Fed.  We are headed for a `1.5% GDP growth, YoY for 2015.  But look at the skew. If aggregate GDP growth is 1.5%, then the North East corridor, especially the Great lakes is seeing zero growth. The job losses show it.

How much longer will DC be seeing a 5-10% growth in taxes?  That is the mystery.

Kanosians in action

NY Post: California’s experience offers vital lessons for New York.
In San Jose, pension costs exploded from $62 million in 2003 to nearly $210 million in 2013. So even though the San Jose Police Department budget skyrocketed nearly 50 percent during the past decade, police staffing fell 20 percent — because so much of the money was eaten up by the pensions.
Marin County, north of San Francisco, is also battling exploding pension costs. Home to “Star Wars” creator George Lucas, Marin is the wealthiest county in California. But its public-school teachers are members of the California State Teachers’ Retirement System, a defined-benefit pension system that’s $104 billion in debt.
To fill this gaping hole, the California legislature and Gov. Jerry Brown jacked up the amount school districts must pay to the CalSTRS fund each year by a whopping 132 percent. Marin will see its outlays soar to $36 million in 2020, from just $15 million in 2014. “I have no idea where we’re supposed to get the money,” one exasperated school official in Marin County says.
Pouring additional millions into pensions leaves school districts with less money to hire new teachers, repair school buildings and provide for the classroom needs of children.

So, Kanosian stupidity trashes the New York economy.

Multiple equilibria in economic models

Its the latest fad, started by Roger Farmer of self fulfilling prophecy fame.
Hefre the straight scoop.  The economy goes through a similar sequence each business cycle. The eight year cycle is a loop in the probability graph.  Specifically the large state/small state problem.  DC is no efficient programs with state scale effects.  And DC programs cannot do both California and Texas at the same time.  The multi-scale delivery of DC cookies is  costly and a money loser. So, the electorate rotates,  between California and Texas, with Mexico butting in.  And DC rotates to the small state scale on occasion.  It is the motion required to maintain equipartition and thus have a cotangent group organization.  All aggregate systems need this kinetic energy, and the balance is maintained between mutual adaption of boson and fermion statistics.  These large states are fermion, as seen by the small states.

The internet is too fast according to Mark Cuban

Yahoo: Billionaire Mark Cuban questioned the stock market's safety Friday, bashing perceived apathy toward high-frequency trading.

In a series of tweets, the Dallas Mavericks owner and "Shark Tank" investor implied people care more about alleged wrongdoing in daily fantasy sports than financial market risks. Cuban posed the question, "do you think the stock market is safer today than it was 10 years ago?"

So, I suggest that Mark either discover maximum  likelihood betting or else he should return the money he made on high speed internet.  He made his money  with high frequency transmission of voice packets. So should we demand we return to analog phone?

More taxes for all says Bernie

Sunday on ABC’s “This Week,” Democratic presidential candidate

Sen. Bernie Sanders (I-VT)

16%

Liberty Score^™

Voting Record

F

16%

Sen. Bernie Sanders (I-VT)

said his tax increases would “hit everybody” becuse he would raise the payroll tax to pay for paid family and medical leave.
Sanders said, “I think if you are looking about guaranteeing paid family and medical leave, which every other major country has so that when a mom gives birth she doesn’t have to go back to work in two weeks. Dad or mom can stay home with the kids. That will require a small increase in the payroll tax.”
Stephanopoulos said, “That’s going to hit everybody.”

To each according to his or needs according to Bernie the Kanosian.

Krugman full of BS

Krugman on conspiracy theories: A case in point: The Donald has just come out with a monetary conspiracy theory: the reason the Fed hasn’t raised rates has nothing to do with low inflation and global headwinds, Janet Yellen is just doing Obama a political favor. Crazy, right?

But how different is this, really, from Paul Ryan and John Taylor claiming that quantitative easing wasn’t a good-faith effort to support a weak economy, but an attempt to “bail out fiscal policy”, preventing the fiscal crisis Obama’s policies were supposed to produce?

Horse manure.  Bernanke, the consummate liar, hinted and demanded more fiscal spending and was lowering interest rates to accommodate it.  Well known public statement.  Bernanke was of course an MIT Basket Weaver with bad math and his plan didn't work.

Look at velocity

Here we have the velocity of the money bases and the potential growth.  Potential growth drops and the velocities drop next.  But the potential growth is computed, backward, so cause and effect is not clear.

But, the lower the velocity then  the larger the quantities transacted to equal the same growth. So a drop in velocity is a shift right on the bankers curve, a slow down, generally.  It is like a radiation   curve, we get a shift right on cool down.  But  the  curve  is still natural, and positive definite.  Economist try to measure the quarterly market federal funds rate.  It does not exist, the quarterly term is gone, except for money transaction costs.  This economy has skipped the quarterly inventory cycle, why bother when it takes government so long to do the tiniest thing.

The natural rate of interest?

Economists think its a real but unobservable rate od something.  What? Here is the FRSB defining it:

Since then, various definitions of the natural rate of interest have appeared in the economics literature. In this Letter, the natural rate is defined to be the real fed funds rate consistent with real GDP equaling its potential level (potential GDP) in the absence of transitory shocks to demand. Potential GDP, in turn, is defined to be the level of output consistent with stable price inflation, absent transitory shocks to supply. Thus, the natural rate of interest is the real fed funds rate consistent with stable inflation absent shocks to demand and supply.

So are we at potential growth?  
Fred says potential rowth is 2%, a drop from the 3.5% of the 80s.

Current growth is about 1.5%,  but that is a recent drop from the China slowdown.  And inflation is zero.  So, absent the China shock we are at zero inflation and operating at potential.  The current treasury rates are just fine. We do not have negative natural rates. If the natural rate were negative then inventory surpluses would be falling, that is negative growth.

So what caused potential growth to drop? Debt in DC and fiscal multipliers less than  one.

Kocherlakota hangs onto the Magic Walrus

Kocherlakota speaks:

In mid-2013, the FOMC announced its intention to taper its ongoing asset purchase program. We can see that this announcement represented a dramatic change in policy from the sharp upward movements in long-term bond yields that it engendered. Personally, I interpret this policy change back in 2013 as the onset of what the Committee currently intends to be a long, gradual tightening cycle. As I noted earlier, we would typically expect that such a change in monetary policy should affect the economy with a lag of about 18 to 24 months. Viewed through this lens, the slow rate of labor market improvement in 2015 is not all that surprising.

Now I dunno what the Fed said to cause all the consternation in the algorithms but the chart above says it all.  Rates rose all the way through 2013, along with Fed purchases. Rates did not decline until 2014 as the Fed taper began.  And we can see that the ten year was adjuste up, not down,for a very g00d reason .The Fed was applying a bond tax so rates rose to cover the bond tax.  The bond tax is in those remits back to Treasury.

Kocherlakota makes up a story to fit the equations he learned.

California High Speed Rail wants to bulldoze my tennis courts

This park. Some 10,000 people use this park on a regular basis. Yet the total number of jobs generated by High Speed Rail will not exceed 1300, and only about 150 in Fresno.

How is this boondogle justified? Jim Costa, my representative in Congress, is responsible for the disaster. He almost lost to the Republican challenger Johnny Tacherra  and I can generate the 1,000 votes the Republican needs to knock Jim Costa good by. The California political system is broken beyond repair.

The Atlanta Nowcast machine downgraded us!

NEW YORK (Reuters) - The U.S. economy is on track to grow 0.9 percent in the third quarter after a bigger-than-expected widening of the trade gap for goods in August, the Atlanta Federal Reserve's GDPNow forecast model showed on Thursday.

This was a much slower rate from the regional Fed bank's prior estimate of 1.8 percent on Monday, the Atlanta Fed said on its website.

The advance August trade reading, which showed a deficit of $67.187 billion which was the largest since March, led the regional Fed's program to estimate a drag of 0.9 percentage point on U.S. growth, which was 0.7 point bigger than the previous estimate on Monday.

Omigod! We are not going to make 2.1% YoY for 2015. Thus a permanent lowering of aggregate GDP growth. That shows the utter futility of having such a mal-proportioned government sector.