I’ll just take the market’s view here; using the futures prices from the CME (via ino.com), prices will fall about another 16% from June (or 17% in log terms):
Author Archives: Menzie Chinn
“The government’s bailout efforts” on MPR
This morning, I had the pleasure of discussing this issue with GMU’s Russell Robert on Minnesota Public Radio’s Midmorning show. The link is here.
The housing meltdown: Why did it happen in the US?
From a timely BIS working paper by Lucy Ellis released on Thursday:
Mortgage lending standards eased in many countries in recent years, but the limited available cross-country evidence does suggest that the process went further in the United States. Standards are difficult to measure because different aspects need not all move together (Gorton 2008), but the observed increase in early payment defaults in the United States (but not elsewhere) provides direct evidence that it occurred (Kiff and Mills 2007); Gerardi, Lehnert, Sherlund and Willen (2008) provide additional detail on the easing in lending standards.
Two developments seem to have spurred the easing in US standards. First, a range of legislative and policy changes had been made to encourage the development of a non-conforming (Alt-A and subprime) lending sector, lying outside the model defined by the government-sponsored enterprises (GSEs, Fannie Mae and Freddie Mac). Part of the motivation for this was a desire to ensure that home ownership was accessible to households who had historically been underserved by mortgage lenders (Gramlich 2007). In addition, the administration had wanted to reduce the GSEs’ domination of the mortgage market. Following problems with accounting and governance at both institutions, the GSEs’ capacity to expand lending was capped by new regulatory limits on their activities (Kiff and Mills 2007, Blundell-Wignall and Atkinson 2008). [emphasis added — mdc]
Some Observations on the Ongoing Crisis: Causes and Opportunity Cost Again
There’s a lot of commentary — more comprehensive and up to date than I can provide — on the crisis and the attempts to resolve the logjam in the financial markets.[0], [1] But I stilll have a couple of thoughts about the causes, and the implications, of the process that has resulted in so much turmoil this week.
Implications of Repricing of Dollar Denominated Assets
In the wake of global financial events, a couple of articles have caught my attention in terms of implications for the dollar. First was this Reuters account of a People’s Daily editorial, suggesting “diversification”. But it’s hard to discern the underlying message given the low signal to noise ratio in official publications. Today’s article in the IHT is a little more informative, not just about what’s going on in China but in Asia (where a lot of that “saving glut” was alleged to come from):
Back to the Real Side of the Economy: Recession Watch
Only on a day like today does an over 1 percent decrease in industrial output move to third page. But this item (and this hilarious article h/t Economists View) reminded me to update the indicators used by the NBER BCDC are headed. Their trajectories are, in general, not too comforting.
Recessions and Output Gaps, Updated
In “Redefining Recession”, The Economist discusses some of the difficulties in interpreting the “R” word. Since the article juxtaposed output gaps against the conventional NBER definition, I thought this would be a good time to update my post on output gaps, using the latest GDP data, CBO estimates, augmented with the latest WSJ survey of forecasters.
Trade Deficit Reduction via Changes in Exports, Imports or Prices
Today’s July trade release was a little bit of a surprise, due to oil [0]; Haver covers the numbers. Calculated Risk discussed the release, and actually took the outcome as a fairly positive, albeit with some anxiety about whether exports will keep up the robust growth necessary to continue shrinking the deficit.
I want to focus on a couple of other aspects of the release which seem to make me worry a bit more.
Taylor Rules, Synchronized Recession and the Potential for Competitive Depreciation
In yesterday’s FT, “All in this together” assessed the possibility of a roughly synchronized downturn in the world’s major economies, with the United States, ironically enough, suffering the smallest hit. This brings up all sorts of interesting questions regarding exchange rates, if one believes that Taylor rules define monetary policy making to some degree, and that interest differentials affect exchange rates.
Palin, on the Ongoing Financial Crisis
In response to the largest de facto nationalization in US history, we have this example of Governor Palin’s comprehension of this issue (ABC News):
Saturday in Colorado Springs, Colo., Alaska Gov. Sarah Palin said, “The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”