The General Casuistry of the Markets

     We've had some debates lately on what different economic and market numbers mean. While good economic numbers are, of course, good, what's not so good is that we get to hear Sumner gloat about some supposed refutation of what he calls the "Keynesian Multiplier." It seems that unless we have GDP growth at .5% and unemployment going back to 10% , Keynesianism has once and for all been debunked.

     http://diaryofarepublicanhater.blogspot.com/2013/05/sumner-continuing-to-push-monetary.html?showComment=1369972681109#c5656772177428779401

    So good news should be good. However, while it is, Sumner's perpetual spiking the ball is an unwanted side effect. Yet, it's not just me who finds good news bittersweet. The market seems not to welcome good news so much. Yesterday we had some pretty encouraging numbers come in about consumer spending and home buying and the market tanked. Then Asia had a major drubbing particularly Japan. 

   Now today we have some news that isn't so positive and the market rises. Why is this? Well good news suggests the Fed may start to do what it's hawks want and begin rolling back the bond purchases, currently at $85 billion per month. On the other hand bad news suggests the opposite. 

   "Asian stock markets rebounded on Friday with the Nikkei regaining 2 percent after its stunning 5 percent dive in the previous session. Sentiment improved after latest U.S. data eased concerns of an early end to the Federal Reserve's bond-buying program."

  

   "Australia's benchmark index rose from a previous seven-week low, the Shanghai Composite was flat and South Korea's Kospi hit a fresh one-month high."

   "We've had the most intense run-up in Japanese markets and now we are facing volatility. When we look back in a few months' time, it will seem like a healthy correction," said Adrian Mowat, managing director, chief Asian and emerging market equity strategist, J.P. Morgan."

   "Lower-than-expected U.S. GDP figures and rising claims for unemployment benefits reassured investors that the Federal Reserve would not start tapering stimulus anytime soon."

     http://www.cnbc.com/id/100778223

     By the way this is why I say that Krugman should spend some time calling out Sumner now and again-or at least a proxy. 

    "income inequality tends to be pro-cyclical.  Stocks fall much more sharply than wages during recessions, and rise much faster during recoveries.  That’s nothing new.  Of course there is also a long term trend toward greater income inequality in America, but that has little or nothing to do with monetary policy.  If there are parts of the sequester that hurt the poor, those cuts should be re-evaluated on a cost/benefit basis, not based on whether they are perceived to promote recovery."

    "The Fed should focus on promoting a healthy macro environment.  To some extent they do, although in unusual circumstances such as 2008-09 they screw up.  It’s up to fiscal policymakers to adopt sound fiscal policies using cost/benefit calculations, not “stimulus estimates.”  In other words, let the Fed steer the car, and have Congress focus on setting the A/C controls, choosing the radio station, and adjusting the seating position."

       http://diaryofarepublicanhater.blogspot.com/2013/05/sumner-continuing-to-push-monetary.html?showComment=1369972681109#c5656772177428779401

     Here is the payoff for Sumner, courtesy of fellow Market Monetarist, Lars Christensen:

     "This is from OECD’s Economic Outlook report published earlier today:

In the euro area, the area-wide fiscal consolidation (measured as an improvement in the underlying primary budget balance) of just over 4% of GDP between 2009 and 2013 was similar to that in the United States over the same period. This casts doubts about the role of fiscal tightening in explaining the comparatively weak performance of the euro area.

     "The OECD is of course completely right. The fiscal tightening in the US and the in euro zone have been more or less of the same magnitude over the last four years. So don’t blame ‘austerity’ for the euro zone’s lackluster performance."

     http://marketmonetarist.com/2013/05/29/the-oecd-understands-the-sumner-critique-europes-problem-is-monetary/

     This will be the justification for austerity in the future: 'monetary offset.' Do all the austerity the Republicans want and just have the Fed do QE and it's not a problem.