Scott Sumner: I'm no Expert on Financial Crisies

     He loves to gloat about 'winning a bet' last year from Krugman and Konczal. He never shuts up about it. Even yesterday, again he was on about it:

     "Fiscal austerity might or might not have lowered the Fed’s growth forecast by 10 basis points.  That’s far from the apocalyptic forecasts of the Keynesians. "

     http://www.themoneyillusion.com/?p=26304#comments

      Of course, Keynesianism has now been totally discredited, Sumner even says it's 'dead' and has gotten 'yet another stake through its heart.'

      Yet here was the Market Monetarist house wonk, Mark Sadowski, warning us about authors that hate Keynesians. 

       "The paper has quotes by both John Maynard Keynes and Ludwig von Mises at the top of the first page. If one reads it you will note this was done intentionally as the paper takes up the Austrian case against the Keynesian."

        http://diaryofarepublicanhater.blogspot.com/2014/03/mark-sadowski-vs-marko-in-restrospect.html?showComment=1394168426507#c4245336327700646966

       It was further ironic in that Mark was telling us how financial innovation and deregulation cause asset bubbles to warn us off of these IMF macroeconomists while Sumner himself can't even bring himself to admit that bubbles exist-he alternates from denying they exist to saying maybe they exist but even so they don't matter.

     However, at Nick Rowe Sumner admitted to being no expert on financial crises-that's an understatement! Usually he's tried to minimize their importance.However, he made this comment at Nick yesterday:

      "I'm no expert on financial crises, but I find it implausible that crises lead to recessions because they increase the demand for money. If that were true you'd expect central banks to simply accommodate that extra money demand with a greater supply of money, as they do when drug dealers hoard currency. More likely, financial crises lead to recessions because they reduce aggregate supply."

     "However I do think the recent recession in the US was caused by the Fed's failure to accommodate an increase in the demand for money. This was partly due to the zero bound problem, although not entirely. So your model might well apply to that case."

     "But unless I'm mistaken it's very unusual for a country to face the zero bound problem during a financial crisis, and hence that can't be the usual reason for the recession. It's either bad monetary policy (falling NGDP), a fall in AS, or both. If someone could find the NGDP data for places like Sweden in the early 1990s, or Thailand and Korea in the late 1990s we might have an answer to the question."

      http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/03/coordination-and-the-demand-for-money.html

      Question for everyone-Marko, Greg, Tom, Mark-is this a good characteristic of a financial crisis-a reduction in AS? Even Nanute can answer it if he's still alive. LOL.

      As Marko says the evidence for the credit impulse is becoming undeniable so that Sumner no longer can just pooh pooh it like he used to. He also points out that a favorite analyst of his takes the credit impulse as given. 

      " I'll just assume you're talking about Hatzius's use of the credit impulse. Here's one report from ZH way back in 2011 , showing he's pretty quick on the uptake :

     "....We expect this positive “credit impulse”—a
positive second derivative of credit outstanding—to persist through most
of 2011. "

     http://www.zerohedge.com/article/jan-hatzius-friday-night-bomb-we-are-downgrading-our-real-gdp-growth-estimate-1%C2%BE-2%C2%BD

     "This is a Goldman report from Oct of last year , not Hatzius but it gives a good look at how big finance views credit and debt across countries:"

      http://www.goldmansachs.com/s/GMeT_othermailings_attachments/635186436150718750103189.pdf

     "....To pick up the shorter-term dynamic, we look at credit
acceleration, or rather a proxy for this measure; the
difference between the current quarter-on-quarter annualised
growth and year-on-year growth, standardized relative to
each country’s history. This allows for more consistent cross
country comparison, eliminating individual country level
biases."

     "The rest of the report describes how they assess debt sustainability , and they use debt/gdp ratios , committing the awful sin - according to many in the econ blogosphere - of confusing "stocks and flows". 

     "Big money gets it. I guess that's why they're the big money."

      http://diaryofarepublicanhater.blogspot.com/2014/03/on-merits-koo-its-mark-sadowski-vs-marko.html?showComment=1394169620704#c3958816025689976891

      Sumner likes to say there's no such thing as public opinion in economics-which is among things a wholly elitist and anti-democratic thing to say. Again, I don't think it was an accident that the real Monetarist experiment was done by Pinochet.

      According to him he just wants to influence his fellow economists. It would seem that these economists-and certainly some financial people-are being influenced by some pretty un-Market Monetarist ideas.