Since October 2008 I have devoted much of my life to educating people about the need for further monetary stimulus.   Thus I was pleased to see that in the past few days both Krugman and Yglesias have addressed the issue, although in somewhat different ways. 

It shouldn’t be hard to convince liberals of the need for more monetary stimulus.  So why is monetary stimulus discussed so rarely?  I see the problem as more intellectual than ideological.  Although I am a right-winger, my proposals would actually help Democrats more than Republicans, particularly in the 2010 and 2012 elections.  But there is so much confusion about monetary policy that it is even hard for people to see policies that are in their own interest. 

Let’s start with the confusion over the merits of setting an “inflation target,” which is discussed in both the Krugman and Yglesias columns.  My concern is that people will misunderstand what is meant by this term, as we are used to thinking of inflation as a “bad thing.”  Thus is sounds like inflation is the price we must pay for creating jobs.  This ”trade-off” idea has some merit when the economy is faced with supply-shocks, but seriously distorts the real issues when the key problem is a demand shortfall.  Even worse, the press often treats fiscal policy asymmetrically, suggesting that whereas an expansionary Fed policy would be designed to boost inflation expectations, fiscal stimulus is aimed at boosting real growth.  But this creates a completely fictitious distinction; both policies have exactly the same objective; boosting aggregate demand.  Look at the simple AS/AD diagram:

Both fiscal and monetary stimulus have exactly the same objective, to shift AD to the right, which will increase both prices and output.  We would hope that more of the increase is output and less is prices, but that depends on the slope of the AS curve.  Unfortunately, the press often suggests that monetary stimulus is aimed at raising prices and fiscal stimulus raises output, which tends to make fiscal stimulus look better.

This problem becomes even worse when rates have fallen to zero.  Not one person in a hundred really understands how monetary policy works.  The average guy on the street can picture how lower interest rates could boost spending, but has no understanding of the long run relationship between M and NGDP, where interest rates play no role.  So to explain how monetary policy could work at the zero bound, we are forced to explain the mechanism using interest rates.  Higher inflation expectations result in a lower real interest rate, which boosts aggregate demand.  But that is equally true if the stimulus comes from the fiscal side.  Higher expected inflation will lower real interest rates (if nominal rates are stuck at zero.)

Nick Rowe recently pointed out that the focus on interest rates is really just a “social construction. ” (I wish I had thought of that term first.)  Here’s how I interpret Nick’s recent post.  Central banks traditionally set the monetary base at a level that is expected to hit their policy goals.  In my view the Fed has recently preferred about 5% NGDP growth, although they don’t state their goal in those terms.  The Fed also finds it convenient to set a target for the overnight bank rate (the fed funds rate) in the hope that the target will create the amount of money necessary to hit their NGDP growth goals.  When they need more money to hit their goals, they lower the fed funds target though open market purchases.  But the “actual policy” in “reality” isn’t the interest rate target; it is open market operations, which change the size of the monetary base.   

Normally the interest rate targets are just a convenient fiction.  Ordinary people like to visualize things in terms of interest rates, and indeed so do many central bankers.  Now suppose the fed funds target runs into a brick wall at zero percent.  You cannot lower nominal rates below the zero rate earned on cash.  Now it looks like the Fed has no more options.  Of course they can still do all the OMOs they wish, and can still keep expected NGDP growing at about 5%.  But the perception is that policy has failed, and that perception makes the Fed’s job much harder.  People will think the Fed has “run out of ammunition,” and that they won’t be able to counter the fall in AD.  Unless the Fed moves very aggressively to overcome those bearish expectations with an announcement of a very transparent and explicit policy, people will begin to fear deflation.  And here’s the problem; once the public starts to fear deflation it is much harder for the Fed to run its monetary policy via changes in the monetary base.  If deflation is expected then people and banks may hoard base money.  So increases in the base won’t send out the signal that money is being eased.  Hence you need something else.  And what you really need is an NGDP target. 

Unfortunately, economists are not used to thinking about NGDP.  Instead they tend to think about inflation and real output, which are the two components of NGDP, and also the two variables that are affected by increased in aggregate demand.  Why not have the Fed set an 6% real growth target?  Why do economists speak in terms of an inflation target?  It’s not because the Fed could not hit a 6% real growth target—I believe they could, for one year.  But real growth targets were discredited years ago, because in the long run they leave the price level completely unanchored.   So people talk in terms of inflation targets, not real growth targets.

With fiscal stimulus the language is completely different.  Unlike with the money supply, there is no thought of permanently raising the budget deficit.  The goal of fiscal stimulus is to merely pump up government spending for a year or two, in order to temporarily boost AD (and hopefully real output.)  The implicit hope is that once recovery is achieved then monetary policy will take over.  So the discussion of fiscal “multipliers” is often framed in terms of its effect on real output, not inflation.

Now take another look at the AS/AD diagram.  Both fiscal and monetary stimuli aim to boost AD.  In both cases it is assumed that prices and output will rise in the short run.  In both cases the assumption is that in a deep recession output will rise much more than prices, and in both cases the assumption is that at full employment prices will rise much more than output.  But because the language we use to describe these two types of stimuli are so different, fiscal stimulus “sounds” much more appealing.  It sounds like fiscal stimulus is directly aimed at jobs, and monetary stimulus is aimed at inflation, with a sort of vague hope that we might get some jobs as a side effect.

I have always believed that monetary stimulus is much more effective than fiscal stimulus in a deep recession.  That was certainly true for FDR—the dollar depreciation program had a much bigger impact than his fiscal stimulus.  We can argue all day about “jobs saved vs. jobs created,” but the fact remains that fiscal stimulus has failed to achieve its objective in the US.  The 10.2% unemployment rate is far too high, and President Obama would not be able to get another huge stimulus through Congress.  Monetary stimulus can provide virtually unlimited increases in AD, and (if done through inflation or NGDP targets) it can do so without raising the budget deficit.  It is our only realistic option for quickly and dramatically boosting AD.  Indeed with monetary stimulus the only real danger is going too far, and ending up with hyperinflation.  We are far from that point, however, for the foreseeable future the risk is too little spending, and too little inflation.

With nominal rates at zero, common sense suggests that monetary policy can’t do any more.  That’s why it is so important to see Krugman clearly stating that, at least in principle, monetary policy is still the number one option.  Liberals pundits should listen to Krugman’s economic analysis of monetary policy, and ignore his pessimistic political views on its feasibility.  The Fed is a political institution that responds to public pressure.  If the rest of Washington really understood the logic of Krugman’s views on inflation targeting, then the political pressure on the Fed would become almost unbearable.  But first they need to understand why monetary policy is so powerful, and that requires unlearning some social conventions about interest rates and inflation.

In a post written on June 14th, I warned Krugman that it was foolish to play politics; he should just advocate the policy that is most effective:

As I read Krugman, his attitude seems to be something like the following (which is my interpretation, not his words):

“Ah, what a pity it is that these conservative central banks aren’t willing to commit to a modest amount of inflation.  That would be the easiest way to boost AD, and the least costly.  But as they aren’t willing to adopt effective policies, we can assume that monetary policy is ineffective.  Now let’s move right along and look at fiscal policy.”

At this point Krugman directs his moral outrage at the conservative knuckleheads in Congress who won’t accept anything bigger than a measly $800,000,000,000 stimulus package, which he thinks is woefully inadequate.

In my view Krugman is mixing science and advocacy in a very misleading and inappropriate way.  When he evaluates central banks, he seems to take a deterministic, scientific, and clinical attitude, as if studying a colony of ants.  (I assume that for entomologists there is no “should.” The only question is how ants behave.)  Central banks are assumed to be impervious to public pressure.  On the other hand his stance toward fiscal policy is much more normative.  Now he is an advocate, he’s part of the game, passionately calling for more stimulus.  But I don’t see how this makes any sense.  If we are going to take a deterministic view of things, it seems likely that Congress is also far too conservative to implement the sort of spending that Krugman advocates.  Indeed, hasn’t that already been shown?   Couldn’t one just as reasonably say: “Since Congress clearly won’t do what it takes, we must fall back on the Fed as our only hope for the sort of stimulus that the economy needs.”

I view my own role as that of an advocate; I am trying to change the consensus view of economists about the causes of this crisis, and the most effective solutions.  I want to describe the most effective solutions, not those I think are politically feasible.  We need to change the political climate, if that is the problem.  Indeed if policy is deterministic, then all hope is lost.  I hope that my ideas will eventually filter down to policymakers.

Krugman is 100 times more influential than I am.  With his NYT column, and his ideological allies in the White House, he is arguably the most influential economic pundit in the world.  And he is also known (for better or worse) for his moral outrage over perceived injustices.  In many cases I think he goes a bit over the top.  But here it is just the opposite.  I am outraged over Krugman’s lack of outrage over current monetary policy.

In this new post Krugman concedes that monetary policy is the best way of reducing the high unemployment rate, and fiscal policy is second best.  But he’s no longer working the fiscal policy route.  Instead, he is now advocating the third best option, wage subsidies and job sharing:   

In reality, we haven’t even gotten anywhere near (i): the conventional wisdom is still that any rise in expected inflation above 2 percent is a bad thing, when it’s actually good.

So some readers have asked why I’m not making the same arguments for America now that I was making for Japan a decade ago. The answer is that I don’t think I’ll get anywhere, at least not until or unless the slump goes on for a long time.

OK, so what’s next? The second-best answer would be a really big fiscal expansion, sufficient to mostly close the output gap. The economic case for doing that is really clear. But Washington is caught up in deficit phobia, and there doesn’t seem to be any chance of getting a big enough push.

That’s why, at this point, I’m turning to what I understand perfectly well to be a third-best solution: subsidizing jobs and promoting work-sharing.

Call it constrained optimization, where the constraint comes from the power of bad ideas.

This is a foolish game to play.  There is zero chance Congress would spend enough money on these “third-best” options to make a dent in unemployment.  God only knows what his 4th best option is. 

Krugman should have been advocating monetary stimulus all along.  The real problem is that his allies in government; Obama, Pelosi, Reid, etc., don’t even know the first best option exists.  And how could they?  How often is monetary stimulus mentioned in columns written by liberal pundits?   If they realized that they were about to get decimated in the 2010 midterm elections because a few nutty right-wingers at the Fed think the economy needs less stimulus, not more, there would be outrage in Congress and the Administration.  They’d be marching down to the Fed (metaphorically of course, to avoid looking heavy-handed) and make it very clear that the Fed needs to produce robust growth in aggregate demand or else there will be big changes in the way the Fed is set up and regulated.  If they don’t seem “receptive,” then quietly tell the FOMC; “Think the Dodd bill is bad?  You can’t even imagine how much worse we can make it.”

Would this work?  Go read the history of 1937.  (Why does that year keep coming up, anyway?)  Google the phrase “a switch in time saved nine,” and you’ll see that unelected third branches of government have a lot less power than you might assume.

Here’s what I find so bizarre.  Almost the entire political establishment thinks we need much more AD.  Even Republicans that argue against the fiscal stimulus don’t say the problem is that it will boost AD; rather they make the opposite argument, they claim it will “fail” where failure is defined as a lack of AD, a continuation of the recession.  Meanwhile the people at the Fed are perfectly aware of Woodford’s argument that I discussed in a recent post.  They know that they could boost AD by setting a higher inflation target.  They simply don’t want to.  And yet almost the entire political establishment thinks Bernanke is doing all he can from the monetary end. 

How can we get the people in power to understand what is going on?  There is one person who understands what monetary policy can do, who understands Woodford’s views, who understands Svensson’s views, and who also has a news column read by every single influential person in government.  Do I even need to tell you who I am talking about?

HT:  rob and JimP

The Financial Times is a very respected newspaper, so I guess there must be some logic to this column.  But I confess I have no idea what this Belgian professor is talking about.  First prize to someone that can explain this to me.

The dilemma for the US authorities now pops up in the following way. The US monetary authorities pursue a policy aimed at keeping inflation low. It’s not an explicit inflation target as in the case of the UK or the eurozone, but it is certainly an implicit one. This implicit inflation target is close to two per cent which implies that when the Federal Reserve issues dollars it gives an implicit promise that these dollars will buy a basket of US goods and services which is approximately constant (ie declines by only two per cent per year). Given that the US economy grows on average at a rate of close to three per cent per year, this implies that the yearly increase in the supply of dollars should be close to five per cent (two per cent inflation plus three per cent economic growth).

This price stability commitment however conflicts with the international role of the dollar. The worldwide demand for dollars increases at yearly rates that by far exceed the five per cent money supply growth rate that will keep prices in the US approximately stable.

Thus the US monetary authorities have to choose between a policy that accommodates for the high demand for dollars in the world, but then the supply of dollars will increase much faster than the one that will keep approximate price stability in the US. Alternatively, the US sticks to the inflation target, but this requires limiting the supply of dollars to a much lower level, frustrating the high demand for dollars worldwide.

If foreign demand for dollars is rising faster than US demand, doesn’t that mean that the Fed can increase the world supply of dollars at faster that 5% rate and still hit its target.  So what is the “dilemma?”

Even worse, if the Fed didn’t respond by increasing the supply of dollars by more than 5% a year, I still don’t see a problem.  Foreigners would still be free to accumulate all the dollars they wished, it would just mean that the dollar would tend to appreciate in nominal terms (but not real terms) over time.  So what’s the dilemma?

HT:  Marcus

Here is a long passage from pp. 33-36 of a November 2009 paper by Woodford and Curdia, which describes a 2003 paper by Woodford and Eggertsson (you’ll need to open the PDF):

Eggertsson and Woodford show that it can be a serious mistake for a central bank to be expected to return immediately to the pursuit of its normal policy target as soon as the zero bound no longer prevents it from hitting that target. For example, Figure 11 (reproduced from their paper) compares the dynamic paths of the policy rate, the inflation rate, and aggregate output under two alternative monetary policies, in the case of a real disturbance
(here interpreted as an exogenous increase in the probability that loans are bad, requiring intermediaries to increase the credit spread by several percentage points) that begins in period zero and lasts for 15 quarters, before real fundamentals permanently return to their original (“normal”) state.

Note:  I wasn’t able to copy the figure 11.  It is on page 61, and is worth looking at.  The dotted line shows a deep and prolonged recession with a policy of inflation rate targeting.  The solid line shows the economy avoiding a recession (and avoiding deflation) with a policy of targeting the price level.  Note that they are proposing an elastic price target, so it is actually quite close to NGDP targeting.  Of course the other difference is that they do not contemplate targeting the forecast, which I think would make it even more likely that a recession could have been avoided.
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You may recall that a week ago I made a sort of “Emperor has no clothes” accusation against the economics profession.  I claimed that economists are always talking about “easy money” and “tight money” without have any coherent definition, indeed not even knowing that they have no coherent definition.  In this post Bob Murphy challenges my dismissal of real interest rates as the proper indicator.  He makes some good arguments, which I will address as well as I can, but in the end I am still left with 4 reasons for dismissing the view that real interest rates provide a useful indicator of the stance of monetary policy.  Furthermore, I think that any one of these four arguments would be sufficient to prove my point:
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Update:  Here’s my EconTalk with Russ Roberts, where I describe my views on macro.

A few weeks back someone suggested that I describe how my views differ from the mainstream.  A few days ago I did a post describing what I thought was wrong with the standard models of monetary economics.  I ended up with a call for a new paradigm and left the impression that I’m about to provide it.  One commenter said my last paragraph was “remarkably ambitious,” which is a polite way I suggesting it’s crazy for a Bentley professor to be talking about new paradigms.  And he’s right.  So I’ll just list some of the areas where my views differ from others, provide lots of links, and then let others decide whether there is anything coherent in my approach.
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This is a follow up to my somewhat misunderstood previous post.  In the comment section Bill Woolsey made the following point:

Krugman is explicitly saying that real interest rates must be very negative to motivate an increase in real and nominal expenditure.

If the Fed promised 3% inflation, people would still not spend much, and any increase in the quantity of money (aimed at generating that inflation) would be hoarded.

The Fed’s promise of 3% inflation would have little effect, and inflation wouldn’t be 3%.

I agree with Bill that this is what Krugman has in mind.  It’s hard to be sure, but he has said that “high” inflation expectations were needed, and at the same time linked to Fed studies showing the Taylor Rule implied a negative 6% interest rate was needed for a robust recovery.  This of course implies that expected inflation needs to be at least 6%, as nominal rates on loans can’t be negative.  But Krugman also says the SRAS curve is fairly flat right now.  He frequently uses the Keynesian “slack” model of inflation, which suggests that when unemployment rates are very high a large increase in AD would initially lead to much higher output, with at best a small rise in inflation.  I have some problems with the slack model of inflation, but in this case I think Krugman’s about right.  If we had a 10% rise in AD or NGDP over the next 12 months, then we’d probably get around 7% or 8% RGDP growth, and around 2% or 3% inflation. 
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It’s always a good day when Paul Krugman throws a nice easy pitch over the fat part of the plate.  In this post commenting on Beckworth he combines all of the worst features of his blog, in one nice package with a bow on top.

Here’s my problem. Underlying the focus on nominal demand or GDP is some notion that there’s a quantity equation:

MV = PY

where M is the money supply, V the velocity of money, P the price level, Y real GDP. And of course this always holds true, by definition. But the temptation is to take it as a causal relationship — to say that real GDP fell because nominal GDP fell, and that this in turn was caused by either a fall in M or a fall in V; and furthermore that any such decline is a failure of monetary policy, because the central bank should have either prevented the fall in M or increased M enough to offset the fall in V.

The second sentence has to be one of the weirdest things I have ever read by a famous economist.  I have no idea the point he is trying to make.  It is essentially saying that underlying the statement that A*B is important is the implication that A*B = M*(A*B/M).  Okay  . . .
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I’ve been giving some thought to how my views of macro are different from those of other economists.  Until this crisis hit, I assumed that I was doing “normal economics,” to use Thomas Kuhn’s terminology.  NGDP targets are different from the Taylor Rule, but they aren’t all that different.  Even Ben Bernanke has talked about targeting the forecast.  You’ve seen me endlessly recite Mishkin’s 4 key concepts from his monetary textbook.  They are a virtual blueprint for my current critique of monetary policy.  So I’ve never thought of my views as being particularly heterodox. 

And yet . . . .  You could count on one hand the number of economists who think money was tight last fall.  And you could count on one hand the number of right-wing economists who think that the economy currently needs much more stimulus.  So although my views are not completely unique, there is apparently something rather unusual about my approach to macro.
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Paul Krugman has a very important post showing fast recoveries from previous big recessions.  The 1983-4 recovery was particularly fast.  But lest anyone think Reagan might have done any good he points out that a rapid recovery also occurred in 1976.  So how did they do it? 

BEA

I decided to go back and look at the data on fiscal stimulus, and was quite surprised by what I found.  In both earlier recessions the budget deficit rose by just over 3% of GDP; from a bit under 1% to 4% of GDP between 1973 and 1975, and then from 3% to just over 6% between 1980 and 1982.  I’m no expert on Keynesian economics, but isn’t that mostly the effect of the recession?  I don’t see a lot of room for discretionary stimulus.  And if we look at the especially fast 1983-84 recovery, we find that the discretionary stimulus that did occur was exactly the kind that Krugman says doesn’t do much good—tax cuts for the rich (who have a lower marginal propensity to consume.)
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Yesterday’s online version of The Economist, also known as known as Free Exchange, did a nice piece on my recent China post.  They contrasted my views with those of Paul Krugman, and also asked a few questions.  Here I’ll try to respond to those questions, but first I’ll clarify exactly where Krugman and I differ.
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I have some recent posts bashing Krugman and his pal DeLong.  So maybe it’s time to show that I can be just as “fair and balanced” as Fox News, er, I mean NPR and the BBC.  This won’t be entirely positive, but I think Krugman fans will be very pleased by the ending.  (Bob Murphy may want to skip this one.)  Let’s start with three recent posts by Krugman that show him fighting the good fight against the forces of reaction:
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The best thing that happened to the world economy in 1933 was that FDR sharply devalued the dollar against gold.  Prices and output started rising rapidly, and the US began to suck in a lot more imports from the rest of the world.  Our trade surplus got smaller.  Even better, this policy inspired other countries to devalue as well.  Paul Krugman knows all this, and often cites FDR’s actions with approval. 

The best thing that happened to the world economy this year, indeed just about the only good thing, was the V-shaped recovery in Asia, almost certainly led by China.  This recovery was aided by the Chinese government’s decision to stop appreciating its currency.  The Asian growth spurt was also a major factor behind the recovery in the US, which began in asset markets in March and spread to the real economy a few months ago (although we need a much faster recovery.)  Paul Krugman does not seem to know this, indeed he is now arguing that the Chinese need to reverse the very policies that provided green shoots to the world economy in the dark days last winter.  Here is what Krugman has to say:

Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere.

But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead.

And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere. The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth.
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This post was inspired by Bill Woolsey’s recent post on a monetary constitution based on index convertibility.  I’d like to follow a similar procedure, but emphasize slightly different issues.  The goal is to show that we can get to the same place from several different directions, but also that Woolsey’s approach offers some conceptual advantages over the approach that I have been emphasizing.
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You have to be careful when reading Tyler Cowen’s posts.  Whereas I can ramble on and on saying very little, he condenses a lot of ideas into very short posts.  When I first glanced at this post two things stuck out; Tyler didn’t understand the “helicopter drop of cash” and he confused me with Milton Friedman.  On closer examination he does understand the helicopter drop, and I have no complaint if people start associating me with ideas that Friedman actually developed.  In fact there is a long tradition of this in economics, recall the “Phillips Curve” was actually first popularized by Irving Fisher.  Here’s what Tyler has to say:

$250 for each senior or $13 billion in total.  It’s bad precedent to go around a COLA calculation, even on a one-time basis, but you can construct a partial defense of the policy (here is Matt’s semi-defense).  Think of it as a helicopter drop of money, a’la Scott Sumner.  If the helicopter drop substitutes for (part of) a second fiscal stimulus, that’s a net gain.  .  .  .   How will the expenditure be financed?  Obama was vague on that, but as usual the Fed moves both first and last in the monetary policy game.  All Obama has to do is make the second stimulus $13 billion less than it otherwise would have been, wink and nod to Ben B., and it is all (or mostly) for the better.

My first thought was that Tyler was confusing fiscal and monetary policy.  The $13 billion would not directly impact the money supply.  But in the final sentence he alludes to his assumption—a larger fiscal stimulus would lead the Fed to adopt a more accommodative monetary stance.  This raises two questions; precisely what would the Fed have to do to turn it into a helicopter drop, and how plausible is this assumption?
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The Economist just published a piece that looks at the performance of quantitative easing (QE) in Japan from 2001 to 2006.  The article suggests that the policy failed, and provides extensive testimony from The Bank of Japan’s Governor, and one of its top economists.

THE Bank of Japan (BoJ) pioneered the process known as quantitative easing (QE) in 2001-06, when it massively boosted the reserves that commercial banks held at the central bank. Its verdict on how well QE worked then ought to interest policymakers today. It will also discomfort them. For all that it propped up Japan’s creaking banking system, QE did not really improve the economy nor end the country’s deflationary mindset (see chart).

Yes, by all means “see chart.”  In fact, take a very close look at the chart.  I don’t know about you, but to me that looks like perhaps the most successful monetary policy in all of world history.  Can you think of a central bank that did better?  So why is The Economist so pessimistic?  And for that matter why does Paul Krugman keep citing Japan as an example of why QE doesn’t work?  There are two reasons:
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Is the title sentence a logically monstrosity?  I think so.  How can one not expect something to happen, but nonetheless expect to expect it in the near future?  I’ll leave that to the epistemologists but in some weird way I think this post’s title reveals how monetary policy went off course.
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David Beckworth has a new post which attempts to use a VAR (vector autoregression) to estimate how much of the decline in nominal GDP was due to monetary policy, and how much was due to other factors such as the financial crisis.  Because VAR is not my area of expertise, I hope people will take this reply as merely first stab at what I hope will be an interesting conversation.  I am pretty sure that some of my commenters are more knowledgeable about VARs than I am, and I know that David is more knowledgeable.
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We know they are anxious to raise rates. Fed officials keep talking about how they’ll act aggressively when the time comes, and hint that it might be sooner that we expected.  What better time than now?  It would give Obama a chance to do another $800,000,000,000 fiscal stimulus, to once again “save or create” 3.5 million jobs.  The BLS just reported the rate of job loss, which had been slowing, is now accelerating again.  There were 200,001 jobs lost in August, and 263,000 lost in September.  Unemployment rose to 9.8%, and is headed over 10% next year.  Manufacturing orders were expected to be up 0.7% and instead fell by 0.8%.  Now’s the time!   Oh, and weekly unemployment claims were also worse that expected.  And it looks like the UAW, oops, I mean GM and Chrysler will need another bailout; expect an announcement one day after the midterm elections.  And to top it all off, here’s what the Wall Street Journal says about the new President of the Minneapolis Fed, who will soon be determining our monetary policy:

In this paper, presented at the International Monetary Fund in April, Mr. Kocherlakota argued in a very theoretical paper that instead of cutting interest rates when the housing bubble burst, the Fed should have raised them
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By “it” I mean the sharp fall in real GDP all over the world that began in August 2008.  There are two parts to my hypothesis.  One part is that the intensification of the financial crisis beginning in September 2008 was mostly caused by the sharp fall in NGDP, not foolish lending.  Lenders had a right to expect that the Fed would keep nominal GDP growing, (it had been continuously growing since 1958.)  In Part one I repeat part of my recent reply to Hamilton; those who already saw it should skip to part 2:
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