## Thursday, March 19, 2009

\$ 200,000,000,000 = 0 ?
A Trillion Here A Trillion There and Soon You're Talking Real Money

I don't know if it is the huge sums which have been thrown around recently or pride in innumeracy but Edmund Andrews treats \$ 200,000,000,000 as a rounding error.

In an article entitled "Fed Plans to Inject Another \$1 Trillion to Aid the Economy"
(by someone else) he opens

WASHINGTON — The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra \$1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Later he writes

Since last September, the Fed’s lending programs have roughly doubled the size of its balance sheet, to about \$1.8 trillion, from \$900 billion. The actions announced on Wednesday are likely to expand that to well over \$3 trillion over the next year.

Well over \$ 3 trillion - \$ 1.8 trillion = well over \$ 1.2 trillion.

Well over 1.2 trillion - \$ 1 trillion = well over \$ 200,000,000,000 =
such a tiny sum that it can be ignored in the headline and first paragraph.

What possible justification is there for writing "an extra \$1 trillion" not "more than \$ 1 trillion" (assuming people have noticed that there are already some dollars) or "more than an extra \$ 1 trillion" which is an ugly sentence but not an arithmetic error of well over 200,000,000,000 ?

Why does the headline inform us that the Fed is trying to help the economy. The readers who think it is trying to hurt the economy won't be convinced. Why not "Fed Plans to Inject Over \$1 Trillion" or "Fed Plans to Inject More Than Another \$1 Trillion" ?

Or if, for some reason, they just can't bring themselves to admit that they (and the Fed) don't know an exact figure, at least the closer approximation of \$ 1.2 trillion not 1 trillion ?

What can citizens do when the Journal of Record sometimes treats \$200,000,000,000 as nothing and quotes Republicans making a huge fuss over (well spent) millions ? Can't people agree that numbers matter when they are 9 12 digit figures in dollars ?

update: Oh my, I consistently wrote 200,000,000 that is 200 million when I meant 200 billion. How very embarassing. Read the comments for the most amazingly polite correction.

Vance Maverick said...

Is there some Euro-American confusion here about the meaning of billion? To me, (\$1.2 trillion - \$1 trillion) is \$200 billion, or \$200,000,000,000. You write \$200,000,000, or \$200 million in the numbering scheme I learned. Of course, the figure with more zeroes makes your point even more strongly.

Anonymous said...

I am not sure there is a problem with the passage, the writer is anticipating more buying of debt by the Federal Reserve than the long term buying project announced. A safe anticipation. The question though is why not address and question the Friedman-Schwartz evidently problematic notion about Federal Reserve policy and Depression?

Anonymous said...

http://angryarab.blogspot.com/2009/03/poor_19.html

March 19, 2009

The poor

"Now, falling export earnings are exacerbating poor countries’ woes. In theory, the poorest should be cushioned from declining world trade. Even so, the latest data look dire. American imports from middle-income countries fell 3% in the year to November 2008. But imports from poor countries fell 6%; those from sub-Saharan Africa, 12%. The African Development Bank says African current accounts, in surplus by 3.8% of GDP in 2007, will be 6% in the red this year." *

* http://www.economist.com/world/international/PrinterFriendly.cfm?story_id=13278585

Anonymous said...

Am I worried? Yes.

http://krugman.blogs.nytimes.com/2009/03/14/spanish-doldrums/

March 14, 2009

Spanish Doldrums
By Paul Krugman

I’m in Yurp for a week, spending some time on other peoples’ problems (although in a way it’s all part of the same problem.) And one has to say that Europe has gotten itself into one heck of a mess, worse even than ours — because they have intractable adjustment problems on top of the general crisis.

The poster child for these adjustment problems is Spain, where I’m currently sitting.

For much of the past decade, Spain had a huge construction boom, financed by vast inflows of capital:

[Current account deficit as a percent of GDP, 1995- 2007]

Now that boom is over. But it left as its legacy a sharp rise in Spanish costs and prices relative to the rest of the euro zone (the chart below is Spanish unit labor costs in manufacturing relative to the EZ average, but it doesn’t much matter which measure you use):

[Relative unit labor costs, 1995-2007]

How does Spain get out of this? No devaluation is possible — and no, I don’t think exiting the euro is feasible. So it has to do it with relative deflation, hard enough in normal times, when at least costs and prices elsewhere are rising a few percent a year. In the face of a depressed and possibly deflationary European economy … this is going to be ugly.

Anonymous said...

http://krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/

March 2, 2009

Friedman and Schwartz Were Wrong
By Paul Krugman

It’s one of Ben Bernanke’s most memorable quotes: at a conference honoring Milton Friedman on his 90th birthday, he said: *

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again."

He was referring to the Friedman-Schwartz argument that the Fed could have prevented the Great Depression if only it has been more aggressive in countering the fall in the money supply. This argument later mutated into the claim that the Fed caused the Depression, but its original version still packed a strong punch. Basically, it implied that no fundamental reforms of the economy were necessary; all it takes to avoid depressions is for central banks to do their job.

But can we say that recent events appear to disprove that claim? (So did Japan’s experience in the 1990s, but that lesson failed to sink in.) What we have now is a Fed that is determined not to "do it again." It has been very aggressive about monetary expansion. Here’s one measure of that aggressiveness, banks’ excess reserves:

[Banks’ excess reserves are rocketing....]

And yet the world economy is still falling off a cliff.

Preventing depressions, it turns out, is a lot harder than we were taught.

* http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm

Anonymous said...

http://krugman.blogs.nytimes.com/2008/11/28/was-the-great-depression-a-monetary-phenomenon/

November 28, 2008

Was the Great Depression a Monetary Phenomenon?
By Paul Krugman

[Depression chart] Sins of omission?

Has anyone else noticed that the current crisis sheds light on one of the great controversies of economic history?

A central theme of Keynes's "General Theory" was the impotence of monetary policy in depression-type conditions. But Milton Friedman and Anna Schwartz, in their magisterial monetary history of the United States, * claimed that the Fed could have prevented the Great Depression — a claim that in later, popular writings, including those of Friedman himself, was transmuted into the claim that the Fed caused the Depression.

Now, what the Fed really controlled was the monetary base — currency plus bank reserves. As the figure shows, the base actually rose during the great slump, which is why it's hard to make the case that the Fed caused the Depression. But arguably the Depression could have been prevented if the Fed had done more — if it had expanded the monetary base faster and done more to rescue banks in trouble.

So here we are, facing a new crisis reminiscent of the 1930s. And this time the Fed has been spectacularly aggressive about expanding the monetary base:

[Contemporary chart] Ben goes for broke.

And guess what — it doesn't seem to be working.

I think the thesis of the "Monetary History" has just taken a hit.

* 1963

A Monetary History of the United States, 1867-1960
By Milton Friedman and Anna J. Schwartz

Anonymous said...

Darn, I have no idea whether the Federal Reserve is acting reasonably at this point. I can make a case for deflation or inflation from here, while the Fed is hoping for moderate inflation against experience so far or during the Depression.

http://www.economagic.com/em-cgi/data.exe/fedstl/ambns+1

January 15, 2009

Monetary Base, 1927-1945

The monetary base shrunk in every month (year over year) from March 1928 through June 1929, then the monetary base shrunk in every month from December 1929 through December 1930. The base grew every month from January 1931 through January 1937, then the base shrunk again from February 1937 through March 1938, and grew from April 1938 through October 1941.