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Here's a pretty impressive and uplifting chart. It's the Bloomberg Professional Confidence Index, and it is "comprised of responses about the outlook for the global economy, from users globally. A value above 50 indicates a positive sentiment about the global economy from all Bloomberg respondents." This is not exactly a scientific survey, but it leaves no doubt as to whether the outlook has improved. This is dramatic improvement in a relatively short time frame. Confidence (the loss of) was one of the key ingredients in last year's free-fall, and now confidence is coming back big-time. That's very good news.
5 comments:
Scott,
If everything is going so well, then the Fed is probably 50bps behind the curve. How long can they go before they are 100, 200, 300bps back?
In addition, last time I checked, the Fed was not in a position of power to stop asset bubbles from inflating.
I said awhile back I thought it was time for the Fed to start moving, so now I would agree that they are probably 50 bps behind the curve. Commodities are higher, gold is higher, the dollar is weaker, the curve is steeper. All signs that money is too easy.
However I don't see signs that things are getting out of control. We'll have to watch the progress of the above indicators and see.
Charging the Fed or any other federal agency with stopping bubbles is a fantasy. No one has the ability to identify bubbles (since they are only bubbles after the face). I think that if the Fed stuck to its knitting (watching sensitive asset prices as a guide, or adopting a gold standard), then bubbles would never form. If I could prove that, however I could become the next Fed Chairman, and I would have a very easy job.
Scott - new paper from the Dallas Fed may be of interest.
http://dallasfed.org/institute/wpapers/2009/0034.pdf
I like the part that says the Fed shouldn't try to fine-tune the economy (to deal with short term problems of insufficient demand), and they shouldn't try to clean up after messes occur.
But how in the world are they going to preemptively tighten when a bubble is forming? How will they know it's a bubble in the first place? Why not just say they should tighten if they see evidence of easy money--if gold and commodity prices are rising and the dollar is falling? Those are the bubbles that count for something.
"Why not just say they should tighten if they see evidence of easy money"
Some guesses: they focus on goods and services inflation, not asset price inflation; they're Keynesian and see inflation as driven by the output gap; they don't seem to care much about the dollar.
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