EconAir

    INTRODUCTION   Even after 96 years since the start of the Great Depression, there remains controversy about the causes. It is possible to draw up a list of probable causes but there is no consensus about the relative importance or the interaction of the causal variables.   GENERAL APPROACH   The basic approach of modern macroeconomic theory is to view a national economy as a relatively stable, self-equilibrating mechanism that is capable of sustained economic growth over a long period. Recessions and inflationary periods occur because of some kind of “external shock” to the system that impacts components of aggregate demand or aggregate supply. In this model, external shocks (exogenous variables) include the sudden and large increase in the cost of vital inputs such as oil, sudden and large changes in competition from imports or fall in the demand for exports, unexpected changes in nominal interest rates, monetary policy by the Fed, and fiscal policy (govern...

Secretary of the Treasury PRELIMINARY SUMMARY OF FISCAL YEAR 2025 BUDGET   The Congressional Budget Office (CBO) made their latest projection in January, 2025. The projected deficit in fiscal year 2025 will be around $1.8 trillion, the difference between about $5.2 trillion in revenue and $7.0 trillion in expenses. Interest on the national debt this year will be around $950 billion, over twice the interest expense in the fiscal year 2021 budget and equal to the defense budget. By 2035, the CBO expects the  yearly  budget deficit to increase to $2.7 trillion.   Interest expense this year passed budgeted outlays for the military. It is about equal to Medicare, and also to total non-defense discretionary spending.   Leaving aside Social Security and Medicare, interest expense is  about 20% of total budget outlays. Interest expense is about half the budget deficit.   The $1.8 trillion budget deficit is 6-7% of total GDP, or approximately 10% of consume...

Janet in Wonderland Anyone who believes that financial markets are rational is not looking at the current government bond markets.    The U.S. 10-year government bond is paying around 2.5%.    Believe it or not, the 10-year Spanish government bond is paying less.   The German 10-year government bond is paying a little over 1%, less than a 2-year U.S. bond. If you were not a finance major, skip this paragraph.   The yield curve is incredibly flat.   It is only this way because the Fed hasn’t realized yet the Great Recession has been over for five years.   More sinister explanations rely on conspiracy theories.   When given the choice, I always go with stupidity. According to CNBC (yes, I’m still addicted to my financial soap opera), the interest rates on German and Spanish 10-year bonds are at a 200-year low.   I don’t know how they know that.   Germany didn’t exist 200 years ago but Prussian war bonds probably did. ...