Really good links - Hydraulic macro - Monetary superpower - Eurozone - Summers in 2008

Karl Smith - Hydraulic macro - "Looking at durables only suggests that inflation might flatten out soon. Looking at durables and new houses suggests that deflation will be upon us for sure. It will be interesting to see what happens.
        Note, however, that this is not saying that a reduction in income spent on durables and housing will cause a decline in inflation. Its saying the Fed has already taken certain actions. The immediate result of those actions is a decline the fraction of income spent on durables and new houses. The future impact of those same actions will be a decline in inflation.
        In other words the inflation decline is already baked in. What we have to ask ourselves now is whether we want to take actions that would raise inflation expectations for the medium future."

Gavyn Davies - Global monetary superpower - "In the 1930s, a shortage of global demand translated itself into protectionist trade policies as individual countries tried to grab a larger share of the available demand for themselves. There were also some competitive devaluations for the same reason. In the current global recession, we have so far seen almost no new trade controls, but exchange rates are becoming increasingly contentious. Hence the complaints from the US last week about the f/x intervention in Japan and (especially) China.
        None of this will deter the Fed, which will probably welcome the fact that foreign central bank action is increasing the impact of their own monetary easing, at a time when they are hamstrung by the zero limit on US interest rates. If foreign central banks ease monetary policy when the Fed eases, then GDP growth overseas, and global asset prices, are likely to rise. If foreign central banks instead allow their exchange rates to rise, then more of the available growth in global demand will come the way of the US."

Ralph Atkins - Eurozone vs. USA - "What makes the study interesting is that Barclays Capital then goes on to calculate what would be the appropriate interest rates for the 11 largest eurozone countries - using the so-called “Taylor rule” by which interest rates are set according to the inflation rate and “output gap” (roughly, the amount of slack in the economy). The report finds a much greater variation than would be the case for the 11 biggest US states. "

Paul Krugman, Robin Wells - The way out of slump - "According to Ryan Lizza of The New Yorker, back in December 2008 Larry Summers prepared a memo for the president-elect that made the case for fiscal stimulus to fight the recession—but then explicitly rejected the idea that the stimulus should be large enough to restore full employment. Summers argued that too much spending might create worries about the US government’s long-run fiscal position, and thus lead to a sharp rise in US borrowing costs."