Procyclical fiscal policy rules everything around me
Remember the "twin deficits"? They may be back paulkrugman.substack.com/p/the-dollar...
The Dollar and the Trade Deficit
What will Trump do when his favorite obsession goes the wrong way?
paulkrugman.substack.com
January 2, 2025 at 4:08 PM
Procyclical fiscal policy rules everything around me
Bitcoin is literally *procyclical*. It goes up with a good US economy and with low US inflation, and goes down with a bad economy and high inflation
The US Dollar is backed by one thing: confidence in the US economy. If that confidence holds firm, holding a couple billion worth of Bitcoin "reserves" is going to be utterly irrelevant. If it ever goes belly up, holding a couple billion in Bitcoin "reserves" will be equally irrelevant.
March 7, 2025 at 1:56 PM
Bitcoin is literally *procyclical*. It goes up with a good US economy and with low US inflation, and goes down with a bad economy and high inflation
More from the “what happens when you vote in a right wing government” department.
Unemployment has skyrocketed in Finland, aided by massive and badly timed (procyclical) cuts that demolished domestic consumption, and is now the highest of all OECD countries.
Unemployment has skyrocketed in Finland, aided by massive and badly timed (procyclical) cuts that demolished domestic consumption, and is now the highest of all OECD countries.
February 22, 2026 at 9:52 AM
More from the “what happens when you vote in a right wing government” department.
Unemployment has skyrocketed in Finland, aided by massive and badly timed (procyclical) cuts that demolished domestic consumption, and is now the highest of all OECD countries.
Unemployment has skyrocketed in Finland, aided by massive and badly timed (procyclical) cuts that demolished domestic consumption, and is now the highest of all OECD countries.
We’ve started to ask whether US aggression — overseas and at home — will suppress investment & hiring. So far, JPM says no:
.. the gap between uncertainty indices and the VIX “suggests .. markets are more buoyed by a risk-on, procyclical environment than pressured by risk-off geopolitical strains.”
.. the gap between uncertainty indices and the VIX “suggests .. markets are more buoyed by a risk-on, procyclical environment than pressured by risk-off geopolitical strains.”
January 10, 2026 at 12:04 AM
We’ve started to ask whether US aggression — overseas and at home — will suppress investment & hiring. So far, JPM says no:
.. the gap between uncertainty indices and the VIX “suggests .. markets are more buoyed by a risk-on, procyclical environment than pressured by risk-off geopolitical strains.”
.. the gap between uncertainty indices and the VIX “suggests .. markets are more buoyed by a risk-on, procyclical environment than pressured by risk-off geopolitical strains.”
JPM: “While it may be tempting to view these revisions as another critique of U.S. data, this would be an overreaction in a period when large immigration flows have been volatile. More concerning is what the revisions, which tend to be procyclical, say about the state of the expansion.”
September 9, 2025 at 10:45 PM
JPM: “While it may be tempting to view these revisions as another critique of U.S. data, this would be an overreaction in a period when large immigration flows have been volatile. More concerning is what the revisions, which tend to be procyclical, say about the state of the expansion.”
First post on Bluesky to share a first draft of “A Tale of Procyclical Inequality: Facts and Implications” joint with me and @DBergholt and Lorenzo Mori sites.google.com/view/lorenzo...
One line summary: consumption inequality is high, stable and procyclical in Norway. 1/N
One line summary: consumption inequality is high, stable and procyclical in Norway. 1/N
November 19, 2024 at 1:46 PM
First post on Bluesky to share a first draft of “A Tale of Procyclical Inequality: Facts and Implications” joint with me and @DBergholt and Lorenzo Mori sites.google.com/view/lorenzo...
One line summary: consumption inequality is high, stable and procyclical in Norway. 1/N
One line summary: consumption inequality is high, stable and procyclical in Norway. 1/N
It's also that crypto is procyclical, not countercyclical. It's a lovely leading indicator of tech market corrections.
February 3, 2025 at 2:20 AM
It's also that crypto is procyclical, not countercyclical. It's a lovely leading indicator of tech market corrections.
Procyclical monetary policy famously worked out great during the last Gilded Age, no worries there.
Trump: "When our country is strong, interest rates should go down. When our country is weak, frankly they should go up."
August 19, 2026 at 10:18 PM
Procyclical monetary policy famously worked out great during the last Gilded Age, no worries there.
CITADEL: ‘This amounts to financial repression at the margin…policymakers attempting to suppress the market signal rather than resolve the underlying contradiction of procyclical easing in the middle of a generational capex cycle at full employment.’ www.citadelsecurities.com/news-and-ins...
Hard Choices - Citadel Securities
Citadel Securities is an award-winning global market-maker across a broad array of fixed income and equity products.
www.citadelsecurities.com
August 24, 2026 at 4:19 PM
CITADEL: ‘This amounts to financial repression at the margin…policymakers attempting to suppress the market signal rather than resolve the underlying contradiction of procyclical easing in the middle of a generational capex cycle at full employment.’ www.citadelsecurities.com/news-and-ins...
Not just procyclical, but procyclical on a month by month basis of following along with random ticks of 0.5% around 0. Completely bananas.
August 14, 2025 at 11:29 AM
Not just procyclical, but procyclical on a month by month basis of following along with random ticks of 0.5% around 0. Completely bananas.
Great turn of phrase from Brent Donnelly:
“AI is the procyclical scaffolding that holds up the k-shaped economy via the GDP boost from capex and the wealth effect”
“AI is the procyclical scaffolding that holds up the k-shaped economy via the GDP boost from capex and the wealth effect”
November 7, 2025 at 5:36 PM
Great turn of phrase from Brent Donnelly:
“AI is the procyclical scaffolding that holds up the k-shaped economy via the GDP boost from capex and the wealth effect”
“AI is the procyclical scaffolding that holds up the k-shaped economy via the GDP boost from capex and the wealth effect”
A procyclical fiscal policy works until suddenly it doesn't.
The U.S. economy grew at a 4.3% annual rate in the third quarter, despite the uncertainty created by tariffs and widespread concerns about affordability among households.
U.S. GDP Grew 4.3%, Surging in Third Quarter of 2025
Gross domestic product grew at a 4.3 percent annual rate, faster than the previous three months.
nyti.ms
December 23, 2025 at 4:58 PM
A procyclical fiscal policy works until suddenly it doesn't.
Banking is violently procyclical. When collateral values are perceived to be at risk banks put the brakes on new lending, thereby reducing private sector deficit spending that offsets savings desires/supports GDP/bank capital etc. in an accelerating downward spiral as per 2008.
March 4, 2025 at 6:05 PM
Banking is violently procyclical. When collateral values are perceived to be at risk banks put the brakes on new lending, thereby reducing private sector deficit spending that offsets savings desires/supports GDP/bank capital etc. in an accelerating downward spiral as per 2008.
i tend to think that cryptocurrency to date has been procyclical is good enough evidence that they are wrong but the people in question do not
December 17, 2024 at 4:39 AM
i tend to think that cryptocurrency to date has been procyclical is good enough evidence that they are wrong but the people in question do not
I can't quite surmise what the next Trump Fed chair would do. The average Republican is for procyclical deflation but Trump would presumably be for procyclical inflation. How would that play out in practice?
June 19, 2025 at 11:02 PM
I can't quite surmise what the next Trump Fed chair would do. The average Republican is for procyclical deflation but Trump would presumably be for procyclical inflation. How would that play out in practice?
The situation seems to be difficult enough to defuse without Israel being the chaos goblin it is.
It feels SO GOOD that our right-wing government already raised Finland’s unemployment to EU record levels with their procyclical cuts and handouts for the rich.
It feels SO GOOD that our right-wing government already raised Finland’s unemployment to EU record levels with their procyclical cuts and handouts for the rich.
March 19, 2026 at 5:34 AM
The situation seems to be difficult enough to defuse without Israel being the chaos goblin it is.
It feels SO GOOD that our right-wing government already raised Finland’s unemployment to EU record levels with their procyclical cuts and handouts for the rich.
It feels SO GOOD that our right-wing government already raised Finland’s unemployment to EU record levels with their procyclical cuts and handouts for the rich.
so many people who I would have thought knew better continue to get this one wrong
March 26, 2024 at 6:03 PM
so many people who I would have thought knew better continue to get this one wrong
Plus the complete absurdity of the implicit and explicit presumption that spending must be procyclical. Even rachel from accounts must have heard that was stupud
August 14, 2025 at 11:27 AM
Plus the complete absurdity of the implicit and explicit presumption that spending must be procyclical. Even rachel from accounts must have heard that was stupud
- literally cooking the books to make the state’s financial situation look *worse* to creditors than it was
- taking extra damage, and ironically probably *more* debt as a result, in about every recession so far (Finnish fiscal policy is notoriously procyclical)
- taking extra damage, and ironically probably *more* debt as a result, in about every recession so far (Finnish fiscal policy is notoriously procyclical)
February 20, 2026 at 12:19 PM
- literally cooking the books to make the state’s financial situation look *worse* to creditors than it was
- taking extra damage, and ironically probably *more* debt as a result, in about every recession so far (Finnish fiscal policy is notoriously procyclical)
- taking extra damage, and ironically probably *more* debt as a result, in about every recession so far (Finnish fiscal policy is notoriously procyclical)
Austerity for some. It was the rod for the poor, purposeful defunding of public services procyclical economics. The Toraidh caused immense damage, going back to Thatcher.
March 13, 2026 at 12:42 PM
Austerity for some. It was the rod for the poor, purposeful defunding of public services procyclical economics. The Toraidh caused immense damage, going back to Thatcher.
See also Republicans in power and (usually procyclical) fiscal stimulus
November 26, 2025 at 2:47 PM
See also Republicans in power and (usually procyclical) fiscal stimulus
👋I'm on the #EconJobMarket!
❓My JMP, together with @dkaenzig.bsky.social, Lixing Wang and Donghai Zhang studies how green innovation varies over the business cycle.
💡We find that green innovation is countercyclical, while non-green innovation is procyclical.
🔗https://tinyurl.com/4b45h979
🧵👇
❓My JMP, together with @dkaenzig.bsky.social, Lixing Wang and Donghai Zhang studies how green innovation varies over the business cycle.
💡We find that green innovation is countercyclical, while non-green innovation is procyclical.
🔗https://tinyurl.com/4b45h979
🧵👇
November 20, 2025 at 5:01 PM
👋I'm on the #EconJobMarket!
❓My JMP, together with @dkaenzig.bsky.social, Lixing Wang and Donghai Zhang studies how green innovation varies over the business cycle.
💡We find that green innovation is countercyclical, while non-green innovation is procyclical.
🔗https://tinyurl.com/4b45h979
🧵👇
❓My JMP, together with @dkaenzig.bsky.social, Lixing Wang and Donghai Zhang studies how green innovation varies over the business cycle.
💡We find that green innovation is countercyclical, while non-green innovation is procyclical.
🔗https://tinyurl.com/4b45h979
🧵👇
that kind of makes it impossible to move house though, it's like a much bigger and procyclical stamp duty
March 28, 2025 at 9:47 AM
that kind of makes it impossible to move house though, it's like a much bigger and procyclical stamp duty
Procyclical stocks, those whose cash flows rise with expected economic growth, earn higher average returns than countercyclical stocks, from William N. Goetzmann, Akiko Watanabe, and Masahiro Watanabe www.nber.org/papers/w34402
October 29, 2025 at 5:04 PM
Procyclical stocks, those whose cash flows rise with expected economic growth, earn higher average returns than countercyclical stocks, from William N. Goetzmann, Akiko Watanabe, and Masahiro Watanabe www.nber.org/papers/w34402
Greece’s problem wasn’t directly the debt, though. It was that not controlling their currency and a handful of other factors forced procyclical fiscal contraction as a reaction to the debt.
September 11, 2026 at 6:26 PM
Greece’s problem wasn’t directly the debt, though. It was that not controlling their currency and a handful of other factors forced procyclical fiscal contraction as a reaction to the debt.