Zerohedge
Note the parallels to the Canadian market. Resource driven economy, same debt to income ratios.
Jonathan Tepper (the expert on  the 60 minutes piece who called the Irish, Spanish, and USA property bubbles) described the Canadian market in 2013 as one of "biggest housing bubbles in the world". 
See also here and here
Don't act like I never told ya.

Calgary Herald
Some Canadian banks could be forced to preserve capital by raising equity or even cutting dividends if oil prices continue to slump, Moody’s warns in a new report.
In a “severe stress” scenario modelled by the ratings agency, and included in the report to be widely circulated Monday, losses in consumer lending portfolios would exceed historic peaks and capital markets activity at the country’s biggest banks would be significantly crimped.
“Under the moderate stress scenario we modeled, the profitability of Canadian banks will decline but their capital would not be impaired,” David Beattie, a senior vice-president at Moody’s, wrote in the report.
“In our severe stress scenario, however,” he warned, “some of the banks’ CET1 (capital) ratios could fall under 9.5 per cent, in which case we believe they might be required to take capital conservation measures, cut dividends, or raise additional equity.”
In an interview, Beattie characterized the likelihood of the severe stress case as “very remote” and said dividend cuts would be avoided by the big banks “except under extreme duress.”
Still, with oil prices slumping to levels not seen in more than a decade, the ratings agency expects banks will have to absorb the pain of oil producers, drillers, and service companies, as well as consumers in oil-producing provinces.
In the severe stress test scenario outlined by Moody’s, losses in the big banks’ consumer portfolios would rise above the historical peak, and there would be a 20 per cent decline in capital markets’ net income, driving losses to 1.5 times quarterly net income.
In this scenario, unless the banks reduce the payout ratio — the percentage of earnings paid out to shareholders as dividends — or issued shares, “it would take multiple quarters to absorb stress losses through retained earnings,” Beattie wrote.
Among Canada’s biggest banks, Canadian Imperial Bank of Commerce and Bank of Nova Scotia emerge as the “negative outliers” in the Moody’s stress testing.
CIBC’s rank reflects the fact that the bank’s operations are primarily in Canada. The country’s fifth-largest bank also has “considerable oil and gas concentration in its corporate loan book, and a material portion of its earnings comes from capital markets activities,” Beattie wrote.
Scotiabank would face higher stress losses from its corporate loan book and the segment mix of its corporate loans.
In the severe stress scenario, both CIBC and Scotiabank would lose about 100 basis points from CET1, a key measure used to gauge a bank’s capital cushion.
However, Beattie said that doesn’t mean those banks would be the first to have to tap the market for funds through an equity issue, or to reduce dividends.
“Each of the banks is coming from a different starting point in terms of capital,” he said, adding that all Canada’s big banks hold capital well above the regulatory minimum. What’s more, any of the banks could invoke capital conservation measures quickly and pre-emptively if the probability of a severe stress situation were to begin to rise, he said.
Toronto-Dominion Bank is a “positive outlier” in the Moody’s analysis, losing just 53 basis points of CET1 in the severe stress scenario. Beattie said Canada’s second-largest bank by market capitalization has a relatively small oil and gas corporate loan book, despite that book growing considerably over the past year.
TD also has a comparatively low concentration of retail operations in oil-producing provinces, and low reliance on earnings from capital markets, he wrote.
The impact on capital markets activity is difficult to predict, Beattie said, adding that underwriting earnings will be hurt by reduced equity issues in the energy sector, but that could be at least partly offset by mergers and acquisitions activity that tends to take place during a downturn.

The Fed raised rate last year because their Phillips curve model told them wage inflation was on the way. Alan Kreuger pointed out that notwithstanding low LFPRs, the labour market is tight and wage inflation is on the way.

The Fed rate increase and its lead up caused monetary policy conditions to tighten substantially.

Here is a post from Tim Duy

Bottom Line: The Fed has yet to fully embrace the change in financial conditionals and the implications for the path of policy. To be sure Yellen gave enough this week to take March off the table. That said, policymakers will hesitate to dramatically change their general policy outlook focused on higher rates. Consequently, I anticipate Fedspeak with seemingly unrealistic hawkish undertones. Essentially, they will leave the fear of policy error simmering on the back-burner.

and another from Sumner himself on targeting the forecast through TIPS.
My views on current business conditions are pretty similar to those of Tyler, AFAIK.  I think we both see a modest risk of recession this year, but less than 50-50.  So suppose there is a recession this year—can I say, “I told you so”?  I certainly didn’t think the rate increase in December would lead to recession (although some other MMs were more pessimistic.)  But that misses the point.  Sorry to be so long winded, but wake up here, this is the key point.
The Fed needs to always keep the “shadow NGDP futures price” close to target.  If at any time they let it slip, as they did in September 2008, and if MMs point out that it is slipping, and if the Fed does not take aggressive actions that it clearly could take to prevent if from slipping, then yes, it’s the Fed’s fault.
That italicized (bold) statement does not involve any Monday morning quarterbacking.  I’m not going to blame them for anything that they cannot prevent in real time.  But recall that currently they are not even at the zero bound.  Let’s explain this with a simpler example.  We do have TIPS spreads, so we don’t need shadow prices for inflation expectations.  MMs claim that even with the liquidity bias in TIPS spreads, the current ultra-low 5-year spread suggests money is too tight for the Fed’s 2% inflation target.  That doesn’t mean we’ll have a recession, but if the Fed wants to hit their 2% inflation target they need to ease policy.  If they don’t, and if they fall short of their inflation target, then MMs will have been right.


Whatever structural problems the economy has that need to be solved through institutional/fiscal reforms I am becoming increasing convinced a nominal GDP target rule would be overall welfare enhancing.
​

FT
What would then be the options?
One would be to do nothing. Many would call for the cleansing depression they believe the world needs. Personally, I find this idea crazy, given the damage it would do to the social fabric.
A second possibility would be to change targets, possibly to ones for growth or level of nominal gross domestic product or to a higher inflation rate. It would probably have been wise to have had a higher inflation target. But changing it when central banks are unable to deliver today’s lower target might destabilise expectations without improving outcomes. Moreover, without effective instruments a more ambitious target might just seem empty bombast. So the third possibility is either to change instruments or to use the existing ones more powerfully.
One instrument, not much discussed, would be to organise the deleveraging of economies. This might need forced conversion of debt into equity. But, while desirable in extreme circumstances, this would be practically difficult.
Another would be a still bigger scale of quantitative easing. At the end of the third quarter of last year, the BoJ’s balance sheet was 70 per cent of GDP, against less than 30 per cent for the Fed, the ECB and the BoE. The latter three could follow the former. Moreover, the assets they buy could be broadened, one possibility being foreign-currency bonds. But that would be provocative and unnecessary. The BoJ and ECB have engineered big currency depreciation without making it quite so blatant.
Yet another instrument is negative interest rates, now used by the ECB, the BoJ and the central banks of Denmark, Sweden and Switzerland. With clever gimmicks, it is possible to impose negative rates on bank reserves at the margin, thereby generating negative interest rates in markets, without imposing negative rates on depositors. How far this can be pushed while cash is still an alternative is unclear. Beyond a certain point, people seek to move into cash-backed warehouse receipts, unless a penal tax were imposed on withdrawal from banks or cash were abolished altogether. Moreover, it is unclear how economically effective negative rates would be, apart from lowering the currency.
A final instrument is “helicopter money” — permanent monetary emission for the purpose of promoting purchases of goods and services either by the government or by households. From a monetary point of view, this is the equivalent of intentionally permanent QE. Of course, actual QE might become permanent after the event: that is now likely in Japan. Again, supposedly permanent monetary emission might turn out to have been temporary, after the event. But if the money went directly into additional spending by government or into lower taxes or to people’s bank accounts, it would surely have an effect. The crucial point is to leave control over the quantity to be emitted to central banks as part of their monetary remit.
Personally, I would prefer the last instrument. But at this stage it is crucial to recognise the great likelihood that something even more unconventional might have to be done next time. So prepare the ground beforehand. Central banks should be filling in these blanks now, not after the next recession hits.

Brilliant piece of analysis that captures my own heartfelt investing dilemma. ValueWalk is the source. (Thanks Caio!)

Subject of the post is the etablisment (CB) aversion to price level targeting. Post ends with two issues I have pushed on these pages before.
Last time there was a big gap between central banks and leading theorists was during the 1920s, when the leading theorists favored price level targeting (or NGDP targeting in a few cases) and the central banks favored the gold standard. We now know that the leading theorists were correct. It will be interesting to see who ends up being right this time.
"I wasn't at the recent AEA meetings, but I'm told there was lots of discussion of how income inequality reduces aggregate demand. Combine that depressing tidbit with the fact that grad schools no longer teach macroeconomic history."

The Upshot (NY TIMES)
Next week, when Federal Reserve officials meet to decide whether to raise interest rates for the first time in nine years, one question will be front and center: How much faith should be placed in a line on a graph first drawn by a New Zealand economist nearly six decades ago, based on data on wages and employment in Britain dating to the 1860s?
That would be the Phillips curve, one of the most important concepts in macroeconomics. It shows how inflation changes when unemployment changes and vice versa. The intuition is simple: When joblessness is low, employers have to pay ever higher wages to attract workers, which feeds through into higher prices more broadly. And inflation is particularly prone to rise when the unemployment rate falls below the “natural rate” at which pretty much everybody who wants a job either has one or can find one quickly.
As the Fed’s chairwoman, Janet L. Yellen, put it in a 2007 speech, the Phillips curve “is a core component of every realistic macroeconomic model.”

Except it doesn’t work. Or at least, it hasn’t worked very well in the last few decades in the United States. And it has proved particularly problematic to try to use that historical relationship to predict where inflation is going.
That is why a longstanding academic debate is now at the core of the Fed’s policy debate. Ms. Yellen and many of her Fed colleagues have indicated that they think they should raise interest rates this year, in part because the Phillips curve suggests there will be excessive inflation if they don’t. The unemployment rate was 5.1 percent in September, just a smidgen above the 4.9 percent that Fed leaders believe is the appropriate jobless rate in the longer run.
In other words, if you believe in the traditional Phillips curve, inflation should be taking off any day now.
But this month, two Fed governors, Lael Brainard and Daniel K. Tarullo, argued against a rate move. Ms. Brainard said that the Phillips curve relationship was “at best, very weak at the moment.” Mr. Tarullo said that it was “probably wise not to be counting so much on past correlations, things like the Phillips curve, which haven’t been working effectively for 10 years now.”

It’s only a slight exaggeration to say that the Fed’s rate decision this year will be based on whether its leaders really believe that the Phillips curve is useful in describing how the economy works in 2015.

Wage inflation is on the rise view:
From Brad DeLong
Must-Watch: Really, really bad news for the American economy. Alan Krueger concludes that we are now near "full employment" in a monetary policy-Federal Reserve-inflation sense. The implications? The implications are:

1. that the failure of the government and the Federal Reserve to more aggressively boost recovery has turned what was excess cyclical non-employment into structural non-employment,
2. that essentially none of the drop in production relative to the pre-2008 trend can or will be recouped without noticeably higher inflation.

Alternative view (Ironically from WCSG and Matt Phillips)
 
To understand the changes in the overall inflation Phillips curve, it might be useful to look at another version of the curve: the relationship between unemployment and “wage inflation,” better known as wage growth. Now, that curve doesn’t look that great either, but that might be because the unemployment rate is currently overstating the health of the labor market. If we take a look at the relationship between wage growth and another measure of labor market slack, however, the relationship might hold up.

The graph shows the relationship between wage growth for production and non-supervisory workers, and the employment rate for prime-age workers six months prior. It clearly shows that when the labor market is tighter (when the employment rate is higher), wage growth is stronger.

Zerohedge.  Brent called it.

And on that note, we'll close with the following from Citi's Willem Buiter:
Fiscal policy can undoubtedly come to the rescue and prevent a recession in China. But what is needed is not another dose of the familiar post-2008 fiscal medicine: heavy-lifting capital expenditure on infrastructure with dubious financial and social returns, and capital expenditure by SOEs that are already struggling with excess capacity, all funded, as if these were commercially viable ventures, through the banking or shadow banking sectors. As regards funding the fiscal stimulus, only the central government has the deep pockets to do this on any significant scale. The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.

Calculated Risk
A personal comment ...

Over the last several years, I noted on several occasions that Congress has been a disaster.  They've opposed economic policies normally supported by both parties - and by Milton Friedman and Ronald Reagan - and this has hurt the economy.  Former Fed Chairman Ben Bernanke noted in his book: “I also felt frustrated that fiscal policy makers, far from helping the economy, appeared to be actively working to hinder it.”
emphasis added 

I agree with Bernanke.

This seems to part of a defeatists theme of the current Congress - an overwhelming pessimism about several policies -"Nothing can be done" could be their slogan (or worse when they "actively work to hinder" the economy).

Former Fed Chairman Ben Bernanke also wrote in this book that he “lost patience with Republicans’ susceptibility to the know-nothing-ism of the far right." He went on to write: “I often said that monetary policy was not a panacea — we needed Congress to do its part. After the crisis calmed, that help was not forthcoming.”
emphasis added 

And here is another excerpt from Bernanke's book via the WSJ, Bernanke on Congress: 
"They blamed the crisis on the Fed and on Fannie (Mae) and Freddie (Mac), with little regard for the manifest failings of the private sector, other regulators, or, most especially, Congress itself. They condemned bailouts as giveaways of taxpayer money without considering the broader economic consequences of the collapse of systemically important firms. They saw inflation where it did not exist and, when the official data did not bear out their predictions, invoked conspiracy theories. They denied that monetary or fiscal policy could support job growth, while still working to direct federal spending to their own districts. They advocated discredited monetary systems, like the gold standards.
This defeatist view - and pessimistic outlook - applies to other policies too. As an example, during the recent debate, GOP presidential hopefuls Marco Rubio and Carly Fiorina acknowledged the dangers of climate change (a positive step compared to the deniers), but both said Nothing Can be Done. How sadly pessimistic and contrary to the optimism of Presidents Kennedy and Reagan.