Recession

[bush_cheney2004]

Sure, just like it was Bear Stearns choice to make poor decisions and face a cash crunch.

Oh, right, they get bailed out, even while the top brass' bonus cheques are being cashed, because they are "too big to fail."

Nothing in your post changes my assertion....bad choices. Deal with it.

Many of the clueless homeowners benefitted from government programs and still screwed it up.

Edited May 30, 2008 by bush_cheney2004

[msj]

Nothing in your post changes my assertion....bad choices. Deal with it.

Many of the clueless homeowners benefitted from government programs and still screwed it up.

There is no way to deal with the BS bailout now. It's a done deal.

The Fed grants another "Greenspan put" (albeit on Bernanke's watch) and moral hazard moves on with a "nothing to see here, carry on as usual" attitude.

I suppose proper regulations would help though.

You know, like expecting S&P and Moody's to properly value monolines, Alt-A and subprime securitizations.

Oh, and expecting the banks and mortgage companies to verify people's income and having appraisers do proper and fair appraisals would help too.

And people wonder why the credit crunch continues to march on and on....

We all pay for the stupidity of a system that allows such things to happen in the first place...

[bush_cheney2004]

...And people wonder why the credit crunch continues to march on and on....

We all pay for the stupidity of a system that allows such things to happen in the first place...

Nope...I ain't buying it. There is no credit crunch unless you want the same conditions that led to present circumstances. I bought my first home with a 13% mortgage...and no whining.

[msj]

Nope...I ain't buying it. There is no credit crunch unless you want the same conditions that led to present circumstances. I bought my first home with a 13% mortgage...and no whining.

You know BC2004, everything isn't always about you.

The credit crunch may or may not be behind us but it affects many people whether it is in higher interest rates (notice long bond prices going down with interest rates going up), higher inflation, foreclosed homes, or bankrupt regional banks and a bailed out investment bank.

[bush_cheney2004]

You know BC2004, everything isn't always about you.

Correct..that is exactly my point. There are more stiffs like me who didn't leverage themselves into bankruptcy. Idiots who went for that short term interest only mortgage product will just have to work through the system.

There isn't even a recession to blame it on.

[msj]

Correct..that is exactly my point. There are more stiffs like me who didn't leverage themselves into bankruptcy. Idiots who went for that short term interest only mortgage product will just have to work through the system.

There isn't even a recession to blame it on.

Well, I agree with you in that the problems were created over the past many years (if not the last decade or so) - artificially low interest rates, low lending standards, and poorly informed choices by bankers and borrowers have led to this mess.

The recession will be shown to be caused by all this but that will be in hindsight.

[bush_cheney2004]

Well, I agree with you in that the problems were created over the past many years (if not the last decade or so) - artificially low interest rates, low lending standards, and poorly informed choices by bankers and borrowers have led to this mess.

Then perhaps you would agree that economic calamity, while unpleaseant, is exactly what is needed to restore faith in the economy. Sacrifices must be made to the gods of fractional banking.

The recession will be shown to be caused by all this but that will be in hindsight.

Could be, but I suspect it has less to do with unsecured credit and more to do with the general erosion of firewalls between banking, equities, and insurance that were erected after the Great Depression.

[msj]

This cartoon seem appropriate: Not A Recession.

[msj]

The US economy really hasn't done well since the last recession in 2001. The recovery has been tepid, at best: Real GDP growth from recession bottom.

[msj]

In this thread I have been critical of how the US calculates inflation.

This post is one of the reasons why: 5 Years without computers.

Remember: if inflation is understated than real GDP is overstated.

This is important because if reality is different from what the government tells us then reality eventually rears its ugly head to the point where people do not have confidence in their government or their central bank.

Inevitably this leads to inflation (since the government is understating inflation in the first place and is drinking the kool-aid that their flawed data is telling them) and lower inflation is not reestablished until the central bank/government reestablishes credibility.

IMO, we are getting past the denial stage since more and more people have stopped drinking the kool-aid.

Edited May 31, 2008 by msj

[bush_cheney2004]

...Remember: if inflation is understated than real GDP is overstated.

This is important because if reality is different from what the government tells us then reality eventually rears its ugly head to the point where people do not have confidence in their government or their central bank.

No, this is not a significant concern. Quibbling about the standard of measure (and consistency of application over the years) is more of a political exercise than economic. "Real GDP" by its very nature invites criticism of measured components and methodologies. It is an endless source of debate and navel gazing.

Edited May 31, 2008 by bush_cheney2004

[msj]

No, this is not a significant concern. Quibbling about the standard of measure (and consistency of application over the years) is more of a political exercise than economic. "Real GDP" by its very nature invites criticism of measured components and methodologies. It is an endless source of debate and navel gazing.

You underestimate the importance of basing decisions based on good data versus bad data.

Once again, more people are jumping out of the kool-aid line: Dow Chemical CEO Says US Underestimating Inflation.

The scary thing is - as a business person I would feel more confident if I could base my decisions on reasonable assessments of inflation.

I can't.

And it's worse because I prepare financial/pension/retirement/tax plans for clients. I no longer use 3% inflation in the model.

It's to the point where I use a range of inflation that is between 4-6% and have the client see them all to make his/her own decisions - if they want to continue to drink the kool-aid - well, that's their problem and they are "fools" just like you have mentioned of other people above.

[msj]

For an interesting discussion on the revisions to GDP over the past 7ish years regarding the 2000-2001 period see this entry: GDP on the Eve of Recession: Then and (Maybe) Now.

[bush_cheney2004]

...It's to the point where I use a range of inflation that is between 4-6% and have the client see them all to make his/her own decisions - if they want to continue to drink the kool-aid - well, that's their problem and they are "fools" just like you have mentioned of other people above.

That is the professional thing to do. You shouldn't represent inflation rates as accurate any more than we present average projected gains in the stock market.

And to your point, it wasn't "Kool-Aid"...it was "Flavor Aid"...but we have co-opted the more recognized reference. And so it goes for inflation.

Edited June 2, 2008 by bush_cheney2004

[msj]

That is the professional thing to do. You shouldn't represent inflation rates as accurate any more than we present average projected gains in the stock market.

There was a time when many believed that central banks wouldn't allow inflation to go above 3% - and if it did, then it wouldn't last long.

Maybe in Euroland, but not in North America.

The point is we can not even trust the "independent" central banks to protect us taxpayers from politicians using a fiat currency that allows those same politicians to impose a stealth tax on us.

[sharkman]

Don't look now, but yesterday oil shot up $11/barrel, the DOW lost over 300 points, the US unemployment rate jumped up for the 5th month in a row to 5.5%(highest in three years). On top of recent announcements this week that more car manufacturing jobs are to be chopped and that Ontario has lost 200,000 manufacturing jobs in recent years, it looks like the question should not be will if it will get bad, but how bad will it get.

[bush_cheney2004]

Don't look now, but yesterday oil shot up $11/barrel, the DOW lost over 300 points, the US unemployment rate jumped up for the 5th month in a row....

Really? Show me how that works with these numbers:

2007-12 5.00

2008-01 4.90

2008-02 4.80

2008-03 5.10

2008-04 5.00

[sharkman]

BC, I will do something rash, and assume that since you didn't contradict any of the other information I posted, you agree with it. Your numbers on unemployment don't show May, why is that? Surely you could find stories on yesterday's report which in part was why the DOW tanked, or do you contest the .5% rise as well?

At any rate, here is my source for the numbers I mentioned.

The gas prices alone are inflationary and would worsen a recession. The mortgage crisis alone would worsen a recession. Ditto the oil highs, the Big 3 woes and the employment numbers. Put them all together and add Israel opening talking about striking Iran and you've got trouble right here in River City.

[msj]

Really? Show me how that works with these numbers:

2007-12 5.00

2008-01 4.90

2008-02 4.80

2008-03 5.10

2008-04 5.00

I think what sharkman meant was that the US has shown a loss of jobs for at least the past 5 months.

So, we are looking at non-farm employment numbers (in thousands):

2007-12 138,078

2008-01 138,022

2008-02 137,919

2008-03 137,831

2008-04 137,803

2008-05 137,754

Source.

It appears that with the adjustments in the current release that previous months are increasingly being adjusted down.

For example, back in January 2008 the BLS reported this:

2007-12 138,119

2008-01 138,102

Edited June 8, 2008 by msj

[bush_cheney2004]

BC, I will do something rash, and assume that since you didn't contradict any of the other information I posted, you agree with it. Your numbers on unemployment don't show May, why is that? Surely you could find stories on yesterday's report which in part was why the DOW tanked, or do you contest the .5% rise as well?

Dude....methinks you squirm just a bit too much. All I asked was how one could come to your conclusion based on readily available data. I am of the opinion that you simply wanted to pile on fiction just to cement your story of economic woe, when no such fiction is needed.

At any rate, here is my source for the numbers I mentioned.

Great...why didn't you just post that?

The gas prices alone are inflationary and would worsen a recession. The mortgage crisis alone would worsen a recession. Ditto the oil highs, the Big 3 woes and the employment numbers. Put them all together and add Israel opening talking about striking Iran and you've got trouble right here in River City.

Jury is still out on that....the technical definition of a recession has not been met....two consecutive quarters of negative economic growth.

[msj]

Jury is still out on that....the technical definition of a recession has not been met....two consecutive quarters of negative economic growth.

This has already been discussed and linked to, but once again:

The NBER’s Recession Dating Procedure

Yes, real GDP is important weighting but it is not the only factor.

No, two consecutive quarters is not the definition.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

And also see:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

Q:Could you give an example illustrating this point?

A:On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the committee determined the date of the peak in activity in March 2001 using its normal indicators. The two-quarter-decline rule of thumb would not have allowed the declaration of the recession until August 2002, let alone a declaration that it had begun early in 2001, as in the statement that the committee made in November 2001. It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.

Q: Isn't a recession a period of diminished economic activity?

A: It's more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.

Q: How does the NBER balance the differing behavior of employment and output?

A: The NBER considers real GDP to be the single measure that comes closest to capturing what it means by "aggregate economic activity." The committee therefore places considerable weight on real GDP and other output measures. Following the precedents established in many decades of maintaining its business cycle chronology, however, the committee considers a wide range of indicators of economic activity. There is no fixed rule for how the different indicators are weighted.

[bush_cheney2004]

This has already been discussed and linked to, but once again:

Indeed...with identical results...no recession sports fans.

[msj]

Indeed...with identical results...no recession sports fans.

The only identical results appear to be that I have had to bring this up yet again - go to page 16 and move forward.

The question is: do you know how they officially declare a recession now that we have had to discuss it 3 times?

[bush_cheney2004]

The only identical results appear to be that I have had to bring this up yet again - go to page 16 and move forward.

The question is: do you know how they officially declare a recession now that we have had to discuss it 3 times?

And I'm sure you will continue to do so.....nevertheless...no recession folks. Sorry.

[msj]

And I'm sure you will continue to do so.....nevertheless...no recession folks. Sorry.

I find it amusing that you, like August1991, who prefer to see the world with rosed-tinted glasses, must resort to obfuscation (see sharkman's post above giving you the benefit of the doubt although even he found it convenient for you to not mention the May unemployment rate) and deflection.

The issue at hand is that despite this being the third time that an "official" recession definition has been discussed there is still no proof that you can comprehend the definition this time around.