Recession

[M.Dancer]

If we were to measure GDP per capita then the US has been in recession since at least 2007 Q4:

Which means that maybe Japan hasn't done so badly for the past several years after all.

Yeah I suppose but that is not how a recession is measured.....2 quarters of negative growth I believe.

[August1991]

If we were to measure GDP per capita then the US has been in recession since at least 2007 Q4:

Which means that maybe Japan hasn't done so badly for the past several years after all.

That's a very good point.

The standard definition of a recession is two consecutive quarters of negative real GDP growth. But as John Kennedy once famously said, the US has to run fast just to stand still.

Nevertheless, +0.6% real GDP growth may be negative in per capita terms but it's nothing like the recessions of the 1970s or 1980s. We are far from double digit inflation or unemployment.

----

msj, you linked to an article above by Ken Rogoff. Rogoff is a smart guy but the article was tenuous at best. (It attempted to show how this bubble/panic was likemost before it. I didn't see it in the graphs.)

Anyway, the article had a good quote:

Instead, a large chunk of money has effectively been recycled to a developing economy that exists within the United States’ own borders. Over a trillion dollars was channeled into the sub-prime mortgage market, which is comprised of the poorest and least credit worth borrowers within the United States. The final claimant is different, but in many ways, the mechanism is the same.

Link

I think this is true and raises a far broader question. In the US (and Canada and Europe), we increasingly have the world as it once was within our borders.

[msj]

Yeah I suppose but that is not how a recession is measured.....2 quarters of negative growth I believe.

Sure, that's the traditional measurement and definition.

Besides not being very predictive (since the information is always at least 6 months after the start) it's also not very reliable when population growth is 1-1.5% per year and annualized economic growth is less.

There are alternative measurements that appear to be more relevant and reliable.

[msj]

That's a very good point.

The standard definition of a recession is two consecutive quarters of negative real GDP growth. But as John Kennedy once famously said, the US has to run fast just to stand still.

The 2001 recession had two quarters of negative growth over three quarters and is still officially a recession.

----

msj, you linked to an article above by Ken Rogoff. Rogoff is a smart guy but the article was tenuous at best. (It attempted to show how this bubble/panic was likemost before it. I didn't see it in the graphs.)

It takes more than looking at the pretty pictures to understand Rogoff and Reinhart's comparison.

[August1991]

The 2001 recession had two quarters of negative growth over three quarters and is still officially a recession.

I think real GDP was only negative in 2001 Q3.

Since about 1984 or so, the US has had steady, sustained growth with only a few minor hiccups - 1992 and 2001 - in the real economy.

It takes more than looking at the pretty pictures to understand Rogoff and Reinhart's comparison.

Gimme a break, msj. Rogoff and his grad student (?) are trying to draw parallels where they don't really exist.

Since Volcker was chairman (and for the first time in US history), the US Fed has finally started to act as a central bank should. The US government being the US government, they may still bungle it but for the moment, it works.

Volcker and Greenspan left a good legacy of credibility for Bernanke. Let's hope he doesn't wreck it.

Edited April 4, 2008 by August1991

[msj]

I think real GDP was only negative in 2001 Q3.

The NBER gives a good explanation of why they called the 2001 recession here:

http://www.nber.org/cycles/recessions.html

In this case it was actually 8 months of declining economic activity rather than 2 out of 3 quarters.

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.

Gimme a break, msj. Rogoff and his grad student (?) are trying to draw parallels where they don't really exist.

Not sure what the big deal is about Reinhart.

Maybe you don't like female economists?

Anyway, she has had a PHD since 1988 so I doubt that she is Rogoff's "grad" student.

In the paper she clearly is indicated as affiliated with the University of Maryland and the NBER (while Rogoff is with Harvard and the NBER)

Since Volcker was chairman (and for the first time in US history), the US Fed has finally started to act as a central bank should. The US government being the US government, they may still bungle it but for the moment, it works.

Volcker and Greenspan left a good legacy of credibility for Bernanke. Let's hope he doesn't wreck it.

Volker left the US in a good position.

Too bad Greenspan has ruined it with easy money.

Printing money may seem like a solution to you but people are finally waking up to the sorts of problems that a world awash in "free" money is really like - poor savings rates, high inflation rates (well, when the government isn't fudging the numbers with hedonic adjustments), lots of capital but not enough liquidity to keep the #5 investment bank afloat etc....

If we're lucky Bernanke will clean up this mess as well as the NY Fed has cleaned up the Bear Stearns mess (which may only be short lived but here's hoping it's not).

[msj]

Here is a letter that gives a pretty good (albeit simplified) background on the current mess:

Crossing the rubicon

Ever since the government bailout of Chrysler in 1979-80, this country has been on a course of raising the safety net so that the market’s discipline, in a capitalistic economic system, has been truncated. We have witnessed a growing level of decisions that are based upon expediency rather than sound long-term decision making. Each time these expedient decisions are made, the level of risk within the U.S. economy has been increased. The market’s discipline is not allowed to work for fear of the potential economic fallout.

Couldn't agree more.

The US has moved closer to socialism, or crony capitalism, take your pick, than ever before.

[bush_cheney2004]

The US has moved closer to socialism, or crony capitalism, take your pick, than ever before.

Than ever before what? The US "moved closer to socialism" during FDR's "New Deal", not now.

[eyeball]

The US has moved closer to socialism, or crony capitalism, take your pick, than ever before.

FDR bailed out people, G Bush is bailing out cronies.

[msj]

FDR bailed out people, G Bush is bailing out cronies.

Yep, I agree - it is crony "capitalism."

[August1991]

The NBER gives a good explanation of why they called the 2001 recession here:

...

Blah, blah, blah. The NBER tends to be US Northeastern Liberal but who really cares how you define "recession".

Volker left the US in a good position.

Too bad Greenspan has ruined it with easy money.

It is wrong to say that Greenspan was easy with the money (compared to, say, Arthur Burns). Greenspan wsa perhaps too interventionist for my taste but heck I'm no central banker.

Printing money may seem like a solution to you but people are finally waking up to the sorts of problems that a world awash in "free" money is really like - poor savings rates, high inflation rates (well, when the government isn't fudging the numbers with hedonic adjustments), lots of capital but not enough liquidity to keep the #5 investment bank afloat etc....

The US is not awash in free money. The US Fed can tell the politicians to get lost.

And msj, please don't get on to this CPI gig again. First of all, you're wrong. Second of all, it doesn't matter. When inflation by whatever measure is consistently below 5%, then a country is not suffering from monetary inflation.

FDR bailed out people, G Bush is bailing out cronies.

FDR balied out the people? That's a curious idea. He was president during a terrible depression when millions of people suffered and FDR oversaw a huge increase of government intrusion into private affairs.

Because the Fed in 1930 pursued a "sound" money policy and refused to bail out a few "cronies", millions of other people suffered terribly.

----

For the past few decades, the US has had for the first time in its history a central bank worthy of the name. This is a learning experience and I'd be the last to say that anyone really understands how it works properly.

It should be clear however that if the Fed had reacted in 1987 as it did in 1929, we now would be living in an entirely different world. Instead, 1987 came and went and it is merely (and rightly) seen as the collapse of a financial bubble. 1929, OTOH, is seen as the start of the Great Depression.

Here is a letter that gives a pretty good (albeit simplified) background on the current mess:

Crossing the rubicon

Couldn't agree more.

The US has moved closer to socialism, or crony capitalism, take your pick, than ever before.

I'm sympathetic to this "moral hazard" argument against central bank intervention. But, you see, I'm not a Libertarian. I think (coercive) governments can do good and a central bank or independent monetary authority is an example.

Socialism? Crony capitalism? Oligarchic capitalism? Imperialism? Vladimir Lenin has been dead for ages. The only Leninists left are teaching in western universities or posting on Internet forums. The US is not an example of crony capitalism.

Edited April 5, 2008 by August1991

[msj]

Blah, blah, blah. The NBER tends to be US Northeastern Liberal but who really cares how you define "recession".

It is wrong to say that Greenspan was easy with the money (compared to, say, Arthur Burns). Greenspan wsa perhaps too interventionist for my taste but heck I'm no central banker.

The US is not awash in free money. The US Fed can tell the politicians to get lost.

And msj, please don't get on to this CPI gig again. First of all, you're wrong. Second of all, it doesn't matter. When inflation by whatever measure is consistently below 5%, then a country is not suffering from monetary inflation.

FDR balied out the people? That's a curious idea. He was president during a terrible depression when millions of people suffered and FDR oversaw a huge increase of government intrusion into private affairs.

Because the Fed in 1930 pursued a "sound" money policy and refused to bail out a few "cronies", millions of other people suffered terribly.

----

For the past few decades, the US has had for the first time in its history a central bank worthy of the name. This is a learning experience and I'd be the last to say that anyone really understands how it works properly.

It should be clear however that if the Fed had reacted in 1987 as it did in 1929, we now would be living in an entirely different world. Instead, 1987 came and went and it is merely (and rightly) seen as the collapse of a financial bubble. 1929, OTOH, is seen as the start of the Great Depression.

I'm sympathetic to this "moral hazard" argument against central bank intervention. But, you see, I'm not a Libertarian. I think (coercive) governments can do good and a central bank or independent monetary authority is an example.

Socialism? Crony capitalism? Oligarchic capitalism? Imperialism? Vladimir Lenin has been dead for ages. The only Leninists left are teaching in western universities or posting on Internet forums. The US is not an example of crony capitalism.

Of course coercive governments and a central bank that properly regulates the financial industry is a good thing.

Did you even read that last link? That is exactly what the argument is - that the Fed has been negligent.

Now we end up paying for this mess while people whine about regulation.

Well, duh, of course you should be regulated, Mr. Market, because our taxes (whether it is real or through inflation) bails you out every time (well, under Greenspan/Bernanke it seems to be every time).

As to the rest of your comments:

1) Not surprised you would call the NBER names rather than deal with the substance of the argument. An ad hominem is still an ad hominem attack....

2) Anyone who thinks inflation of 5% is acceptable does not understand the power of compound interest nor the fact that when pension benefits rise at stated inflation when, in fact, prices increase faster than that, then it will be a recipe for political/economic disaster when one day people start to see the stealth tax eat into their savings.

3) Greenspan is certainly competitive with Arthur Burns when it comes to printing money (and by printing money I don't mean literally).

4) I don't mind the Fed bailing out when they have to - the point all along has been that had the Fed been doing its job properly in the first place then BS would not have either needed to have been bailed out or it would not have been "too big to fail."

[bush_cheney2004]

FDR bailed out people, G Bush is bailing out cronies.

Poppycock....FDR interned 120,000 Japanese Americans and legal residents....hardly a bailout for them! FDR also bailed out the crumbling remnants of your empire....God Save the Queen!

Wouldn't that be Royal Cronies?

Edited April 5, 2008 by bush_cheney2004

[msj]

Just thought I would add John Mauldin's latest letter on this topic.

He's a pretty rational guy despite, some may say, being a Republican supporting hedge fund manager from Texas.

The standard teaser quote from the article is:

Thus it should not come as a surprise to you, gentle reader, that the rules have been changed in much the same way as in 1980. In an opinion letter posted on the SEC website last weekend clarifying how banks are supposed to mark their assets to market prices is this little gem (emphasis mine):

"Fair value assumes the exchange of assets or liabilities in orderly transactions. Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. Only when actual market prices, or relevant observable inputs, are not available is it appropriate for you to use unobservable inputs which reflect your assumptions of what market participants would use in pricing the asset or liability."

(The full letter is at http://www.sec.gov/divisions/corpfin/guida...ueltr0308.htm.)

So, now banks can simply say that the low market prices for assets they hold on their books are actually due to a forced liquidation or distress sale and don't reflect what we believe is the true value of the asset. Therefore we are going to give it a better price based on our models, experience, judgment or whatever. In today's Continuing Crisis, nearly every type of debt and its price can be classified as a forced liquidation or distressed sale.

Does this make the asset any better? Of course not. But it buys time for the bank to raise capital or make enough profits to eventually take whatever losses they must. And who knows, maybe they will get lucky and the price actually rises?

There are two problems with this rule. First, it clearly creates a lack of transparency. The whole reason to require banks to mark their assets to market price rather than mark to model was to provide shareholders and other lenders transparency as to the real capital assets of a bank or company.

Second, can a forced liquidation or distress sale be from a margin call? Obviousy the answer is yes. But as Barry Ritholtz points out, this opens the door for some rather blatant potential manipulation. If a bank makes a margin call to hedge funds or their clients to make the last price of a similar derivative on their own books look like a forced liquidation, do they then get to not have to value the paper at its market price? Is this not an incentive to make margin calls? One price for my customers and a different one for the shareholders? If a hedge fund was forced to sell assets and then they find out that the investment bank is valuing them differently on their books than the price at which they were forced to sell, there will be some very upset managers and investors. Cue the lawyers.

Is this a bad ruling? Of course. But is it maybe necessary? It just might be. My first reaction was that this tells us things are much worse than we think. The struggle to get the mark to market ruling only to abrogate it in certain circumstances less than a year later has to gall a lot of responsible parties. It seems like it is 1980 and Latin America all over again. Let me repeat: The Fed and the Treasury (who oversees the SEC) will do what it takes to keep the game and the system going.

[msj]

Well, I suppose we don't really want to hear those "northeastern liberals" talk about being in a recession.

Maybe we can trust the fed.

Or maybe not (warning long but worthwhile video of Volcker speaking his mind and implicitly criticizing the Fed).

[Dog]

Maybe we can wait until we have a single month of negative growth in the GDP before we start screaming the sky is falling . Maybe we should wait until unemployment is above historic lows . Maybe i will be able to find a truck driver that is willing to start at $ 20 an hour since things are so bad .

[msj]

Maybe we can wait until we have a single month of negative growth in the GDP before we start screaming the sky is falling . Maybe we should wait until unemployment is above historic lows . Maybe i will be able to find a truck driver that is willing to start at $ 20 an hour since things are so bad .

Who said the sky is falling?

We're only talking about a recession not some apocalypse like the Holocaust.

As for wages, well, it all comes down to context doesn't it?

[Dog]

Who said the sky is falling?

We're only talking about a recession not some apocalypse like the Holocaust.

As for wages, well, it all comes down to context doesn't it?

There is no recession and i do not see one coming any time soon in Canada ,hence the sky is falling reference. Some of you would do well to look up and see what a recession is .

[August1991]

As for wages, well, it all comes down to context doesn't it?

Yes, it does.

In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.

That statistic depends critically on how you define "median American family".

In general, on average, Americans are materially better off now than they were 7 years ago.

Did you even read that last link? That is exactly what the argument is - that the Fed has been negligent.

Now we end up paying for this mess while people whine about regulation.

The Fed has been negligent? Listen, you do the job of Fed Chairman for a couple of days and then come back and tell me that they've been negligent.

3) Greenspan is certainly competitive with Arthur Burns when it comes to printing money (and by printing money I don't mean literally).

That graph is meaningless since it's not logarithmic.

----

Since you like to quote aticles, here's one to consider:

Central-bank watchers have been debating whether Ben Bernanke, head of the U.S. Federal Reserve, has been doing the right thing in response to the slowing U.S. economy and the subprime mortgage mess currently wreaking havoc in the financial markets.

On one side are those who think he is not worried enough about inflation and is far too soft when it comes to "bailing out" institutions that should be allowed to fail after making excessively risky bets. On the other side are those who think he should do anything possible to keep financial markets operating smoothly so as to avoid the next Great Depression.

As is often the case in issues of economic policy, the truth is somewhere in between, and we should be thankful that Bernanke is able to find that messy middle ground.

The Montreal Gazette

IMV, Bernanke is a good academic but the Fed requires another type of acumen. We'll see.

Here's another fun link.

Democrats on the Economy in 1996:

“Our economy is the healthiest it has been in three decades.” (President Bill Clinton, State of the Union Address, January 23, 1996)

Democrats on the Economy in 2008:

“The bottom line is that this administration is the owner of the worst jobs record since Herbert Hoover." (Senator Charles Schumer, Press Release, March 7, 2008)

(Unemployment rate in March 1996? 5.5%. Unemployment rate in March 2008? 5.1%)

Edited April 10, 2008 by August1991

[msj]

There is no recession and i do not see one coming any time soon in Canada ,hence the sky is falling reference. Some of you would do well to look up and see what a recession is .

The context I have been talking about is in the US which would have been clear to anyone who bothered to read the links I have posted.

When a recession comes to the US it usually comes to Canada (or at least a good section of Canada like Ontario - which it more or less is starting to do now).

[msj]

Yes, it does.

That statistic depends critically on how you define "median American family".

This has to be the worst piece of sophistry fluff I have ever seen on this board.

The article (if you were to bother to click through to it and read it) clearly states:

In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.

Now go look up how to figure out median and get back to me. [Here's a hint - 1-2-3-4-5 - now guess which number is the median]

In general, on average, Americans are materially better off now than they were 7 years ago.

No, Americans are materially in more debt and have less equity than 7 years ago (well, at least when it comes to home debt and equity).

Oh, yeah, when adjusting for inflation they also are earning slightly less money than they were 7 years ago per the above link.

One shouldn't confuse shiny objects and big homes with being "materially better off."

The Fed has been negligent? Listen, you do the job of Fed Chairman for a couple of days and then come back and tell me that they've been negligent.

There have been many people who have been critical of easy Al for years now and it is getting more noticeable every day.

Even Volcker is getting in on it, and, if you knew anything about Volcker, and had you bothered to watch the video in the link above, then maybe you would have a better understanding of this.

Since you like to quote aticles, here's one to consider:The Montreal Gazette

IMV, Bernanke is a good academic but the Fed requires another type of acumen. We'll see.

Doesn't really say much that I would disagree with and doesn't really say much that hasn't been pointed out by some of my links in my previous posts.

Yeah, Bernanke was right to save BS (which I have agreed to in above posts).

But guess what? Greenspan should have let LTC go.

From the article:

If only a few small firms go down, the system can easily survive. But if large financial firms fail, there is a chance that other large ones will fail, thus threatening the entire system.

That Bernanke chose to do anything in the Bear Stearns situation shows that he clearly cares about stable markets and is worried about the possibility of systemic failure. Yet the precise form of the Fed intervention also shows that he is not prepared to simply "bail out" firms in trouble.

Look like the author is agreeing with me on this one.

Here's another fun link.

(Unemployment rate in March 1996? 5.5%. Unemployment rate in March 2008? 5.1%)

Not sure the point of this.

I'm not interested in some partisan "debate" about Democrats or Republicans.

Both have done a poor job since both have allowed easy Al reckless control over Fed to the point of causing real economic harm to the real American economy.

The question is how long his shadow will be.

-----

Now, on to the graphs needing to be "logarithmic."

Sure, if we were presenting a huge timeline then fine, I would agree.

But we're not talking about going back to Mohammed, Christ, Moses, or even the Big Bang.

We're talking 40ish years.

This is more sophistry on your part.

I don't understand your need to add your little sophistic barbs - the articles I have linked to stand on their own.

Please, stop demonstrating that you don't understand things like "median."

Better yet, stop the "us vs them," Democrat vs Republican, nonsense.

[Jerry J. Fortin]

The Americans are pouring billions of dollars a day out of the country to buy goods produced by others and are spending billions of dollars a months to keep their military ventures in bombs and bullets. Go figure that the people themselves are in debt as well as the nation as a whole. The size of personal and government debt is staggering, and at this point collecting on that debt is becoming more difficult as jobs and disposable family income are taking a negative direction in terms of growth. Growth is what the entire American system is based upon. Without it things will become more complicated than they already are.

The Americans are indeed in great trouble. That does not bode well for the rest of us.

[bush_cheney2004]

The Americans are indeed in great trouble. That does not bode well for the rest of us.

Interesting.....Canada also has a very large national debt but doesn't do these "American" things? The Americans don't worry about what Canadians loan, borrow, or spend.

If it does not "bode well for the rest of us"...what does that say?

[HisSelf]

Interesting.....Canada also has a very large national debt but doesn't do these "American" things? The Americans don't worry about what Canadians loan, borrow, or spend.

If it does not "bode well for the rest of us"...what does that say?

Well Canada has a bank account. You, on the other hand, are living on credit. The fact that you can't see this goes straight to the heart of your creds.

Dick Cheney and George Bush (notice the order) screwed you royally. Suck it up. It just ain't gonna get any better. You were sleeping on the woodpile when it happened, and you missed the call for dinner. Turkey with all the fixins.... Too bad for you.

Loser.

[bush_cheney2004]

Well Canada has a bank account. You, on the other hand, are living on credit. The fact that you can't see this goes straight to the heart of your creds.

Dick Cheney and George Bush (notice the order) screwed you royally. Suck it up. It just ain't gonna get any better. You were sleeping on the woodpile when it happened, and you missed the call for dinner. Turkey with all the fixins.... Too bad for you.

Loser.

That's what people like you said during the 1980's as well....Eastern Europe is glad they were wrong. Canada's economy is a pimple on a bull's ass.

Since you want to play, it must suck to go through your whole life hearing and reading about your currency valuations in dollars "U.S."

Too bad for you.