Recession

[August1991]

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.

I think we generally agree on many issues (although I strongly disagree that Greenspan was loose with money - and I think the CPI is an accurate measure of inflation... )

Logarithmic? I don't mean to be pedantic but for most macro variables over time periods of more than 20 years (such as money supply in the Wikipedia article), anything but a logarithmic scale is misleading. The numbers grow exponentially which means that curve is going to shoot up like a rocket following, uh, an exponential trajectory.

Median? I said "median family income". How is income defined? Is it disposable or gross, before or after transfers? How is family defined? Is it household? I have no problem with median but it's only the start of the analysis. (Incomes are usually divided by quintile... )

If Mom, Dad and their adult son live together and work at $50,000/year jobs, "family" income is $150,000. If the parents divorce and the son moves out, "family" income is now $50,000. According to the stats provided, the economy would be in crisis.

Have American families changed in the past 8 years? Uh, yeah I think so.

When it comes to economic stats of the sort, I always prefer real GDP per capita. Or, to finish on a partisan note, I also like Ronald Reagan's famous question twice asked: "Are you better off now than you were four years ago?"

[Jerry J. Fortin]

Remember these words you read here this night;

It will come to pass that the mighty few shall fall, and the rise of the many will eclipse all that has gone before.

[bush_cheney2004]

...When it comes to economic stats of the sort, I always prefer real GDP per capita. Or, to finish on a partisan note, I also like Ronald Reagan's famous question twice asked: "Are you better off now than you were four years ago?"

Indeed.....now it is a question of 42" or 60" plasma/LCD HDTV!

[Jerry J. Fortin]

Indeed.....now it is a question of 42" or 60" plasma/LCD HDTV!

Materialism will be the cause of the collapse.

[bush_cheney2004]

Materialism will be the cause of the collapse.

Gosh, I hope so. Anything else would be quite boring.

We invented eBay just to keep all that stuff circulating!

Edited April 12, 2008 by bush_cheney2004

[August1991]

Materialism will be the cause of the collapse.

If greed is the scourge you pretend, then life would have disappeared from this planet long ago.

I think it's a fair bet that materialism aids rather than hinders human civilization. Think about it.

[msj]

Deleted for now.

Edited April 12, 2008 by msj

[bush_cheney2004]

We've already seen this movie...several times:

...from August 1953....

Are Americans In Over Their Heads?

...But not so many worry over a far bigger U.S. debt: the money borrowed by individuals and corporations (which, incidentally, supports the greatest peacetime boom in history). For houses alone, Americans have gone $84 billion into debt; to expand and modernize, industry has borrowed $200 billion. Altogether, while the national debt has remained near its wartime peak since World War II, private and corporate debt has more than doubled, to a record $330 billion, or $4,000 for every man, woman and child in the country. Are Americans getting in over their heads? Will the boom collapse under the weight of private credit as it did in 1929?

http://www.time.com/time/magazine/article/...22938-1,00.html

[msj]

August, we will have to just agree to disagree on this.

I really don't think the statistics support your conclusion and neither does public sentiment.

Sure, we can disagree over the measurement of inflation although I note that there are many, including Fed board members, who question the methodology.

Although, I should warn you, the above linked article mentions Rogoff who, I'm sure, you think is some kind of evil northeastern neo-liberal and, therefore, the article can be thrown out on that basis. (sarcasm that is)

Ok, lets keep this discussion moving.

Volcker had some interesting things to say back in 2005 (video link - note Windows media player file).

Standard teaser quote per Calculated risk:

A few selected excerpts:

"Altogether, the circumstances seem as dangerous and intractable as I can remember."

"Boomers are spending like there is no tomorrow."

"Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."

"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."

"What I'm really talking about boils down to the oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline."

Edited to put in proper link to public sentiment in the US.

Edited April 12, 2008 by msj

[socred]

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.

Everyone is "living on credit", because all money is created as a debt.

[msj]

Not that I particularly want to get into an argument over the details of measuring employment, unemployment etc...

Nor am I interested in the silly (to be polite) argument over jobs under Republican or Democrat Presidents'/Congress'/Senate's.

Nevertheless, this article is interesting:

the long version

the shorter summarized version

[msj]

In a post a few days ago I linked to a current video of Volcker criticizing the Fed, albeit implicitly.

At the very end of that video he responds to a question regarding whether there is going to be a US dollar crisis and what it would look like.

Volcker responded: We're already in one.

Now it seems that the G7 agrees.

[sharkman]

In a post a few days ago I linked to a current video of Volcker criticizing the Fed, albeit implicitly.

At the very end of that video he responds to a question regarding whether there is going to be a US dollar crisis and what it would look like.

Volcker responded: We're already in one.

Now it seems that the G7 agrees.

Well then it doesn't look very scary yet. I hope it's not the snowball at the early stage of its decent...

[msj]

Well, another week and another outlook from John Mauldin and company:

This week's Outside the Box is from my friends at Hoisington Management. While somewhat technical, they make the case that a slowdown in consumer spending is inevitable. This is worth taking some time and thinking about. Quoting: "This means that consumer spending increases should be approximately zero for the next three years. Further exacerbating the problem is the personal saving rate which declined from 5.2% in the decade of the 1990s to average 1.3% in the last seven years, and now stands at 0.3%. Should declining wealth, rising unemployment and poor economic conditions cause consumers to begin to save and lift the rate back to the 1.3% average of the past seven years, real consumer spending would experience a multi-year contraction."

If they are right, and the evidence of their research is compelling, then we are in for a much tougher time than the recent stock market rallies suggest. The stock market is not always a leading indicator. This week's letter suggests that businesses that depend on the US consumer for growth may be in trouble.

John Mauldin, Editor

Outside the Box

No, this isn't doom and gloom which would be found here.

[Qwerty]

In the last 12 months some people have speculated about a recession starting to happen. Until the last few weeks, it wasn't something people thought was imminent. A week or so ago, the markets in the U.S. and Canada were hitting record highs. The Canadian dollar seemed unstoppable. And sales, at least in Canada, were booming all over.

Confidence seems to have evaporated in the market. Central banks are flooding the market with liquidity but big companies even today are saying they don't have access to capital. The sub-prime mortgage has imploded in the U.S. and consumers and lenders are both hurting. Walk-Mart and Home Depot have put out sales warnings, the first of many companies that are saying they are seeing signs of a slowdown.

Everything goes in cycles and things have been sizzling along in North America for quite some time. Energy consumption might take some of the sting out of recession in Canada but there is no doubt that every market could feel the pinch.

As summer winds down and the people return to the work and school in the fall, I think the market will start showing more of a trend as to where it is headed. At the moment, it does start to look that a major correction is imminent.

We have a bit of a different situation in the way that we deal with our banks here in Canada as well though so that will better insulate us against a fluctuation in the market like we are seeing now. Not to mention the BoC breaking the rise of the dollar to keep inflation down.

I have no doubt that we will feel a pinch but ti will be just that, a pinch. We won't have the housing crisis like the are currently experiencing south of the border where homes are going underwater causing people to walk away from them. It just won't happen.

Canada has always been a strong exporter and that will continue to buoy our markets here imho as you have pointed out.

Pundits are claiming that the recession will last anywhere from a couple more months to a couple more years by Dr. Doom. I'm sure you've heard much of the same.

It has been and will continue to be interesting to watch though.

[msj]

We have a bit of a different situation in the way that we deal with our banks here in Canada as well though so that will better insulate us against a fluctuation in the market like we are seeing now. Not to mention the BoC breaking the rise of the dollar to keep inflation down.

I have no doubt that we will feel a pinch but ti will be just that, a pinch. We won't have the housing crisis like the are currently experiencing south of the border where homes are going underwater causing people to walk away from them. It just won't happen.

Canada has always been a strong exporter and that will continue to buoy our markets here imho as you have pointed out.

Pundits are claiming that the recession will last anywhere from a couple more months to a couple more years by Dr. Doom. I'm sure you've heard much of the same.

It has been and will continue to be interesting to watch though.

Well, it looks like the Bank of Canada disagrees with the decoupling argument:

http://www.globeinvestor.com/servlet/story...rt0424/GIStory/

For Canada, the U.S. recession means exports will continue to plunge, and the credit crunch will take an increasingly large bite out of household and business investment, the bank said.

I think we have a recession in Ontario which started early this year while the West does okay thanks to commodity prices.

Overall, Canada may not go into recession but that's what happens when you average a decline in one part of the country with modest growth in another part.

[msj]

Well, it appears that more and more people are accepting the reality that the US is in recession no matter what euphemisms are used.

I see that even the mainstream press is starting to realize that the government has been distorting reality slowly but surely. See this PDF.

And don't think that some of these methods to some extent haven't been adopted in Canada. Last year I asked the chief economist for BC credit unions about inflation measurement and he explained how Canada's system is similar to the US.

Of course, rather than deal with the substance of the article, I'm sure someone will criticize the above article for being in "liberal" Harper's magazine.

[August1991]

Last year I asked the chief economist for BC credit unions about inflation measurement and he explained how Canada's system is similar to the US.

msj once again argues that the CPI doesn't measure inflation - proving once again that msj is a crank.

Reccession? The TSX crosses (again) 14000. If this is a recession, I'd like a depression please - but with less angst.

Edited April 26, 2008 by August1991

[msj]

msj once again argues that the CPI doesn't measure inflation - proving once again that msj is a crank.

Reccession? The TSX crosses (again) 14000. If this is a recession, I'd like a depression please - but with less angst.

Stop creating straw man arguments.

Of course the CPI measures inflation.

It just doesn't do an accurate job of it.

Which, of course, you would understand if you cared to read the 6 page article I linked to.

But, oh no, couldn't actually read any of that when you can go around using the ad hominem attack instead.....

Oh, and of course the TSX is up - thanks to higher inflation in commodities and energy.

[msj]

Thanks to John Mauldin I want to go back to an earlier post where I stated this:

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

The key words were "and by printing money I don't mean literally" which was a reference to the velocity of money.

John Mauldin has a good article on this today which really should be read before anyone wishes to toss around insults.

[August1991]

John Mauldin has a good article on this today which really should be read before anyone wishes to toss around insults.

John Mauldin has been predicting a bear market for several years now. If you consistently predict a bear market, you'll eventually be right.

The linked article concerns the velocity of M2. It rightly points out that this particular velocity has changed because of financial innovations. Then the article draws a strange conclusion that we are heading for a recession and a bear market.

If you want and you look hard enough, you can evidence of almost anything in any thing.

[msj]

John Mauldin has been predicting a bear market for several years now. If you consistently predict a bear market, you'll eventually be right.

The linked article concerns the velocity of M2. It rightly points out that this particular velocity has changed because of financial innovations. Then the article draws a strange conclusion that we are heading for a recession and a bear market.

Not a very convincing way to make a point.

First lets claim Mauldin has been predicting a bear market without including all the context surrounding his "muddle through" argument.

Then, you turn around to agree with him only to not understand his point that part of the reason we are heading for a recession is related to the recent decrease in the velocity of money.

What you fail to understand from phrases like " a slowdown in velocity" and "Now, why is the velocity of money slowing down?" is what is strange.

[Edited again: in hindsight this is not so strange. In fact it is perfectly rational - August, at best, skims the articles I post and, rather than bringing a skeptical mind to the discussion, brings his preconceived notions into the argument. This certainly explains his post a couple above regarding CPI measuring inflation. It (the skimming) would also clearly explain his misunderstanding of Mauldin's velocity of money article.]

If you want and you look hard enough, you can evidence of almost anything in any thing.

Yeah, but that's the point - people are looking for real causes of the recession so that we can learn from it and hopefully not let these mistakes come back again.

Edited: my initial response was too short so I have edited it for clarity

Edited April 27, 2008 by msj

[msj]

Well, I see that the mainstream press really has woken up when it comes to measuring inflation: The Fed's inflation gauge isn't realistic, critics say

Neat little image from the article: GIF

The interesting thing is is that if the US was still measuring inflation like they did back in the 1980's then the Fed funds rate would probably be closer to 12% rather than 2% right now. Remember, Canada's inflation measurements are similar to the US'.

Just imagine the downturn the US (and Canada, for that matter) would experience if the Fed focused on inflation rather than bailing out the credit crisis (granted, thanks to Fed incompetence it is necessary to bail out the very crisis the Fed helped create - as already argued above).

[bush_cheney2004]

The numbers are in for Q1 2008, and sorry folks....no recession yet:

Wednesday morning, the Bureau of Economic Analysis provided an informed summary of this data with its advance estimates of gross domestic product for the first quarter of 2008. Its report has GDP growing at 0.6%, the same as the last quarter of 2007.

Now we know that these numbers can be revised up or down after the fact, but so far no US recession....yet.

http://www.forbes.com/home/2008/04/30/econ...z_0430econ.html

[msj]

The numbers are in for Q1 2008, and sorry folks....no recession yet:

Wednesday morning, the Bureau of Economic Analysis provided an informed summary of this data with its advance estimates of gross domestic product for the first quarter of 2008. Its report has GDP growing at 0.6%, the same as the last quarter of 2007.

Now we know that these numbers can be revised up or down after the fact, but so far no US recession....yet.

http://www.forbes.com/home/2008/04/30/econ...z_0430econ.html

Sure, if you're a headline reading, detail avoiding, government stats believing, kind of person then it doesn't look so bad.

Adjust the numbers for a few things though:

1) Inflation is understated - as already pointed out in numerous links above. Even Fed board members believe that the standard measurement understates inflation.

So, if we learn later on "that inflation had actually been a half point higher than first thought" like Fisher claims about the period back in 2002, then this would no doubt impact real GDP.

2) Inventory build up makes up 0.8% points. Going forward that is likely going to reverse itself to some degree. While it is good for the prior quarter, it will likely rear its ugly head in the next quarter (or two or three) since personal consumption on goods is down (services are still up).

3) This is an advance reading. Most advance readings are revised downwards which will likely happen by June 30.

4) Of course, with "real" GDP growth at an annualized rate of 0.6% and with US population growth somewhere between 1% and 1.5% annual rate, it is clear that even when using conventional advance estimates that the US is in a recession on a per capita basis.