Economy-Wise, The Great Experiment Seems to Be Working 40 comments
James Picerno
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One day we'll look back on 2009 and wonder what all the confusion was about. All will become clear and we'll know when the recession ended, when the bull market began anew and how and why the cycle turned. Meanwhile, we're wondering if the data du jour can be trusted.
Judging by the numbers of late, clarity is upon us, or so it seems. Income and spending are up among consumers. What's not to like? If this keeps up, we'll be back to the good old days by, oh, let's say the third week of September.
As for what we know today, disposable personal income jumped 1.6% last month on a seasonally adjusted basis, the Bureau of Economic Analysis reports this morning. That's the biggest monthly gain in a year. Not bad for what we've repeatedly been told is the deepest recession since the Great Depression.
That's only half the fun. The government also advises that personal consumption expenditures gained 0.2% in May, the best since February.
Is it a miracle? No, it's just your tax dollars at work. As the BEA noted in its press release today, "the pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009." In other words, the guys and gals in Washington continue to print money and distribute it, creating a revival that otherwise doesn't exist. The extent of the government's intervention can be surmised once we recognize that wages and salaries actually fell by 0.1% last month.
There are two ways to interpret the news. The optimistic view is that the government's stimulus efforts will steady an otherwise anxious consumer. By putting more money into his pocket, the incentive to spend is heightened and the odds improved that a return to old consumption habits is near. The government payments are a bridge until the day when the private sector can resume more of the burden of financing consumption.
The darker view is that government-financed consumption is a tenuous lifeline that's a pale replacement for the real McCoy. As such, the burning question is one of asking when the labor market will revive? By that standard, there' still reason to be cautious about the remainder of 2009. The recession may be technically over, as we've discussed. But even making that leap of faith offers no short cut to good times.
The job market, after all, is typically the last to show convincing signs of recovery. For that reason, the National Bureau of Economic Research shuns employment trends for putting official dates on business cycle turning points. Minting new jobs, in other words, is usually the response to other economic stimuli. Conventional recoveries, then, don't begin with the labor market. Then again, this isn't a conventional business cycle.
Clearly, the government has moved heaven and earth to keep the economy afloat. Ours is an era of triumph for public-financed consumption. In both magnitude and timeliness, no government has ever acted with greater speed and depth in keeping the forces of contraction at bay. But that raises a question of whether Washington can keep the engineered consumption going long enough to wait for a bonafide economic recovery. We'll have an answer, perhaps soon. But at the moment we're still knee-deep in the first great macroeconomic experiment of the 21st century.
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This article has 40 comments:
Long guns, gold, and canned goods. And if you think this is a farfetched view -- I beg you to counter my points. Really.
The transition from now to then is going to be painful, and we don't know how long it will take or what it will ultimately look like. The ways we have measured economic activity in the past - things like housing starts and retail sales - don't reveal what we need for real prosperity in the new economy.
Government intervention will be successful if it softens the pain enough so that we don't experience wide-spread civil disorder during this transition.
It's painful and it's ugly. But we're not going back to the past.
if you look at the data, what hit was the American Recovery and Reinvestment Act of 2009. Provisions of the Act reduced personal current taxes and increased government social benefit payments. Excluding these special factors income was essentially unchanged.
there is actually three ways to look at the economic data - with rose colored glasses, with blinders, or with magnifying glasses to examine what the data is telling you. if you look at the headlines, you are learning nothing.
The economy is missing something: disposable income. We can make more toasters, washing machines, automobiles, computers etc. There simply is not a middle class there with money in its pocket to consume.
Re: the rest of your commentary: you need to expand your horizons are far as sources of information. You are simply repeating fox "news" talking points. We know: Dems are running things now and are, of course, godless marxists and because of this dire situation you need to stockpile guns, ammo and food for the coming armageddon. We get it.
On Jun 26 02:40 PM Socialism cannot compete! wrote:
> "Engineered consumption" is the least of it! It's basically a mass
> transfer of economic activity from the private to public sector.
> We all know that doesn't easily reverse. We are in 1929 (or worse)
> as far as the outlook economically. Politically, it's even worse
> -- Liberty has been lost that will not be regained but dearly...and
> it is a confrontation that is becoming unavoidable. I wish it weren't
> so. But the Hegelian-Marxists first robbed the American people of
> God and morals, and that led to self-insufficiency and therefore
> dependence on government --> stage set for neo-Marxist totalitarianist
> police and sugar-daddy state. We now exist to serve the state, instead
> of having a small, limited government that exists to serve us. THAT
> DOG WON'T HUNT in the long haul -- and we will be lucky if we can
> get out of the mess without serious civil strife.
>
> Long guns, gold, and canned goods. And if you think this is a farfetched
> view -- I beg you to counter my points. Really.
On Jun 26 07:19 PM no more bleeding wrote:
>
> How can it be that these banks are not just swimming in cash. Borrow
> at 0% and loan at 5-8% is just like printing money.
No one with good credit wants to borrow. No one with bad credit gets loans anymore. The banks may in fact be drowning in the recently printed cash, but it's got velocity = 0 , which leads to growth = 0. Or growth <0 after inflation is factored in.
Other than the GM takeover. No one on the Republican side of the table wanted to tackle that.
Some data points, over 32% off all Alt-A mortgages are 60+ days delinquent, Option Arms are around the same, Banks are so overwhelmed with foreclosed houses, some have stopped foreclosing on owners in some cases, www.washingtonpost.com....
Home Equity loans are a special case, it is NOT UNCOMMON to look at structured deals and see delinquencies 60+ days of 60% and more (Trillions of this paper has been securitized and sits on banks balance sheets, pension funds, bond funds) .
Our Government has managed to transfer Hundreds of Billions of Taxpayer wealth to the people that caused this mess, yet has done virtually nothing to address the problem.
All of your data is noise since the cause of this problem is growing and getting worse, just getting less notice in the media.
I'm not so sure about this. Today is 130 days since Obama signed the $787B stimulus bill. But so far only only 6.7% of that has been "paid out." And most of that 6.7 is probably sitting on some lower-level bureaucrat's desk for another 3-4 months or more.
What looks like the result of stimulus money is more likely the result of "green shoots" propaganda and wishful thinking.
Click on his "comments" tab - he will have spammed the same two "master message" on a bunch of other blogs.
You comments are good but he is already long gone and hard to find, no doubt with another new identity.
On Jun 27 12:32 AM RatWatcher wrote:
>
On Jun 27 09:44 AM Ferdinand E. Banks wrote:
> Better a so-called gamble by Obama and team than one by George W.
> and his friends.
The middle class is being bled to death to either feed the rapacious appetite of the McMansion upper class or to feed the nanny state care of the lower entitlement classes.
Politics is the distraction.
This house of cards will collapse and it will be ugly.
When it happens, you would be better off not living in a city and having a gun to protect yourself, some gold to buy or bribe, and some water and canned goods to keep yourself alive.
If you say it will never happen, reference the history of humanity. We are no different than our ancestors, we just have fancier tools and toys.
On Jun 26 10:31 PM cross wrote:
> It's difficult to counter your "points" because they are entirely
> a collection of opinions. I do know that you are offering a contradiction
> right off asserting that economic activity is being "transferred"
> from private to public and then stating that we are in the worst
> crisis since 1929. Economic activity that is not occurring cannot
> be "transferred". The federal government is stepping in and providing
> dollars for infrastructure creation/improvement that has long been
> deferred and in the process creating jobs. They are providing money
> to states to halt layoffs of public sector employees: nurses, police,
> fire, teachers who would lose their positions as a result of state
> RIF decisions.
> The economy is missing something: disposable income. We can make
> more toasters, washing machines, automobiles, computers etc. There
> simply is not a middle class there with money in its pocket to consume.
>
> Re: the rest of your commentary: you need to expand your horizons
> are far as sources of information. You are simply repeating fox "news"
> talking points. We know: Dems are running things now and are, of
> course, godless marxists and because of this dire situation you need
> to stockpile guns, ammo and food for the coming armageddon. We get
> it.
I've seen dozens and dozens of these projects from northern FL up Rte 95 to Vermont, and on some of the major highways in northern New England, and they are all virtually the same - road paving and painting/refinishing guard rails and bridges... merely the typical springtime repair of potholes and cracks caused by freezes etc. I don't recall one single instance where I observed any type of structural rehabilitation or major new construction - it reminds me of the concept of "slapping lipstick on a pig" for fast cosmetic improvements while not tackling the underlying problem of America's failing and disintegrating infrastructure, especially with regard to bridges.
The good news is, this work gets stimulus money into the hands of people who will (hopefully) spend some of it, although how much will just stay in their bank accounts remains the $785 Billion question, and I'm not sure how much this will affect the critical issue of velocity of money.
The bad news is, we will probably not see very much of the type of MAJOR work on repairing/replacing broken down infrastructure that America needs so badly... the bigger projects that would involve significant design, architectural, planning and construction initiatives, while slower to evolve of course, would no doubt inject more dollars into many more conduits and cause more velocity of money in the intermediate term... JMHO.
As with so much of the various iterations of government stimulus we have seen, it may be that once again we are just kicking the can down the road to let our children and grandchildren worry about fixing a terribly flawed and outdated system because we don't have the moral fiber to attack the problem head on and be RESPONSIBLE for our rather myopic and short term actions.
So we become rigidly tactical when we should be thinking more strategically... and thus will be faced with the same problems not too many years down the road.
I just love an optimist, being one myself. However, a dash of pragmatic and critical thought may also be useful.
Savings last month, 5.6%, this month 6.9%. De-leveraging continuing, but this time using our tax dollars to uncrease savings after basic necessities are covered.
Note that the trend in savings is up. Self-preservation will stymie the inept attempts to get the general populace to again drink of the wine that almost killed him, for a long while at least.
I saw in my morning paper the county unemployment just hit an official 12.2%. Since the *real* unemployment is undoubtedly is higher and still trending so, "the government has moved heaven and earth to keep the economy afloat".
Makes no difference because "Resistance is Futile".
"In both magnitude and timeliness, no government has ever acted with greater speed and depth in keeping the forces of contraction at bay".
RAH, RAH, SIS-BOOM-BAH!
HardToLove
On Jun 26 03:45 PM Larrysyr wrote:
><snip>
> It's painful and it's ugly. But we're not going back to the past.
We should go back to the past, just not the recent one. Many, many good things reside there, as well as many bad things. But the "goodest" was the period of constitutionally authorized government issued money and *no* federal reserve. I've posted some links to informative information in another comment and don't want to spam, so I'll just say look for my other comments if you have an interest.
HardToLove
How will you square that with what the other cheerleaders are saying, "Jobless Recovery"? If they are correct, whatever measure is used to show that everything's good now will have to ignore the job market entirely.
And if "Jobless Recovery" is really what will happen, who will be spending the money that creates this "Jobless Recovery"? After all for every seller, there must be a counter-party.
In my opinion, and later voiced by Pimco's Mohammad Al-HowDoYouSpellIt, unemployment in *this* scenario is a leading indicator.
If true, keep the cheer leading going - we mustn't let morale sag among the clueless victims.
HardToLove
Are you sure we don't have W's third term in Obama?
On Jun 27 09:44 AM Ferdinand E. Banks wrote:
> Better a so-called gamble by Obama and team than one by George W.
> and his friends.
On Jun 27 01:07 PM herbert hoover wrote:
> Let's see: Wall Streeters get bailed out, the president signs an
> executive order allowing "indefinite detentions, Obama's DOJ files
> suit to support DOMA. market manipulation everyday on the exchanges
> will the SEC sits on its hand and oil is at it's yearly peak. <br/>
>
> Are you sure we don't have W's third term in Obama?
Do you keep any of that money in a bank?
Would you be so foolish as to keep your money in a bank that was not FDIC insured?
Should the federal government not stand behind bank deposits? (Yes, I know that the FDIC is a corporation that is funded by banks but ultimately it's taxpayers that stand behind the banking system.)
In all likelyhood the federal government is going to reap a rich return out of monies provided to support the banking system. Some of it has come back in the last few weeks, with interest.
Re: the bailout of the American auto industry. We do have a past bailout of Chrysler as a guide, admittedly much smaller in scale, even adjusting for inflation. All monies were repaid with interest. I think it was a good move to get the industry through a rough time. At current rates of sales 9.5-10.0 M. units a year it would take @ 27 years to replace the U.S. auto fleet; a stat that obviously implies that units sold will go higher in the future (as even the cars I own do not last a quarter century!) Fed help will bridge this difficult time and may just save the industry.
Everyone is focused on the money being borrowed and spent by the federal government but some attention should be given to goods NOT being produced by the private sector, not being consumed here at home and a GDP that is strongly contracting. I think Obama is getting it right in the response of the feds.
Having said all this, it is scary what is going on and I certainly understand people's concerns . . . but, it is a big ship of state (private and public economy) and it takes time to turn it in a different direction (from recession to expansion).
If people are asking essentially: 'It's been six months, how come things aren't fixed?', they don't have a clear understanding of how bad the underlying problems are. We do have one undeniable truth working for us and that is: stuff gets old and needs to be replaced. That, along with all the government money being poured in the economy portends a pretty healthy recovery in the next few years.
Also: i never thought the "Tim McVeigh school of thought" would gain much of a following, but more and more I'm reading about the need for people to own guns, ammo, foodstocks. What is that about?
On Jun 27 11:25 AM ebworthen wrote:
> Bailing out banks and insurers and auto makers with taxpayer dollars
> is this kind of transfer of wealth: individual rights, liberties,
> wealth to corporate interests, hegemony, and profit.
>
> The middle class is being bled to death to either feed the rapacious
> appetite of the McMansion upper class or to feed the nanny state
> care of the lower entitlement classes.
>
> Politics is the distraction.
>
> This house of cards will collapse and it will be ugly.
>
> When it happens, you would be better off not living in a city and
> having a gun to protect yourself, some gold to buy or bribe, and
> some water and canned goods to keep yourself alive.
>
> If you say it will never happen, reference the history of humanity.
> We are no different than our ancestors, we just have fancier tools
> and toys.
You cannot get something for nothing. This form of socialist solution to our problems always winds up the same way...these solutions always end badly as we wind up running out of other peoples money.
This is a band aid and a bad one at that. Wait till the real recession starts as the trillions of bad paper manifests itself such as the Alt-A and Option Arm's resets along with who knows how much commercial paper. The big banks only have 4 percent equity to cover and this is insufficient to cover all the bad paper they are holding especially the level 3 stuff. Level 3 is off balance sheet for the simple reason that they don't kow how to value it so it gets by the accounting screen. From what I hear, these assets are astounding as to their nominal value.
WE are not out of the woods, no, we are running around in circles throwing monkey wrenches at anything that moves. Obama is an idealistic socialist run amok. God help us.
Where is all this transparency we were told about coming from the great Messiah? None of the bank bail out money has been accounted for and no inkling about the level three assets.
This author lives on a different planet obviously.
I see a light at the end of the tunnel. Unfortunately, it is an oncoming train.
On Jun 27 03:03 PM TAS wrote:
> Am I missing something here?
>
> I see a light at the end of the tunnel. Unfortunately, it is an oncoming
> train.
BUFFETT: Well, they're doing thing but they take awhile to have an effect. They're doing things on a lot of fronts. But you can't produce a baby in one month by getting nine women pregnant, you know. (Laughs.) It just doesn't work that way. So you can be throwing things at the economy and they will have an impact, but they haven't had much impact yet. And unemployment will go high and it will lag the turn up of the economy.
BUFFETT: Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime. We've taken action in fighting the economic war that we face that certainly sows the seeds of substantial inflation down the road. Not in the next six months or year or two years, but we have done things that raise the probability of really high rates of inflation at some point. We're flooding the system with dollars. We're monitizing debt. We're doing all the things that lead to that. Now those are appropriate things to do. Our economy was like a fellow going down in quicksand last September and up to his shoulders, and somebody tosses a rope. You can tie it around and yank him out with a truck, you may dislocate a couple of shoulders but it's still pays to get him out. And we may dislocate the economy in certain ways. There's really no choice. But we could see a lot of inflation.
www.cnbc.com/id/31526815/
> Am I missing something here?
Yes.
>
> I see a light at the end of the tunnel. Unfortunately, it is an oncoming
> train.
What you missed is that the system controls have failed, just like the one that killed 6(?) people last week.
But your vision is obviously still excellent!
HardToLove
> This is an observation from someone who traveled up the east coast
> in late April and has taken several long trips around northern New
> England since, and it involves the projects I've observed on the
> interstate highways with the 2009 ARRA, at least in my little corner
> of the world.
>
> I've seen dozens and dozens of these projects from northern FL up
> Rte 95 to Vermont, and on some of the major highways in northern
> New England, and they are all virtually the same - road paving and
> painting/refinishing guard rails and bridges... merely the typical
> springtime repair of potholes and cracks caused by freezes etc. I
> don't recall one single instance where I observed any type of structural
> rehabilitation or major new construction - it reminds me of the concept
> of "slapping lipstick on a pig" for fast cosmetic improvements while
> not tackling the underlying problem of America's failing and disintegrating
> infrastructure, especially with regard to bridges.
>
> The good news is, this work gets stimulus money into the hands of
> people who will (hopefully) spend some of it, although how much will
> just stay in their bank accounts remains the $785 Billion question,
According to the latest, savings rate is now 6.9%, up from 5.6% (?) last month, a 23.1%$ increase in the rate. Compounding that, in 6 months it could be 24% (check my math - I used the bc desk calculator on my 'puter).
Of course, that rate can't be sustainable, ... can it?
> and I'm not sure how much this will affect the critical issue of
> velocity of money.
Should have a big affect. Next month might be 8.4%
>
> The bad news is, we will probably not see very much of the type of
> MAJOR work on repairing/replacing broken down infrastructure that
> America needs so badly... the bigger projects that would involve
> significant design, architectural, planning and construction initiatives,
One good note: apparently some of the important infrastructure things are to be attempted, but the house is scrambling to find $50B without raising taxes. It seems that "Superman" can leap tall buildings in a single bound, is faster than a speeding bullet and fly higher ... just not all at the same time! :-))
He might have to scale something or another back after figuring what's really important to the American people beside posturing.
> while slower to evolve of course, would no doubt inject more dollars
> into many more conduits and cause more velocity of money in the intermediate
> term... JMHO.
Be careful what you (we) wish for. When that velocity shows its head, it may accelerate at >= 1G. If we can keep it accelerating slowly enough, the Fed will have time to at least take a stab at stopping the almost-certain runaway inflation.
>
> As with so much of the various iterations of government stimulus
> we have seen, it may be that once again we are just kicking the can
> down the road to let our children and grandchildren worry about fixing
> a terribly flawed and outdated system because we don't have the moral
> fiber to attack the problem head on and be RESPONSIBLE for our rather
> myopic and short term actions.
>
> So we become rigidly tactical when we should be thinking more strategically...
> and thus will be faced with the same problems not too many years
> down the road.
Ah, it's the old "its hard to find the plug to drain the swamp when the alligators are snapping at your ass". It does taker some courage, a little quick evaluation of the odds, a strategy and tactics, quick action.
How do you score our congress on those things?
HardToLove
Memo: have second remaining brain cell checked.
HardToLove
><snip>
> Where is all this transparency we were told about coming from the
> great Messiah? None of the bank bail out money has been accounted
> for and no inkling about the level three assets.
> <snip>
Not from "The Chosen One", but it is coming.
HR 1207 calls for a complete audit of the Fed. 240+(?) co-sponsors so far. Gaining support in the Senate.
Call your congress person and tell them to make sure it gets done. Some of the Ron Paul sites have a list of the reps that are signed on already.
HardToLove
The vast majority of experiments do not turn out the way they were expected to.
It is true, the experiment is as ill fated as one can imagine. The results will be bitter and shocking (how could we have missed that jobs matter?) and quickly covered up with yet another charade by the Keynesian wizards from Chicago, UCB and the former President of Harvard. They will difficult in recall in retrospect to remember their faces as they sing: "We will move you left eye brow over your right ear, and everything will be better".
The end will be when we can no longer believe six impossible things before breakfast. Then we will ask: Who was that man who came in a horse and left on an ass?
MICHAEL MANDEL, CHIEF ECONOMIST, BUSINESSWEEK:
The percentage of 25 to 29 year olds with a college degree is lower now than it was in 2000. The percentage of high school graduates going to four-year colleges is lower as well. . . .
Since 2000, real earnings for college-educated workers have been stagnant, perhaps because of competition from overseas. Meanwhile tuition has been going up and up and up, almost three times as fast as the overall rate of inflation.
www.pbs.org/nbr/site/o.../
So far it's not, so the great experiment appears to be a failure so far.
Part of the reason for this (& for the broader inadequacy of the Obama economic policy) is that the Administration's economic policies have been driven more by political agendas than the obviously serious economic one.
If FDR (or Volcker) were in charge, the banks would be getting hammered with constraints, not massive recipients of taxpayer money. Moreover, the American public--especially the growing number of unemployed--would be receiving much larger sums through a gaggle of alphabet soup organizations--WPA, CCC, NIRA, etc.--that could stimulate the economy.
If Herbert Hoover were in charge, well, we'd be taking a different route all together.
Instead Obama is pursuing economic policies that are neither fish nor fowl--and they are not, and probably will not, succeed. They are based instead on lobbying interests in protecting the status quo in the financial sector (which drove us into this hellhole)--increasing financial aid, minimal regulatory reform, federal guarantees--rather than focusing on a stable, sound, and well-regulated national and international financial system.
I expect the patient to worsen in the next year unless the medicine changes substantially in scope and direction.
If that attitude is pervasive, and I suspect it is, the near-term pain-relief is not as important as "carpe diem" for their long-term social agenda.
HardToLove
On Jun 28 11:12 AM markfl wrote:
> The smartest thing they could have done would have been to break
> ground NOW on about $500 billion in badly needed state infrastructure
> projects funded via federal stimulus. Roads, bridges, waterways,
> aqueducts, levees, etc. They missed the mutiplier effect and are
> missing out on the warm weather needed for such activities. The sluggishness
> of the stimulus may well cause the economy to stall again. Traditionally,
> home construction is the money accelerator that builds GDP. With
> 10 months of accrued home inventory, there's not much room to grow
> GDP with home buliding, and there's excess capacity in commercial
> real estate as well.