Edward Harrison

Obama's Fears of a Double Dip Recession Are Nonsense

I don't know if you always go by Mr. Ed, Jr,. but son, that's a name I like!

There is some serious political posturing going on here, especally as it relates to the Japanese and Chinese Obama just visited. But, I have been on this issue for a year now and I do believe he is telling us what he truly believes.

The question is: what is he actually going to do policy-wise? The guy is all over the map, looking to please a wide-range of political constituencies, so you really never know what you're going to get. What ever it is, I am betting it will be based more on political calculation than real desire for meaningful policy because that's how I have come to see the Administration in their year in office.


On Nov 19 09:59 PM Mr. Ed, Jr. wrote:

> "Barack Obama has now come clean about his thinking on why his administration
> has decided to focus first on reducing the deficit and next on jobs.
> He fears a double-dip recession will occur if foreigners lose confidence
> in the U.S. dollar, causing interest rates to spike."
>
> Whatever would cause someone to believe that this is what he is really
> thinking and concerned about ? Because he mouthed the words ? <br/>
>
> Bet that what he says has absolutely nothing to do with anything.
> That is why it makes no sense. We have a President who truly believes
> he casts a spell on us when he speaks (For some, that is true). The
> words are only meant to soothe and comfort, while he pretends to
> be pragmatic and moderate. His actions are something altogether different.

Obama's Fears of a Double Dip Recession Are Nonsense

For the record, I am not a Keynesian. It's almost like an insult, actually. While I am proposing a Keynesian solution here, I really don't identify with Keynesianism.


On Nov 19 12:55 PM Tony Petroski wrote:

> I happen to know that the madman, MHFT, could not have written the
> comment above because I've seen it in many places, the same comment,
> and besides, I had lunch with him in San Francisco this morning at
> the time the comment was posted.
>
> It's delicious to see the Keynesians turning on each other.
>
> Mr. Harrison. The basic mistake that all Keynesians make (you) is
> to assume that money spent by anyone is equivalent to money spent
> by those who know what they're doing, like Joe the Plumber.

Sustainable Recovery with 530,000 Weekly Claims?

It's a bit of apples to oranges given how much more heavily geared the economy was to manufacturing. That meant heavy layoffs due to the inventory cycle. Moreover, what you have to look at is net jobs i.e. Non-Farm Payrolls (NFPs). I have posted often that it is the lack of hiring which makes a 500K or 530K number deceptively high.

What I have said before is that we want to see claims declining more rapidly so that the benefit of stimulus and cyclical factors will still be boosting the economy before the employment situation takes its toll and leads to a double dip.

I expect us to shed jobs into Q1, so that is consistent with 1983. Beyond that and you're in murky water.

On Oct 30 10:29 AM thiazole wrote:

> The official end of the 1982 recession was Nov 1982. And it was
> obviously sustainable since we saw very strong growth afterward for
> most of the next 9 years. So if you are correct, then that SMALLER
> labor pool back then would be even MORE devistated by these kinds
> of numbers. Yet, those kinds of number persisted well into 1983
> as can be seen below (data obtained from research.stlouisfed.or...).
>
>
> 1982-11-06 626250
> 1982-11-13 612000
> 1982-11-20 600500
> 1982-11-27 594250
> 1982-12-04 586250
> 1982-12-11 569750
> 1982-12-18 554500
> 1982-12-25 523750
> 1983-01-01 518000
> 1983-01-08 512250
> 1983-01-15 503000
> 1983-01-22 500500
> 1983-01-29 492750
> 1983-02-05 490500
> 1983-02-12 492250
> 1983-02-19 494250
> 1983-02-26 488750
> 1983-03-05 487250
> 1983-03-12 484500
> 1983-03-19 480250
> 1983-03-26 480250
> 1983-04-02 479250
> 1983-04-09 484500
> 1983-04-16 495750
> 1983-04-23 497500
> 1983-04-30 497250
> 1983-05-07 496750
> 1983-05-14 484000

Morgan Stanley Sees V-Shaped Recovery: I See W-Shaped Recession

Maxe: As long as it's not a Dick/Mr. Ed joke!


On Aug 07 10:05 AM Maxe Paul wrote:

> If a guy named "Dick" says it's a V shaped recovery, then it's a
> W for sure!
>
> Nice article Ed.
>
> I was going to make a "Dick", "Ed" joke but i will refrain myself!

Official Unemployment Numbers Understate the Problem

John, great post! Obviously, anyone willing to take a holistic view and try to make the numbers apples to apples will come to the same conclusion you have done.

I would also add that, in most recoveries, discouraged workers and others not counted in the labor pool start re-entering the labor pool, attracted by the potential for work. What this effectively means is that unemployment surges even after recovery arrives because the labor force participation rate normalizes again.

This suggests an unemployment rate north of 10% is very likely.

Thoughts on the Fake Reform Agenda

Very good comments. I appreciate your input. For my money, the reform agenda should b shelved because we have not even begun recovery. Why are we rushing here? Richard Posner posed this question in an op-ed at the NY Times that is a good read. Here is the link:

www.nytimes.com/2009/0...

But, politically, Obama s playing his cards judiciously, so this white paper may be all we get.


On Jun 25 09:41 AM CautiousInvestor wrote:

> Good article.
>
> While there are many slants on regulatory reform, much of the discussion
> has focused upon firms that are too big to fail as they might pose
> systemic risk. My question, which has been asked by others, is why
> this not being directly addressed in the proposed blueprint for financial
> regulatory reform? Why not define systemic risk and and scale bakc
> the companies that threaten it?
>
> Here are some pionts made by the Big Picture:
>
> 1) No major changes for the ratings agencies!
>
> This is a giant WTF from the White House. It implies that the team
> in charge STILL does not understand how the problem occurred.
>
> The ratings agencies are not the only bad actors, but they are a
> BUT FOR – but for the rating agencies putting a triple A on junk
> paper, many many funds could not have purchased them, the number
> of mortgages securitized would have been much less, the insatiable
> demand on Wall Street for mortgage paper would have also been much
> lower.
>
> Why is this important? If mortgages originators couldn’t sell a
> mass amount of loans, they would not have had the need to give a
> mortgage to anyone who could fog a mirror — and that means no Liar
> Loans, no NINJA loans, and no huge subprime debacle.
>
> Better Solution: Take apart the ratings oligopoly! Eliminate the
> Pay-for-Play/Payola structure. Strip Moody’s S&amp;P and Fitch
> from their uniquely protected status — they have proven they are
> neither worthy nor competent. Open up ratings to competition –including
> open source.
>
> 2) Turn Derivatives into Ordinary Financial Products: The Obama
> team does a series of minor steps for Derivatives, but they don’t
> go far enough.
>
> Better Solution: Force derivatives to be traded like option/stocks,
> etc. (including custom one off derivatives) Trade them only on Exchanges,
> full disclosure of counter-parties, transparency and disclosure of
> open interest, trades, etc. REQUIRE RESERVES LIKE ANY OTHER INSURANCE
> PRODUCT.
>
> 3) If they are too big to fail, make them smaller.”
>
> That is the famous quote from Nixon Treasury Secretary George Shultz,
> and it applies to the banks as well as insurers, Fannie &amp; Freddie,
> etc.
>
> We have a situation where 65% of the depository assets are held by
> a handful of huge banks - most of whom are less than stable. The
> remaining 35% is held by the nearly 7,000 small and regional banks
> that are stable, liquid, solvent and well run.
>
> Better Solution: Have real competition in the banking sector. Limit
> the size for the behemoths to 5% or even 2% of total US deposits.
> Break up the biggest banks (JPM, Citi, Bank of America)
>
> 4) The Federal Reserve, Despite its Role in Causing the Crisis, Gets
> MORE Authority:
>
> Under Greenspan, the Fed did a terrible job of overseeing banking,
> maintaining lending standards, etc. Why they should be rewarded for
> this failure with more responsibility is hard to fathom. It is yet
> another example of rewarding the incompetent.
>
> Better Solution: Have the Fed set monetary policy. They should provide
> advice to someone else — like the FDIC — who hasn’t shown gross incompetence.
>
>
> 5) Require leverage to be dialed back to its pre-2004 levels. Have
> we even eliminated the Bears Stearns exemption yet? This was a 2004
> SEC decision to exempt five biggest banks from the mere 12-to-1 prior
> levels. Note that all 5 are either gone, acquired or turned into
> holding companies.
>
> Better Solution: 12-to-1 should be enough leverage for anyone . .
> .
>
> 6) Restore Glass Steagall: The repeal of Glass Steagall wasn’t the
> cause of the collapse, but it certainly contributed to the crisis
> being much worse.

U.S. GDP: Better than Last Quarter by a Wide Margin

Steven,

I suggest you consult the source data. The BEA has an excel file with all the relevant data for anyone to download. The link is here:
www.bea.gov/national/c...

What you'll want to look for is Table 1.1.5 Gross Domestic Product. Those are nominal numbers. You will see, if you do the math, that Q1 was much better than Q4 on nominal terms. It is only the deflator that made the two equivalent.

And while Q4 was revised significantly, it was not because of the deflator. This is not going to change substantially. This is also one reason the Fed and Paul Volcker have recently mentioned inflation as more of a concern medium term.

What's the Right Depression-Era Reference Date for 2009?

John and kelm,

The 1929 vs. 1938 questions are good ones to ask even if the period we are now in does not exactly mirror those time frames. A theory I have been tossing around is that the buildup in 1999 did mirror the 1929 buildup but the policy response was aggressively accommodative in 1999. This meant that the 1930-1932 fall was delayed until 2007. It's sort of like cutting out the price action from 2002-2007.

I will probably have more to say about this later. But, the reason I think it relevant is that we have seen three major economy deflationary cycles in the past century: after 129, after 1989 in Japan, and again now. Policy makers believed they had the lessons from the depression learned - both in Japan and again in the U.S. This is one reason Greenspan was so accommodative and one reason we are getting quantitative easing now.

These policy responses, while different from 1929, may not lead to an appreciably different end game, suggesting that we do not have a fix on how to cure deflationary spirals.

So, as we move forward, I do think it pays to look at asset market behaviour and how it compares to previous periods of deflation to see if anything can be learned to help us during this economic crisis.

Is the Panic Over?

jlounsbury59,

yes, you are right. I only was able to scratch the surface - There is a limit to how much one can write in one post. That said, you should visit my site to see other posts of a similar vein. You might find this one from June particularly relevant given your viewpoint.

www.creditwritedowns.c...

I happen to believe this recession will be deep and long (more than 12 months, probably much, much longer)

Cheers.

Edward