Yesterday’s FOMC meeting has lots of people chattering about whether the Fed did too much or too little.

Forget consensus, there is a notable lack of any sort of recognition of where we are in the overall economic cycle. Some of this confusion is a lingering effect of Economists lagging recognition of balance sheet versus cyclical recessions.

What other factors are making this such a challenge for the seers? Consider:

• The Fed’s QE/Twist is an unprecedented intervention. Economists have not figured out how to quantify the impact.

• The Warm Winter pulled lots of economic activity forward. Housing starts, nonresidential construction, auto sales and retail all benefited.

• Q1 looked much better than it should have courtesy of that warm weather; Q2 ended up looking much worse for the same reason. Average them together and you get a mediocre (but non recessionary) 1.5-2.5% first half GDP;

• The aggressive layoffs in the private public sector — teachers, firemen, cops, etc. — is an ongoing drag on the recovery. It is offsetting about 1% of jobs in private sector.

• Ex-Public sector layoffs, Unemployment would be about 7.2%

• Parts of Europe are already in a recession. Spain, Italy, Ireland and the UK are contracting; Germany and France are on the verge.

• Greece is in an outright depression (if you want to include Ireland also, I won’t argue with you)

• Apart from and in addition to the reductions in economic activity detailed above, the Euro Zone is teetering at the abyss of a Credit Crisis. Their Lehman moment has not yet happened.

• China and India have seen a rapid deceleration int heir economies.

• The perma-bull attitude that infects so much of Wall Street works better during secular bull than secular bear or cyclical bull markets.

• In the US, the public has suffered from recession fatigue. While some people continue to up their savings, big ticket discretionary items like vacations and cars are showing improvements.

Thus, we are not in a recession, but we cannot rule one out over the next 18 months. And while our growth is mediocre, it is certaily better than the contraction of Europe . . .

Category: Economy, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Economic Crosscurrents”

  1. george lomost says:

    Good list Barry, as always. However, the “Big Picture” is that Fed intervention has been so prolonged and so all-encompassing that price discovery no longer gives accurate outputs. Every time these “Potemkin numbers” as fed back into the formulas they are spit out as ever more fanciful outputs.

    BTW, why does everyone seem to accept the notion that this increasingly permanent ZIRP is some kind of stimulus? As a saver over my whole life, I have reduced my spending in response to zero returns on my savings. Has anyone tried to quantify how much reduction in economic activity is a result of ZIRP? For example, hasn’t this caused a reduction is tax collections, thereby increasing deficits?

    Secondly, for all the talk of lowering taxes, fees on everything have been going up at double-digit rates and new fees are constantly being introduced.

    Finally, though mortgage rates are at all-time lows, credit card interest rates are at double digits for just about everyone. Wouldn’t reductions of these rates spur economic activity?

  2. dead hobo says:

    BR concluded:

    Thus, we are not in a recession, but we cannot rule one out over the next 18 months. And while our growth is mediocre, it is certaily better than the contraction of Europe . . .

    Bernanke made an oblique reference regarding unintended or unexpected results from QE that work at cross purposes to the intended goal. It was an extremely brief remark, but clear. I hope he meant that he finally recognizes that free money creates asset bubbles in all assets, even commodities that have been turned into asset classes by financial innovation. Thus, the wealth effect he intends to create for all only extends to a few while the masses see their purchasing power diminish because of asset inflation that drives down into life’s necessities.

    While 7 billion people will undoubtedly eventually create pricing pressure that has a similar effect, the world does not need financial parasites who accelerate the process when the FOMC provides the high octane fuel that blows asset bubbles. If the FOMC does nothing more, these lower prices will rehabilitate the economy far more than any artificial stimulus. Operation Twist is harmless and may stimulate housing.

    It was interesting watching Bloomburg last might. Guests were openly scoffing at Fed policies and skeptical of it’s effectiveness. This is such a refreshing difference from most business news that usually only provides a forum for their advertisers press releases with occasional news about, presumably, people who don’t advertise there. BTW, the WSJ appears to be getting better. I recently received a gift subscription … my first regular read since the Bush years. Back them the first section degenerated into a slavish political document. Today, it reads like credible business news and, horrors, I find myself reading their editorials with interest and occasional agreement.

  3. rd says:

    I think you meant aggressive layoffs in public sector in fourth bullet.


    BR: Yeah, I caught that brain-fart on the train and fixed it.

    Cant figure out why I got that one inverted but #5 correct.

  4. constantnormal says:

    We may not be back into recession (yet), but we are still within the cycle of depression.

    The Great Depression encompassed two officially recognized recessions, we’ll get at least that many in this, The Greater Depression

    Skeptics, please check back toward the end of this decade, when we will have been at this for a full decade (two if you count it as starting in 2000), and are finally digesting the last of the foreclosure bubble, with unemployment never regaining reasonable norms, millions of permanently unemployed (and forever unemployable), and … does anyone really believe that by then, our banksters will not have blown themselves (and us) up once again?

    The Japanese have been at this game for almost three decades now, and while we are not following exactly the same path as they, we are headed toward the same destination, for all of the same reasons.

  5. theexpertisin says:

    Many of us who entered public sector employment back in the day saw it as a service job to help our fellow citizens that traded off lower compensation than our private sector peers for a higher calling and better job security (tenure, with retirement benefits within reason). This rationale has been lost.

    The notion that public sector jobs, funded with unsustainable debt, need to be restored to their full bloated glory to assist with an economic recovery may be a stretch.

    Money is worshiped. Service is an afterthought.

  6. perpetual_neophyte says:

    Great summation, Barry. With all of the “minute by minute analysis” of every single headline grabbing event (or non-event), it’s good to zoom way out and recognize The Big Picture.

  7. Greg0658 says:

    private public sector / potatoe potahtoe / tomato tomahto

    imo a real good economist won’t be able to find a job in America that doesn’t have a real KICK from taxpayer dollars respent BACK into an their private sector economy

    whos economy is why Washington politics is important .. since worry’g about world affairs sends money to a certain style of contractor & cash spent abroud has way less watchful eyes (of a certain style)

    if the FED would worry about balance’g the 12 ResBanks I think that would be beneficial (or at least report the numbers)

    money doesn’t burn up – it goes from here to there .. and he who holds the cashAIR breathes easier

    balance’g the 12 ResBanks would be like .. persons in area .. wages in area .. real GDP .. real deficits in cash outflow for products & taxes ..
    complete balance is not possible but would represent a well oiled machine

    loaning cash to a select few @1/4% and allowing them a typical 8% to 29% is just rentierism canibalism .. & sends a very poor mesaage to real Laborers

    I wasn’t alive in the runup to Hitlers Germany – but why do the conditions seem identical .. world population was about 1.65B in 1912 .. to relate that to goldfish match their tank size ..
    I can’t matchup whats going on with this inflation/deflation of cashAIR

  8. AHodge says:

    best list i have seen
    the fed has shot its bolts, unless they do more direct TALF type business credit supply
    the flat curve has its downside per Bill Gross and many others,
    the “institutions formerly known as banks” are even more bored by and uninterested in supplying loans and business credit.

    Western Europe is real bad worse even than your review i think,
    credit mostly shut down in the southern tier
    shrinking in the North mostly
    beyond greece in depression and ireland, Spain, Portugal also approaching depression
    the biggest threat going forward is they have no plan or crisis management
    but a bank bailout
    even while their hair is on fire with jobs, credit, and spending collapsing

    The US will way outperform that–we probably stay in our endless “growth recession”
    and fortunately the Emerging countries while slowing some
    are mostly unscathed except for export market loss to western europe
    even east europe looks ok for now and the Baltics downright good
    and other developed japan Canada and Australia ok
    the latter even with commodities lower
    key for the US is whether our own capital markets and securitization can eventually recover
    I dont count the capital flood for social media which is an abberation
    without reform it will have to be an on faith buy financial junk recovery,
    we keep being told the capital markets run on faith
    but it sure takes a lot of holding your nose and believing these days
    Still, there is nothing like prices moving up for a while to make folks get religion

  9. CANDollar says:

    “… the Euro Zone is teetering at the abyss of a Credit Crisis. Their Lehman moment has not yet happened”

    BR do you think there will be a Lehman moment from Europe in the next year?

    If so do you think it could have some of the same effects as in 2008?

  10. Concerned Neighbour says:

    As far as I’m concerned, the risk of blowing more bubbles due to loose Fed policy is not hypothetical: it’s already happened. Normally when bubbles are blown, markets will eventually correct themselves. That is not possible in this case due to the ever-present threat that the Fed will step in if the price of any paper asset anywhere falls more than .00001%. These are not free functioning markets, and we should be long past calling them such.

    As for the policy rationale, what more can QE really do? Mortgage rates are at historical lows, the stock markets are near all-time bubble highs (except for the NASDAQ of course), and financial institutions are flush with liquidity. We know by now that QE money is used for speculation. It’s not like wealthy bond holders sell their bonds to the Fed and consume with the proceeds; no, they go out and bid AMZN to 500 P/E and slow-growing PG to 25 P/E. All this policy is doing now is benefiting the speculator class at the expense of the saver and investor classes, while increasing the cost of food, oil, and other commodities.

    Summary: QE3 would be an act of lunacy, or the clearest indication yet that our institutions are beholden not to the general citizenry, but TPTB. Take your pick.

  11. MayorQuimby says:

    And yet stocks are priced for perfection once again. DIA pays just over 2% which is abysmal. Risk/reward favors downside at this point.

  12. AHodge says:

    state and local jobs not a biggie but since there is interest
    i think there are recent signs, though not the latest payoll
    that the shrinkeage is going away,
    and state finances overall are looking a lot better cyclically
    basket cases CA MA IL noted of course

  13. Winston Munn says:


    There is no Greater Depression for the 1%, so perhaps The 99% Depression is more apt?

  14. Greg0658 says:

    ps – the human race like goldfish grow to their space – and will create a job to survive thru – but all jobs are not created equal .. some jobs eventually find, it really wasn’t needed after all (a trend job) .. we humans survive nearly 100 years (without intervention) – devouring energy & food

    mess = deflation of human labor arbitrage + inflation of energy & food thru increase in population sending forward requests

  15. krice2001 says:

    AHodge – It looked like you lumped MA (presume that is Massachusetts) in with CA and IL? I live in MA (Boston area) and all the statistics I continue to see show that we’re doing better than most states with unemployment well lower than the U.S. as a whole and real estate visibly picking up in the more affluent towns compared with the previous couple of years, esp. in the Boston area (which dominates this state). I don’t believe MA could be see as a “basket case”, at least relative to other states.

  16. cognos says:

    Weird. Lots of stuff to hate here…

    - Greek stock market is down 90%, Spain down 75%… yet they have “not yet had their Lehman moment”. Hmm… silly.

    - Fed Intervention is unprecedented. Hmm… I’ve seen analysis saying Fed balance sheet was MUCH larger deep into Great Depression. Now, WWII… that was “unprecedented” stimulus. Its simply deflation people, Keynesian-ism works. See WWII… we dumped planes off carriers. Fighting is meaningless. Its just money, its fake.

    - Warm weather… really?

    How is the picture today…. any different than the last 2 summers? Same result. Fake “slowdown” driven by summer seasonals.

  17. kek says:

    It is about time that we reducied the public sector’s job force. Productivity per worker should also apply to the public sector.

  18. VRWC says:

    “Ex-Public sector layoffs, Unemployment would be about 7.2%”

    true enough….

    But add back in discouraged workers and unemployment would be over 10% still.

  19. constantnormal says:

    Winston — the 1% was there in the 1930s, JP Morgan had no worries … it is the same today.

    Depressions and recessions only occur along the lower rungs of the economic ladder … just at different levels and for different durations. Those at the top are unaltered in their luxuries.

  20. nofoulsontheplayground says:

    The increase in auto sales can be attributed to lower credit standards applied to buyers. GM in particular has sold a ton of vehicles to people who last year would have been unable to acquire a car loan with their present credit score.

  21. constantnormal says:

    Winston — the reason that I refer to this as “The Greater Depression” is by virtue of comparisons between the forcing functions: the stock market crash of 1929 vs the housing crash of 2008, I assert that housing was a more fundamental and larger chunk of our national economy to come undone than was the equities market in 1929, 10:1 margin leverage notwithstanding. I leave it to some future econ grad student to prove me wrong, I have no data to support my assertion.

    And when you look at the total debt (public+household) pictures normalized to GDP, it’s crystal clear that this depression is the greater of the two.

    Hence, my nomenclature. It’s all about the relative sizes of the dent in the economies of each time. Their Fed made things much worse, ours (despite having encouraged to formation of the bubbles that spawned our situation) has done much better during the crisis. So it’s possible that I am (gasp) wrong, that the initially smaller whack given to the 1930s economy was amplified by their Fed to be larger than ours. Again, a thesis topic for some future Bernanke.

    I see us as having at least one more serious recession (beginning in 2013), with perhaps a third around 2017.

    Hopefully this global depression will not end the way that the last one did, as we would likely be playing the role that Nazi Germany did in the late 1930s, by virtue of our largest military spending on Earth. If it does, given the nature of modern weaponry (I’m not talking drones and cruise missiles, I’m talking nukes and bioweapons), it likely would actually BE the “war to end all wars”.

    Just as all of the politicians were clueless idiots in the 1930s, our contemporary crop are sticking to that script. The one lucky break that the US of the 1930s caught, was in the appointment of a competent prosecutor of immigrant origins (Ferdinand Pecora) — doubtless appointed because the powers-that-be assumed that such a person WAS inept and ineffectual, as their prejudices saw him to be — I think it is foolish to assume that we will receive a similar lucky break.

    But who knows? Perhaps some idiot legislator will pave the way for Barry Ritholtz to run sessions investigating the housing situation, and grant him subpoena powers that would enable him to shine the spotlight of public awareness (as feeble as it is) upon government corruption, and get some substantive changes made.

    Obi-wan, you’re our only hope …

  22. MikeDonnelly says:

    St. Louis Fed has the must read of the day.

    Pages 13-16 are an absolute clinic on why so many forecasters have gotten 2010-2013 wrong, and why economy is so weak. There is no output gap. We subscribe to a third party model who has a huge implicit output gap, so Real GDP is forever wanting to be 3.5% or higher in the US in the model results. So they (and the Fed btw) keep writing their forecasts down as actual data comes in.

  23. ashpelham2 says:

    You guys are talking a lot of doom and gloom these days. Seems to me not long ago everyone was high on riding the market up to wherever it was going, for whatever reasons it was going there.

    Let’s not let some stock market weakness completely make us change our course. I’m not talking to everyone here, naturally.

    I still continue on the thought that the idea of 4.0% unemployment and 4.0 GDP is not the future. That was the peak of American economic strength. And that most of it was propped up by asset prices that were unrealistic. We are indeed entered into a new normal. Look at how long unemployment has been elevated in places like France, Japan, and others. Those are strong, vibrant economies, but they are no longer powerhouses in growth. They are mature. We are now becoming mature. Our largest ever generation is out of the days of spending to the hilt, and is now preparing for the last phase of their lives. They are downsizing, and this economy ballooned on the anticipation that it would never happen. Homes got bigger and bigger and become more and more numerous. It all had to stop at some point, and the economic crisis of 2008-09 grew a lot of people up.

    The good old days weren’t so good after all, but they are over.

  24. formerlawyer says:

    @kek Says:

    How would you measure the productivity of a fireman, a teacher, a social worker or an administrator for example.

  25. [...] Economic Crosscurrents | The Big Picture [...]

  26. [...] Economic Crosscurrents: An Assessment of US Economic Status | The Big Picture [...]