Welcome to the recession. James Hamilton has a couple of posts on whether or not we are in a recession and the picture is grim. The first post looks at GDP and recessions. In that post Prof. Hamilton notes that gross domestic income, GDI, may be the better the predictor of recessions than GDP. He points to the work of Jeremy Nalewaik,
Federal Reserve economist Jeremy Nalewaik has several research papers ([1], [2]) arguing that GDI may be a more helpful series for recognizing recessions than is GDP. It is interesting that while GDP indicates sluggish growth over the last 3 quarters, GDI looks much more like a recession, with 2007:Q4-2008:Q1 satisfying the traditional rule of thumb of two quarters of falling real output.
Nalewaik also has a probability index for the economy being in a recession based on the GDI and it indicates that yes, we are in a recession. Prof. Hamilton also points to the rather disappointing employment numbers, which are a lagging indicator, as further evidence that the economy is in recession.
…it seems like a pretty clear call to me– the U.S. economy is currently in a recession which likely began in the fourth quarter of last year.
The second post looks at Personal Consumption Expenditures (PCE). Unlike GDP PCE is reported monthly and at this point we have the first two months of PCE for the next quarter This is the single largest component of GDP and over at Calculated Risk one can infer what the next quarters GDP will be based on the first two months of PCE data of that quarter. In this case the inference is that GDP in the third quarter will be negative. Another indicator that the economy is in recession.
The idea of staving of a recession with this bailout of the financial market is pretty much dead now. It, at best, can be seen as a desperate attempt to prevent a severe contraction…well I don’t know…I’m not sure about the severe part of it.
Howard Glackman at the Tax Policy Center is saying his sources in the Federal Reserve and the financial industry that hundreds of billions more are needed to recapitalize financial institutions in trouble. That is the current bailout is just not going to work. Also fits well with the decline in the stock market we’ve been watching lately.
My sources at the Federal Reserve and in the financial markets increasingly expect that Washington is going to have to put up hundreds of billions of dollars more to directly recapitalize troubled banks.
Such a step would be in addition to the $700 billion authorized by Congress last week and could require new congressional appropriations. It would put even greater pressure on the short-term budget deficit and add to uncertainty over the total cost of cleaning up the financial system mess. It could also require new federal legislation, setting up yet another bruising battle on Capitol Hill.
The timing of such a direct cash infusion, which would come through the Fed, is unknown. Fed officials had hoped it would not be necessary at all, or at least not until after a new President is sworn in next January. However, the market’s negative reaction to last week’s bailout could accelerate the next step. Normally, the Fed could manage such a cash infusion through its own reserves. And today it announced modest efforts to get funds to financial institutions by paying interest on bank reserves. However, the magnitude of the crisis may require far more capital than the Fed has and require additional federal borrowing.
This whole notion of staving off this crisis is becoming a real joke.
About an hour into the debate, I’m bored to tears. Neither candidate has said anything I haven’t heard before and they’re just reciting canned speeches that are often tangentially related to the questions being asked. Neither are adhering to the rules and Tom Brokaw is exasperated but not doing anything about it.
Barack Obama and John McCain Townhall Debate Photo Courtesy YahooNews
Thus far, though, it’s a win for Obama in that he hasn’t made any significant errors and McCain hasn’t done anything that’s likely to close ground with undecided voters.
UPDATE: McCain’s answer on the use of force was far superior to Obama’s. He’s set forth a doctrine that’s distinct from both Obama and George W. Bush and the neocons.
Both gave strong defenses of somewhat different positions on Pakistan. I don’t know that either score any big points, though. Obama’s continued pronounciation of it as pok-E-ston probably doesn’t help him much with undecideds. McCain’s Nixonian “I have a plan” but “I’m not going to telegraph my punches” likely didn’t, either.
McCain’s recognition of the service of the Navy Chief was a good moment for him, although not one likely to make much difference in the campaign.
Overall, this was McCain’s best debate performance. It’s conceivable that he won it on “points.” The bottom line, again, though, is that Obama went toe to toe with him and didn’t clearly lose. That’s a win given that he went into the debate with a lead and that McCain’s hoping to win based on superior seasoning.
Update (Steve Verdon): I was listening to the debate and was surprised that a question about the unfunded liabilities associated with Social Security and Medicare came up. Amazingly I thought Obama fumbled badly here. He completely dodged the answer and ended up rambling on about $100 billion in tax breaks to CEOs as if $100 billion will do much to address the funding short fall of trillions and trillions of dollars. Obama was woefully unprepared for that question, IMO. Obama babbling on like an idiot about his tax policy was a complete dodge. Then a few minutes later Obama described out he’d increase spending on health care and most likely the growth rate of health care expenitures. Brilliant.
McCain’s answer was only marginally better, just a fail vs. epic fail. McCain gave some nonsense answer about setting up a commission to look at the problem and come up with a solution. He did note that the problem with Social Security was somewhat manageable, but that Medicare was the 800 pound gorilla in the room.
I don’t know how I missed it but yesterday in the New York Times Michael Gordon had what I think was a very fair and balanced assessment of the differences between Sen. Barack Obama’s and Sen. John McCain’s current positions on Iraq which I commend to your attention. In the article Mr. Gordon clears up at least one common misperception, i.e. that Sen. Obama plans to remove all troops from Iraq within 16 months:
Seeking to preserve a measure of flexibility, Mr. Obama said that he would “reserve the right to pause a withdrawal” if it led to a major increase in sectarian violence. He also reiterated that he planned to keep a residual military force to pursue militants from Al Qaeda in Mesopotamia, protect American installations and personnel, and, if Iraqi forces conducted themselves in a nonsectarian manner, train Iraqi troops.
Mr. Obama said that such a residual force would probably include Special Operations forces, teams of military advisers, combat planes, attack helicopters, medical helicopters and perhaps some smaller-scale combat units to protect the advisers.
He declined to estimate the size of the force, saying he would decide that after consulting commanders. But Richard J. Danzig, a secretary of the Navy in the Clinton administration who is regarded as a likely choice to serve as Mr. Obama’s secretary of defense, said in a June interview with National Public Radio that it could number from 30,000 to 55,000 troops.
This underscores a point I’ve been making for some time. Events have overtaken the argument about Iraq. A good portion of the difference between the two candidates is now rhetorical. Sen. Obama is likely to withdraw some of our forces from Iraq, leave a residual force of some size in Iraq, and call it “ending the war” while Sen. McCain is likely to withdraw some of our forces from Iraq, leave a residual force of some size in Iraq, and call it “winning the war”. Partisans will hail their preferred candidate’s position as the correct one and castigate the opponent’s position as foolhardy.
There’s one other point on which I agree wholeheartedly with Mr. Gordon. The two candidates differ in their views of the importance of the mission in Iraq:
At its most basic, the dispute between Mr. Obama and Mr. McCain centers on the importance of the American mission. For Mr. Obama, the invasion of Iraq was a mistake and the efforts he would make there are essentially a matter of damage limitation. By defining a series of minimal goals, Mr. Obama would seek to reduce American forces.
Toward that end, Mr. Obama said his objective was a sovereign Iraq that was not a threat to the United States or its neighbors, was capable of controlling its own borders, was not a “base camp” for terrorists and was not experiencing “mass violence.” He said that it would be important that “the will of the Iraqi people is being expressed” though “the machinery of democracy may not be perfect.”
“I have to think about the fact that given our current levels of deployment our military is stretched very thin, and if we have a sudden situation, let’s say in North Korea right now, we have got some issues,” Mr. Obama said. “And that is before we start talking about the expenditures involved at a time when the administration just announced they want a $700 billion credit line. So that is the lens through which I view the situation in Iraq.”
For Sen. Obama, then, Iraq is mostly a distraction. Sen. McCain, on the other hand, sees Iraq as more significant:
“I agreed with both General Petraeus and Osama bin Laden, who both said that Iraq was the central battleground in this struggle,” Mr. McCain said. “And I also believe that Afghanistan is going to be a longer struggle in some respects. But the most important thing was that if we failed in Iraq, that it would have had adverse consequences throughout the region.”
Contra Arnaud de Borchgrave, Thomas Friedman, and others, I argue that it is highly unlikely that China, Europe, or anyone else overtakes the United States as the major economic player in the world.
The bottom line is that the current financial “crisis” is almost certainly a short term blip and that the United States is quite likely to continue our two hundred year trend of increasing real GDP per capita.
Since installing Firefox 3.03 recently, I’ve noted that images on OTB display only intermittently. I thought I had solved the problem by clearing the cache but it has now reappeared. Others have noted the same problem with Firefox.
Anyone have a solution to the problem, aside from switching browsers?
Checking out Megan McArdle’s site a bit ago, I noted a startling new look. Atlantic editor James Bennet confirms:
Yes, we have most definitely redesigned The Atlantic.com, as part of a broader effort that includes a redesign of the print magazine. Today’s relaunch provides a first look at our new nameplate–our revived nameplate, really. To create it, the graphic designer Michael Bierut and his team at the design firm Pentagram adapted a logo that The Atlantic used for more than 35 years in the middle of the last century. The image of the November cover, to the right, shows how the nameplate and our new fonts appear on the magazine.
Working with Pentagram, our art director, Jason Treat, has added a substantial dash of color to the site. When you refresh the home page, you’ll see the color in the horizontal bar at the top of the page change, as it rotates through a set palette. There’s no grand theory at work here–no attempt to link a particular shade with a particular idea or argument or piece of news; we just like the vibrancy of the colors and the freshness that comes with their changing.
Aside from the rather jarring splashes of color and the new logo, left unstated is the more substantial change: The completion of the rebrand of the magazine from Atlantic Monthly to simply The Atlantic. While even the previous logo and editorial style had dropped the “Monthly,” it still remained in the masthead, mailing addresses, and so forth. No longer.
Given the amount of content on the website, which is updated constantly throughout the day, and the fact that the magazine only comes out ten times a year, the “Monthly” had long stopped being an accurate descriptor. But it’s a substantial change for an institution that’s been around since 1857.
So far I have seen two articles indicating that this is not the case. The first is from Robert Higgs who is associated with the Independent Institute and has very strong libertarian views (so strong he might even hold anarcho-capitalists views). The second is from Alan Reynolds at the Cato Institute. Both rely on Federal Reserve data (the link goes to the page Reynolds used). There is just one problem, they appear to be wrong.
I took one of the time series that Reynolds noted, Real Estate Loans by U.S. commercial banks and graphed the weekly numbers. Here is the graph,
It looks pretty obvious to me that since late spring/early summer the growth of credit has been rather flat. After June 11th the trend is decidely negative. Yes there was a surge at the mid to end of July, but overall things look rather disappointing compared to the early half of the graph. If the trend up throgh March 26th were continued to the last date in the dataset we’d have Real Estate Loans of $3,777 billion. Instead we have $3,632 billion which is about 3.8% lower. Another way to look at it, prior to June 11th the average weekly change in real estate loans was about $4.77 billion, after that point the average weekly change was $-2 billion.
I don’t know about you, but that looks like there is less credit available than there would have been absent the current financial crisis. Further if you were to look at things like the LIBOR and TED they indicate that there is indeed less liquidity in the market than previously (link admittedly a bit old).
Market measures: Two market indicators showed the price of borrowing for banks remaining high - a sign that banks are nervous about lending to other banks. These indicators are “at levels that indicate the money markets are still locked up,” said Van Order.
One gauge, the “TED spread,” showed high prices of loans between banks. The TED spread measures the difference between three-month Libor and the three-month Treasury borrowing rates and is a key indicator of risk. The higher the spread, the bigger the aversion to risk. On Tuesday, the spread retreated to 3.04%, after surging to 3.53% - its highest level in more than 25 years.
On Sept. 5, the TED spread was only 1.04%.
Furthermore, the difference between the Libor and the Overnight Index Swaps rose to a fresh record high 2.46% from 2.20% Monday, according to data reported by Bloomberg.com. The Libor-OIS “spread” measures how much cash is available for lending between banks, and is used by banks to determine lending rates. The bigger the spread, the less cash is available for lending.
The Libor, or the London interbank offered rate, is a daily average of what banks charge other banks to lend money in London. Larkin compared the Libor “the dial on the engine of the car,” showing how much power the economy has. “And right now it is indicating that the car is severely overheating.”
We have seen from multiple data sources indicators that there is indeed less credit than there previously was, credit is indeed drying up.
Over the weekend, Dave Schuler closed his post “Winning in Afghanistan” with three very good questions:
What are our strategic objectives in Afghanistan?
What tactics will effect those objectives?
What are the logistical requirements of implementing the objectives?
Today in New Atlanticist, my former graduate advisor, Don Snow, gives an extensive response with “Are We Losing in Afghanistan.” He frames the questions thusly:
The problem in Afghanistan is conceptualization. What is the United States (and the NATO allies) doing there? There are two possible answers. One is that the United States is engaged in a counterinsurgency campaign against the Taliban, who are attempting to overthrow the Karzai government the United States helped put in power and now supports. The other is that the United States is engaged in a counterterrorism campaign, the object of which is the destruction of al Qaeda. The two are by no means the same thing, either as a conceptual objective or as a military problem. In fact, they may even be contradictory goals if pursuing one makes the other worse (which it may well be doing).
He fleshes out the answers in some detail at the link.
