It Ain’t Over until the Eagle Grins

Posted: February 20, 2009 | Author: | Filed under: Global Financial Crisis, U.S. Economy | Tags: , , , , | 1 Comment

atlant-fed-eaglePaul Krugman’s column in yesterday’s NY Times talked about the economic outlook report released by the Federal Reserve’s monetary policy ‘deciders’, the Open Market Committee.  He’s been obsessing on one little sentence.

But my eye was caught by the following chilling passage (yes, things are so bad that the summarized musings of central bankers can keep you up at night): “All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment and by an appropriate rate of inflation.”

I used to participate every so often  in the gleaning of the data for the Atlanta Fed’s report back in my days which were back in Greenspan’s days at the Fed.  (Bill was President and all was well in the world, so completely different environment than now.)  It’s a rather interesting exercise that combines the sweat of wonky economists dropping numbers into black boxes and anecdotal evidence gathered by holding meetings with business folk out in meeting rooms to gauge what’s going on in reality-based USA.  The anecdotes  we try to catch are things like: Are you hiring?  Are you buying inventory?  Are you expanding your business?  What are your customers saying?  How happy is every one in your city?  You just basically chat them up after you’ve plied them with food and booze. We used to have the meetings at the Gulf Coast Casinos.  I’m not sure what the other Feds do, but I’m sure I’d love to be around for some of them as the ones down here could be pretty interesting.

Each of the Fed Banks print their assessment of the economy.  Some stick to their regions.  Some have particular interests.  For example, the St. Louis Fed is considered to be the center of the monetary policy wonks.  San Francisco Fed tends to focus on issues dealing with the Pacific Rim.  You can visit each of the sites and get a feeling for not only the country’s outlook, but the area where you live.

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The Economic Downlook: Retro Numbers

Posted: December 15, 2008 | Author: | Filed under: Equity Markets, U.S. Economy | Tags: , | 1 Comment

I’ve actually been avoiding writing about the economic news these days because frankly I don’t want to harsh your  mellow this holiday season.  The Fed’s Open Market Committee is meeting the next few days and Dr. Bernanke’s study about Monetary Policy at the Zero Bound is  likely to be on the agenda.  We’re so close to zero interest rates in the credit markets, traditional monetary policy is basically off their table.  You’re going to hear words like liquidity trap (where the interest rates are so low that every one prefers to sit on cash and banks really don’t want to lend at that rate).  You’ll also hear about ‘quantitative easing’.  This is where the Fed uses it’s own balance sheet and it’s own assets to try to prop up the economy.  These are all moves tried by Japan in the 1990s during its lost decade.  We’re still debating their efficacy and the results look mixed.  The Fed can look around its tool box all that it wants but it’s doubtful to find a stash of viagra.  If you want a medical metaphor, the Fed is basically using untested methodology–like those tests of procedures they only let participants into if they’re terminal.  The Fed’s on the side lines.  We’re going to have to rely on stimulus from the folks in Congress and the incoming/outgoing adminstrations now.  (Greater Ethos help us!)

I’ve been looking over the recent numbers (yes MyIQ2xu, i’m throwing those fried chicken entrails again) and what’s really got me in a quandry is the number of times I see leading indicator numbersfibber-and-mollythat are only comparable to Hoover’s time.  In my three decades of economic study, I have NEVER had to harken back to Hoover’s time as anything more than a history lesson.  We seem to be hitting records on the downside that are puzzling even the brightest economist and believe me, I’m not among those.  However, I’ll try to give you a feel for some of the major indicators and why the global economy appears to be in for a long period of distress.

leave-it-to-beaverThe Fed is likely to cut interest rates to 50 year lows some time in the next two days.  As I said, no one is expecting that to do much good but it will act as a signal that the Fed continues to follow serious expansionary policy to boost the economy.  It has a lot of leeway now because the recent inflation numbers are astounding.  Economists are expecting Thursday’s inflation rates to be the lowest since 1938 on the upside (1.4%) and the lowest since 1933 on the downside of the forecasts. Estimates by some economists have the U.S. economy experiencing its first negative year over year inflation since the 1950s.  This news is a mixed bag.  Basically if you’re a consumer, everything you want is about to become very cheap.  The problem is with the next set of numbers.  How many folks will be in the position to buy them?

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