Frankie Says Relax, Cleveland Fed, It Ain't Over Yet
(h/t Barry Ritholtz)
Cleveland Fed senior research economist Kenneth Beauchemin has some excellent news for those of you who have lost your homes, your savings, your livelihoods, your families, and/or all hope in the last two years we like to call the Great Recession: it's over. Great news, right? So grab that gold card (if you still have one) and hit the mall, America, good times are here again!
Check out Not Your Father's Recovery?:
If all goes according to the usual business-cycle dating procedures, a committee at the National Bureau of Economic Research (NBER) will soon convene to declare that what has come to be known as the “Great Recession” came to an end in June 2009. As we all know, it was a doosie. Beginning in December of 2007, it will have lasted 19 months—the longest downturn since the Great Depression. It will also go down as the deepest as the United States shed 4.1 percent of gross domestic product (GDP) from peak to trough. The unemployment rate more than doubled, rising from 5.0 percent in December 2007 to a peak of 10.1 percent in October 2009.
Now that we are a year into the recovery, and the annual July “benchmark” revisions to the National Income and Product Accounts are complete, the time is ripe for an assessment of the recovery so far. Popular opinion strongly suggests that it has been “substandard.” But what is the standard by which the strength of a recovery can be measured? Some point to a historical tendency for deep recessions to be followed by rapid recoveries and vice versa.
This belief looks to be validated in figure 1, which plots the peak-to-trough output loss in each of the eleven NBER-dated postwar recessions (horizontal scale) versus the growth in real GDP in the four quarters following the final quarter of each recession (vertical scale). The way the data points are scattered suggests that output loss and subsequent growth are positively related, as indicated by the upward-sloping line that “best fits” the ten episodes prior to the Great Recession. By this standard we are indeed being cheated. The line predicts 9.7 percent growth from the third quarter of 2009 to the second quarter of 2010, but we got only got 3.2 percent instead!
To say we are indeed being cheated is the understatement of the century.
Not so fast there, killer. Declaring new normal and all clear doesn't change the terminal illness chewing away at our economic potential, nor does it resolve any of the underlying issues that are advancing infection and gnawing at our overall economic well-being. It merely changes the scope of what we define as "normal" and pushes the remainder under the carpet. Perhaps that works in average recessions but this one, as we all already know, is anything but.
Regulatory uncertainty has pretty much assured the employment situation will remain sketchy for the foreseeable future, or at least until we figure out the true real-world impact of genius moves like Obamacare, financial reform, consumer protection and accounting rule changes implemented in the midst of crisis as a direct result of the impact of old rules on the economy. That's called having to pay for that hamburger on Tuesday that you borrowed money for last week in case you aren't paying attention.
Banks are still clinging to crap assets and functioning as official money laundering machine for the US Treasury by borrowing money at 0 from Uncle Bernanke and stuffing it into Treasurys. That's all well and good but what happens if Bernanke grows a pair, hikes up interest rates and takes away the crack? How are banks going to breeze through new Basel capital requirements then?
I don't know about you all but I can't drive more than a block through San Francisco or any of our lovely Bay Area 'burbs without seeing vacant, for lease, for sale or otherwise "available" properties. Were I to try and come up with an estimate as to just how many I see on an average stroll through town I'd have to guess somewhere between a metric shit ton and a massive fuck ton, it's hard to say.
Is that a recovery? Does it feel like a recovery? Does it look like a recovery?
A recovery would imply a return to normal. Free money from the Fed is not normal. 10% unemployment is not normal. 99 weeks of unemployment is not normal. .1% returns on savings or CDs are not normal. Riots, protests, rallies and general civil unrest (be it mild at this point) are not normal. Trading volume of practically nothing for anyone except for HFT robots, hedge funds and the invisible hand is not normal.
Someone needs to get the Fed that memo so they can stop with this nonsense and I'd love to see their senior economists coming up with something far more useful than the same HOORAH WE'RE SAVED propaganda we have all heard and read since March of 2009.
Shut the fuck up and come back with that shit when it actually is fixed.