Relevant and even prescient commentary on news, politics and the economy.

What does a “Recession Watch” mean?

by New Deal democrat

What does a “Recession Watch” mean?

On Wednesday I went on “Recession Watch” beginning Q4 of this year.

Yesterday I explained what that means in detail over at Seeking Alpha.

So, what happens after this?

  1. If the weakness persists and spreads to the short leading indicators, the “watch” turns into a.warning.
  2. If the weakness abates without spreading into the short leading indicators, the “watch” is lifted.

As always, I will be relentlessly data-driven.

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The Empty Quarter, Greenwich and the Mason Dixon Line

by Robert Waldmann  (lifted from Robert’s Stochastic Thoughts)

The Empty Quarter, Greenwich and the Mason Dixon Line

I recall being surprised to learn that I was born, bred and then living South of the Mason Dixon line. I considered the border between North and South to be the Patomac river (honestly felt I was entering enemy territory when I entered Northern Virginia — this was very long ago). My dad explained it was the border between Pennsylvania (North) and Maryland (South). My 91 year old mother recently confessed that she had some doubts about moving South of the Mason Dixon line to live with my Dad. The border is now roughly where 270 shrinks into a normal sized highway. The line is arbitrary.I thought of it when I saw the very common figure showing the empty quadrant of US public opinion. A solid majority is more egalitarian than the center and more socially conservative than the center.

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Q4 Senior Loan Officer Survey says …

by New Deal democrat

Q4 Senior Loan Officer Survey says …

The Senior Loan Officer Survey is one of my list of long leading indicators. The Q4 report came out yesterday.

The news wasn’t good. This post is up at Seeking Alpha.

Meanwhile, since the dates for publication of neither housing permits nor Q4 GDP were announced last week, I am going to go ahead and put up a preliminary forecast for the second half of this year sometime this week.

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Reagan’s Tax Cuts and the Volcker Recession

(Dan here…lifted from Robert’s Stochastic Thoughts)

Reagan’s Tax Cuts and the Volcker Recession

 Max Boot is a candidate member of the Rubin Gerson can’t be a conservative anymore, because I always agree with them club of Washington Post columnists. But he is a bit confused about US macroeconmic history and macroeconomics. He wrote”The deficit spending of the Reagan years was at least justified because it boosted the economy out of a deep recession “

As a matter of timing, this can’t be right. The Kemp Roth tax cut was enacted in 1981. Real GDP peaked in 1981q3 — the tax cut corresponds to the beginning of the recession not the end.

The part that Boot misses (because it has been unimportant for the past 10 years) is monetary policy. It is possible to cause a severe recession in spite of fiscal stimulus by driving the Federal Funds rate up over 19 %. The combination of loose fiscal and very tight monetary policy caused huge real interest rates and a collapse of investment. It also caused an over-valued dollar, a huge surge in imports and deindustrialization.

One can discuss the effects of fiscal policy without considering the response of monetary authorities only when monetary policy is constrained by the zero lower bound. If GDP is determined by the Fed’s ideas about what level is consistent with low inflation, then fiscal policy which is, in itself, stimulatory just changes the composition and not the level of demand.

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