Econbrowser Feed

More On Defense Spending

Sat, 01 Nov 2008 03:02:00 GMT

In my last post on the 08Q3 GDP release, I noted the remarkable contribution of defense spending. Here is a little more detail on the growth rates of defense spending on goods and services on a NIPA basis. Figure 1: Defense spending (blue), defense consumption spending (red) and defense investment spending (green), in billions of Ch.00$, SAAR. NBER defined recession dates shaded gray. Source: BEA, GDP advance release of 30 October 2008, and NBER. [More...]

Some Additional Observations On The 2008Q3 Advance GDP Release

Fri, 31 Oct 2008 06:23:00 GMT

If you went no further than noticing that the q/q annualized growth rate of -0.3% was faster than the -0.5 in the Bloomberg consensus, you might have taken this as good news. I'm not going to say it wasn't good news (relatively speaking), although negative growth makes the case for recession pretty good according to Jeff Frankel (who is on the NBER BCDC); see also RealTime Economics. However, there are some pretty interesting things that merit additional discussion. I think that most observers will concur with assertion that the -3.1% decline in consumption q/q annualized was the most important aspect, as highlighted in [More...]

Real GDP Fell Slightly In 2008:Q3

Thu, 30 Oct 2008 20:04:00 GMT

The Bureau of Economic Analysis reported today that U.S. real GDP fell at a 0.3% annual rate in the third quarter of 2008. That's the second quarter of negative real GDP growth out of the last four, and puts the cumulative annual growth since 2007:Q3 at an anemic 0.8%. As expected, the most important factor was the 3.1% drop in real personal consumption expenditures during 2008:Q3. Given that consumption accounts for 70% of[More...]

Deflation Risk

Wed, 29 Oct 2008 16:52:00 GMT

There are plenty of things to worry about in the current economic situation. But deflation isn't one of them. Greg Mankiw had a great article last weekend in which he challenged the view that macroeconomists have learned enough to prevent a repeat of the Great Depression. Greg notes some disturbing similarities between our current difficulties and the problems of the 1930s: From 1930 to 1933, more than 9,000 banks were shuttered, imposing losses on depositors and shareholders of about $2.5 billion. As a share of the economy, that would be the equivalent of $340 billion today. The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser[More...]

Pocketfull of Multipliers (II): Options For Stimulus Packages

Tue, 28 Oct 2008 07:05:00 GMT

As the debate over the nature and size of a stimulus package wends its way through the Congress (0), (1), (2), I thought it would be useful to bring numbers into the debate, especially as we are considering fiscal stimulus in a time when the Bush Administration has constrained, by dint of previous profligacy, our options. In particular, I want to return to the issue of multipliers, discussed in nearly a year ago. Here, I want to provide a little more specificity, regarding the impact depending upon the type of[More...]

Further Rate Cuts Needed

Mon, 27 Oct 2008 18:14:00 GMT

The Fed will probably vote for another 50-basis-point cut in the fed funds rate this week, bringing its target down to 1%. Here's why I think that would be a good idea. First, the current fed funds target of 1.5% remains 50 basis points above the 3-month T-bill rate. That gap is the one factor contributing to the worrisome TED spread that the Fed clearly has the power the change. 3-month Treasury bill rate (blue line) and fed funds target (red). Source: FRED. [More...]

The Federal Reserve's Balance Sheet

Sat, 25 Oct 2008 19:21:00 GMT

On Thursday, the Federal Reserve issued its weekly H.4.1 report, which provides details of the Fed's balance sheet. Once upon a time, this was one of the least interesting of the government's many releases of data. These days, it's become one of the most exciting. The essence of the Fed's balance sheet used to be quite simple. The Fed's primary operations would consist of either buying outstanding Treasury securities or issuing loans to banks through its discount window. It paid for these transactions by creating credits in accounts that banks hold with the Federal Reserve, known as reserve deposits. Banks can turn those reserves into green cash any time they desire, so the process is sometimes loosely summarized as saying that the Fed pays for the Treasury bills it buys or loans it extends by "printing money". Before the excitement began, the Fed's assets[More...]

Yikes! Euro Area Edition

Sat, 25 Oct 2008 19:12:00 GMT

From the FT today: Survey underlines grim outlook for eurozone By Ralph Atkins in Frankfurt, Published: October 24 2008 11:23 | Last updated: October 24 2008 18:37 The eurozone economy contracted sharply in October as the global bank crisis slammed the brakes on business activity and blackened the outlook for the 15-country region, a closely watched survey indicated on Friday. The steep fall in eurozone purchasing managers' indices, which showed private-sector output falling at the fastest rate since the launch of the euro in 1999, suggested the region was facing prolonged recession-like conditions, which could last well into next year. But economists warned that the full[More...]

Middle Kingdom Malaise? The Latest Chinese GDP Figures

Thu, 23 Oct 2008 23:05:00 GMT

Monday's announcement that Chinese growth was decelerating was not surprising; that it decelerated to below the consensus of 9.7% growth to 9% (y/y) in 2008Q3 was a surprise. This was reflected in the headlines: "China growth rate slows sharply" (FT), "China less likely to buffer world crisis as its economy slows" (LA Times), "China's economy feels chill from global crisis" (AP). For detailed numbers, see Haver. Figure 1 depicts the growth rate for China's real GDP over the past 14 years. [More...]

Brief questions and answers on the fiscal stimulus

Thu, 23 Oct 2008 19:28:00 GMT

No time to post much today, so I'll just pass along an interesting question and brief answer from the Econbrowser mail room. A reader writes: My wife and I were thinking of getting some work done on the house. I thought to myself that this would also be our civic duty since it would keep economic activity going elsewhere. Then I thought to myself that Paul Krugman plans to spend my money anyway-- via government stimulus spending that would come out of higher taxes (at some stage). I can't afford both new walls on the basement and landscaping for Princeton's new Krugman Park. Three questions: a) Am I right that such Keynesian spending is essentially to force the hand of oversaving consumers sitting on their cash? (No doubt in our collective interest.) b) If enough people think this through would they increase savings still further and cancel[More...]

CRA and Fannie and Freddie as betes noire

Tue, 21 Oct 2008 21:20:00 GMT

There is so much chaff floating around about the roles of Fannie and Freddie and of the Community Reinvestment Act in the current crisis, despite the best efforts of economists like Jim Hamilton (0) (1), Mark Thoma and Janet Yellen, that it seems worthwhile to once again go through some of the arguments that have been forwarded. From David Goldstein and Kevin G. Hall, "Private sector loans, not[More...]

Bailouts For Commodity Speculators

Mon, 20 Oct 2008 19:21:00 GMT

If automakers are lining up at the trough, why not Big Agra? Scott Irwin alerts me to this story from DomesticFuel.com: Ethanol plants that have been hurt by dramatic fluctuations in commodity prices this year could be eligible for assistance from the US Department of Agriculture. Secretary of Agriculture Ed Schafer told reporters after an address to the World Food Prize breakfast in Des Moines Friday that "some plants are under pressure because they've been speculating on corn." Schafer said there are USDA programs that could, for example, help the companies refinance and reduce their[More...]

Rapid Downward Revisions In Expected Growth

Sat, 18 Oct 2008 21:45:00 GMT

...or: "Yikes!"There have been plenty of accounts that have noted the growing anxiety over economic growth over the short to medium term. However, this forecast from Deutsche Bank, released last night, is quite sobering, especially when compared to forecasts released just two weeks ago. Figure 1: Log GDP, from 26 Sep release (blue line), and implied GDP gaps from WSJ survey (3-7 ctober survey, green x) Deutsche Bank (3-7 October forecast, teal +), and Deutsche Bank (17 October forecast, red square). Source: BEA, CBO (xls), WSJ [More...]

Balancing California's Energy Needs With Its Environmental Goals

Fri, 17 Oct 2008 06:19:00 GMT

That was the topic of a talk by Stanford Professor Frank Wolak at the UCSD Economics Roundtable on Tuesday. Among the initiatives on the November 4 ballot for California voters is Proposition 7, which would require all utilities to obtain 20% of their power from renewable energy by 2010, with this fraction increasing to 40% by 2020 and 50% by 2025. Investor-owned (as opposed to government-owned) California utilities are already subject under existing law to the 20% goal for 2010 and 33% by 2020. Frank noted that the investor-owned utilities have so far made little progress toward that goal.[More...]

Credit Spreads And How Lax Is Monetary Policy?

Thu, 16 Oct 2008 16:44:00 GMT

All eyes have been on the housing market as the trigger for the financial crisis, but we're all aware that there are other potential "triggers" for additional distress: auto loans and credit cards. In addition, spreads are not everything -- levels of real interest rates matter as well. Let's start with credit spreads. Here are some pictures, courtesy of Deutsche Bank. Chart 5 from Mayer, Hooper, Slok and Wall, "From financial crisis to economic crisis?" Global Economic Perspectives (October 15, 2008). [More...]