There is no problem…
March 30th, 2008… unless there’s a REALLY BIG problem. Or so says Brad Delong (see MR for the pertinent excerpt).
Granted I’ve been a little distracted lately tussling in my little corner of the library, but I don’t see a problem with the usual econ 101 indicators of recession. Unemployment looks ok. Employment decreased in January for the first time since the last recession, but employment changes were negative several times in the nineties after that decade’s recession had already past. Consumer confidence is at a 5 year low, but we weren’t in a recession 5 years ago. Personal income and consumption is up. Industrial production is up, capacity is increasing and capital utilization is about at its historic average. Sales are flat the last couple of months but there’s growth over last year at this time.
So what’s the REALLY BIG problem? Well, if banks start seeing risk where there ain’t (e.g. credit lines businesses use to make payroll), then we might to see a problem. Seeing risk everywhere, they won’t make loans that should be made.
The Fed’s actions (including lower rates) can be see in this light. They want to calm the finance guys down so they don’t cause a real problem. If you ask me, the Fed is basically doing something because something must be done. Lowering rates and taking “unprecedented” actions over the weekend are somethings.
Having no insight into the psychology of bankers, I’m not sure if there is or there will be a REALLY BIG problem. To the extent psychology isn’t a fundamental, the fundamentals look good… or at least ok.
PS – This is a neat site. It shows what the recession timing committee looks at when deciding when recessions start.
PSS (or is it PPS) – The Fed may also be inflating to reduce the real size of mortgages. If it can be proven that Ben is explicitly doing this, I’ll petition to have him canonized.
March 31st, 2008 at 1:41 am
[...] The Fed may also be inflating to reduce the real size of mortgages. If it can be proven that Ben is explicitly doing this, I’ll petition to have him canonized. [...]