"Recovery Indicators Are Being Ignored"...?

[opsec]

http://www.cnbc.com/id/29514935

Well, are they? Somebody tell me if this is right.

[offdalip]

wrong wrong and wrong

[opsec]

My gut told me that same thing. Now explain to me why it's wrong.

[Watcher]

I think the point is that if it wasn't for Obamas 'stimulus' plan then the economy could right itself naturally.

The politicians are taking actions which are openly sabotaging the economy.  Deliberately or not,  you decide...

[offdalip]

There are things called Leading economic indicators, Coincident economic indicators and Lagging economic indicators.

Employment rate is a lagging economic indicator example. the stock market is a leading economic indicator example.

employment tells you where the economy has been. stocks tell you where it is going.

each of these three indicators has a basket of bretheren with them. one does not stand by itself usually.

http://economics.about.com/cs/businesscycles/a/economic_ind.htm

http://fraser.stlouisfed.org/publications/ei/2008/

http://fraser.stlouisfed.org/publications/ei/

[Mike]

re: http://www.cnbc.com/id/29514935

Posted by: offdalip

wrong wrong and wrong

**********
The writer's implicit assumption is the Efficient Market Hypothesis (EMH).  That is, the Market is so finely tuned that everything is in balance.  And everything that is known is already priced into the Market.

Consumer's spendable incomes are on the rise, mainly as a result of lower energy costs.

So, the finely tuned balance turns to bullishness, based on consumer's increased spendable income.

*****
EMH is Wrong.   Markets are dynamic and moving.  Supply/demand=price is in balance only on rare occasions.

Even if one grants the writer EMH, there are problems.  1) Spendable income would have to be aggregated across all workers, including the unemployed.  I doubt it remains 'on the rise.'  2) Consumer's assets have declined; houses, stock market 'investments', retirement funds.... everything.  Yet the debt has remained the same.  So consumer's net has been devastated.  Even from an EMH perspective we are underwater.

*********
"The money supply is expanding rapidly."  This is true.  But for this to achieve the planner's goal, they have to increase it to the extent that debt has been defaulted on PLUS to the extent that debt should have been defaulted on.  That is, the instruments on banks and hedge fund's books (and on the books of everyone from mining companies to major corporations to pension funds) that should've been written down, but hasn't been.

*******
Another problem is that these bail-outs are at taxpayer's expense.  That is a liability to the taxpayer that makes EMH nuanced increases in consumer's spendable income, or supposed wealth, insignificant.
*******
Manipulative procedures are not good for anyone.  But, if central planners want a manipulative plan for success, it shouldn't be bailing out institutions at taxpayer's expense.  It should be giving each household about $30,000.  Cash.  No strings attached.  Just print it; no treasury bond sales.  Just print it on $1,000 bill paper and mail it.  This would get the bail-out money where it needs to go. 

Why $30,000 per household?  Because that is roughly the kind of bail-outs central planners are talking about.  That is a rough estimate of the magnitude of the insolvency. and it could be greater.

"Wrong, wrong. Wrong.

[mantis308]

Well said Mike.

Consumer income has increased for five straight months for probably dozens of reasons. I'll list the few that come to mind:
1. (the biggest in my opinion) Consumer income measurements doesn't include unemployment, which basically removes the lower income segment of the population being measured.
2. "adjusted for inflation" after 5 solid months of deflationary activity means the value will increase, not decrease.
3. Increase in savings vs. decrease in borrowing means more returns on savings and less interest in debt.

The biggest red herring I see in the article however, is the treasure curve they mention. This is due to collapsing stocks, people are dumping those and moving to bonds and bills, knowing in advance they are a loosing proposition. This is not a recovery indicator to me, rather than a symptom of a collapsed market.

These factors are all being used to manipulated the money supply. Probably because the goal of the manipulation is consolidation of power. Get rid of the stock market, force nationalization of private industries, etc.

I like this article-
http://online.wsj.com/article/SB123612575524423967.html
Gives a statistal/historical analysis of a depression.

Looking at all of the events from our 34-country history, we find that there is a 28% probability that a "minor depression" (macroeconomic decline of 10% or more) will occur when there is a stock-market crash. There is a 9% chance that a "major depression" (a fall of 25% or more) will occur when there is a stock-market crash. In reverse, the chance that a minor depression will also feature a stock-market crash is 73%. And major depressions are almost sure to have stock-market crashes (our data show the probability is 92%).

[Mike]

mantis308,

We like the same paragraph.

The abridged version:

...
There is a 9% chance that a "major depression" ... will occur when there is a stock-market crash.
...
 And major depressions are almost sure to have stock-market crashes (our data show the probability is 92%).
...

For their methodology:
http://online.wsj.com/article/SB123612575524423967.html

The authors purposely ignore the cause of depressions, but look only for correlations,  They pay special attention to stock market declines correlated to depressions. 

They bring up the interesting correlation of wars to depressions, then dismiss it,

Considering the 1917-21 post-WW I depression and the post WW II, 1946, recession, wars are pretty correlative and maybe Afghanistan and Iraq shouldn't be dismissed because they were not global.  They were substantial to the U.S.

GDP is always used as a reference to depressions.  It is unusable in wartime and in comparing a wartime economy to a peacetime economy because during wartime it is inflated by all kind of non-productive activity,... er rather, destructive activity.

****
Sometimes correlations will point to causes.  What were the causes of previous and current depressions?  I'll throw these ideas, off the top of my head, for the sake of argument and correction:

* Current depression was caused by over-investment in housing that proved to be non-productive.

* 1946 wasn't a new depression or even a recession.  The decline in GDP was a result of GDP measuring wealth destruction of war as "domestic product."  It should have been subtracted, not added.

**********

* 1929-1946 The Great Depression was caused by over-investment in the stock market.  Returns were dependent on a greater fool rather than wealth creation.  So returns ultimately couldn't support the debt used to purchase stocks.  Elsewhere, weather caused investments in farms to turn non-productive. 

Monetarists would say it was a lack of liquidity.  I would say that a lack of liquidity was not the real cause, but the result.

***********

1920-21 Depression was caused by European hyperinflation???

**********

1907-1908 Panic: cause? San Francisco Earthquake?  Run on banks following failed attempt to corner copper market?

***********

1893 Worst Depression in US history.
*(1870-1890) number of farms grew by 80%.  Nationwide ~29% of farmers were mortgaged.  Mechanization caused increases in production which caused a decline in prices resulting in insufficient income for debt service on a lot of farms.
 
I thought this was interesting:
http://eh.net/encyclopedia/article/whitten.panic.1893