While the collapse of the USD from its overinflated value has had a beneficial effect, it was not enough to compensate for the balance of other forces driving unemployment higher.
And what the US public is feeling is the employment-recession, which starts sooner and lasts longer than the GDP recession, because GDP growth needs to be in excess of 0% simply in order to stabilize unemployment.
... is that we are certainly sliding into a recession.
If we had economic growth below the break-even growth rate for maintaining employment ... which we had ... and accumulating unplanned inventories ... which we had ... then it is straightforward that we are highly likely to see a decline next quarter.
Obviously the kind of decline that we have seen in the USD will have given a secular boost to employment ... and even with that, the employment picture is still bad ... seasonally adjusted, U6 unemployment is up for two months straight, and three of the past four:
JAN08 9.0
FEB08 8.9
MAR08 9.1
APR08 9.2
... which agrees with the GDP growth rate figure in the neighborhood of 0.6, which would be too low to keep unemployment rates from rising.
You sort of showed where I was wrong, and then followed it up by showing how I was right.
I could have gone on a full-blown rant about the CPI, but I wanted to keep this one short.
More importantly, why should the GDP deflator be different from the CPI? And why is the GDP deflator always less than the CPI?
...other than politics, of course.
First of all, just about everybody including the BLS concedes that birth/death adjustments will miss a downward turning point, and that criticism is well made. One suspects the adjustment will be, uh, re-adjusted after this recession.
Further on the GDP,
Stirling Newberry has a similar, more theoretical take on the GDP number (and BTW, if anybody has his email, it would be terrific if he could be persuaded to crosspost here). Anyway, here's the takeaway quote about the GDP deflator you reference:
You want "two quarters of negative GDP?" Well you've got them measured in the world average of currency. What has happened is a slight of hand to turn the devaluation of the dollar into non-inflation.
How did this work? Well gas prices and housing prices are in tension. The fall in housing prices is being used to offset the rise in gas prices in the GDP deflator. Presto! Having to bleed money to hold on to your house becomes "growth".
Now, I seem to recall that during the housing bubble most of us were excoriating the BLS for not including housing inflation in their CPI. So why should we ignore it now? Again, with reference to Stirling's point, when you substitute the Case-Schiller housing index for owners equivalent rent in CPI, here is what you get:
A very interesting graph, no? I rather think that Tim's graph is the most accurate one. Energy and food inflation are the only things keeping us from potentially a deflationary spiral. What say you?
On the government cooking the books, I usually want to stay with the official numbers, on the theory that a watch that is always 10 minutes too slow still gives me very usable information! To wit, here are the GDP and CPI charts from Shadow Government Statistics:
If I want to know if the GDP is going up or down, or if the inflation rate is increasing or decreasing, don't both the official and the SGS charts give me the same information? The direction of the inflation rate, and the GDP growth, is virtually always the same. Granted, in our current case the SGS number would be negative, but is there really a huge difference between +.6 and -.6? I think the economy (as a whole) is likely to improve by Q4. If so, the line on the GDP graph will be pointed upward on either the official or the SGS chart.
If we call for a recession, and then the official numbers don't confirm out prediction, we shouldn't whine about the official numbers not bearing us out. If anything, we should indicate that we are calling for a recession using the SGS formula.
Sorry for the lengthy wonky reply, but isn't that exactly the kind of discussions we want to have here?
For all who are posting on EP, we are going through one hell of a distributed denial of service (DDoS) attack. This has been going on now for over 48 hours. They are working on it, but please be patient. If you see the site not respond or have a slow response, that is not normal for this site and will be resolved as soon as the DDoS is located and stopped.
A distributed denial of service means that a series of hackers, usually from China actually, hack into vulnerable PCs and then all at once, try to access one domain. I use bluehost.com and so there are many accounts and many servers upon which this attack is being made. In other words, it's not EP they are probably attacking.
You might be interested to know that DDoS attacks are constant now, attacking sites in the United States so they is a major problem, not just for our site but for major sites such as Google, Yahoo and Microsoft.
When this site is running normally the response is fast, it can handle large traffic and hundreds of users, no problem, this is a temporary issue.
And if you see any others writing in depth blogs on trade, economics, labor and so on, invite 'em on over.
We created this community site for the economics trade, policy wonks.
On your analysis, oh so true, the BLS spin is unbelievable.
I have one additional fact people do not realize, guest workers are counted in the BLS stats. So, take STEM occupational areas, it will come up with an incredibly low unemployment rate in spite of the aggregate number of jobs being down. BLS is counting those guest workers who are here temporarily, often to train and then take that job offshore. That's the H-1B Visa.
The big story of the last 20 or so years is the gutting of the wealth of the American working/middle classes, and its redistribution to developing Asia, especially China, to corporate executives and old money, and more recently to petro-sheikhdoms.
............which is,when you take a step back and actually think about it, is what you, the citizenry, have been getting from every politician for nigh on to 60 years.
Something profound is now happening; at least so I believe. This long primary with lots of candidates being discussed and argued about in the political Blogoshere by millions of citizens has resulted in a quantum leap in people's understanding of the candidates. In their understanding of the process and how it has come to be rigged.
Let's put it real simply; without the Internet Obama walks away with the nomination. Now that is not so certain. Why? Because millions have been on line dissecting every word and gesture of his.
Verdict: Insincere.
Every politician from now on will have to be who they say they are as I do not believe any 'persona' assembled by the handlers of same will be able to stand up to the months of scrutiny.
So dumb ass statements about anything that really affects people will have a very shortened half-life.
I'm just not sure, unless the only thing really being decoupled from in the global economy is the US middle class. i.e. they are replacing their consumer market on a global scale as the US middle class gets wiped out.
If I look at it all from just a US macro economic data, I cannot for the life of me understand this at all.
Well, I never put too much faith in one day's trading. That being said, the market has rallied on bad news in the last month. Enough so that this rally is saying something about the economy improving between now and the end of the year. Today is generally about the Fed being done easing
(maybe), so the dollar is strengthening, which means OIL, gold, rice, wheat, and did I mention OIL are tanking. *IF* the trend continues, that would play into my scenario in which we have reached the top in inflation readings until the (growth) recession is over.
How I feel about the current state of things.
I'm positive we're looking at two Americas, an economy for multinational corporations and the super rich and another for the rest of us.
But, today the stock market is rallying. I just have a hard time understanding this at all considering the overall fundamentals are so weak and 70% of the US economy is consumer.
I am trying to make sense of the commodities spike, and I found myself disagreeing with Prof. Krugman that "Peak Oil!" was the explanation (the subject of the first diary). In exploring the issue, I was surprised that in the face of rampant inflation, China's central bank still had negative real interest rates. So it seems 2 of the world's dynamos are making use of mirror-image easy money policies response to 2 opposite but interconnected crises.
There is at least one part part to the series, but I have to organize and edit the source material.
Yuck. Thanks for posting on this, I'm still confused about it all, but a 1 trillion dollar time bomb, I noticed the statement that if evaluations (prices) dropped, people will just stop paying on their loans. Yet, to me, housing prices have to drop because they are out of the stratosphere in terms of what most people can afford.
I've got a figure that 23% of all home mortgages are predatory, or subprime loans.
So here I can see refinancing these to fair rates and so on,
but I don't see why the FHA should be backing loans of $750k. Seems to me that just keeps the overpriced, super inflated prices going on, such as Silicon valley.
What do you think of Hillary's plan to
Clinton has also talked about a new housing stimulus package to provide $30 billion directly to states and local governments to buy foreclosed or distressed properties. The cities and states could then resell the properties to low-income families or convert them into affordable rental housing
They keep things, such as tariffs, super high and promise to lower them, but only after they capture that entire market, get that industry to move to China and all goods in that market come from China (let's say auto parts as an example)....then they lower tariffs since nothing will be imported into their markets.
So, they can play the same rigged game with the exchange rate.
They are loaded, positively loaded with cash as well, US dollars, so I don't think it will hurt them much.
It's a shame Charles McMillion (he is blogging here) has gone on vacation until Sept. He really has studied China and could give some deep insight.
Intuitively for myself, I'm not worried about China and their stock markets, I'm much more worried about are massive trade deficit with China and I don't see them missing their target to dominate the world economically in 5 years.
... available to it, which is that since China has pursued a policy of a steeply discounted exchange rate, it can allow the exchange rate to rise against the US$.
What this sacrifices is some hypothetical competitiveness in the US markets, but since the US economy is heading into recession, and Chinese producers have driven domestic US competitors out of business in so many industries, there may well be very little lost by allowing the renminbi to rise against the US$.
Further, this does not require abandoning the policy of a steeply discounted exchange rate, but simply a shift in the focus from the US$ to the Euro and Yen (and other trading currencies, such as UK Pound, Australian Dollar, Swiss Franc, etc).
And the Chinese are already positioned to adopt this policy in an incremental way that poses the least risk of upsetting financial markets, since they switched from a US$ peg to the Singapore model of a hidden basket peg.
Allowing the renminbi to rise against the US$ would help moderate the cost-push side of Chinese inflation drivers, and could well be enough to keep inflation inside the kind of 5%-10% target that would make the most sense for the position that the Chinese find themselves in.
... the American people think we are in recession because they are more in touch with labor markets than with the profit side of aggregate income.
Look at U6 unemployment from quarter to quarter:
APR.07-JAN.07: 8.2-8.3=-.1%
JUL.07-APR.07: 8.3-8.2=+.1%
OCT.07-JUL.07: 8.4-8.3=+.1%
JAN.08-OCT.07: 9.0-8.4=+.6%
APR.08-JAN.08: 9.2-9.0=+.2%
While the collapse of the USD from its overinflated value has had a beneficial effect, it was not enough to compensate for the balance of other forces driving unemployment higher.
And what the US public is feeling is the employment-recession, which starts sooner and lasts longer than the GDP recession, because GDP growth needs to be in excess of 0% simply in order to stabilize unemployment.
... is that we are certainly sliding into a recession.
If we had economic growth below the break-even growth rate for maintaining employment ... which we had ... and accumulating unplanned inventories ... which we had ... then it is straightforward that we are highly likely to see a decline next quarter.
Obviously the kind of decline that we have seen in the USD will have given a secular boost to employment ... and even with that, the employment picture is still bad ... seasonally adjusted, U6 unemployment is up for two months straight, and three of the past four:
JAN08 9.0
FEB08 8.9
MAR08 9.1
APR08 9.2
... which agrees with the GDP growth rate figure in the neighborhood of 0.6, which would be too low to keep unemployment rates from rising.
You sort of showed where I was wrong, and then followed it up by showing how I was right.
I could have gone on a full-blown rant about the CPI, but I wanted to keep this one short.
More importantly, why should the GDP deflator be different from the CPI? And why is the GDP deflator always less than the CPI?
...other than politics, of course.
First of all, just about everybody including the BLS concedes that birth/death adjustments will miss a downward turning point, and that criticism is well made. One suspects the adjustment will be, uh, re-adjusted after this recession.
Further on the GDP,
Stirling Newberry has a similar, more theoretical take on the GDP number (and BTW, if anybody has his email, it would be terrific if he could be persuaded to crosspost here). Anyway, here's the takeaway quote about the GDP deflator you reference:
Now, I seem to recall that during the housing bubble most of us were excoriating the BLS for not including housing inflation in their CPI. So why should we ignore it now? Again, with reference to Stirling's point, when you substitute the Case-Schiller housing index for owners equivalent rent in CPI, here is what you get:
courtesy of Tim Iacono of The Mess That Greenspan Made
A very interesting graph, no? I rather think that Tim's graph is the most accurate one. Energy and food inflation are the only things keeping us from potentially a deflationary spiral. What say you?
On the government cooking the books, I usually want to stay with the official numbers, on the theory that a watch that is always 10 minutes too slow still gives me very usable information! To wit, here are the GDP and CPI charts from Shadow Government Statistics:
If I want to know if the GDP is going up or down, or if the inflation rate is increasing or decreasing, don't both the official and the SGS charts give me the same information? The direction of the inflation rate, and the GDP growth, is virtually always the same. Granted, in our current case the SGS number would be negative, but is there really a huge difference between +.6 and -.6? I think the economy (as a whole) is likely to improve by Q4. If so, the line on the GDP graph will be pointed upward on either the official or the SGS chart.
If we call for a recession, and then the official numbers don't confirm out prediction, we shouldn't whine about the official numbers not bearing us out. If anything, we should indicate that we are calling for a recession using the SGS formula.
Sorry for the lengthy wonky reply, but isn't that exactly the kind of discussions we want to have here?
This comment has been moved here.
For all who are posting on EP, we are going through one hell of a distributed denial of service (DDoS) attack. This has been going on now for over 48 hours. They are working on it, but please be patient. If you see the site not respond or have a slow response, that is not normal for this site and will be resolved as soon as the DDoS is located and stopped.
A distributed denial of service means that a series of hackers, usually from China actually, hack into vulnerable PCs and then all at once, try to access one domain. I use bluehost.com and so there are many accounts and many servers upon which this attack is being made. In other words, it's not EP they are probably attacking.
You might be interested to know that DDoS attacks are constant now, attacking sites in the United States so they is a major problem, not just for our site but for major sites such as Google, Yahoo and Microsoft.
When this site is running normally the response is fast, it can handle large traffic and hundreds of users, no problem, this is a temporary issue.
And if you see any others writing in depth blogs on trade, economics, labor and so on, invite 'em on over.
We created this community site for the economics trade, policy wonks.
On your analysis, oh so true, the BLS spin is unbelievable.
I have one additional fact people do not realize, guest workers are counted in the BLS stats. So, take STEM occupational areas, it will come up with an incredibly low unemployment rate in spite of the aggregate number of jobs being down. BLS is counting those guest workers who are here temporarily, often to train and then take that job offshore. That's the H-1B Visa.
Thanks for coming over and cross-posting.
Keep it up, it'll make your stuff easy to find. Plus, the more people we get over here posting, the more commenters will come over to look.
Cheers.
The big story of the last 20 or so years is the gutting of the wealth of the American working/middle classes, and its redistribution to developing Asia, especially China, to corporate executives and old money, and more recently to petro-sheikhdoms.
............which is,when you take a step back and actually think about it, is what you, the citizenry, have been getting from every politician for nigh on to 60 years.
Something profound is now happening; at least so I believe. This long primary with lots of candidates being discussed and argued about in the political Blogoshere by millions of citizens has resulted in a quantum leap in people's understanding of the candidates. In their understanding of the process and how it has come to be rigged.
Let's put it real simply; without the Internet Obama walks away with the nomination. Now that is not so certain. Why? Because millions have been on line dissecting every word and gesture of his.
Verdict: Insincere.
Every politician from now on will have to be who they say they are as I do not believe any 'persona' assembled by the handlers of same will be able to stand up to the months of scrutiny.
So dumb ass statements about anything that really affects people will have a very shortened half-life.
Which is a very good thing.
I'm just not sure, unless the only thing really being decoupled from in the global economy is the US middle class. i.e. they are replacing their consumer market on a global scale as the US middle class gets wiped out.
If I look at it all from just a US macro economic data, I cannot for the life of me understand this at all.
Well, I never put too much faith in one day's trading. That being said, the market has rallied on bad news in the last month. Enough so that this rally is saying something about the economy improving between now and the end of the year. Today is generally about the Fed being done easing
(maybe), so the dollar is strengthening, which means OIL, gold, rice, wheat, and did I mention OIL are tanking. *IF* the trend continues, that would play into my scenario in which we have reached the top in inflation readings until the (growth) recession is over.
How I feel about the current state of things.
I'm positive we're looking at two Americas, an economy for multinational corporations and the super rich and another for the rest of us.
But, today the stock market is rallying. I just have a hard time understanding this at all considering the overall fundamentals are so weak and 70% of the US economy is consumer.
means you are near or given the illusion you're going to actually own something someday to keep you into the game.
It's actually the "Owe" nership society. Works like a charm, although I haven't figured out what "nership" is yet....
but unfortunately that's now taken by special interests and huge multinational corporations.
The health savings account thing never made any sense. No one can save enough for large medical bills.
a series that began with "Peak Everything?!?"
I am trying to make sense of the commodities spike, and I found myself disagreeing with Prof. Krugman that "Peak Oil!" was the explanation (the subject of the first diary). In exploring the issue, I was surprised that in the face of rampant inflation, China's central bank still had negative real interest rates. So it seems 2 of the world's dynamos are making use of mirror-image easy money policies response to 2 opposite but interconnected crises.
There is at least one part part to the series, but I have to organize and edit the source material.
Yuck. Thanks for posting on this, I'm still confused about it all, but a 1 trillion dollar time bomb, I noticed the statement that if evaluations (prices) dropped, people will just stop paying on their loans. Yet, to me, housing prices have to drop because they are out of the stratosphere in terms of what most people can afford.
I've got a figure that 23% of all home mortgages are predatory, or subprime loans.
So here I can see refinancing these to fair rates and so on,
but I don't see why the FHA should be backing loans of $750k. Seems to me that just keeps the overpriced, super inflated prices going on, such as Silicon valley.
What do you think of Hillary's plan to
?
They keep things, such as tariffs, super high and promise to lower them, but only after they capture that entire market, get that industry to move to China and all goods in that market come from China (let's say auto parts as an example)....then they lower tariffs since nothing will be imported into their markets.
So, they can play the same rigged game with the exchange rate.
They are loaded, positively loaded with cash as well, US dollars, so I don't think it will hurt them much.
It's a shame Charles McMillion (he is blogging here) has gone on vacation until Sept. He really has studied China and could give some deep insight.
Intuitively for myself, I'm not worried about China and their stock markets, I'm much more worried about are massive trade deficit with China and I don't see them missing their target to dominate the world economically in 5 years.
... available to it, which is that since China has pursued a policy of a steeply discounted exchange rate, it can allow the exchange rate to rise against the US$.
What this sacrifices is some hypothetical competitiveness in the US markets, but since the US economy is heading into recession, and Chinese producers have driven domestic US competitors out of business in so many industries, there may well be very little lost by allowing the renminbi to rise against the US$.
Further, this does not require abandoning the policy of a steeply discounted exchange rate, but simply a shift in the focus from the US$ to the Euro and Yen (and other trading currencies, such as UK Pound, Australian Dollar, Swiss Franc, etc).
And the Chinese are already positioned to adopt this policy in an incremental way that poses the least risk of upsetting financial markets, since they switched from a US$ peg to the Singapore model of a hidden basket peg.
Allowing the renminbi to rise against the US$ would help moderate the cost-push side of Chinese inflation drivers, and could well be enough to keep inflation inside the kind of 5%-10% target that would make the most sense for the position that the Chinese find themselves in.
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