Financial News

[Jenksismyhero]

First of all, unemployment benefits are limited and ending, so you can't count that very much. Secondly...an actual paying job does a heck of a lot more in terms of earning power than unemployment benefits.

 

Third...whaddya mean the New Deal infrastructure programs did little to decrease unemployment? It dropped from 25% to 15% in the 4 years between when it was implemented and the 1937 budget-balancing cutbacks. It dropped massively again when the federal government began a much larger jobs program in 1940.

 

 

Of course it declined since he paid for millions to work, but it actually rose again a few years after it was implemented. Without the war, who knows where it would have ended up.

[Balta1701]

Of course it declined since he paid for millions to work, but it actually rose again a few years after it was implemented. Without the war, who knows where it would have ended up.

And it's worth noting that the rise was directly associated with cutbacks in those programs.

[southsider2k5]

Unless you are in the camp that believes that FDR actually lengthened the Depression 7 years with his actions...

 

http://newsroom.ucla.edu/portal/ucla/FDR-s...ssion-5409.aspx

 

 

[Balta1701]

Unless you are in the camp that believes that FDR actually lengthened the Depression 7 years with his actions...

 

http://newsroom.ucla.edu/portal/ucla/FDR-s...ssion-5409.aspx

It is an interesting camp to be sure. I like the goalposts phrase in this response.

Cole and Ohanian write that under "the New Deal... there was even less work on average... than before FDR took office." It turns out that by "before Roosevelt took office" Ohanian and Cole mean not the months before Roosevelt took office in late 1932 and early 1933 but, instead, an average of 1930-1932. 1929 was a boom year of extremely high employment. 1930 was an average year. 1931 was a bad year. But it was only after the financial crises of late 1931, say Milton Friedman and Anna Schwartz, that the cratering of the system of financial intermediation and the sudden rise in the reserve-deposit and currency-deposit ratios turned the downturn into the Great Depression. To compare the New Deal to the average of 1930-1932 is not just to move the goalposts--it is to pick up the goalposts and run as fast as you can out of the stadium. Cole and Ohanian work very hard to try to convince their readers that things got worse after Roosevelt took office. But, as they know well, they didn't: things got better--they just did not get enough better to get employment back to normal until the huge burst of federal deficit spending that was World War II.

 

And Cole and Ohanian cherry-pick their statistics. Do they tell their readers that unemployment was 22.9% in 1932 and down to 11.3% in 1939? No. They tell their readers that "hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933" without telling them that in 1949 hours worked per adult were 18% and in 1959 17% below their 1929 level. The 1929-1950 period saw the last sharp decline in the American workweek--a decline that does not mean that the economy was depressed and performing poorly in 1959 or 1949 (or 1939) relative to 1929, but instead that Americans had decided to take a substantial part of their increased technological wealth and use it to buy increased leisure.

[Balta1701]

I'm enjoying this IMF Paper counterpoint as well. Basically the point it comes to is that the Cole and Ohanian paper is wrong, and that as long as the desired interest rate is below the zero bound, inflationary policies will be strongly expansionary, but if you continue deficit spending once you reach a point that interest rates push upwards, that turns around and maintaining those deficits becomes contractionary.

[southsider2k5]

To be fair, that was the 2004 version, this is from the WSJ in 2009

 

http://online.wsj.com/article/NA_WSJ_PUB:S...6749137485.html

[Balta1701]

To be fair, that was the 2004 version, this is from the WSJ in 2009

 

http://online.wsj.com/article/NA_WSJ_PUB:S...6749137485.html

That first post specifically dealt with their choice of data from their 2009 version.

 

I think the strongest argument I read was that if you follow C&O's logic such that hiring was being depressed because wages were being artificially pushed too high, there should be either significant inflation or a monetary policy response to fight the inflation that wage controls should drive. Neither of those were observed throughout the 30's; inflationary pressures weren't there, because of the lower bound.

[southsider2k5]

That first post specifically dealt with their choice of data from their 2009 version.

 

I think the strongest argument I read was that if you follow C&O's logic such that hiring was being depressed because wages were being artificially pushed too high, there should be either significant inflation or a monetary policy response to fight the inflation that wage controls should drive. Neither of those were observed throughout the 30's; inflationary pressures weren't there, because of the lower bound.

 

If there is deflation, you don't need inflation to have "increases" in wages. Its kinda like jobs "saved". They don't show up as new employment, but the floor being put in is what is significant.

[Balta1701]

If there is deflation, you don't need inflation to have "increases" in wages. Its kinda like jobs "saved". They don't show up as new employment, but the floor being put in is what is significant.

Then that breaks the connection between those actions and delaying the recovery. That's sorta the point...once there's deflation, if you don't hold wages up, they'll continue to deflate, and there's really no reason for it to stop because you don't have to invest to turn a profit, you just have to horde cash. Exactly as where we are now. However, if you artificially start inserting inflationary pressures in there, you start kicking the ball back in the other direction.

[southsider2k5]

Then that breaks the connection between those actions and delaying the recovery. That's sorta the point...once there's deflation, if you don't hold wages up, they'll continue to deflate, and there's really no reason for it to stop because you don't have to invest to turn a profit, you just have to horde cash. Exactly as where we are now. However, if you artificially start inserting inflationary pressures in there, you start kicking the ball back in the other direction.

 

And you stop hiring, just like the report said.

[Balta1701]

And you stop hiring, just like the report said.

Then why did unemployment drop in half between 1933 and 1936?

[southsider2k5]

Then why did unemployment drop in half between 1933 and 1936?

 

That is like saying the stimulus didn't work because unemployment is still high now. Is that what you are saying?

[Balta1701]

That is like saying the stimulus didn't work because unemployment is still high now. Is that what you are saying?

That doesn't answer my question. I can give a consistent answer right now (the stimulus hit was too small to fill the output gap or to push back against deflation), you just won't like it.

 

You've explicitly stated that businesses would have put off hiring because wages were artificially increased, yet a drop from 25% unemployment to 13% unemployment over a period of less than 4 years is a huge jump. Can you give a similar reason why, if hiring was so strongly impeded by FDR's programs...hiring didn't pick up in the 3 years between the crash and FDR taking office, and why exactly employment shot upwards so far if there was such a strong drag on it?

[southsider2k5]

That doesn't answer my question. I can give a consistent answer right now (the stimulus hit was too small to fill the output gap or to push back against deflation), you just won't like it.

 

You've explicitly stated that businesses would have put off hiring because wages were artificially increased, yet a drop from 25% unemployment to 13% unemployment over a period of less than 4 years is a huge jump. Can you give a similar reason why, if hiring was so strongly impeded by FDR's programs...hiring didn't pick up in the 3 years between the crash and FDR taking office, and why exactly employment shot upwards so far if there was such a strong drag on it?

 

Those don't necessarily disqualify anything. That's the point. One thing to remember is that those numbers don't break out private and public employment. The New Deal was MASSIVE increase in governmental employment. I haven't seen figures that show anything about what that did private sector employment. It could very well that increases in governmental hiring could have crushed competing private sector employment. Using bald employment numbers doesn't show anything in that case.

 

Honestly I don't even know that I buy the theory, I just threw it out there as an intellectual counter to the absolutism that was being presented.

[Balta1701]

Those don't necessarily disqualify anything. That's the point. One thing to remember is that those numbers don't break out private and public employment. The New Deal was MASSIVE increase in governmental employment. I haven't seen figures that show anything about what that did private sector employment. It could very well that increases in governmental hiring could have crushed competing private sector employment. Using bald employment numbers doesn't show anything in that case.

 

Honestly I don't even know that I buy the theory, I just threw it out there as an intellectual counter to the absolutism that was being presented.

I'll be the first to agree that there was massive government hiring at the time. My point I think is pretty simple...if unemployment dropped in half and turned around basically at the moment FDR entered office, then something worked, so if that model is right and wage inflation was a major drag on hiring...then it was completely overwhelmed by some other program. Something must have worked very, very well.

 

P.s. I've enjoyed this discussion quite a bit.

[southsider2k5]

I'll be the first to agree that there was massive government hiring at the time. My point I think is pretty simple...if unemployment dropped in half and turned around basically at the moment FDR entered office, then something worked, so if that model is right and wage inflation was a major drag on hiring...then it was completely overwhelmed by some other program. Something must have worked very, very well.

 

P.s. I've enjoyed this discussion quite a bit.

 

Except that it didn't actually fix the underlying problem in the private sector if it is true. All it did was drag it out until the wage rates fell enough for private hiring to pick up again. If the theory is true than the private sector recovery could have happened years earlier, and the years of extra spending might have been unneeded.

 

 

[kapkomet]

There is a certain camp that says we shouldn't have done anything re: stimulus. I can point and counterpoint on this all day... but there certainly is merit that the timing of this "recession" would be half of what it is, but more severe, which would have real results instead of just pushing this gigantic bubble out more and more.

 

Sure, there's this "extend the bubble so less people get hurt" theory, but really, is it?

 

And, people are sitting on cash because no one knows the business environment right now other then the government is going to take more and more... so of course business sits on cash. It's what happens when you have no real policy but to extend things out, hoping it gets better.

 

One last point, this is NOT just a Democrat/Republican issue. Both parties are just as guilty as the other in this thinking.

[NorthSideSox72]

There is a certain camp that says we shouldn't have done anything re: stimulus. I can point and counterpoint on this all day... but there certainly is merit that the timing of this "recession" would be half of what it is, but more severe, which would have real results instead of just pushing this gigantic bubble out more and more.

 

Sure, there's this "extend the bubble so less people get hurt" theory, but really, is it?

 

And, people are sitting on cash because no one knows the business environment right now other then the government is going to take more and more... so of course business sits on cash. It's what happens when you have no real policy but to extend things out, hoping it gets better.

 

One last point, this is NOT just a Democrat/Republican issue. Both parties are just as guilty as the other in this thinking.

Hey, a non-Kaperbole post! Yes!!!

 

Now, I will ask you, do you really think that if we hadn't done any stim package, and done nothing, that the recession will have been shorter? Also, are you suggesting doing nothing, or instead doing tax cuts? Remember by the way that a solid half of the Stim bill was tax cuts of one kind or another.

 

[Balta1701]

And, people are sitting on cash because no one knows the business environment right now other then the government is going to take more and more... so of course business sits on cash. It's what happens when you have no real policy but to extend things out, hoping it gets better.

Yay, a point that can be discussed and debated with actual data. There are surveys out there measuring the reasons why businesses aren't hiring...and it turns out, political uncertainty is not a strong one. According to the latest National Federation of Independent Business small business survey, 64% of small businesses cite economic conditions and lack of sales prospects as their reasons for not hiring: just 15% percent cite “political conditions.”

 

One other point I wanted to make re: Jenks that I forgot yesterday...there is a bill right now sitting in Congress that would do basically exactly what Jenks was advocating yesterday...$12 billion in tax breaks for small businesses that expand, $30 billion in federal loan dollars to fill the gap where private banks are still unwilling to lend to small businesses since they don't need to take on risk in a deflationary environment. I'm sure you can guess which house of Congress has it stalled.

[Jenksismyhero]

Yay, a point that can be discussed and debated with actual data. There are surveys out there measuring the reasons why businesses aren't hiring...and it turns out, political uncertainty is not a strong one. According to the latest National Federation of Independent Business small business survey, 64% of small businesses cite economic conditions and lack of sales prospects as their reasons for not hiring: just 15% percent cite “political conditions.”

 

One other point I wanted to make re: Jenks that I forgot yesterday...there is a bill right now sitting in Congress that would do basically exactly what Jenks was advocating yesterday...$12 billion in tax breaks for small businesses that expand, $30 billion in federal loan dollars to fill the gap where private banks are still unwilling to lend to small businesses since they don't need to take on risk in a deflationary environment. I'm sure you can guess which house of Congress has it stalled.

 

Yeah, i'm so tired of our government right now. Republican, Democrat. It doesn't matter, they all suck, none of them work for the country or for their constituents. They follow the money trail, period. And in this case it's even worse, because frankly all the Repubs want to do is block the bill now so that in the spring they can get the credit for it.

 

It's too bad we can't hold a vote to replace all of them in one election year. Wipe the slate clean and start again. This is one of the main reasons why i'm fine with groups like the Tea Party. If you actually listen to their message, it's not strictly anti-liberals. It's anti-the current Washington establishment. Despite my disagreement with Obama, I was hoping he'd bring in a new attitude and a new way of doing business (same with Bush). But at this point I should be old enough to realize that it's all a pipe dream. No one will go to Washington and fix it, not matter what they say (or even believe).

 

Sigh.

[Cknolls]

New home sales= 276k vs 334k exp. M/M change -12.2%. What was it that that Biden said,.....oh yeah,"recovery summer"

[Balta1701]

New home sales= 276k vs 334k exp. M/M change -12.2%. What was it that that Biden said,.....oh yeah,"recovery summer"

Can I also add that it's exactly this plunge that I was expecting when I decided to continue renting upon switching jobs late last year rather than trying to cash in the tax-credit?

[jasonxctf]

http://www.reuters.com/assets/print?aid=USTRE67N55X20100824

 

 

[NorthSideSox72]

Can I also add that it's exactly this plunge that I was expecting when I decided to continue renting upon switching jobs late last year rather than trying to cash in the tax-credit?

I find this silly. Trying to find an exact bottom is something generally not smart with any investment, real estate or otherwise.

 

Seems clear to me that some time in the 2009-2011 period will end up being a bottom for the market, that's what pretty much everyone is saying. I said that last year. Its going a little later than I would have guessed (I think I said late 2009 or early 2010 originally), but again, you should really shoot for general timeframes on this market, not high precision. If you wait too long, mortgage rates will start to go up (they HAVE to, because interest rates HAVE to go up somewhat soon, and inflation with it). If I were you, if you see youself buying somewhere in the next couple years, I'd start bargain hunting now (lots of foreclosures and distressed properties to choose from), and jump at something when it looks to you like the place you want.

 

I'm perfectly fine going in a little bit early, versus trying for perfection and getting socked with a bigger mortgage.

 

[Balta1701]

I find this silly. Trying to find an exact bottom is something generally not smart with any investment, real estate or otherwise.

 

Seems clear to me that some time in the 2009-2011 period will end up being a bottom for the market, that's what pretty much everyone is saying. I said that last year. Its going a little later than I would have guessed (I think I said late 2009 or early 2010 originally), but again, you should really shoot for general timeframes on this market, not high precision. If you wait too long, mortgage rates will start to go up (they HAVE to, because interest rates HAVE to go up somewhat soon, and inflation with it). If I were you, if you see youself buying somewhere in the next couple years, I'd start bargain hunting now (lots of foreclosures and distressed properties to choose from), and jump at something when it looks to you like the place you want.

 

I'm perfectly fine going in a little bit early, versus trying for perfection and getting socked with a bigger mortgage.

I don't think that one was shooting for the bottom...I think that one was realizing that the government distortion on the market was going to be temporary and potentially very damaging in the medium-term.

 

I still think there's 10-20% to lose in a lot of markets before an equilibrium is reached...but from late this year on, It's much more of an open question when that'll be hit. I think though that when the government offers you an extra $8000, you're going to pay extra on the place to make sure you take advantage of that credit...but once the credit vanishes, some portion of that value is going to immediately vanish.