Wednesday, September 7, 2011

"Reasons for Optimism"

Last I looked, the talk was of a double-dip recession. But at the Businomics Blog, Bill Conerly doesn't just repeat the talk. That makes him interesting.

I'm taking a quick look at Reasons for Optimism on the Economic Outlook: 2011 second half and 2012 first half. Conerly writes:

We finally have the money supply growing as it should.

So I took a look at what FRED shows:

This is a short-term graph (only since 2006) and the values are indexed to group the trend-lines together and maximize visibility. Looks like all three money measures have been expanding since mid-2010.

Conerly writes:

This money supply growth was accompanied by loan growth, believe it or not.

So I took a look at what FRED shows:

This is a longer-term graph (since the 1980s) and again the values are indexed to save space. The blue is "commercial and industrial" loans. The red is "consumer credit".

Looks like the fall of consumer credit since 2008 was out-of-character. A measure of the severity of the downturn, I suppose.

Commercial and industrial loans rise and fall with more regularity, attuned to the business cycle.

What I like about this graph is that both trend-lines have turned up -- and that the turning-point seems to have come much sooner this time than than it did after the two previous recessions.

Conerly writes:

How long until the money supply increase pushes the economy upward? I often use a rule of thumb of 12 months... Right now I believe the time lag will be shorter, more like six to nine months. That's grounds for some optimism in fourth quarter 2011, with even more optimism for the first half of 2012.

It's nice to read something like that, once in a while.


jim said...

Hi Art,

Not to be a dark cloud on your sunshine, but the Fed data on consumer loans may not show the true nature of the beast.

Apparently securitized consumer loans do not appear as consumer loans, but as consumer loans become un-securitized they do start to show as consumer loans.

The Arthurian said...

Quite a mountain there, TOTALSEC, with a very sudden start.

Jazzbumpa said...

What I like about this graph is that both trend-lines have turned up

No. The data lines show blips. Throw actual trend lines on the graph and you will find them virtually unaffected by the most recent several months.

Anyway, since private debt is the can you take its increase as good news?


The Arthurian said...

Okay, I can do that. Is "data lines" the common usage? I know that Excel and you agree about "trend" lines.

"Anyway, since private debt is the can you take its increase as good news?"

That's the problem, isn't it. But we DO have to grow, right? We have to change our policies: If we are starting to grow, soon the Fed will be raising interest rates again to fight inflation. Because they know of no alternative.

I say, don't use monetary policy to fight inflation. Use fiscal policy to fight inflation: Tax incentives to accelerate the repayment of debt. But it has to be in place BEFORE they want to raise interest rates, right?

By the way... if we have inflation because the economy's growing because people are borrowing, then it is the borrowing that was already done that is causing inflation. (Thus, repayment of debt is appropriate.) But raising interest rates chiefly affects *future* borrowing. And THAT is bad for growth.

Clonal said...


You said:
But we DO have to grow, right?

Why do we have to grow? I mean that seriously. I mean why is it that macroeconomic models invariably require growth to stay in the same place?

The answer to that question should add some clarity to your thinking.

The Arthurian said...

I need a reason, Clonal? I want more stuff.
A faster computer maybe.
A faster car.
A comfortable retirement.
And, you know, more income. Everybody wants more income.

If my thinking seems cloudy to you, perhaps it is because you focus on the wrong thought.

I do not accept the premise that we have reached the limits to growth. I accept the premise that when money is mismanaged, everything money touches seems to go bad.

Clonal said...


You did not read my question right -

The question (I repeat) was -

why is it that macroeconomic models invariably require growth to stay in the same place?

see my e-mail to you. In particular, see my comments at TC's article - Monetary policy and Human misery

I think we are both aiming at the same beast, but from different angles!

I argue that we know that from 1978 to 2008 there was real GDP growth. But I show that during that entire period, the real hourly wage was stagnant, and actually declined when we factor in the tax to the financial sector! (In other words subtract household debt obligations from the hourly wage)

We know that the economy goes into recession, and unemployment increases once the real gdp growth rate falls below a non zero positive number that is greater than the population growth rate. Since we have established that the real hourly wages have been stagnant to actually declining during this period where is the difference between the real growth and the population growth going? and why? Also, in a recession, the increase in unemployment is disproportional to the change in gdp growth. Further, during this whole period, "worker productivity" increased.

That is the conundrum I am trying to address. Look also my prime rate vs nominal gdp charts that I had referred to earlier - in the chart, Blue is prime rate, red is nominal gdp growth rate, yellow is real gdp growth rate

Clonal said...

Another graph from another point of view - econproph's article - The Mean and the Median Tell Two Different Stories also adds to the point I was making.

The Arthurian said...

Clonal, you are absolutely right... the words you highlight -- to stay in the same place -- are the words I specifically and consciously set aside when their relevance escaped me.


I was on a roll at FRED the other day, with one graph leading to another in an entertaining and fascinating sequence. I saved all those graphs, but I didn't write anything right then about them. And when I came back to them two days later, the graphs made no sense to me. My own graphs.

I think it is difficult to understand other people's graphs, because there is always a back-story that must be told before the significance of the graphs becomes clear.

I know we are talking now of the need for growth; and we talked some time ago of the need for growth. This time, I am a little more aware of how growth fits into your thinking... But you did have to prod me before I noticed.

Repetition helps. Also -- and I tell myself this all the time but I don't think I do it much -- it is important to say first what it is that you are going to say, so that when the other guy hears you say it, he notices.

For me, the graph carries all the significance and tells the whole story, and I want to just show people the graph and let them understand what I understand. But that approach does not seem to work very well. I see myself misunderstanding you and jim and others...

Clonal said...

Yes Art

Debt that has interest associated with it, is akin to the Red Queen's Race

The Arthurian said...

jim -- as a follow-up, see EconomPic here:

Tells a different story than Businomics.