Tag Archives: fiscal policy

The Government Has A Clip Full Of Ammo To Fight The Next Recession

Summary: It’s time to prepare for a possible recession in 2016. The manufacturing slump continues to deepen. A toxic combo: high inventories in November and weak retail sales in December. In February this expansion will tie for the 3rd longest expansion. {2nd of 2 posts today.}

Bullets

The Atlanta Fed’s GDPnow model just lowered its est for Q4 real GDP from +0.8% to +0.6%. It is not better than carbon-based economists, but provides a different perspective. The *average* revision of real GDP is 1.2% from the advance announcement (coming Jan 20) to the final. The standard deviation is 1.0 — so a 2.4% revision is commonplace (roughly once every five years). Q4 real GDP could easily be red. We might already be in a recession.

Many people believe that the “government is out of bullets” to fight the next recession. We can take reassurance in the fact that they are wrong, and that the government has powerful tools to fight the next recession. We are not back in the horrific late 19th century, with its frequent and deep recessions — and no government counter-cyclical action.

See my latest report at Seeking Alpha: “The Government Has A Clip Full Of Bullets To Fight The Next Recession“, describing what actions we can expect to see. Post your comments there.

What Will the US Do in a Recession? Look to Japan for Answers…

Summary: In a previous article I listed the powerful tools the US government would deploy during the next recession. Today we discuss something more important: will they work? We can look to Japan for an answer. Their great stagnation began with the 1989 crash, 11 years before the tech bubble burst and began America’s new era. Japan took fiscal and monetary policy to the outer limits. Now it’s in a recession. Although our circumstances differ, we’re following in their tracks.

Keiki Kaifuku, Kono Michi Shika Nai” (“Economic Recovery,
There Is No Road But This”).
— LDP Campaign Slogan, December 2014. If only this were true.

Japan: setting sun

Is that a setting sun, or a rising sun?

As Richard Koo predicted, during the Great Recession America repeated Japan’s mistakes during its “lost decade”. That’s the bad news. The good news is that America climbed into a slow recovery after the worst downturn since the 1930s. The worse news is that another recession lies ahead. Potentially a bad one, with both the world economy and many domestic sectors weak. The government will deploy powerful tools to fight this downturn. How well will they work? Look to Japan for answers…

Read the rest at Wolf Street.

The Fed will use these power tools during the next big recession

Summary: Six years after the recession ended, we are due for another recession. Many experts say that the government is “out of bullets” to fight the next severe downturn. That’s quite false because 2008 marked the start of a new era in which our leaders manage the business cycles using strange and awesome tools. We’ll learn the long-term effects of these tools slowly, probably only decades later.  {2nd of 2 posts today.}

“All is not lost until you run out of airspeed, altitude, and ideas.”
— Pilots’ wisdom.

Frankenstein

Roger Bart and Shuler Hensley (on table) in the musical “Young Frankenstein” at the Hilton Theater.

(1) Expect the next recession

Free market economic systems produce greater growth than any other system yet tried. Business cycles — and recessions — are a price we pay for the growth. They’re unpredictable — literally so (the consensus of economists has never predicted one). They can destroy years of growth, and change the course of nations. The 2008 crash did both, as shown by this slide from a typically excellent analysis by Brad DeLong.

See the full post at Wolf Street!