Monday, September 20, 2010

End of Recession / No End of Private Sector Deleveraging

From NBER:

The Business Cycle Dating Committee of the National Bureau of Economic Research determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month.

And how were we able to get this non-recovery, recovery? The federal government (from exhibit D.3 of the recent Federal Reserve flow of funds report):

End of recession or not, any sector not labeled government or corporate continues to delever (and local government and corporations are dwarfed by the federal government), which to me says any domestic led recovery from here will be limited.

Source: Federal Reserve


  1. Junk analysis--just like your parroting of Haldane's blunder.

    On a basic level, you're looking at past changes in relation to current GDP? Why wouldn't you look at concurrent comparisons to GDP?

    Then you're saying private borrowing hasn't grown because public debt has? Have you looked at treasury yields? or Corporate bond spreads? Clearly, a spike in public debt (driven by a slow-down in revenues more than spending) has not crowded out private sector borrowing.

    Correlation is not causation.

  2. "Then you're saying private borrowing hasn't grown because public debt has?"

    Nope, actually quite the opposite.

    I'm saying the only reason we're no longer in recession is due to the shear amount of stimulus (i.e. debt added) we've added (which I've used current GDP to put it in perspective to show the path, rather than just one point in time).

    I'm also saying animal spirits have not come back from the private sector. Why? Because the "recovery" has been non-existent and loads of uncertainty remain.

  3. Holy crap, I had no idea Paul Krugman posted here as an anon!