Calculated Risk has a nice chart up that helps to illustrate the ultra-unusual nature of the post-Great Recession business expansion (LINK). This chart focuses heavily on employment statistics rather than gross state production.
The United States has not experienced this sort of volatility in employment trends during an (alleged) business expansion. This time has indeed been different. And if Reinhart and Rogoff’s reporting is correct, more of the same looms for several more years.
Those economists within the Fed, and elsewhere, who believe that the Great Recession was qualitatively similar to garden variety recessions may wish to explain this and the failure of combined fiscal and monetary “stimulus” to actually do as much “stimulating” as anticipated by their theories.
When banking practices, including but not limited to mortgage banking, have deteriorated to the point they did by 2007, so that massive insolvencies were in the making, the implications are that assets and liabilities were so mismarked that a quick return to normal is impossible. This is one of the Reinhart-Rogoff findings, and I think it supports alternative views to those who have been believing that the last downturn was simply quantitatively worse than other recessions but qualitatively similar. That view has led to unending but “surprising” failures of predictions, and repeated and unwanted interventions by the Fed and periodically by the elected officials in Washington.
Perhaps rather than blaming politicians, who are mostly lawyers (many of my closest friends are lawyers, LOL), it would be more appropriate to blame the economists and other who have advised the politicians to simply stay the course. The result is, inter alia, the fiscal cliff, as one rosy scenario after another fails to quite come to fruition, leaving the politicians out on a limb having made promises that the real economy does not let them keep.
I am reminded of the opening scene of Catch-22. The anti-hero, Yossarian, is lying in a hospital bed on an island in the Mediterranean in World War II. He has “a pain in his liver”. The doctors are puzzled. He does not quite have jaundice, which they could treat. But he is not quite well,either, so they cannot send him back to active duty. Thus he lingers happily in the hospital rather than getting shot at flying combat missions.
So it has been with the “patient”, the U.S. economy, which has been somewhere between heaven and earth since 2009.
At least it’s better here right now than in euroland, where the latest Markit PMI data show more miserable retail sales data today (LINK), and where German interest rates are collapsing again (LINK). In further support of the U.S.-Japan financial analogy about which I have now blogged for four full years, the U.S. 2-year bond rate is dropping again, now at 25 basis points. This is occurring while the Fed has been selling, not buying, those securities.
Given how much lower Germany’s 10-30 year govvies are in yield than those of the United States, which has an almost infinite ability to repay its creditors and is inherently a much richer nation than Germany, I believe that at least investors in U.S. bonds, even at today’s near-record low levels, have a small margin of safety, in that those of Germany trade even at lower yields. It’s not much, but in this period in which no clear economic trends have declared themselves in the U.S., it’s something.
And something is better than nothing.
Happy New Year.