Is the US economy in recession?

[Tupac Shakur]

I was initially excited to see so many more responses to this thread since I bumped it, but I stopped reading once I saw how many of the new responses were from either Ben, MrFun, or Kiddy. Apologies to those of you who may have posted interesting things later, but I'm not plowing through that to find them.

[Kidlicious]

Can someone tell me why if the first 2 quantitative easing cycles by the Fed failed a third one will do the trick?

It's not going to. There is a diminishing effect with each QE. The purpose is to keep interest rates near zero and enable fiscal policy.

[DinoDoc]

I was initially excited to see so many more responses to this thread since I bumped it, but I stopped reading once I saw how many of the new responses were from either Ben, MrFun, or Kiddy. Apologies to those of you who may have posted interesting things later, but I'm not plowing through that to find them.

I was somewhat shocked myself to find how thoroughly it had been **** on given that it was ripe for a real discussion in light of recent reports.

[Kidlicious]

It's not the only response I can give, but I was wondering whether you perceive actual harm from the policy first.

We can define NGDP = MV. M, the quantity of dollars, times V, the number of times each dollar changes hands per year.

We have substantial empirical and theoretical reason to believe that expected expansions of M compel V to rise as well. The theoretical reasoning is that if you expect lots more dollars to be circulated soon, you want to get rid of them more quickly because you worry a bit more about them holding their value. The empirical data tends to back this up.

We therefore think that an expected (or actual) expansion of M should increase V, or at least, certainly not reduce it. If we believe this so far, then we believe QE increases nominal GDP.

Nominal GDP can increase in two different ways: higher nominal earnings to the already-employed, or new jobs for the unemployed. There's substantial empirical and theoretical reason to believe that - when you have many people unemployed - the new spending goes towards hiring new people.

What is the empirical data that you speak of? What about 1979 when Volker promised to do whatever is necessary to get inflation under control and it had no significant effect on people's expectations? Inflation was brought under control only by crushing demand.

The problem with your theory is that people don't just hold cash for investment purposes. They hold cash out of necessity. A business that fears a decrease in demand is going to hold cash as long as they have that fear. A worker uses similar reasoning. If they fear losing their job they are going to hold on to their cash.

[Kidlicious]

A discussion of targeting ngdp should also include the real problems of the financial sector. Pumping money into the economy just isn't going to solve them. For example, banks aren't simply going to refinance a bunch of bad debt or issue new debt because they expect the value of the dollar to fall. They aren't going to make bad loans that won't get paid back just because of fear of the dollar losing value.

[Kidlicious]

"I guess the — the question is, does it make sense to actively seek a higher inflation rate in order to achieve a slightly increased reduction — a slightly increased pace of reduction in the unemployment rate?

The view of the committee is that that would be very reckless. We have — we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years to support the economy without leading to an unanchoring of inflation expectations or a destabilization of inflation. To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do."

- Ben Bernanke

Don't hold your breath until the fed targets NGDP

[Ben Kenobi]

What do you think are the bad effects of QE?

Debt. If nothing happens, then the US is out considerable amounts of money that have to be paid back. Obama's spent all the buffer - he's not got anymore buffers to buttress his spending.

[Ben Kenobi]

Why do you hate reality Ben?

Debt - is a reality. How much is enough, Kid? When should Obama stop spending? You never answered that question.

[Kidlicious]

Debt. If nothing happens, then the US is out considerable amounts of money that have to be paid back. Obama's spent all the buffer - he's not got anymore buffers to buttress his spending.

I would say the risk of excessive increases in the money supply is inflation AND a worsening of the debt crisis in the private sector. This would be at the back of the minds of all concerned and there's no telling what would happen.

[giblets]

Debt. If nothing happens, then the US is out considerable amounts of money that have to be paid back. Obama's spent all the buffer - he's not got anymore buffers to buttress his spending.

QE reduces the national debt.

[Kidlicious]

Debt - is a reality. How much is enough, Kid? When should Obama stop spending? You never answered that question.

I don't disagree that debt is a reality. Debt reduction is not the objective, however.

I have answered your question. It is better to go into debt than to go into depression.

[Ben Kenobi]

I would say the risk of excessive increases in the money supply is inflation AND a worsening of the debt crisis in the private sector. This would be at the back of the minds of all concerned and there's no telling what would happen.

Inflation really isn't a concern at this point. Bernanke's trying to stave off deflationary effects due to lowered demand by printing as much as he can. What he should be doing is letting the market take it's course, because he doesn't have enough money to win this battle.

[Kidlicious]

Inflation really isn't a concern at this point. Bernanke's trying to stave off deflationary effects due to lowered demand by printing as much as he can. What he should be doing is letting the market take it's course, because he doesn't have enough money to win this battle.

Eh, I didn't say it was a concern at this point, thanks to the FED's current and longstanding framework. I'm saying it would be if that framework changed the way many in this thread are suggesting. We just don't know what the inflation rate would be if we simply printed our way out of this recession.

[giblets]

Inflation really isn't a concern at this point. Bernanke's trying to stave off deflationary effects due to lowered demand by printing as much as he can. What he should be doing is letting the market take it's course, because he doesn't have enough money to win this battle.

How much money does Bernanke have, you lunatic?

[Ben Kenobi]

It is better to go into debt than to go into depression.

Debt will drive depression. The more debt you have - the greater the long term deflationary effects. Doubling your debt to keep things afloat for 4 years is a bad deal. Even as cheap as the debt is right now - the servicing payments are going up, and that's money that could have been used elsewhere that is already spent. Further spending on top of the rest of the spending is going to push his ratios into the negative, once that happens, it's game over. Borrowing is only inflationary to a certain point - after that it goes deflationary.