Another recession coming?

[Free Trade is managed by the invisible hand.]

The point is, with proper Keynesian balancing, demand support, and government stabilization of the economy, as well as a generous welfare state, we can minimize the need for savings, and maximize production.  Keep everything running full-tilt all the time.

Splendid. No more economic cycles, and that apparently obtains not only for the economy as a whole, but each and every actor in it. Moving right along, you still have not yet favored me with a golden mean savings percentage. What can I do to help you get out of your shell Opebo?  You know I want to help.

how can any indicator have a golden mean? For example savings are only considered excessive if it hurts consumption.

[Torie]

The point is, with proper Keynesian balancing, demand support, and government stabilization of the economy, as well as a generous welfare state, we can minimize the need for savings, and maximize production.  Keep everything running full-tilt all the time.

Splendid. No more economic cycles, and that apparently obtains not only for the economy as a whole, but each and every actor in it. Moving right along, you still have not yet favored me with a golden mean savings percentage. What can I do to help you get out of your shell Opebo?  You know I want to help.

how can any indicator have a golden mean? For example savings are only considered excessive if it hurts consumption.

Doesn't savings "hurt" consumption by definition, since it is the antonym to consumption in this context?

I thought Opebo would put the ball back in my court by saying, well for class enemies, like yourself, of course the savings rate should be negative, and also for the poors as well because the government will just cut checks to them, but for those in the middle, perhaps x percent savings might make some sense. But he is apparently still deciding whether or not  to return the ball at all, as opposed to, in lieu thereof, importune the referee that my shot was not in the court, so the volley is over, advantage Opebo or something.

[Free Trade is managed by the invisible hand.]

The point is, with proper Keynesian balancing, demand support, and government stabilization of the economy, as well as a generous welfare state, we can minimize the need for savings, and maximize production.  Keep everything running full-tilt all the time.

Splendid. No more economic cycles, and that apparently obtains not only for the economy as a whole, but each and every actor in it. Moving right along, you still have not yet favored me with a golden mean savings percentage. What can I do to help you get out of your shell Opebo?  You know I want to help.

how can any indicator have a golden mean? For example savings are only considered excessive if it hurts consumption.

Doesn't savings "hurt" consumption by definition, since it is the antonym to consumption in this context?

I thought Opebo would put the ball back in my court by saying, well for class enemies, like yourself, of course the savings rate should be negative, and also for the poors as well because the government will just cut checks to them, but for those in the middle, perhaps x percent savings might make some sense. But he is apparently still deciding whether or not  to return the ball at all, as opposed to, in lieu thereof, importune the referee that my shot was not in the court, so the volley is over, advantage Opebo or something.

//Doesn't savings "hurt" consumption by definition, since it is the antonym to consumption in this context? //
Yes savings in general does hurt consumption,but i am sure this nation would be fine if we had a 3% savings rate instead of a 8% savings rate. I would also like to point out that it could be argued that our current national savings rate is too much of a conservative estimate. Thus the national savings rate may actually understate the real amount of savings.

[phk]

The point is, with proper Keynesian balancing, demand support, and government stabilization of the economy, as well as a generous welfare state, we can minimize the need for savings, and maximize production.  Keep everything running full-tilt all the time.

Splendid. No more economic cycles, and that apparently obtains not only for the economy as a whole, but each and every actor in it. Moving right along, you still have not yet favored me with a golden mean savings percentage. What can I do to help you get out of your shell Opebo?  You know I want to help.

how can any indicator have a golden mean? For example savings are only considered excessive if it hurts consumption.

Doesn't savings "hurt" consumption by definition, since it is the antonym to consumption in this context?

I thought Opebo would put the ball back in my court by saying, well for class enemies, like yourself, of course the savings rate should be negative, and also for the poors as well because the government will just cut checks to them, but for those in the middle, perhaps x percent savings might make some sense. But he is apparently still deciding whether or not  to return the ball at all, as opposed to, in lieu thereof, importune the referee that my shot was not in the court, so the volley is over, advantage Opebo or something.

//Doesn't savings "hurt" consumption by definition, since it is the antonym to consumption in this context? //
Yes savings in general does hurt consumption,but i am sure this nation would be fine if we had a 3% savings rate instead of a 8% savings rate. I would also like to point out that it could be argued that our current national savings rate is too much of a conservative estimate. Thus the national savings rate may actually understate the real amount of savings.

Assuming you hold the Solow growth model to generally be true. Which I think is generally the case for the OECD countries.

Let

K = Capital
L = Labor
k = Capital/Labor ratio
n = Population growth rate (endogenous)
s = Savings rate
c = (1-s) = Consumption Rate
d = Depreciation rate. In the world this is sometimes just done straight-line for simplicity sake in accounting terms.
y = f(k) = Output (GDP)

The steady state is defined as a situation in which per capita output is unchanging, which implies that k  be constant.

This requires that the amount of saved output be exactly what is needed to:
(1) Endow any future workers.
(2) Account for depreciation of existing capital.

In a steady state, therefore: sf(k) = (n + d)k, where n is the constant exogenous population growth rate, and d is the constant exogenous rate of depreciation of capital.

Let n and d be constant.

Any choice of s implies a unique value for k (thus also for y) in steady state.

Since consumption is proportional to output (c = (1 − s)f(k)), then a choice of value for s implies a unique level of steady state per capita consumption. Out of all possible choices for s, one will produce the highest possible steady state value for c and is called the golden rule savings rate.

To discover the optimal capital/labor ratio, and thus the golden rule savings rate, first note that consumption can be seen as the output that remains after providing for the investment that maintains steady state: c = f(k) − (n + d)k

[opebo]

I see no reason to guess at an appropriate savings rate.  Who knows?  We can be certain that demand is inadequate due to the huge under-utilization of capacity, but does this mean we can then estimate a 'correct savings rate' with any precision?  No, I think not.

I do however suspect that all the chitter-chatter about 'inadequate savings' is more a product of america's foolish work-ethic moralizing than it is about any real economic issue. 

If there is any validity to the idea of a 'debt-fueled' economy, it is that working class incomes are not being set high enough to support the consumption we expect of them, and thus debt levels are unsustainable for this class.  Do we want to answer this problem by reducing their consumption even further, and thus totally eviscerating demand?  Or do we wish to simply set their incomes higher by state-action and thus increase demand and fight deflation? 

I opt for the latter, and Torie and co. opt for the former.  Alas, their way leads to and endless downward spiral of deflation and lower and lower living standards (as we've seen the last few generations).

[Joe Biden 2020]

How could there be another recession when we're not even out of the first recession?  True, things may have been getting better for the past year, but we're definitely not anywhere near out of the 2009 recession.  Now, it is very possible we may go back down hill, but it will be dubbed to be a continuation of the Great Recession.

[Mr.Phips]

How could there be another recession when we're not even out of the first recession?  True, things may have been getting better for the past year, but we're definitely not anywhere near out of the 2009 recession.  Now, it is very possible we may go back down hill, but it will be dubbed to be a continuation of the Great Recession.

We are out of the recession and have since last summer.  GDP and jobs dont grow during a recession.

[Bo]

How could there be another recession when we're not even out of the first recession?  True, things may have been getting better for the past year, but we're definitely not anywhere near out of the 2009 recession.  Now, it is very possible we may go back down hill, but it will be dubbed to be a continuation of the Great Recession.

We are out of the recession and have since last summer.  GDP and jobs dont grow during a recession.

Mr. Phips is right on this one, at least from a technical sense. However, many people still think we're in a recession because unemployment is still very high and not declining, and it sure feels like the economy is still in a recession.

[phk]

How could there be another recession when we're not even out of the first recession?  True, things may have been getting better for the past year, but we're definitely not anywhere near out of the 2009 recession.  Now, it is very possible we may go back down hill, but it will be dubbed to be a continuation of the Great Recession.

We are out of the recession and have since last summer.  GDP and jobs dont grow during a recession.

Mr. Phips is right on this one, at least from a technical sense. However, many people still think we're in a recession because unemployment is still very high and not declining, and it sure feels like the economy is still in a recession.

People are self-centered and use their own microeconomic situation and extrapolate it to the macroeconomy.

[opebo]

People are self-centered and use their own microeconomic situation and extrapolate it to the macroeconomy.

Another way of putting this is there is no reason for the ordinary person to care about the macroeconomy.

[Mr.Phips]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

[opebo]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Actually given the massive deflation and capacity slack in the economy, interest rates are extremely high right now.  In order to have a net 0% interest rate, we would need quantitative easing and fiscal stimulus in the trillions per year - thus stabilizing prices and capacity usage, or perhaps even creating a little inflation.

[phk]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

In 2006/2007 the yield curve was flat but not downward sloping. Though it did forecast the recession 4-6 quarters ahead.

[Southern Senator North Carolina Yankee]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

[Southern Senator North Carolina Yankee]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

[phk]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

It inverted in 1998 because of the Asian Financial crisis and the Russian collapse. But the likelihood of a recession was like 1%.

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

It was negative in 2006 and most of 2007 until August, which was just five months before the recession started. 

[phk]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

It was negative in 2006 and most of 2007 until August, which was just five months before the recession started. 

The rates for the shorter term treasures were really great in 2006.

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

It was negative in 2006 and most of 2007 until August, which was just five months before the recession started. 

The rates for the shorter term treasures were really great in 2006.

The reason for that was that fed was still tightening rates at that time.

[Mr.Phips]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Actually given the massive deflation and capacity slack in the economy, interest rates are extremely high right now.  In order to have a net 0% interest rate, we would need quantitative easing and fiscal stimulus in the trillions per year - thus stabilizing prices and capacity usage, or perhaps even creating a little inflation.

There has been a large amount of quantitative easing.  The amount of fiscal stimulus that you suggest is impossible to pass. 

[phk]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Actually given the massive deflation and capacity slack in the economy, interest rates are extremely high right now.  In order to have a net 0% interest rate, we would need quantitative easing and fiscal stimulus in the trillions per year - thus stabilizing prices and capacity usage, or perhaps even creating a little inflation.

There has been a large amount of quantitative easing.  The amount of fiscal stimulus that you suggest is impossible to pass. 

Not to mention it doesn't take into account diminishing marginal returns on future GDP growth.

[opebo]

There has been a large amount of quantitative easing.  The amount of fiscal stimulus that you suggest is impossible to pass. 

In the current environment.  Once people are starving, and there are massive riots and civil dislocations due to dire want, the solution could conceivably be implemented.  Like Germany in the 30s.

[Sam Spade]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Didn't know you were becoming Larry Kudlow on us, Phips... 

[Sam Spade]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Didn't know you were becoming Larry Kudlow on us, Phips... 

By, the way, if you want to use this knowledge to positive effect, go look at what BP's yield curve on its corporate debt is saying about its future.  It's a word that rhymes with mushroom, I believe...