12 thoughts on “Ask The Wrong Question, Get the Wrong Answer

    1. Tony Carideo says:

      John: This, I would submit, makes it very inconvenient for the Republicans to argue that this is a politically motivated study. To be sure, Alan Blinder’s views generally support the administration’s point of view. But what about Zandi?

      1. john sherman says:

        Inconvenient, but far from impossible. Remember that McCain/Palin ran on cap and trade–maybe they’re not Republicans.

  1. leftymn says:

    Republicans who still exist in the real world (Hank Paulson, Bruce Bartlett) understand that without the TARP and the Stimulus we would probably be at about 13% unemployment. As it is, we are already entering the double dip. Deflation is essentially settling in place and the Fed really hasnt a damn thing they can do about it since you cannot put interest rates to a negative number. The GOP wants the economy to languish to gain seats in November. The 63% led by the vanguard of the Patriots, the Tea Party, will lead this country into a depression probably. At best we will have a prolonged Japanese style period of low employment and sluggish growth.

    1. Mike Kennedy says:

      Double dip? What? We are not entering any such thing. GDP is around 2.4 percent according to the most recent reports — not great growth by any means, but it’s not remotely close to a double dip recession.

      The plain fact is no one know what would take place without the stimulus or a scaled back version. It’s a shot in the dark saying unemployment would have been 13 percent — picking a number off a bus.

      One thing the Obama Administration must do is quit the contradictory stance that the economy is so weak that it needs more stimulus and more spending while also projecting that the economy is strong enough to handle tax rates increasing.

      Finally, we aren’t going to have anything close to a Japan type of recovery where banks were allowed for years to operate without taking necessary hits to their balance sheets and continuing to minimize the impact of bad loans. We’ve cleared all that and individuals and families are de leveraging and improving their personal balance sheets. Eventually, the government is going to have to do the same.

    1. Tony Carideo says:


      I truly hope you’re right. But if you look at the historical patterns of recoveries, the first few quarters after a recession typically grow at a 5-8 percent per year rate. As we both know the growth we saw in the second quarter was actually down from the Q1, and far below that historical pattern. The data seems to suggest that the Q4 2009 and Q1 2010 inventory restocking has tailed off and that companies are again hoarding cash in fear of another downturn and another tightening in the credit markets (with the possible exception of the corporate bond market, but only for larger concerns).

      Real estate and personal balance sheets: To be sure, consumers are deleveraging, but the banks are, in fact, being given very Japan-like treatment by the regulators. According to Q4 2009 data from the Mortgage Bankers Association, we have roughly $3.4 trillion in commercial mortgage debt outstanding, 45 percent of which is held by commercial banks and another 20 percent are in the CMBS and CDO markets. Cap rates on that property are down 20-40 percent since 2007, and the regulators have been looking the other way as banks “extend and pretend” concerning the status of those assets, leaving balance sheets still outrageously distorted. To make matters worse, a significant proportion of those loans are 10-year bullet loans, meaning that we’re going to have to pay the piper beginning in 2015, and if cap rates don’t improve, loan-to-value issues are going to have to recognized by both the banking industry and the derivatives market.

      Finally, I disagree with your characterization of the Obama Administration trying to play both sides of the question. You’ll recall that at the most recent G-20 meeitng in Canada, the Administration acknowledged the need to address government deficits, much to the chagrin of economists who favor another round of government stimulus. Nor has the Administration proposed a second stimulus. I think that its position extending unemployment benefits, plus what appears to be a willingness to let some, if not all of the Bush tax cuts expire is a prudent course for the meantime.

      But with headline unemployment at 9.5 percent, indirect unemployment pushing that figure toward 16 percent, and consumer confidence numbers stuck in the high 60s, the possibility that this economy stalls is all-too-real a possibility in my mind.


      1. Mike Kennedy says:


        You make some good points. However, growth is growth. Yes, it isn’t as robust as past recoveries and not as robust as we would like, but it is growth.

        Second, yes, you are correct, there are banks holding a large amount of bad loans. However, in the 80s and 90s there were at least as many if not more bad loans in the system as a percentage of the economy.

        We are doing now what we did then, allowing the worst of banks to fail while allowing those without such severe problems time to work through their problems.

        The key to this working, however, is continued economic growth. I agree that if growth stops and we were to hit another recession, it would be devastating to banks, not to mention all other businesses.

        The difference between us and Japan is that in the 1990s the government of Japan allowed banks to operate without ever recognizing bad loans while at the same time increasing tax rates and not using all means available to loosen the money supply.

        Your reference to regulators and the extend and pretend phrase seems to me to be a call for strict mark to market accounting, no? I personally think it would be a mistake.

        Two other points. Low inventories can be a good/bad news indicator so I don’t put too much stock (no pun) in that. I think companies are hoarding cash because of uncertainty about what the government is likely to do with tax rates and the constant drumbeat of this double dip speculation.

        Your disagreement with me on Obama and the message about taxes vs. spending is a disagreement on semantics. Just because you don’t call it a stimulus is beside the point. Spending is spending. Yes, the administration is giving a nod toward fiscal responsibility, while continuing to propose more spending overall.

        Finally, the fact that Alan Greenspan thinks there might be potential for a double dip convinces me even more that there won’t be one. Given his track record on missing two of the biggest asset bubbles in our history and fostering them with easy money, I’ll take the other side of his bet.

  2. Newt says:

    If government spending is the magic elixir, why haven’t we spent more money, sooner? Why stop with TARP?

    The sad, obvious truth is that TARP and other “stimulus” bills have merely deferred and deepened the impending next Great Depression. The alarm bells have sounded from the GAO, the IMF, China and the rest of the world.

    America now has more people riding in the wagon than pulling it.

    Too bad none of you can see this.

  3. Newt says:

    We have another Darwin Award winner:

    Gabrielle Giffords, D-Arizona, 8th Congressional Dist.:

    “General Petraeus, what are you doing to reduce carbon emissions in the war on terror?”

      1. Newt says:

        No doubt the distinguished Congresswoman from Arizona’s 8th would like to “revise and extend” her remarks in the Congressional record.

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