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other way again thrashing and flailing about and hitting all the wrong points private debt is one of the 14 indicators examined annually in the eu s macroeconomic imbalances procedure this process flags risks where a country s consolidated non financial corporate and household debt relative to gdp rises into what has been the top quartile of the historical eu wide distribution based on 2014 data the latest commission reports found the threshold of 133 per cent of gdp was breached by 13 member states okay so they see private debt as a problem and they re doing something about it they define a limit for acceptable debt the limit they define is based on the historical eu wide distribution in other words based on recent pre crisis experience to define a limit they look at how much debt they had just before they got in trouble and they say if you re over 75 of that much debt it s no good where does this arbitrary nonsense come from why do they think the level of debt they had in 2006 was okay and 75 of it is good it s the blind leading the blind and it s not only the eu according to the imf back in 2013 much of the empirical work on debt overhangs seeks to identify the overhang threshold beyond which the correlation between debt and growth becomes negative the results are broadly similar above a threshold of about 95 percent of g d p a 10 percent increase in the ratio of debt to g d p is identified with a decline in annual growth of about 0 15 to 0 20 percent per year no as i asked at the time do we really want to wait till things are that bad the focus of state of the art economics is to find the point where adding one more dollar of debt stops making gdp go up and starts making gdp go down what possible advantage could there be in that it can only be so that we might manage to come as close as possible to the threshold without crossing it that may be state of the art but it s not the state of the arthurian debt productivity has been declining for a long time the increase in gdp we get for each new dollar of debt has been declining for a long time increasing debt makes economic performance decline if this is true then why would we want to get close to the limit where the correlation between debt and growth becomes negative this is actually saying adding more debt is not okay if it takes away even a tiny bit of gdp but it is okay as long as it adds to gdp no matter how little it adds well it s not okay with me we need to stop debt accumulation when it starts to hinder growth this is how to define the maximum acceptable level of finance for our economy even banks and bankers these days call for limits on finance beware the limits must be placed not at the point where the financial sector starts to be hurt by finance but at the much lower point where the non financial sector starts to be hurt by it posted by the arthurian at 4 00 am 1 comments saturday october 29 2016 premonitions of recession employment growth declines before a recession posted by the arthurian at 4 00 am 0 comments labels predicting recession friday october 28 2016 not a pretty picture unemployment red at bottom black recession pretty reliable but posted by the arthurian at 4 00 am 0 comments thursday october 27 2016 donald trump makes me laugh and shake my head hillary just makes me shake my head posted by the arthurian at 4 00 am 0 comments wednesday october 26 2016 taylor s laundry john b taylor because the economy has grown from the start of this recovery at a pace no greater than the prerecession trend it has left a vulnerable gap of unrealized potential that can and should be closed with faster economic growth in several key ways the us economy resembles an economy at the bottom of a recession ready for a restart even though the unemployment rate has reached 5 percent the us economy resembles an economy at the bottom of a recession taylor says pretty much yeah i don t know if it s in my notes or on the blog here it is i wrote our last recession ended in mid 2009 according to nber dates at fred seven years ago and i ve read articles written by people apparently hungering for recession suggesting that after seven years of growth we are already due for another recession but the claim that we ve just finished up seven years of growth and now a recession is due it seems to me that s the ridiculous claim growth was what half what it should have been so don t call it seven years call it three and a half john taylor is calling it zero years he s a little bolder than i am note taylor s phrase even though the unemployment rate has reached 5 percent he is pointing out the evidence people have for saying we re well along in the recovery taylor of course is saying we are really not well along in the recovery the title of his pdf is can we restart the recovery all over again one could undermine the 5 unemployment argument by pointing out the decline in the labor force participation rate as taylor does correcting for that decline would increase the labor force by five percent he says i m thinking that would raise the unemployment number to 10 that s no recovery i agree with taylor s observation of our lack of recovery but i don t agree with his prescription my argument is always the same the problem is excessive reliance on credit in the private sector taylor does not have that kind of focus he is all wack a mole with tax reform and regulatory reform and entitlement reform and monetary reform and free trade agreements taylor doesn t have the cause of the problem he has a laundry list posted by the arthurian at 4 00 am 0 comments tuesday october 25 2016 here s a question answered search fred for ophnfb output per hour non farm business a measure of labor productivity three series turn up ophnfb prs85006092 and prs85006091 but only sometimes sometimes you get a list with only one item on it ophnfb for some reason they design software these days to give inconsistent responses maybe the reason is some kind of corner cutting to save money but it seems to me the reason is just pure stupidity well that s out of the way i hope it s not my stupidity it took me fifteen minutes to duplicate the list with three results so i could write this post when you re old as i am 15 minutes is a big chunk of time remaining the three series offer the data as an index 2009 100 as percent change at annual rate and as percent change from quarter one year ago if i start with the index i can get percent change from quarter one year ago easily i can also get percent change though not at an annual rate usually i just use the index in whatever form i need without a thought today for some reason there was a thought i can compare the percent change at annual rate series to the index in its percent change form and i can see whether they just multiply by four or if they do something more complicated to get the at annual rate thing so i divided the percent change at annual rate series by the percent change form of the index graph 1 nope not just multiplied by four they do something more complicated of course it s close to four it would have to be and maybe you could multiply by four and no one would ever know the difference but it wouldn t be right okay the dallas fed has a page that shows the calculation annualizing data i printed the dallas fed page as a pdf file two pages and made it available for download posted by the arthurian at 4 00 am 2 comments monday october 24 2016 some gossip about alan greenspan from thoughts on teaching economics after the crash at medium com by karl whelan professor of economics at university college dublin greenspan s model alan greenspan was not an academic he was a consultant who leveraged his substantial washington connections into an appointment as fed chairman and his positions on economics were very far from the mainstream i worked for alan greenspan from 1996 to 2002 and met him quite a few times he is a man of many talents but it s an understatement to say that his approach to economics was idiosyncratic it was an interesting combination of obsessive analysis of high frequency economic data and extreme right wing views picked up from his time as part of ayn rand s inner circle hard to believe as it may be the most powerful economist in the world held views that were very far from those taught in mainstream economics degrees from is yellen starting a civil war at the fed by monetary watch greenspan more or less ruled the fomc with an iron fist as recounted by frederick sheehan in his book panderer to power greenspan himself controlled everything about the fomc s messaging and he drafted the fomc statements that were to be issued after the meeting without any input from the committee even yellen herself who had served on the committee in the 1990s said being a fed governor was a great job if you like to travel around the country reading speeches written by staff posted by the arthurian at 4 00 am 0 comments sunday october 23 2016 change in debt and change in gdp if you take the ratio of two change in values the change in this divided by the change in that usually you get a graph with a few very large spikes and everything else too small to see i try to avoid graphs like that but sometimes you have to look here is the change in tcmdo debt relative to the change in gdp from fred graph 1 change in debt relative to change in gdp doesn t show me anything but one tall spike i ve been thinking about using the hodrick prescott filter to soften the changes in two change in series so i can look at the ratio of filtered values can t do hodrick prescotts at fred i brought the numbers into excel it s quarterly data but for extra smoothing i used the bigger smoothing constant that s a default for monthly data here s what i got graph 2 i still have that tall spike but instead of being a momentary phenomenon it looks like it lasted 20 years that s a little silly what s interesting though apart from the spike is that there seems to be a persistent upward trend from the 1950s to the present day apart from the spike and some possible wiggles i reduced the smoothing to a low number and took another look graph 3 the spike is still there now spread over only a few years and there are lots of little ups and downs probably related to recessions look how small the wiggle is between 2006 and 2009 that s the crisis that tall spike of 2001 is really something of an anomaly looks like there was a particularly small increase in gdp and a good size increase in debt at the same time in the source data i have the value 2 53 for the second quarter of 2001 665 07 for the third quarter and 9 25 for the fourth quarter that third quarter number is a fluke i deleted the third quarter value and left the cell blank in the spreadsheet the hp function reads it as zero and i changed the smoothing factor back to the number i started with here s how the graph came out this time graph 4 now we re getting somewhere there is a definite up trend with some wiggle to it for the whole period shown there are exceptional lows centered on 1991 and 2009 you will recognize the 2009 event as our crisis and the great recession even though the smoothing factor pushes the peak back before 2003 maybe we could say that the smoothing merged a normal wiggle the 2001 recession with the large decline of the great recession just a thought i try to be flexible reading these things the other low 1991 i think i know what that one is there was a general slowdown in the growth of debt that lasted from the mid 1980s to the early 1990s i looked at that slowdown before note the rapid increase following the 1991 low that increase was made possible by the big decline that preceded it and the rapid increase in debt to gdp provided the funds that allowed the growth of spending that created the good years of the 1990s so why have we not had comparable good years after the 2009 low i don t know yet but i have some thoughts to explore 1 the uptrend after 2009 starts at a much higher level there s a lot more debt now than in the 1990s 2 the uptrend after 2009 is less steep so there is more of a delay before the good years this time and those years might not be as good 3 the uptrend after 2009 has not yet reached its peak there is still time the good years may yet come the excel file posted by the arthurian at 4 00 am 0 comments saturday october 22 2016 unexplained posted by the arthurian at 4 00 am 2 comments friday october 21 2016 unexpected posted by the arthurian at 4 00 am 0 comments thursday october 20 2016 at least congress could say their hands are clean at wall street on parade the fed has been winging it for eight years it s time for congress to step up since the wall street crash in 2008 the article says things have not been good they point out that capacity utilization is lower now than it was in 2007 and they mention the sharp decline since november 2014 they show this graph to which i ve added a bright red line since 2008 i think they miss the bigger picture here s the opening paragraph since the wall street crash in 2008 crippled the u s economy congress has played the role of a spectator at a big league baseball game munching on popcorn and licking its greasy fingers soiled with corporate campaign loot as the real players on the field the federal reserve controlled the action and the final paragraph it s long past the time for congress to wash off those greasy fingers and do its job but other than the washing of hands there is no specific suggestion as to what should be done the best i can suppose is that the article calls for a change of emphasis from monetary policy to fiscal yet as they point out since the crash the federal debt has doubled to 19 4 trillion so i m not sure what they have in mind perhaps they are saying you can tell by current conditions that the doubling was clearly insufficient yeah i think they mean the federal debt has only doubled to 19 4 trillion while the balance sheet of the fed has more than quadrupled i guess they want the federal debt to double again to get it up in the quadruple range too but then scott sumner would say you can tell by current conditions that the quadrupling of the fed s balance sheet was clearly insufficient so maybe people will soon be calling for an octupling of debt and balance sheets and after that a 16 tupling maybe myself i think fixing the economy requires a little more finesse of thought posted by the arthurian at 4 00 am 0 comments wednesday october 19 2016 what if we tax corporate interest expense this is the effective corporate income tax rate graph 1 effective corporate income tax rate we looked at it recently the graph today shows annual not quarterly data this is the money corporations paid out as interest expense graph 2 the cost of interest to corporations interest is a tax deductible business expense what if it wasn t if interest wasn t tax deductible the corporations would have to pay tax on the money they spend paying interest how much would the tax have be...
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