It Will Be Ugly

THE BE YOUR OWN ECONOMIST ® BLOG Here are the key paragraphs from today’s GDP release for the third quarter(http://www.bea.gov/newsreleases/national/gdp/2008/txt/gdp308a.txt): “Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by theBureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent…… “The decrease in real GDP in the third quarter primarily reflected negative contributions from personal Continue reading

Pushing On A String

THE BE YOUR OWN ECONOMIST ® BLOG Today the Federal Reserve reduced the federal funds rate – the rate at which banks lend reserves to one another – by half-a-percent to one percent. The following paragraph is an excerpt from the Fed’s statement (http://www.federalreserve.gov/newsevents/press/monetary/20081029a.htm): “The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional Continue reading

Blue Christmas

THE BE YOUR OWN ECONOMIST ® BLOG Today the Conference Board released its consumer-confidence survey(http://www.conference-board.org/economics/ConsumerConfidence.cfm ). The following paragraphs are from the accompanying press release: “The Conference Board Consumer Confidence Index™, which had improved moderately in September, fell to an all-time low in October. The Index now stands at 38.0 (1985=100), down from 61.4 in September…. “Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence. The decline in the Index (-23.4 points) is the third largest in the history Continue reading

Ray of Hope?

THE BE YOUR OWN ECONOMIST ® BLOG Today the Census Bureau said (http://www.census.gov/const/newressales.pdf): “Sales of new one-family houses in September 2008 were at a seasonally adjusted annual rate of 464,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.7 percent (±12.1%)* above the revised August rate of 452,000, but is 33.1 percent (±8.9%) below the September 2007 estimate of 694,000. “The median sales price of new houses sold in September 2008 was $218,400; the average sales price was $275,500. The seasonally adjusted estimate of new houses for Continue reading

The Maestro Testifies

THE BE YOUR OWN ECONOMIST ® BLOG Alan Greenspan testified today before the House Committee on Oversight and Government Reform. Here are some excerpts from his prepared remarks (http://oversight.house.gov/documents/20081023100438.pdf). “In 2005, I raised concerns that the protracted period of underpricing of risk, if history was any guide, would have dire consequences. This crisis, however, has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount……… “What went wrong with global economic policies that had worked so effectively for nearly Continue reading

Have We Learned Our Lesson?

THE BE YOUR OWN ECONOMIST ® BLOG The following reworks yesterday’s posting: The federal government’s new plan to invest in the nation’s banks, guarantee their loans and insure their deposits is welcome news. It borrows from European initiatives launched over the weekend and improves upon our own bailout package. But many people will ask, “What took us so long? We led the world into crisis, why couldn’t we lead the world out of crisis?” Most economists said Federal Reserve Chairman Ben Bernanke’s research on the Great Depression of the 1930s well-prepared him for the job. They believed that Mr. Bernanke’s Continue reading

Words and Deeds

THE BE YOUR OWN ECONOMIST ® BLOG When President Bush appointed Ben Bernanke Chairman of the Federal Reserve’s Board of Governors, most economists said that Mr. Bernanke’s scholarly research on the Great Depression well-prepared him for the job. Mr. Bernanke endorsed economists’ conventional wisdom that the Fed’s inappropriate actions at the Depression’s outset exacerbated the downturn. The Fed maintained a high-interest-rate policy to defend America gold reserves instead of reducing interest rates aggressively to stimulate borrowing and spending. Because of those high interest rates, so the conventional wisdom goes, a run-of-the-mill recession became the Great Depression. That version of the Continue reading

True Value

THE BE YOUR OWN ECONOMIST ® BLOG What are our assets truly worth? The recent real-estate and stock-market debacles tell us that housing and equities were grossly overvalued. There were two overvaluation bursts: The late 1990s and the recent real-estate run-up. The late 1990s boom gave us an exaggerated notion of stock-market values. We came to believe that the dot-com boom’s lofty heights were true value, while the dot-com bust’s comedown was somehow artificial. After the recent real-estate run-up, we embraced the notion that the recent boom was real and the subsequent bust was merely a bad dream. We feel Continue reading

Dow Down Another 508

THE BE YOUR OWN ECONOMIST ® BLOG Fed Chairman Ben Bernanke’s speech (http://www.federalreserve.gov/newsevents/speech/bernanke20081007a.htm)at today’s meeting of the National Association for Business Economics didn’t help the stock market. The Dow fell 508 points, compounding yesterday’s 370-point drop. The Chairman said: “All told, economic activity is likely to be subdued during the remainder of this year and into next year. The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth.” Translation: We’re in a recession that may last until the end of next year. Yesterday’s posting Continue reading