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FRED on FRED® Nov. 6, 2008

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  • FRED on FRED® Nov. 6, 2008

    FRED on FRED® Nov. 6, 2008

    An occasional column where I drop a few charts on you derived from the latest data provided by my namesake FRED® with my take on what they mean.

    What year is it? 1983!

    At least that's the case if you are in the business of selling light trucks. The data out of the Fed today shows unit volumes not seen since Donna Summer sang "She Works Hard For The Money" three years into the recessions that followed Fed Funds rate hikes to 19% under the Paul Volcker Fed. The rate of change is stunning. (See The Myth of the Slow Crash: Just because it's big, doesn't mean it can't go down fast. In a debt deflation, the extreme rate of change even fools central bankers 8/29/07)


    What country are we in? Japan?

    Even though it's 1983 in light truck sales, it's not 1983 in Fed Funds ammo. The US is not struggling with a recession induced by a hawkish Fed but a recession on the way to depression after the Fed fired its last bullet and the Effective Fed Funds Rate at 0.23% plumbs the very bottom of the rate scale.


    What's next? Bankruptcies!

    As the recession deepens, companies go out of business left and right, defaulting on their bonds as they do. Fed flaccidity in the face of financial foundering is bound to show up in the corporate bond market as falling prices and rising yields as default risk rises.


    Sea level returns to normal

    At least the CD market has finally calmed down as government guarantees of liquidity calm the money markets.


    Stimulate this!

    Can the federal government bail everyone out? It can if it's willing to spend as many percent of GDP as after WWII. How big will New New Deal spending get? 5% of GDP? 10% or more?




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    Last edited by FRED; 11-06-08, 04:36 PM.
    Ed.

  • #2
    Re: FRED on FRED® Nov. 6, 2008

    Originally posted by FRED View Post
    The US is not struggling with a recession induced by a hawkish Fed but a recession on the way to depression after the Fed fired its last bullet and the Effective Fed Funds Rate at 0.23% plumbs the very bottom of the rate scale.

    This is a bit off topic but do we know what caused these high spikes in the Effective Fed Funds Rate?

    BTW, this low rate doesn't seem to be helping much. No inflation yet.

    Comment


    • #3
      Re: FRED on FRED® Nov. 6, 2008

      I have not heard anyone comment on the delta of things going into the sh!tter. The rate of change. Look at the first chart, Fred(r), you posted...there is nothing to compare with the waterfall dropoff we've seen in light trucks (and I'd be curious about dark trucks but I suppose the data isn't available.)

      This is what causes me to believe we are headed for a depression not a recession. Things are falling down just so fast and with such ferocity. I have been a student of economic events since I was a wee lad, and I never recall anything like the speed in the dropoff we've had over the last 9 months.

      Comment


      • #4
        Re: FRED on FRED® Nov. 6, 2008

        there will be no inflation until there are sustained risk-free returns.

        leave it to obama to provide that...

        Comment


        • #5
          Re: FRED on FRED® Nov. 6, 2008

          Originally posted by phirang View Post
          there will be no inflation until there are sustained risk-free returns.
          I'm not sure what you mean. Would you mind expanding a bit?

          Comment


          • #6
            Re: FRED on FRED® Nov. 6, 2008

            Originally posted by we_are_toast View Post
            I'm not sure what you mean. Would you mind expanding a bit?
            I think phirang means that low interest rates will translate into lots of borrowing and re-levering once there's something worthwhile to borrow money to invest in.

            Comment


            • #7
              Re: FRED on FRED® Nov. 6, 2008

              Originally posted by ASH View Post
              I think phirang means that low interest rates will translate into lots of borrowing and re-levering once there's something worthwhile to borrow money to invest in.
              if this is what is meant...I don't agree that this will happen...because long bonds will fall and wreak havoc.

              Comment


              • #8
                Re: FRED on FRED® Nov. 6, 2008

                Originally posted by friendly_jacek View Post
                This is a bit off topic but do we know what caused these high spikes in the Effective Fed Funds Rate?

                BTW, this low rate doesn't seem to be helping much. No inflation yet.
                Here's a paper that explains why the effective fed funds rate can be volatile.
                Ed.

                Comment


                • #9
                  Re: FRED on FRED® Nov. 6, 2008

                  Originally posted by grapejelly View Post
                  if this is what is meant...I don't agree that this will happen...because long bonds will fall and wreak havoc.
                  well, I probably shouldn't have put words in phirang's mouth

                  Comment


                  • #10
                    Re: FRED on FRED® Nov. 6, 2008

                    So Fred has his own trademark now.

                    First I've noticed.

                    Does this mean he's about to go public?

                    Comment


                    • #11
                      Re: FRED on FRED® Nov. 6, 2008

                      Originally posted by FRED View Post
                      How big will New New Deal spending get? 5% of GDP? 10% or more?
                      My guess has been $10 trillion - that's what - approx. what 70% of 2008 GDP. Then another $10 trillion materializes from the private sector - magically meeting EJ/Fred's $20 trillion estimation to eclipse the housing boom excesses.

                      The point mentioned by someone else in this thread seems critical to me - capital must be convinced that the investment is worthwhile to reinvigorate the private sector.

                      Perhaps the dollar drops, oil creeps back towards $150 and voila we have great incentive to engineer the alt. energy & infrastructure boom and capital flocks to those companies to capture gov't programs and entrepreneurship flourishes in alt. energy solutions which the world can purchase cheap with their appreciated currencies or at least more slowly depreciating currencies.

                      Heh, the tricky part to me seems engineering a swift but not too swift dollar drop.

                      Though why not a swift dollar drop at this point? Sure inflation will spike, but we will have to let wages rise and if the stimuli is timely enough, the overall feeling will be one of 'boom times' and the treasury will bail out the states when public sector unions strike. (yes, tongue in cheek)
                      --ST (aka steveaustin2006)

                      Comment


                      • #12
                        Re: FRED on FRED® Nov. 6, 2008

                        Originally posted by steveaustin2006 View Post
                        My guess has been $10 trillion - that's what - approx. what 70% of 2008 GDP. Then another $10 trillion materializes from the private sector - magically meeting EJ/Fred's $20 trillion estimation to eclipse the housing boom excesses.

                        The point mentioned by someone else in this thread seems critical to me - capital must be convinced that the investment is worthwhile to reinvigorate the private sector.

                        Perhaps the dollar drops, oil creeps back towards $150 and voila we have great incentive to engineer the alt. energy & infrastructure boom and capital flocks to those companies to capture gov't programs and entrepreneurship flourishes in alt. energy solutions which the world can purchase cheap with their appreciated currencies or at least more slowly depreciating currencies.

                        Heh, the tricky part to me seems engineering a swift but not too swift dollar drop.

                        Though why not a swift dollar drop at this point? Sure inflation will spike, but we will have to let wages rise and if the stimuli is timely enough, the overall feeling will be one of 'boom times' and the treasury will bail out the states when public sector unions strike. (yes, tongue in cheek)
                        ka-poom theory! 'they made the dollar go down, those mean arabs. not our fault'!

                        you get your $100+ oil to make alt energy work.

                        you get your inflation to pay down debt as in the 1970s.

                        beautiful!

                        on the 70% of gdp, what if nominal gdp falls back to 2000 to $10T in 2009? then we're 100% of gdp. but wait... we got 40% inflation. no problemo!

                        Comment


                        • #13
                          Re: FRED on FRED® Nov. 6, 2008

                          Originally posted by grapejelly View Post
                          I have not heard anyone comment on the delta of things going into the sh!tter. The rate of change. Look at the first chart, Fred(r), you posted...there is nothing to compare with the waterfall dropoff we've seen in light trucks (and I'd be curious about dark trucks but I suppose the data isn't available.)

                          This is what causes me to believe we are headed for a depression not a recession. Things are falling down just so fast and with such ferocity. I have been a student of economic events since I was a wee lad, and I never recall anything like the speed in the dropoff we've had over the last 9 months.
                          Think things would turn on a dime if the gov forgave all private debts? What about if every family got all the income taxes they ever paid back as a refund? What about if the Gov mailed every us citizen a check for $25,000.
                          What if we have 5 for 1 day (take 1 out get five more for free) from you local bank or atm? What if the Gov gives everyone in debt a special 0 interest loan for 30 years to pay back their debt with and the min payment was say .1% per month of the outstanding balance (and if you default you loose access to subsidized student loans or health care or FHA mortgages?
                          What about if you could take out a "loan" against all of your retirement savings and then have the gov hold the position for you until you payed it all back, then the portfolio would return back to you. What if the gov mails out checks from royalties on the FCC spectrum, oil and timber and mining leases to each american who pays taxes? What if the goverment would by you a house free and clear if you agreed to be a teacher or an aid worker or serve in the military? What if the federal gov started funding state budgets dirctly or bought vacant houses and used them for low income housing?



                          Point is: We have not yet BEGUN to inflate.

                          There is nothing to fear but loss of purchasing power in this "greater depression".;)

                          Comment


                          • #14
                            Re: FRED on FRED® Nov. 6, 2008

                            Originally posted by jtabeb View Post
                            Think things would turn on a dime if the gov forgave all private debts? What about if every family got all the income taxes they ever paid back as a refund? What about if the Gov mailed every us citizen a check for $25,000.
                            What if we have 5 for 1 day (take 1 out get five more for free) from you local bank or atm? What if the Gov gives everyone in debt a special 0 interest loan for 30 years to pay back their debt with and the min payment was say .1% per month of the outstanding balance (and if you default you loose access to subsidized student loans or health care or FHA mortgages?
                            What about if you could take out a "loan" against all of your retirement savings and then have the gov hold the position for you until you payed it all back, then the portfolio would return back to you. What if the gov mails out checks from royalties on the FCC spectrum, oil and timber and mining leases to each american who pays taxes? What if the goverment would by you a house free and clear if you agreed to be a teacher or an aid worker or serve in the military? What if the federal gov started funding state budgets dirctly or bought vacant houses and used them for low income housing?



                            Point is: We have not yet BEGUN to inflate.

                            There is nothing to fear but loss of purchasing power in this "greater depression".;)
                            you got it. i'm waiting for my card...

                            Fed cuts rates quarter point to zero percent, is open for more October 30, 2008, iTulip

                            Central bank says it will cut rates as needed to boost economy
                            Last update: 4:52 p.m. EDT Oct. 30, 2009
                            WASHINGTON (MarketWatch) — The Federal Reserve on Wednesday slashed overnight interest rates and left the door open for more cuts — all part of an effort to return confidence to investors so that a cratered economy doesn’t crater further.
                            AntiSpin: Note the date, one year in the future. Zero percent is where we are headed and likely sooner than a year from now. Then what? Would you believe a government issued debit card? More …

                            Comment


                            • #15
                              Lite Truck Sales at 1983 Levels...???

                              It's just like Starting Over Again...


                              :rolleyes:

                              It seems to be the nature of Capitalism, to spoil people by raising them up, then discipline them by smacking them down, all the while maintaining the status quo, with the exception of increasing the wealth of the elite.

                              I just spent a lost decade in Japan from 1990 to 2001. I really missed being here during the Clinton era and stock market run up. At least I got see it on the internet. Luckily, I found Itulip in 1999.

                              k
                              Last edited by FRED; 11-07-08, 09:21 AM.

                              Comment

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