The recession is over
via the Hartford Courant (Hat tip Scott).
About Edward Harrison
- What does a double dip recession look like? 2 Aug 2009
- Readers of this blog expect the recession to last 18 Jun 2009
- The Economy Is Definitely In Recession 9 Mar 2008
- Recession while GDP is growing? 28 Jul 2008
- The U.S. has been in recession for one year 1 Dec 2008
Ed,
Can you comment about your thinking about the current trend in monetary velocity?
I’m having difficulty getting a clear view of what this concept means. John Mauldin has an interesting take in Seeking Alpha, and I would really value your thoughts on this issue, which seems crucial right now.
Barry Schaeffer
I’m a bit stuffed right now, so forgive me for not commenting earlier. If I had to take a position on money velocity, I would generally say I find the concept of dubious usefulness. Basically it comes from the relationship between the monetary base and GDP. And it is supposed to show how quickly money is cycling through the economy and therefore how much demand for money exists.
See here:
http://en.wikipedia.org/wiki/Money_velocity
The theory is that money velocity changes as the business cycle changes, but is fixed enough that changes in the money stock induce increases in aggregate output.
But, I try not to get too caught up in that as it is very theoretical. The real question is whether pumping more money into the economy will increase aggregate demand. My answer is no. Velocity decreases as the money stock grows and aggregate demand stagnates. Changing the supply of money has no impact on demand for goods.
“the GDP of $14.26T achieved in 2008 will not be achieved again until 2013 on an inflation-adjusted basis and that unemployment will not fall back to a level of 6.25% until 2016.
Comments please!
http://www.huffingtonpost.com/michael-d-intriligator-and-r-kyle-martin/the-rise-and-fall-of-arti_b_261392.html
Jimmy, that’s a pretty bearish macro view which would induce asset deflation for sure as the real burden of debt would increase and cause weak hands to fold or sell for needed cash.
I reckon they are putting a trough in GDP in at 2010 or 2011 and expecting a slow climb up. I look at this as a downside scenario more than a baseline one.
So what is your baseline view?
From Alexandre Soloviev, one author of paper predicting end of recessions:
“Thank you for the interest to our paper.
Now the algorithm describing in the paper is predicting that the period before the end of the current recession (“alarm”) has been started.”
To which I have asked him to reconcile his view with his colleague’s who differs.