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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Great reset
November 12, 2013 at 10:32 AM

The recession and its aftermath: Bad baked in the cake

If you haven’t already read the wonkishly titled Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy, it is definitely worth your time.

Written by David Wilcox, the head of research at the Federal Reserve, and two other Fed economists, this paper argues that the Great Recession and the years of weak recovery have done long-term damage to the American economy.

It’s not just sustained high unemployment, weak output and continued stagnant wages. The consequences are a negative feedback loop of lost productive capacity. They use the term “hysteresis” to describe the phenomenon, in this case the ecosystem of the economy being dependent on past conditions, not merely those of the present.

Most important, their research shows that the crisis and its aftermath “shaved” almost 7 percent off potential output based on the trend up to 2006. That’s almost $1.2 trillion.

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Comments | More in Great reset, Inequality

June 14, 2013 at 10:23 AM

Vote: How did the recession change your behavior?

People who grew up during the Great Depression were forever scarred by the experience and it affected their financial behavior, or so they say. Members of my family who experienced that calamity were horrible with money, the antithesis of the risk-averse, hyper-saving Depression archetype. On the other hand, research does show a substantial cohort was influenced by the event. For example, a Stanford paper indicates it had a “substantial” effect. After the crash of 1929, it was decades before many average investors trusted the stock market again. This time, the market came back quicker and returns on fixed income investments have been horrible. No wonder a Vanguard study showed 401(k) participation returned to pre-recession levels by 2010.

How has your behavior changed — or not. You can make multiple answers. If I left something out or you want to explain further, please use the comments field.

Read on for some of the best stories of the week you might have missed and the haiku.

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Comments | More in Great Recession, Great reset, Investing

May 17, 2013 at 10:28 AM

Poll: Your big economic worries

The Dow is over 15,000, corporations are sitting on record amounts of cash, M&A activity is picking up, the deficit problem is on track to being solvedinflation is nearly non-existent and the U.S. economy is performing better than that of almost all other industrialized nations. Metropolitan Seattle, with 5.5 percent unemployment, is getting close to what economists would consider full employment. On the other hand, millions remain unemployed, wages are stagnant and inequality is the highest we’ve seen since the 1920s and perhaps even at a historic record. It’s a recovery, but one very different from those seen in the post World War II era.

Consider that a recession comes along around every seven years or so. Also, the banking industry is as dangerous as ever, and so politically powerful that it was most recently able to push back meaningful regulation of derivatives. Federal austerity is holding back a more robust recovery. Recession in the eurozone, a slowdown in China and political tensions in east Asia are among many concerns. What has you most worried?

Read on for the best links of the week and the haiku:

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Comments | More in Aerospace/Boeing, Amazon.com, Banking, Boeing, Deficit, Eurozone, Global economy, Great reset, Jobs/Unemployment

September 11, 2012 at 9:58 AM

Can we learn from Hoover’s legacy?

A reader, no doubt trying to play “gotcha,” sent me an email, subject line: “Dr. Paul Krugman.” The reader writes, ” ‘The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover…’ Dr. Paul Krugman, New York Times, 11-10-2008.” End of email.

Krugman’s actual point was that Hoover’s tax increase was one of the drags on the economy inherited by Franklin Delano Roosevelt. And although the New Deal put millions to work and alleviated suffering, it never deployed enough stimulus needed to fill the demand hole left by the Great Depression. Krugman writes:

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

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Comments | More in Great Recession, Great reset, Inequality, Infrastructure

June 8, 2012 at 10:00 AM

Vote: Fix the economy now

The economy is near stall speed, no matter what Ben Bernanke says. The Obama stimulus was too small to fill the demand hole left by the Great Recession. It was poorly aimed and now is running out, and the reality is that Obama has presided over one of the lowest-spending terms over the past 60 years. Government cutbacks are a further headwind to recovery (something Reagan didn’t face in 1982).

Unemployment remains high and growth is slowing. Most people think we’re still in a recession. Europe is in a recession and threatening to bring the world into a deep downturn. The GOP House and minority in the Senate will resist any measures to move the economy forward — at least until President Romney is sworn in. So welcome to the next few months.

What would you do to fix it?

The most important need now:

Read on for the best links of the week and the haiku:

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Comments | More in Campaign 2012, Debt, Deficit, Eurozone, Federal Reserve, Great Recession, Great reset, Income/living standards, Infrastructure, Jobs/Unemployment

March 5, 2012 at 9:52 AM

What could possibly go wrong?

The U.S. economy seems to be slowly healing and Wall Street is rallying, although stocks pulled back today and 13,000 seems a tough barrier to stay across. How could things go sideways? Let me count the ways.

1. Europe. The sovereign debt crisis hasn’t been fixed. Even Greece hasn’t been fixed. At best, European leaders and the bazooka infusion by the European Central Bank have bought time. As debt continues to reset at high rates, Germany remains at odds with the rest of the eurozone on a bailout. A breakup of the euro is still possible, with a resulting global depression. Even if the eurozone stays together, most European economies will be in recession or near-recession conditions for years.

2. Israel attacks Iran. Israel is very good at starting wars and reaching its initial goals; not so good at an exit strategy. If Jerusalem tries to take out Iran’s nuclear capability, it might set the program back for a time. But Iran might not be as passive as Iraq and Syria in the face of similar strikes. Iran has the capability to shut down oil traveling out of the Persian Gulf, causing a huge price spike and recession.

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Comments | More in Banking, China economy and business, Debt, Eurozone, Federal debt/deficit, Federal Reserve, Global economy, Great Recession, Great reset, International economy, Outlook, Stock market

December 22, 2011 at 9:54 AM

Sorry, few green shoots for Christmas || Talton

The year-end search for green shoots is in full swing. The Associated Press writes, “The economy is ending 2011 on a roll. The job market is healthier. Americans are spending lustily on holiday gifts. A long-awaited turnaround for the housing industry appears to be under way. Gasoline is less expensive. Factories are busier. Stocks are higher.”

The reality is more somber. Today the government revised third-quarter growth of gross domestic product down from 2 percent to 1.8 percent. If we see a spurt in the last quarter, it’s likely to be short-lived. Such anemic growth makes it impossible to dig out of the demand hole left by the Great Recession, and especially the jobs crisis.

The Economic Policy Institute offers 11 charts showing the misery that remains in the labor market. More visual evidence of the wide economic wreckage comes from the Washington Post. Among the more arresting graphics shows how male employment has been falling since the 1970s.

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Comments | More in Great Recession, Great reset, Housing, Income/living standards, Outlook

October 28, 2011 at 10:05 AM

Vote: Did we step back from a worse recession?

So German Chancellor Angela Merkel stood up to the bankers and forced them to take a serious haircut to save the eurozone. Is she available to run for president in 2012? It’s bracing to see somebody show some (insert very long German word for intestinal fortitude) instead of doing another bailout where the enablers of crisis walk away with 100 cents on the dollar, or euro. Will it really work to stop the crisis in Italy from spreading to Spain and causing the breakup of the eurozone with all its ugly consequences on this side of the pond? Nobody knows.

Meanwhile, a report showed that GDP in the third quarter backed away from the stall speed of earlier this year. The bad news: Real disposable income fell and savings-rates sagged. The worse news: Even 2.5 percent GDP growth isn’t enough to fix the unemployment crisis. Which brings us to this week’s question:

Have we backed away from a worse recession

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Comments | More in Eurozone, Great Recession, Great reset, Income/living standards, International economy, Outlook

October 3, 2011 at 10:00 AM

The real Solyndra problem

As you know, the California solar energy company Solyndra received a $525 million loan from the U.S. Department of Energy, made some bad bets about the direction of raw materials prices and technology, forcing it to file for bankruptcy protection. This has produced a House investigation, with Solyndra executives taking the Fifth. If they were investment bankers, this would be another day at the office, but never mind that.

To the critics that say the Obama administration’s effort to seed a renewable energy sector with $22 billion in loan guarantees, former Reagan administration trade and commerce official Clyde Prestowitz says:

These are precisely the wrong conclusions to be drawn from the episode. As a former director of new product development at Scott Paper Company, I can tell you that any corporation or venture capitalist would be happy if as many as one in ten investments in new products and ventures paid off. The Solyndra loan guarantee of $535 million represents only about 2 percent of the Energy Department’s $40 billion portfolio of loan guarantees whose recipients mostly seem to be doing pretty well. Indeed, the number of jobs in the U.S. solar industry has doubled to 100,000 since 2003.

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Comments | More in Energy, Great reset, Infrastructure, Oil prices, Sustainability, Transportation

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