Is the Stimulus Working?

[awkward-silence]

From the begining the government said that the stimulus was not a quick fix and that our nation at its earliest would begin pulling out in September (the last month of Q3). Now the expected numbers show that the GDP for the U.S. is growing by 3.5%, right on time. The housing market has even seen its first increase since 2005.

Jobless rates though slowing are still increasing (and I would like to point out that this is a lag indicator). Inflation has held steady and most likely the Fed will be keeping interest rates low, but is eyeing raising them soon.

Some other information that I would like to through out before I open the floor for discussion. Many of the financial firms that borrowed money last fall have already paid the money back with interest (for a six month investment, the government earned 23% off of Goldman Sachs, not too shabby.) But investment ( I use investment because for their money they now own 60% of GM) into the Auto industry could nullify all the good that the stimulus has done. But China, who had lost the taste for U.S. debt, is investing heavily in the American Auto companies.

So how do you feel? Too early to tell? The Stimulus making improvements? Or is this a sugar rush before total collapse?

I personally feel that these are the first signs of a steady recovery and that we will see unemployment drop by Q1 2010.

[awkward-silence]

I thought maybe a few links would spur discussion

Wallstreet Journal

Forbes

LA times

[Memorize]

"Due to Government backed spending on cars and housing"

Unless, of course, you seem to think the Government can continue that spending...

[adrshepard]

Depends on how you define "working." Throw enough money at a problem, and you'll see an effect. The same goes for spending hundreds of billions of dollars.

The real question is whether it would have been a better idea over the long run to do substantially less. Much of the stimulus package wasn't about investments but aid. You can read this letter from the CBO about the stimulus's effect on long term growth here.
This is an article about it.
http://www.washingtontimes.com/news/2009 /feb/04/cbo-obama-stimulus-harmful-over-
long-haul/

You may be a bit confused about the numbers. The letter says that the stimulus will contribute 1-5% to GDP growth the first two years, but over time it would negatively effect GDP growth by about .2%. (This is the low end of the estimate, but the high end assumes that the 25-33% of the stimulus that could actually contribute to growth over the long term has over a 300-400% return on the investment; there's no other way the effect on growth could be neutral. I find that a bit hard to believe.) Well, doesn't that mean a positive net contribution to the economy? Not necessarily. The .2% will refer to a larger economy than the 1-5% figures do. According to another CBO document, GDP in 2014 will be 18 trillion, and in 2019 will be over 22 trillion. If it gave the year by year GDP, I could calculate the net loss from the stimulus, but it only gives the end value of multi-year increments after 2011.

So, I have my suspicions that it was a bad investment in the long term, but I can't prove it.

[Korriken]

if they would actually use it on things that would actually STIMULATE the economy, it would work, that and get their fat stubby hands off the throat of industry and let it breathe some. the mere thought of such large tax hikes in a recession is sheer stupidity on the government's part. businesses can't grow if you don't let them have the money to invest.

[SadisticMonkey]

Thank god the government built all those arts centres.

And yacht clubs, and walking tracks, and other things that are obviously essential to economic growth.

[LardLord]

At 10/30/09 01:08 AM, SadisticMonkey wrote: Thank god the government built all those arts centres.
And yacht clubs, and walking tracks, and other things that are obviously essential to economic growth.

Actually yes, the building of these things will cause aggregate demand in the American economy to increase over time, which will in turn cause a growth of both real GDP and inflation rates. Higher Inflation rates are a problem we can solve later, after unemployment has been reduced (GDP and unemployment are inversely proportional, so increases in GDP herald decreases in unemployment). This is the whole idea behind fiscal stimulus, and the fact that GDP grew 3.5% in the last quarter signals that decreased unemployment is not far behind at all.

[Memorize]

At 10/30/09 01:30 AM, LardLord wrote:

Actually yes, the building of these things will cause aggregate demand in the American economy to increase over time, which will in turn cause a growth of both real GDP and inflation rates. Higher Inflation rates are a problem we can solve later, after unemployment has been reduced (GDP and unemployment are inversely proportional, so increases in GDP herald decreases in unemployment). This is the whole idea behind fiscal stimulus, and the fact that GDP grew 3.5% in the last quarter signals that decreased unemployment is not far behind at all.

That's why the economists are saying we might have a "jobless recovery" with a "new normal" in unemployment or, at best, having double digit unemployment well into the middle of next year and possibly 3 years from now.

[LardLord]

At 10/30/09 01:52 AM, Memorize wrote: That's why the economists are saying we might have a "jobless recovery" with a "new normal" in unemployment or, at best, having double digit unemployment well into the middle of next year and possibly 3 years from now.

Most economists say that the unemployment rate a year from now will be markedly lower than it is right now, after a slight increase in late 2009 - early 2010, due to the lag effect which is derived from consumer expectations and confidence not being restored as fast as firms' ability to recover from recessions.

Our production possibility curve has not shifted inward as a result of this recession; our capacity to produce remains the same, and likewise the long-run Phillips curve has not shifted outward, because the increase in unemployment being experienced right now is almost exclusively cyclical in nature, as opposed to frictional or structural. Only an increase in frictional or structural or seasonal unemployment could shift the long-run Phillips curve, and thus the natural rate of unemployment, to the right.

[Memorize]

At 10/30/09 02:50 AM, LardLord wrote:

Most economists say that the unemployment rate a year from now will be markedly lower than it is right now, after a slight increase in late 2009 - early 2010, due to the lag effect which is derived from consumer expectations and confidence not being restored as fast as firms' ability to recover from recessions.

Hahahaha... Really...

"The comments arrive in the wake of government figures revealing that the nation's employers let go of 263,000 more folks last month than they hired, hiking the unemployment rate from 9.7 percent to 9.8 percent - the highest level in 26 years. And, despite some indication that production is slowly on the rise, experts expect unemployment to get worse before it gets better. Indeed, economists of all stripes are predicting jobless rates to flirt with 10.5 percent in 2010, and remain elevated through the entire year - a trend that threatens Democrats in the next election."

our capacity to produce remains the same,

Yeah, in the shitter.

and likewise the long-run Phillips curve has not shifted outward, because the increase in unemployment being experienced right now is almost exclusively cyclical in nature,

Nevermind Lyndon Johnson altering the way we calculate unemployment to make the economy "seem" better.

That's why our official Unemployment is: 9.8%

Real Unemployment: 17%

as opposed to frictional or structural. Only an increase in frictional or structural or seasonal unemployment could shift the long-run Phillips curve, and thus the natural rate of unemployment, to the right.

The so-called "lagging indicator" is nothing more than a politician's excuse to do whatever they wish to later claim responsibility for the eventual recovery.

[LardLord]

At 10/30/09 03:03 AM, Memorize wrote: Hahahaha... Really...

"Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010. "

Yeah, in the shitter.

So you're arguing that the period from 1993-2000 and 2002-2007 were not periods of economic growth? Because by saying that our production possibilities curve experienced a leftward shift you are saying that a permanently reduced state of full employment was instituted during this period.

Nevermind Lyndon Johnson altering the way we calculate unemployment to make the economy "seem" better.

Our unemployment is defined as the number of people who are in the workforce and actively pursuing a job. This does not change over time. The percentage of unemployment which occurs above the natural rate is a measure of the severity of a recession. Our natural rate in the years leading up to this recession was around 4%, and now is around 9.8%. It will likely rise above 10% for a short period of time and then being its decline due to the aforementioned lag effect which slows unemployment's corresponding decline in the face of an increased GDP.

The so-called "lagging indicator" is nothing more than a politician's excuse to do whatever they wish to later claim responsibility for the eventual recovery.

Do you know nothing of economics? The lagging indicator is a well-documented phenomenon in history. Unemployment reaches its highest rate after an economy has already begun to recover, before reversing course towards the natural rate. See below:

[LardLord]

At 10/30/09 03:18 AM, LardLord wrote: This does not change over time.

I'm referring here to the definition of unemployment.

[Memorize]

At 10/30/09 03:18 AM, LardLord wrote:

"Forecasters expect the unemployment rate to continue to rise, to 10 percent in the first quarter of next year, before edging down to 9.5 percent by the end of 2010. "

Yeah, kind of like those "80% of economists" who predicted that everything was fine just a few months before the collapse, right?

So basically here we have two articles stating that economists are saying two different things.

Nevermind their excellent track record so far.

lol.

So you're arguing that the period from 1993-2000 and 2002-2007 were not periods of economic growth?

We are not a producing nation.

Why did our economy "grow" 3.5%?

Was it because people were spending money again? No.
Was it because the unemployment dropped? No.

It was because our Government just spend, borrowed, and printed trillions of dollars the flooded the market with it. Using it mostly on cars and homes.

Therefore making this "growth" nothing short of Artificial which could only be "sustained" with yearly trillion dollar deficits as a result of spending.

But then that would mean a higher debt and higher interest on that debt. As well as higher inflation which would increase prices on an already highly unemployed population.

Excellent plan!!!

Nevermind Lyndon Johnson altering the way we calculate unemployment to make the economy "seem" better.

Our unemployment is defined as the number of people who are in the workforce and actively pursuing a job. This does not change over time. The percentage of unemployment which occurs above the natural rate is a measure of the severity of a recession. Our natural rate in the years leading up to this recession was around 4%, and now is around 9.8%. It will likely rise above 10% for a short period of time and then being its decline due to the aforementioned lag effect which slows unemployment's corresponding decline in the face of an increased GDP.

Moron.

If we calculate unemployment the way we did during the Great Depression...

Depression: 25%
Today: 17%-20%

Why?

Because today, we don't count people who give up looking for work as: Unemployed.
We don't consider self-employed individuals who currently have no work as Unemployed.
We don't consider those who went from a full time engineering job to a part time job as KFC as unemployed.

The ONLY reason why our official unemployment rate is 9.8% is because Lyndon Johnson changed the standards.

So we're very much closer to Great Depression levels (using Great Depression calculations).

The so-called "lagging indicator" is nothing more than a politician's excuse to do whatever they wish to later claim responsibility for the eventual recovery.

Do you know nothing of economics?

Coming from the person who believes our mainstream economists and didn't know of Lyndon Johnson's meddling...

The lagging indicator is a well-documented phenomenon in history.

There is no recovery without increased employment.

Otherwise, a recovery means: Jack-Shit.

Would you prefer a nation with 5% unemployment with 4% growth or a nation with 30% unemployment with 10% growth?

Unemployment reaches its highest rate after an economy has already begun to recover, before reversing course towards the natural rate. See below:

Except that the only reason why our stock markets are "up" is because of the Federal Reserve doubling our money supply which artificially boosts stock prices to reflect the devaluing of our Dollar.

For instance, let's say the DOW is sitting at 8000.

If the DOW increased to 8100 while the dollar loses it's value equal to 150 (based on the DOW), then that means you just made a net-loss of 50.

So you actually lost money even though the DOW went up.

Considering we've doubled the money supply and our dollar has lost so much of it's value, if we calculate the DOW's current 10,000 by how much it's actually worth with last year's dollar value and DOW number, then it would be (for example) much closer to 7500.

In this example: The DOW didn't increase from 6500 to 10,000. It's actual increase is from 6500 to 7500. The only reason why it's at 10,000 is because of the doubling of the money supply (ie. Inflation!).

To give you a better idea...

10,000 = 7500
Link.

So you're sitting here hailing the success of all this spending and that the DOW has hit the breaking 10,000 mark when it really hasn't.

If you adjust for the inflation of this year and last year, the DOW fell from 14000 to 6500 and then increased to a meager 7500.

So congrats on YOUR Recovery!

[tony4moroney]

Overwhelmingly increase deficit with the purchase of toxic assets and compromise long-term financial stability in order to superficially inflate the present economy?

Well yeah, I suppose the stimulus is working remarkably in that sense.

[awkward-silence]

At 10/30/09 04:09 AM, Memorize wrote: Yeah, kind of like those "80% of economists" who predicted that everything was fine just a few months before the collapse, right?

I don't know what you are talking about. I was finishing up my degree in Economics when the collapse happened and all of my professors were talking about how we were all fucked and the first stimulus (the $300 check to every american was not enough to fix the problem.)

So basically here we have two articles stating that economists are saying two different things.

And that is because they were writen three weeks apart. Monthly Job loss data is quick to determine but growth over a three month period is a little slower. Your article came out 10/9/09 and riled against the administration because joblessness edged up in September. The other article written 29th(ish I'm not double checking) said that the GDP had expanded for the first time in Several quarters during the third quarter (ending September 30th).

We are not a producing nation.

93-2000 was certainly a period of growth. One of the most important facots in a production function is the level of technology, and in 1994 the internet was released to the public. Changing the way ALL businesses function. 2002-2007 was a period of artificial growth made possible by unrealistic interest rates, government incentive towards home-owning and investment into military manufacturing. Consumer spending also played a huge role. When the government tells you everyday that we are on the terror level "Holy-fuck, we are all Going to Die!" then people tend to have a you can't take it with you attitude and wrack up huge credit card debt.

Was it because people were spending money again? No.

Yes, housing increased for the first time since 2005. Cash for Clunkers helped bring back consumer confidence and liquidate auto-lots allowing Car manufactures (and subsidiaries) to restart assembly, bringing back more people to work. Not to mention exports rose 14.2%

Was it because the unemployment dropped? No.

No, but that is always a lag indicator.

Therefore making this "growth" nothing short of Artificial which could only be "sustained" with yearly trillion dollar deficits as a result of spending.

Once markets have stabilized you shouldl see a contraction of the money supply. Which of course will have adverse effects on the economy. But the line of thinking is that its better to have an ache for a long time, than to have the equivilent of surgery sans anaestesia (sp).

But prices are sticky and since the american dollar is still one of the premier currencies in the world the price of a dollar is very sticky (meaning changes slowly). So an injection of capital can do wonders be put into the sytem to allow markets to stabalize and remedy what ails them and then retracted without the adverse effects of inflation.

Excellent plan!!!

Thank you. I thought so myself.

So we're very much closer to Great Depression levels (using Great Depression calculations).

Your point being what? Most people agree that this is the worst depression since the 1930's, though not nearly as bad. We haven't had the adverse effects of the droughts, the dustbowl, the bank runs, etc. Unemployement is not beeing sugar-coated but the new indicator. It is the same indicator used by Nixon, Carter, Reagan, Clinton and both Bush's. It is the same indicator that they used to help base economic policy. Its nothing new and there are benefiets to using the unemployement indicator besides as it is, besides sugar coating things.

There is no recovery without increased employment.

That is where you are wrong. I firm needs to expand before it can hire new people, yes? It needs to make money so that it can invest in new equipment and labour. That is why there is a lag between unemployment and growth. A firm about to gexpand its operation to meet demand must first have increased demand. And the vice versa holds true for contractions. Its not that complicated.

Unemployment reaches its highest rate after an economy has already begun to recover, before reversing course towards the natural rate. See below:

Except that the only reason why our stock markets are "up" is because of the Federal Reserve doubling our money supply which artificially boosts stock prices to reflect the devaluing of our Dollar.

This isn't true and I will use your own logic to show it and actual data to show it.

For instance, let's say the DOW is sitting at 8000.
If the DOW increased to 8100 while the dollar loses it's value equal to 150 (based on the DOW), then that means you just made a net-loss of 50.
So you actually lost money even though the DOW went up.

This idea of the Consumer Price Index (CPI) essentially what you are basing this on. Which according the Bureau of Labor Statistics, is actually down 1.3%. from September last year. That means with the the dollar, in terms of real goods, food, clothing, fuel, is actually more valuable now than i was before the bubble burst.

The dollar is trading stronger against the Euro now than it did in March of 08, same holds true for the british pound (The two strongest currencies in the world.). So in effect the economy, in real terms is better than the figures let on.
http://www.bls.gov/news.release/pdf/cpi.
pdf

In this example: The DOW didn't increase from 6500 to 10,000. It's actual increase is from 6500 to 7500. The only reason why it's at 10,000 is because of the doubling of the money supply (ie. Inflation!).

To give you a better idea...

10,000 = 7500
Link.

Your fears of inflation seem to be unfounded, and as much as I like the unsubtantiated link by a guy who calls himself Tyler Durden, its not going to cut it. It is true that the value of the dollar has fallen over the last decade, and the value fo the stock market is not really what it was in 2000. But the CPI rose 50 points from Sep. 2000 to Sep. 2008 and cas contracted 3 points in the last year.

This means that when the DOW peaked in Septeber 08 around 14000, its real value compared to 2000 was at 11,100 or 100 points lower than sep. 2000.

So you're sitting here hailing the success of all this spending and that the DOW has hit the breaking 10,000 mark when it really hasn't.

I never listed that as success.

If you adjust for the inflation of this year and last year, the DOW fell from 14000 to 6500 and then increased to a meager 7500.

No, keeping everything adjusted to 2000 prices and not just your incorrect recovery stat it actualy fell from 11,100 to 5385 and rebounded to 8,046. There is still work to be done, no doubt about it. But this is an actually accurate picture. In terms of recovery we are about half way there.

And I used each specific months CPI from
this table provided by the BLS