Be afraid; be very afraid.

From "'Created or saved' doesn't add up", by Joseph Lawler:

...[t]he "created or saved" numbers are meaningless. The administration purposefully devised the metric to be nebulous. Without a counterfactual, showing the trend of unemployment in the absence of the stimulus, it is impossible to know how many jobs the stimulus saved.

But this is completely counter to what I learned in economics, and how, for instance, the CBO conducts analysis. I assume Mr. Lawler doesn't dispute the impartiality of the CBO (but who knows?). Here's the way real macroeconomists conduct analysis:

As the President has discussed, analysis done within the Administration has shown how his tax cuts have substantially offset the series of adverse shocks that have been buffeting the economy. Simulations of a conventional macroeconomic model show that, without the tax cuts, the level of real GDP would have been about 2 percent lower in the

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I thought it of interest to see what surveys of forecasters indicate about two questions being asked: Is a dollar collapse imminent -- Martin Wolf is skeptical, while others [0] are convinced the end is nigh -- and is a double dip recession likely? I take a look at the messages conveyed by FX4casts.com and the WSJ October survey of forecasters.

The Dollar

First, let's take a look at what a survey of approximately 50 banks and financial firms indicates, for the value of the dollar (Fed broad index) and the euro/dollar exchange rate.

Figure 1: Log dollar index (broad) (blue), mean forecast (red squares), high and low forecasts (95% bounds) (teal +). Forecast dates typically pertain to 4th Thursday in each month. NBER defined recessions shaded gray, assumes last recession ends 09Q2. Source: Federal Reserve via St. Louis Fed FRED II, FX4casts.com, NBER, ...

Richard Posner has a critique of public intellectuals who work in the public sphere (with special reference to Christina Romer), either in government service, or in journalistic fora. Mark Thoma and Brad Delong have already made clear the (many) points at which Mr. Posner has gone astray. Parenthetically, I'll add that I wonder about the analytical abilities of anybody who lumps Phillip Glass (!) and Elliott Carter together into the highbrow music category (see page 18 in his tome Public Intellectuals: A Study of Decline (1991)). More substantively, I have a few of additional observations, some of which are amplifications of Brad Delong's points.

First, I agree with Mark Thoma that Mr. Posner apparently has little understanding of macroeconomics, either of old-style Keynesian type, or the new(er) real business cycle type, or certainly New Keynesian approaches. His charge that her current pronouncements are at sharp variance with

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Some are greeting Friday's employment report as an all-clear signal. But my advice is, keep your helmet on-- they're still shooting real bullets out there.

Let's start with the good news. I first called attention to the favorable turn in new claims for unemployment insurance on April 9, noting that in each of the previous 6 recessions, an economic recovery began within 8 weeks of the peak in new claims. On May 7, I concluded we had enough statistical evidence to predict with 85% confidence that new claims for unemployment insurance had indeed peaked at the beginning of April. Although there was some concern as to whether seasonal adjustment could be confounding the July readings, it's pretty clear now that the substantial decline in new claims is the real deal.

Black line: 4-week average of seasonally adjusted weekly initial claims for ...

A "W" Recession?

Martin Feldstein has recently raised the possibility that we might experience a relapse into recession in 2010 (a perfect symmetrical W), with the next dip in 2010. In my view, this means (1) we should have opted for a bigger and better composed stimulus package, and (2) the timing of expenditures in the stimulus package might not be as problematic as many commentators have indicated.

"I think we"re going to see a temporary substantial improvement," Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. "I emphasize the words temporary and substantial."

Feldstein -- a member of the private panel that dates the start of recessions and recoveries -- suggested the economy will contract into next year, and that the pattern of economic turnaround will be more of a seesaw than what he

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In my last post, I cited Jeff Frankel's keynote speech from a recent Bank of Canada-ECB workshop. He also pointed to the end of "Exorbitant Privilege" and "Dark Matter", and other arguments of American exceptionalism. I think we'll see resounding evidence of this in Friday's release of the US end-2008 Net International Investment Position (NIIP).

First, recall nearly two and a half years ago, I posted this figure...

Figure 1: Net International Investment Position, end-year (blue squares), and Cumulative Current Account balance on a NIPA basis (red line), as a ratio to GDP. NBER recession dates in gray shading. Sources: BEA International Investment Position release of June 2006, BEA NIPA release of October 2006, NBER, and author's calculations. Originally posted here

...and asked if "gravity can be defied?" At the time, I argued the answer was "no", and observed that NIIP reversion to

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I've just come back from two weeks on the road, during which time I attended a couple of conferences. The first conference (NBER International Seminar on Macroeconomics) dealt with issues of exchange rates, reserve accumulation and financial crises (more on that later). The second one, a joint Bank of Canada-ECB workshop (not online), focused on exchange rates in the global economy. At the latter, Jeff Frankel delivered the keynote speech, entitled "On Global Currency Issues", in which he outlined what's "out" and what's "in" in international finance. One of the phenomena he concluded was no longer relevant was "the global saving glut".

I still wonder whether there ever was a global saving glut. In part, the question hinges on one's view of what the nature of the glut. Was it world saving was higher then they it had been before. That patently was not true (and will be even

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I'm still looking for, and still not seeing, the economic recovery that everybody is talking about.

Source: FRED.

One bit of good news this week was the Census Bureau report that nominal seasonally adjusted U.S. retail and food services sales rose 0.5% in May. But of the $1.57 billion increase in total spending, almost $1 billion of it came from extra spending at gasoline stations. An optimist might read that as an indication that consumers are now prepared to spend more, and just happened to devote most of that extra spending to gas. A pessimist might worry that it portends further cuts in spending on other items ahead. But then, pessimists always find something to worry about, don't they?

National average U.S. gasoline retail price. Source: NewJerseyGasPrices.com.

Or perhaps we can take some

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There's been a lot of discussion of whether the Administration's forecast is too rosy. [1], [2], [3], [4], [5], [6] I thought it useful to examine this issue a bit more deeply.

Figure 1: Real GDP q/q growth rate from Administration (teal), CBO without stimulus (red), February Blue Chip (blue), WSJ mean forecast from February survey (pink), and WSJ trimmed high and log (dark red). WSJ trimmed values delete the top five and bottom five (out of 52) respondents. Source: OMB, CBO (March 2, 2009), and WSJ.

Note that while the Administration's forecast is slightly above the Blue Chip, it is slightly below the mean WSJ forecast (February) at least for 2009. And the Administration forecast is well within the 10% trimmed range of forecasts from the WSJ (that is, I've cut off the top 5 and bottom 5 forecasts

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If you went no further than noticing that the q/q annualized growth rate of -0.3% was faster than the -0.5 in the Bloomberg consensus, you might have taken this as good news. I'm not going to say it wasn't good news (relatively speaking), although negative growth makes the case for recession pretty good according to Jeff Frankel (who is on the NBER BCDC); see also RealTime Economics. However, there are some pretty interesting things that merit additional discussion.

I think that most observers will concur with assertion that the -3.1% decline in consumption q/q annualized was the most important aspect, as highlighted in Jim's post. To place the consumption drop in perspective, consider the q/q changes in GDP and consumption over the last forty years. The last time consumption growth went negative was in the 1990-91 recession. Figure 1 show the growth rates (not contributions to GDP).

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