Monday, November 5, 2012

Post Stimulus Hangovers

Click to enlarge.


While a hangover can be experienced at any time, generally a hangover is experienced the morning after a night of heavy drinking. In addition to the physical symptoms, a hangover may also induce psychological symptoms including heightened feelings of depression and anxiety.

Source Data:
St. Louis Fed: ISM Non-manufacturing: Business Activity Index


Stagflationary Mark said...

50 seems to be the magic number.

TJandTheBear said...

Well, if you consider we've been running on some kind of stimulus for 40+ years, the hangover from THAT could be 50 years.

Troy said...

if you consider we've been running on some kind of stimulus for 40+ years

'. . . right you are, Ken'

Troy said...

via DeLong's comments:

Stagflationary Mark said...

50 years would indeed be a serious hangover. Don't look for me to rule it out.

As of 2004, I'm a permabear. I'll be 90 years old in 2054. Perhaps I'll leave a blank space on my tombstone so that someone can chisel in when the economy's long-term hangover ended, lol. Sigh.

Gallows humor!

Watchtower said...

Hey, hold on a minute, not all post 'stimulus' hangovers are bad!

(Sorry Mark, but that popped into my head as soon as I seen your blog title.)

Jazzbumpa said...

As near as I can tell, the 2002 stimulus was an extension of unemployment benefits and some tax incentives. I had to look it up. I don't even remember anything about it.

Pretty week tea, IMHO.


Troy said...

The real 2002 stimulus was Greenspan's doing:

That got the consumer debt leverage ball rolling:

(added YOY credit/wages change in red)

The red line in that graph is a new FRED artifact for me.

It shows CMDEBT/wages declining from the initial boost in 2002, and when growth in this leverage ratio went to zero -- hello recession.

Knowing that debt went to the 90% and wages went to the 10% in this period is also important, since these graphs don't show how unbalanced this stealth stimulus really was.

Stagflationary Mark said...



(No need to apologize. I love a good musical tribute. ;))

Stagflationary Mark said...

Jazzbumpa & Troy,

Pretty week tea, IMHO.

I was just about to offer a chart of the Federal Funds rate from 2000 to present, but I see Troy beat me to it.

I will therefore offer a chart covering 2000 through 2003 (for a close-up look).

Pretty strong cocaine! ;)

It was enough to make me put 1/3rd of my investment nest egg in gold and silver from 2004 to 2006.

2004 was the first year I'd ever thought of owning precious metals. Greenspan turned me into a commodity speculator.

Jazzbumpa said...

I'm pretty well convinced that the fed is market follower, not a rate setter.

I know this view is anti-popular belief, and I took a lot of heat for it.

But I've seen no counter argument that is convincing.


Stagflationary Mark said...


You'll get no counter argument from me. I didn't buy long-term TIPS because of the Fed. I bought them in spite of the Fed.

They piled into them after I did.

That said, what they did was still stimulus if it convinced some other investors NOT to pile into TIPS and instead chase things even riskier.

I have also said the following more than a few times on my blog (primarily in the comments).

It is a common belief that the Fed has forced down interest rates. If this is true, then what would interest rates be had the Fed done nothing?

It is a common belief that we'd be in a Great Depression if they had done nothing. If we were in a Great Depression, then what would interest rates be right now?

10% interest rates as the consumer price index crashes? Hardly!

Stagflationary Mark said...

I guess what I'm trying to say here is that the following scenario seems likely to me.

The Fed sees Investor A piling into treasuries. The Fed is worried Investor B might pile in too. The Fed therefore buys treasuries before Investor B does. Investor B no longer thinks the interest rates look all that attractive. Investor B decides to buy something else instead.

That's stimulus and it is also consistent with your belief.

Jazzbumpa said...

It is a common belief that we'd be in a Great Depression if they had done nothing.

I'm somewhere between skeptical and cynical re: the fed. I think their power is asymmetric - they can fight inflation, but are far less effective fighting deflation. Part of this is not taking the dual mandate seriously, but another part is that their tools are not effective in this direction - IMHO, of course.

If we were in a Great Depression, then what would interest rates be right now?

Real or nominal?

Through '31 and '32 real interest rates (nominal - inflation) were over 10%. FRED doesn't take T Bond rates back that far, but here is AAA bond rate along with CPI YoY change.

This equates to about 15% on these bonds.

Even at 0.0% nominal, the cost of borrowing was 10% - exactly counter to your 11:20 comment.

We don't have that now. Nominal rates and inflation are both pretty low.

What do we call this - stag-non-inflation?

Real effective stimulus is targeted (or even untargeted) gov't spending and/or putting $$$$ in the hands of those who will spend it. Fed action and tax cuts for the rich have just resulted in speculative bubbles.


Jazzbumpa said...

Meant to include this FRED link of current events.


Stagflationary Mark said...


Real or nominal?

Nominal of course. I'm well aware that real returns on cash turn seriously positive during severe deflation.

As seen in my name, I was not much of a believer that we'd see severe deflation over an extended period.

I also did not intend to imply that I was a strong believer in the "common beliefs" within my previous comment. I was simply laying out the common beliefs as I saw them.

Even Japan's CPI after their massive housing bust since 1990 has simply flatlined.

I lean a bit more inflationary than that though. I believe the Fed can maintain its 2% inflation target thanks to our massive trade deficit. Sigh.

In hindsight, I would name myself Stagnationary Mark, although there's been a bull market in *stagflationary* investments for a decade (commodities, TIPS, I-Bonds).

Stagflationary Mark said...

There's also been a bull market in deflationary investments too.

Nominal treasuries have certainly done well.