Monday, August 26, 2013

Long-Term Recession Odds

The following chart shows the odds that a month chosen at random is within a recession.

Click to enlarge.

The 15-year moving average is shown in black. The average since World War II is shown in red.

In my opinion, the odds of the Fed permanently putting a stop to future recessions is about as likely as monkeys magically appearing out of my you know what.

It is also my opinion that the low recession frequency of the 1980s and 1990s is officially over. If so, then we can expect 1 month out of every 6 to be in recession, which oddly enough is the same odds one would have in a game of Russian Roulette.

Feeling lucky?

Source Data:
St. Louis Fed: NBER based Recession Indicators


mab said...

It is also my opinion that the low recession frequency of the 1980s and 1990s is officially over.

We'll see. I tend to think the low recession frequency of the 80s & 90s will continue. That's not to say the average guy will be better off. I don't think he will. The Wall St. looting apparatus is arguably stronger than ever.

If Japan can successfully kick the can so can we.

Stagflationary Mark said...


If Japan can successfully kick the can so can we.


That's just it though. When it comes to recession frequency, Japan was horrible at can kicking.

OECD based Recession Indicators for Japan Since 1990

41% of all months since 1990 have been in a recession! No joke. That's getting close to coin tossing (as opposed to Russian Roulette).

So yeah, I think we could potentially be just as "successful" as they were!

As a side note, Japan is currently in recession.

Stagflationary Mark said...

One more thought, just to be clear.

I'm basically arguing that the 5% recession frequency over the previous 15 years as seen heading into the dotcom bust in 2000 will not soon return. That low recession frequency party is over.

In its place, if we're lucky, is the average recession frequency since World War II.

That's if we're lucky. Japan's recession frequency since their housing bubble shows us what can happen if we need more than luck. Sigh.

Troy said...

Not so much kicking the can as filling a leaky bucket.

The trade deficit is a three-edged sword, we get free stuff now, but at the cost of lost employment at home and the future loss of control of wealth as the money comes back to buy our production.

Nobody in the field of economics, other than Steve Keen, really focuses on the flows into and out of the paycheck economy.

(He actually did a Kickstarter to fund his computer model of the situation, props to him doing exactly what I want to do but am too le lazy.)

Krugman, DeLong in the center-right and all more to the right of them operate with very abstract models with uniform agents all with symmetric flows among each other.

It's all a crock.

Troy said...

Japan ran into a demographic wall though, right when they started offshoring everything to China.

Brutal is yen to yuan, how expensive the yuan is in yen.

Doubly brutal for domestic labor.

Also, part of their deflation is from coming from a 240 yen regime to 80 lowered the domestic price level, putting stress on local suppliers.

Troy said...

fixed the above chart comparing trade deficit vs QEs

Stagflationary Mark said...


It's all a crock.


Also, part of their deflation is from coming from a 240 yen regime to 80 lowered the domestic price level, putting stress on local suppliers.

Yeah. I think we'll earn part of ours the old fashioned way though. I don't really have that much desire to hoard what's lurking within our massive self-storage industry. We just love accumulating stuff! No idea what we're planning to do with it all, lol. Sigh.

Self Storage Association

* The self storage industry has been one of the fastest-growing sectors of the United States commercial real estate industry over the period of the last 35 years

* There are now approximately 48,500 “primary” self storage facilities in the United States as of year end 2012; another 4,000 are “secondary” facilities (“primary” means that self storage is the “primary” source of business revenue – US Census Bureau)

* There are approximately 59,500 self storage facilities worldwide as of Q4 – 2012; there are more than 3,000 in Canada and more than 1,000 in Australia.

dd said...

Krugman, DeLong:
It's all a crock.

Think that pretty much sums it up. Summers is in the crock pot too. One awaits his genius input into the toxic stew.

Troy said...

My rant on DeLong's (I thought the chart was interesting):

The Fed doing what Congress won't is very dangerous.

People talk about needing stimulus without having much of an understanding as to how the present situation got to be.

Either that or "people do get it" and this recent history is actually an inner-party truth not for public disclosure, that's always possible I guess.

Stiglitz more or less gets it, as does Keen of course, and also Hudson. But this is the heterodox peeps, move any more towards neoliberal and you hit Krugman and DeLong, and I have yet to see anything all that illuminating from them.

I don't bang on the deficit spending because I am just phobic about it, I just see government's role being redistributing money from "savers" to those unable to save as well, since we've structured the world such that 5% of households clear over one-third the national income now, and we've made it pretty hard for anyone these days to avoid the rife rent-seeking in so many areas -- education, healthcare, and housing.

Of course the entire field to the right of Krugman and DeLong exists to defend the 5%'s capital position, they like their present "savings" fine TYVM and don't see any need for redistribution.

What this nation needs is to stop borrowing trillions from the "savers" and squeeze them to the pips. China too.

Just throwing money in the general direction of the masses sure as hell isn't going to accomplish any durable improvements.

is wage-scaled personal consumption of housing (blue). health care (red), energy (green), and education (orange).

Housing has gone from 20% of our wages to 30% since 1960. This is not all hedonic improvements in housing, after all the same houses built in the 1960s have inflated along with everything else.

Rather, we're on a treadmill of bidding up the cost of housing, since it is the one good that is immobile and thus supply is constrained relative to area wages (the higher the wages, the greater the supply constraints).

This nation has to get away from the idea that housing costs going up are a good thing. They're not, the housing treadmill is largely why we're all broke.

Health care inflation is also a big negative too, but at least that gives millions of people rewarding jobs improving peoples' lives, more or less.

Energy was a surprise to me, given that household gasoline consumption is ~1000 gallons a year and half our $500B trade deficit is thanks to our oil imports.

Education is the smallest on the chart but it's the largest issue facing people starting out today. I left college $2500 in debt (2012 dollars). The average these days is 10X that!

mab said...

Regarding Japan and recession:

In and out of recessions or just a slow down in the rate of growth (economic and population)?

Is growth below "potential"? I can't say, but I call it a new normal. The U.S. since from 2000 looks a lot like Japan post 1990.

Expecting an over-indebted population to keep borrowing like they did in the past just isn't realistic in my view.

Like Japan, the U.S. economy is totally dependent on Gov't deficit spending. If the deficit Gov't deficit spending ends, this sucker is going down!

dearieme said...

"The Fed doing what Congress won't is very dangerous." not half as dangerous as the Pres doing what Congress won't viz deciding on matters of peace and war.

mab said...

not half as dangerous as the Pres doing what Congress won't viz deciding on matters of peace and war.


I hear you. But I'll add the following subtle but important change:

not half as dangerous as the Press doing what Congress won't viz deciding on matters of peace and war.

Troy said...

not half as dangerous as the Pres doing what Congress won't viz deciding on matters of peace and war.

Starting wars are only for Conservative Republicans, silly!

Granted, LBJ lied us into sending millions of troops into Vietnam, but he was largely stampeded by 1960s conservatives, then, to avoid being seen as a pantywaist, "losing" Indochina just like Truman "lost" China, by failing to stand up to Communist-bloc expansionism.

We've got the same two partisan camps now, each with their own BS realities. This ideological divide is really 90% of our problem.

Our actual economic and social problems are much easier to solve than e.g. Japan's, but it's our internal division that is keeping everything log-jammed and working at cross purposes.

Since Truman we've had RR/DD/RR/D/RRR/DD/RR/DD presidencies, swerving mostly from the center-right to the further-right on most if not all issues. (Hint: "ObamaCare" is "center-right"!)

Nobody can even see the real problems any more. 90%+ of the public discussion is just BS.

we're 4X more productive now compared to 1950, but 4X deeper in the hole, too.

Troy said...

blue is nominal wage level, 2001 = 100 (up 40%)

red is housing costs (up 60%)
green is health care is up 100%
orange is College is up 120%
black is Energy is up 80%

Stagflationary Mark said...

Apologies for not responding sooner.

Just got back into town after helping pack boxes for my mom's grand move out of her house. Her small dog has been added to our household as part of the move.

And in other news, in addition to the $7k I've spend on my dog over the past 13 months, I just got the estimate for another apparently needed surgery for her. Tack on another $2,500 to $4,000.

The summer of my discontent continues (starting with the ankle injury that took my hiking plans to zero).

This too shall pass. Right?

Just don't apply that proverb to our economy's prosperity rampage (meant in a temporarily positive way)! Oh, oh. Blog naming remorse!

Prosperity Ramgage!

Have no fear. There would be a sarcastic tone. Some things never change. ;)

Troy said...

I was looking over Central Washington just last month . . .

from the air it looks like how Mars would look after 50-60 years of terraforming + colonizing.

Stagflationary Mark said...


From the ground it looks like a terraforming work in progress! ;)