Paul Davis here, with my first go at guest posting for Yves so you’ll have to excuse me if I’m rusty on the formatting. Another week gone by; a pile of charts for you to consider (a click will mostly give you a larger size).
Krugman made the point with this chart that the Fed is pushing on a string here. The “bond market vigilantes” (remember that term) aren’t nearly as sanguine about the credit or inflation risk as Ben seems to be.
This one is also quite interesting. You can clearly see Mae/Mac taking up the mortgage baton when the S&L’s took a fall, and then the ABS market stepping into the breach when the agencies ran out of ammo. I believe Mae/Mac has moved back up to 80% of the mortgage market. Is mortgage broking going to be declared a strategic industry?
I like to see this type of GDP readout when I read the headline number. The various components have such disparate character it reminds me of the wheels on a slot machine. Depending where they end up any given quarter you can have GDP from -1 to +3… Taking them in turn: consumption had a bit of a bounce from the tax checks but I would expect less next quarter; non-residential is looking very anemic and steadily so, a bad sign; residential is falling less rapidly over time, could probably plot the bottom; inventories are all over the place from quarter to quarter, but it looks like they were just flushed out which could be good as they refill, or an indicator that businesses are genuinely pulling back on production, or it could just be too expensive to finance them; both exports (more) and imports (less) were positive for growth, probably the most encouraging data on the chart. Government is exogenous… no insight from me.
This chart pair shows the marked difference between the current residential-led slump and the 2001 capex drought.
The bigger picture shows that this is still not desperate territory in GDP growth terms, although my “ruler on the screen” technique reveals we are tracking below the trend since 2001.
Good news? The US deficit relative to GDP is also not the worst its ever been. The absolute numbers sound much worse.
But this chart from Ned Davis really scares me.
Unemployment is going up, but still not historically dramatic though DeLong and others argue that a wider indicator (U6) is now more useful.
With all the legal crossfire, perhaps we can expect something of a litigation-led recovery:
I know, oil prices are so last week, but I’ve been tracking this chart and the rollover in US miles driven is impressive. What also amazes me is that in 25 years the distance driven by Americans doubled. Why? The country didn’t change size. Everybody just did more driving. It’s hard for me to believe that that lead to an increase in quality of life (is driving per se a consumption good?) but that is just me. I would love to see this figure for Japan, Europe, China…
More behaviour modification in action. The invisible hand upside the head. Ouch!
Looking at this chart, it’s hard to fault the hot money flooding China.
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“What also amazes me is that in 25 years the distance driven by Americans doubled. Why? The country didn’t change size. Everybody just did more driving. It’s hard for me to believe that that lead to an increase in quality of life (is driving per se a consumption good?) but that is just me. I would love to see this figure for Japan, Europe, China…”
Betcha toenails to teacups that most of those extra miles resulted in SOME kind of economic exchange. Even for the parking sessions under the bridge.
We drive to spend and spend to drive.
What also amazes me is that in 25 years the distance driven by Americans doubled. Why? The country didn’t change size. Everybody just did more driving.
Actually the country did get bigger–in population. In 1970, there were only 203m Americans (33% more now). This will account for a good portion of the increase in driving (your measurement is in total miles driven) but not all of it. You’ll need some econometric jiu-jitsu to figure out how much, though.
Some of the increase in miles driven, over and above the population increase, was due to longer commutes by workers living in ‘xurbs’ beyond the suburbs.
Gasoline at $4+ per gallon might be part of the reason for quick mortgage walk aways in the ‘xurban’ areas.
Given the choice of trading in two gas hogs for two econoboxes or walking away from a nonrecourse mortgage, home buyers upside down on mortgages and without access to credit for the new fuel efficient vehicles are between a rock and a hard place.
Perhaps the Fed/Treasury should concentrate on providing credit for econobox purchases?
I don’t like the idea, just sayin’.
River
Paul: “”What also amazes me is that in 25 years the distance driven by Americans doubled. Why?”
The chart explains more than you know, tying together your question, fiscal problems, the credit crises, lack of energy policy, and why the nation choose this administration…..TWICE!!. For it is common knowledge amongst the cognoscenti (according to 1984 cult hit Repo Man: “The more you drive, the stupider you get…”
Paul – great article, lots of meat, thank you !
one contributing factor must be the fact that over the last 25 years, the US population has grown by 72 million people ( or 31% ).
25 years cars were crap.
25 years ago, tires sucked.
25 years ago, cars started breaking down after 2-3 years.
25 years ago, most people paid for gas with cash, not credit cards.
25 years ago there were no cell phones. If you broke down, well, that *really* sucked.
Driving these days is much less stressful than 25 years ago.
The DIDMCA was responsible for MAE/MAC's accelerated growth. Economists don't know the difference between banks & non-banks. The non-banks do not compete with the commercial banks.
As written in June 1980::
One of the principal purposes of the Act was to provide the housing industry with a reliable source of funds. That may be achieved through various governmental and quasi-governmental corporations.But the role of the S&Ls in housing finance will probably diminish significantly.
By becoming commercial banks and having a larger spectrum of loans to choose from, the S&Ls will act like banks and whenever possible eschew “borrowing short and lending long”. Sources of mortgage funds will shift from the subsidized rates heretofore provided by the small saver to “bond-backed” sources which will reflect the higher interest rates prevailing in the loan-funds markets.These factors combined with higher trend rates of inflation should result in a pronounced upward trend in mortgage financing costs.
Those who are wont to minimize the ill effects of the deficit are prone to compare the size of the deficit with nominal GDP, as if the volume of nominal GDP were independent of the size of the deficit. Unprecedented large deficits “absorb” a disproportionately large share of nominal GDP. Present deficits are unprecedented no matter how measured, and the past gives us no reliable guide to the future effects of deficit financing, beneficial or otherwise.
To appraise the effect of the federal budget deficit on interest rates, it is necessary to compare the deficit, not to the debt to GDP ratio (a contrived figure), but to the VOLUME OF CURRENT SAVINGS made available to the credit markets. The 2006 deficit (406 billion interest expense) is absorbing about 23 percent of gross private savings. FY2006 total debt is the sum of: federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds (50.5 trillion).