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05/18/2013

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Great post. I like that you're trying to tell a clear cause-and-effect story, a narrative, that explains the situation.

Just ran across this this morning, via the always-brilliant Josh Mason...

(3) The cumulative process of a general credit crisis bifurcates the economy. At the extreme, it ends up with two disjoint sets of agents – on the one hand, creditors who are safe, solvent and liquid, but uncertain about the realizable value of their claims and under the circumstances unwilling to lend; on the other, debtors who are illiquid, in peril of bankruptcy and trying very hard to run positive cash flows to service their debts even as they have problems financing current operations. If the bifurcation has proceeded very far, conventional monetary policy will be ineffective. The central bank transacts with the solvent and liquid private sector agents but can do little by such means to stimulate activity in the parts of the private sector that are in trouble.7

http://ineteconomics.org/sites/inet.civicactions.net/files/Berlin%202012%20Rev.pdf

have you seen Roger Farmer approach to understand business cycle? One of the paradigm of modern macroeconomics is the notion of natural unemployment rate hypothesis, and I and convinced that have flaws and it is false. Employment is constrained by demand, demand is constrained by wealth, and wealth depends on what we expect about it, so effective demand can be a self-fulfilling phenomena of expectations. The only way to get out of this mess of demand scarcity is to influence in wealth expectations, and Farmer approach calls for active market intervention of the Fed, not only with the rates, but also with risky assets (equity as recently Japan experience). So, the size of the Fed balance sheets allow for the control of inflation while the composition of it (risk and free risk assets) allow for determination of employment through wealth expectation.

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UT Index (measure of slack):

The UT Index

Recession Alert (developed at recessionalert.com):

recession alert

Effective Demand Limit $16.250 trillion projected:

Effective demand Y and PY recent

Tracking GDI with Effective Demand Limit:

GDI & ED

Effective Demand Fed rate rule (uses CPI less food & energy):

ED Fed rate

Output Gap (big difference):

Output gap

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index

Productivity:

Productivity

Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Are we seeing the Fisher Effect?:

Fisher effect?

Measures of Inflation:

Measures of Inflation

M2 velocity still falling:

Measures of Inflation

Double checking labor share with unit labor costs & inflation:

ULC LS CPI
Data as of 3rdQ-2014
Effective Demand = $16.288 trillion
Real GDP = $16.150 trillion
UT index = 0.6%
Effective labor share = 74.8%
TFUR = 74.2%
ED Fed rate = 3.2%

Projected Effective Demand limit upon real GDP is $16.250 trillion.

Projected data for 4thQ-2014

Real GDP = $16.250 trillion
Effective labor share = 75.0%
Capacity utilization = 79.0%
Unemployment = 5.9%
TFUR = 74.4%

There is no recession for 3rdQ-2014. None expected in 4thQ-2014.

(UT index close to 0.0% shows that real GDP is hitting the effective demand limit. Utilization rates of capital and labor slow down. If UT index begins to rise, the economy is contracting.)
My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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