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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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Graphs are automatically updated.

UT Index:

The UT Index

Recession Alert:

recession alert

Effective Demand Limit:

Effective demand Y and PY recent

Effective Demand Fed rate rule:

ED Fed rate

Output Gap:

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

Real Wage Index:

real wage index

Productivity:

Productivity

Bottom of Initial Claims?:

Initial claims

Measures of Inflation:

Measures of Inflation
Data as of 2Q-2014
Effective Demand = $16.145 trillion
Real GDP = $15.994 trillion
UT index = 0.7%
Effective labor share = 74.8%
TFUR = 74.1%
ED Fed rate = 2.7% (would be Fed rate in normal business cycle. Potential GDP is lower than CBO says.)

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

Projected data for 3Q-2014

Capacity utilization = 79.2%
Unemployment = 6.2%

There is no recession for 2ndQ-2014. None expected through 4thQ.

(UT index close to 0.0% would show that real GDP is hitting the effective demand limit. Utilization rates of capital and labor would slow down at that point. If UT index begins to rise, the economy is contracting.)
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Edward Lambert: Independent Researcher on Effective Demand.
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