No recession, yet..


  • No Recession, yet..


  • Demand drop of 1% of GDP began over a year ago when home buying by subprime borrowers ceased..


  • And exports picked up the slack.
    And with housing as low as it is, further reductions, if any, will have minimal macro effects.
  • Losses not that large so far, only about $100 billion in write offs have been announced and with at least some prospects of recovery.
    Far less than the 1998 (inflation adjusted) losses, for example, when $100 billion was lost in just the first day when Russia defaulted August 17 with no prospects of recovery.
  • Financial sector looses are not direct reductions of aggregate demand, just the ‘rearranging of financial assets.’
  • Falling demand due to supply side credit issues and capital constraints are primarily fixed exchange rate phenomena and are rare and brief with floating exchange rate policy and a non convertible currency.
    Even in Japan with a floating exchange rate, when most bank capital was lost, credit expansion was a function of demand, while with fixed exchange rates, supply side issues dominated – Argentina, Russia, Mexico, the US in the 30s (gold standard), and the panic of 1907 Governor Mishkin referenced in his speech.


  • Government spending has been ‘moved forward’ from 2007 to 2008. Friday reported up over 8% year over year (NOTE: graph not updated for this last data point.)
  • Alt minimum tax capped helps demand some in 2008.


  • Personal income and spending not falling.
  • No econometric evidence of a significant ‘wealth effect’ from asset prices on the way up or on the way down. Income is better correlated.
  • Government employees and pensioners got GPI pay increases. This ‘half’ of the demand side keeps growing at 5% + nominal rates so to go into recession, the other half has to go down more than that.


  • Government tax receipts still rising.


  • Jobless claims remain too low for a recession.


  • Labor force participation rate climbing even as demographics suggest natural drift lower.




  • World and domestic demand is strong enough to support elevating prices of food, energy, and rising US imports and export prices.