From Europe’s Stormy Outlook:
Stormy conditions prevail across Europe’s economies, blackening the outlook after the arrival of a full-blown banking sector crisis this month sent confidence plummeting and threatened widespread-economic damage.
Jean-Claude Trichet, European Central Bank president, warned late on Sunday on French television of a “strong slowdown”.
The recent turmoil has hardened expectations that 2009 will see little, if any, growth across much of the Continent.
…
…or: “Yikes!”
There have been plenty of accounts that have noted the growing anxiety over economic growth over the short to medium term. However, this forecast from Deutsche Bank, released last night, is quite sobering, especially when compared to forecasts released just two weeks ago.
…probably confirms one’s priors.
All eyes have been on the housing market as the trigger for the financial crisis, but we’re all aware that there are other potential “triggers” for additional distress: auto loans and credit cards. In addition, spreads are not everything — levels of real interest rates matter as well.
From the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel‘s description of Krugman’s scientific contributions:
Trade and Geography — Economies of Scale, Differentiated Products and Transport Costs
By the late 1980s, researchers had begun to integrate economies of scale into general equilibrium models of location and trade, thereby giving precision to the verbal analyses of earlier researchers and adding important new insights. In the resulting work, now commonly known as the new economic geography, economic geographers made use of the new tools, along with economists who took a renewed interest in the field. Several researchers took part in these developments, but the most influential contributions were made by Paul Krugman.
Let’s assume the Treasury, the Fed and the rest of the community of international financial policymakers are able to stabilize the financial system. What are the fiscal options available, given the borrowing and spending policies of the Bush Administration?
From Chowdhury and Huie, “Skyrocketing Issuance,” US Economics/Strategy Weekly (Deutsche Bank, 10 Oct.) (not online):
Treasury issuance is likely to increase to extraordinary
levels over the past year. There are 3 components to the
issuance picture. The first is the traditional federal budget,
which in fiscal year 2009 is likely to increase substantially
from the 2008 deficit of around $440 bn. The second are
the various Treasury rescue initiatives that involve buying
assets or equities; only the expected net cost will be
formally recorded on the budget, but the entire gross
spending amount will be added to the issuance
requirement. Finally, the Federal Reserve’s liquidity
facilities will also add to issuance, as the Fed no longer
has capacity to sell or lend the Treasuries in its portfolio;
instead, going forward it will rely on the Supplementary
Financing Program, where the Treasury issues bills and
deposits the proceeds at the Fed, to finance its lending
facilities. In total, we expect net issuance to rise to $3.3 tn
over the fiscal year.
Messages from the August Trade Release and the September Import/Export Price release.
…at the UW-Madison. Ike Brannon spoke on behalf of the McCain-Palin campaign and Austan Goolsbee on behalf of the Obama-Biden campaign. Here’s the link to Proposals for Change (Adobe Flash required).
The WSJ just released its newest survey of economists’ views on the course of the economy. From the article:
On average, the 52 economists surveyed now expect gross domestic product to contract in the third and fourth quarters of this year, as well as the first quarter of 2009.
This is the first time that survey forecasts for those periods have turned negative. If those predictions bear out, it would mark the first time U.S. GDP — the total value of goods and services produced — has contracted for three consecutive quarters in more than a half century. Economists put the odds of recession in the next 12 months at 89%, up from 60% in last month’s survey.
Or…Salt Water/Fresh Water Redux!
Figure 1: Log GDP (1996$), 1900-1967 (blue line), and linear trend (red line). Source: S.B. Carter, S.S. Gartner, M.R. Haines, A.L. Olmstead, R. Sutch, G. Wright, Historical Statistics of the United States, Millenial Edition (CUP, 2006).