Recession/June 2009/Stimulus

Actually, what the NBER does is determine the points of "peak" and "trough" in economic business cycles. When an economy troughs within these cycles, it doesn't mean things have improved a whole lot. (Works the same way with the peaks - when a peak occurs, it doesn't mean things have crashed). What they said about this one is in their press release: http://www.nber.org/cycles/sept2010.html

As you may recall, no one thought we were in a recession until late 2008 - and NBER declared in retrospect, it began in December of 2007. Bear Stearns went under in February of 2008, and the market REBOUNDED after that, because people did not think that the problem was systemic at that point. It wasn't until Lehman Brothers collapsed in September of 2008 that the stock market completely fell apart, and everyone decided the financial systems was falling apart and the economy was going to collapse.

It is September of 2010, and they're looking back over a year, and saying that was the bottom - they're not saying things have improved a whole lot.

And since the recession began in December of 2007, how could Obama have done much at all?

I know you love to bash Obama for his spending policies, but most of the bailouts and stimulus funding was put into place before he even took office. Don't get me wrong - I'm not defending his policies. In the economic stuff we publish, we've been highly critical of him for not focusing stimulus efforts on job creation, and the Home Affordability Mortgage Plan (HAMP) was a good idea, but implemented really poorly.

That said, in reality the only real legislation he passed was the American Recovery and Reinvestment Act. That was a $787 billion package - a spit in the bucket compared to everything else when added up.

Since the collapse of companies like AIG, Bear Stearns, Lehman - and the almost collapse of companies including Bank of America, Washington Mutual, Merrill Lynch, Freddie Mac and Fannie Mae... there have been:

TARP (consisting of 9 separate funding & bailout programs) - $700 billion committed, with "just" $356 billion spent (a Bush program);

14 Federal Reserve rescue efforts totalling $6.4 trillion in commitments, with "just" $1.5 trillion spent (most of this done under Bush, except U.S. Treasury bond repos, which continued under the new administration);

6 Federal Stimulus Programs - including the car allowance rebate system started under Bush ($3 billion) and the Advanced Technology Vehicles Manufacturing Progam ($25 billion), which is Obama's - and the Economic Stimulus Act of 2008 ($168 billion)... and Obama's American Recovery and Reinvestment Act;

The 2nd AIG bailout ($182 billion committed, $127 billion spent);

FDIC bank takeovers: I don't know the number of banks that failed in 2008 and 2009 offhand. I know the year-to-date total this year is either 119 or 120 (there were 3 in 2007). In 2008, FDIC takeovers cost $17.6 billion. In 2009, FDIC takeovers cost $27.8 billion;

5 other financial initiatives (including the "Temporary Liquidity Guarantee" Program). These total $1.7 trillion committed, and again, "just" $366 million spent;

3 housing/mortgage initiatives (including the Fannie Mae and Freddie Mac bailouts). These programs represent $745 billion committed and "only" $130.6 billion spent.

So the total of about $11 trillion in stimulus and bailouts committed has resulted in about $3 trillion spent.

I don't think anyone's trying to convince the people losing their homes and jobs that things are getting better. Obama's response to the NBER announcment on Monday was

"Economists may say that the recession officially ended last year. Obviously for the millions of people who are still out of work, people who have seen their homes values decline, people who are struggling to pay their bills day-to-day, it's still very real for them." Reuters, Monday Sep 20, 1:14pm ET: http://news.yahoo.com/s/nm/20100920/...a_economy_nber

Handing out money to people is no way to "jump start" the economy. All it does is add to the debt with no way to pay for it. Another in a long line of failed economic polices from your "hope and change" president. Are you happy about things now?

No one would listen to the warnings - change would happen, but its not what you think!

I'm not sure what you mean by "handing money out to people," but pumping money into an economy usually does help pull us out of a recession. This time things are different for many reasons, thus my criticism of how Obama's been spending the money - not the amounts being spent. !!!

While Obama has certainly spent more than any other President his first year in office, it also turns out he was facing the repercussions of the longest recession since World War II. You actually think ANY President could have fixed this in one or two years? No matter WHO is in office, spending would HAVE to have been the most ever in our economic history! These are huge economic cycles, and the collapse of a financial system that has been in the works since Reagan was in office!

Spending during Bush ($ billions (2000 - 2008) and Obama (2009)

Year / GDP / Total Fed Spending / Federal Deficit

2000 / $9,952 / $1,789 / -236 (surplus)
2001 / $10,286 / $1,863 / -128 (surplus)
2002 / $10,642 / $2,011 / 158
2003 / $11,142 / $2,160 / 378
2004 / $11,868 / $2,293 / 413
2005 / $12,638 / $2,472 / 318
2006 / $13,399 / $2,655 / 248
2007 / $14,078 / $2,729 / 161
2008 / $14,441 / $2,983 / 458

2009 / $14,601 / $3,518 / 1,413

Notably, in 2001, the Congressional Budget Office estimated an $850 billion surplus by 2009. The actual numbers took a $2.2 trillion swing. Obama is not responsible for this. It is events that were already in place that have resulted in his historic levels of spending.

As to Bush - HIS spending has contributed to the problem. The cumulative cost of the wars in Iraq and Afghanistan contributed greatly to handing Obama a $460 deficit instead of an $850 billion surplus.

But in the face of the tremendous economic collapse Obama inherited, it would have been irresponsible for any President taking office in 2009 to cut spending.

I'm happy to debate about how it should have been spent - but that anyone would question that the money needed to be spent in the face of what has been happening is beyond me.

I sure don't take the European's economic knowledge to heart in most issues, if for no other reason than they are in it worse than we are, but I distinctly remember a few of the European leaders saying at the G8 or G20 or some big economic summit ( ) that you can't spend your way out of a recession, and said flat out that Obama's continued proposals for more and more government spending is just a bad idea. We tried it; they tried it. It made things worse for them and didn't help us at all.

I will certainly agree that some additional spending needed to be done. There needed to be assistance for the millions who lost their jobs and still haven't gotten a replacement, for those who are losing their homes through no fault of their own (not because they got into idiotic mortgages backed by the government of all things), to give the auto and home sales a big jump start, etc.

However, in all of those things you listed there are billions that never should have been spent let alone committed. Not by Bush, not by Obama, not by any of them. On top of the "stimulus" bills and bail-outs it is, IMO, ludicrous to pass HUGE additional spending legislation, such as the Insurance Reform Bill/Obama-care, and not even come close to passing anything remotely resembling a budget (balanced or not)!

I realize that Obama had a full Democratic controlled House and Senate and basically could pass anything he wanted. Well, they could have if they hadn't started doing and saying really stupid things. (i.e. Pelosi's famous line about the health insurance bill, "You need to pass it so you can find out what's in it." Really? And she's the one they put in charge of the House? For real???)

I have to agree with something Bill O'Reilly said today with Shepherd Smith, "Obama's problem is that he is governing based on theory." Theoretically all the government spending should have popped us back up to the top (if you believe the theory ), but it didn't. When the theory doesn't prove factual, though, he still hangs onto it and keeps pushing with it.

Note: O'Reilly made a clarification that governing based on a theory is not the same as based on a philosophy. He isn't saying that Obama is a Marxist or what-have-you, such as some on the far-far-left espouses. I agree with him on both counts.

I think Obama is doing what he believes is the best thing for the country; he understands the theory that shows that government spending will pull a country out of a recession. I also think that he doesn't see or believe that there are some in the party that will push their philosophy and agenda through at the expense of him as President or of the country as a whole because they, too, believe in it so fervently. But I also think that their theories and philosophies are wrong for America.

Just my own and they aren't asking me for economic or political advice, so take it for what it's worth.

Great post.

One thing I'd like to add is that whether one governs theoretically or pragmatically, the reality is that there may in fact be problems that just simply can't be fixed. A tipping point may have occurred either sociologically and/or economically, which may in fact prevent us from ever reaching a point of equilibrium, ever again. That's a harsh vision to face, and I think people have trouble with it and just need a villain in order to cope.

And what decisions does any group make other than through theory? Gravity is a theory. Religion is a theory. Corporations across the world make their business decisions based on theory. Governments implement laws based on theory.

Disagreement between people is based on disagreements between personal theories. Saying that governing based on theory is a problem is really stating that he doesn't like that theory.

Heidi, it is an excellent post. You are SO right - there are so many things in there that shouldn't have been committed to by anyone! As I'm sure you know, I did not believe the bailouts should have happened. MAYBE AIG, only because the impacts of its failure would have been SO widespread. But GM? I think it was in the Washington Post the other day - its stock will have to appreciate to $134 a share for the U.S. taxpayer to break even.

And you are absolutely right, some of the programs are ridiculous.

But where I think (perhaps) we disagree is on the idea of fiscal austerity.

Spending your way out of a recession has worked in the past - in every post war recession. Look at the 1980s - right after the Reagan recession came the Reagan boom - the U.S. saw 7% growth in GDP in one year.

It was announced today that Ireland's economy slipped back into contraction in the 2nd quarter. The Brits have launched an austerity program (that the U.S. will be watching closely!) - I guess they're calling it a "fiscal consolidation" plan for the next five years. Those plans have been given kudos by the IMF and others (namely the debt rating agencies) - just as they handed out the kudos to Ireland when it took quick measures to cut its deficits last year. And while the Irish have suffered budget cuts and tax raises - because purchasing power of the consumer has been so hurt, growth is suffering terribly. The GDP contraction of 1.2% in the second quarter is the 7th contraction in 8 quarters. But this means that deficits aren't falling because growth is falling. So this doesn't seem to be providing much of a stable platform either.

The idea of deficit spending is really quite simple, and I'm sure I'm stating the obvious. People save for a rainy day. Something happens - a medical problem, a layoff, whatever - and you spend those savings, increasing your net debt. You get better or you get a new job - and then you start paying down your debt, right? The problem is the U.S. hasn't done that. Well - Clinton tried - but Reagan didn't pay down our debt through those years of growth, and let our debt as a percent of GDP climb. Bush (both of them) did the same.

In fact, by the end of the Reagan-Bush 12 years, the extra debt they had piled on the country was costing us an extra 2.6% of GDP in interest ($300 million a day). After letting the economy recover from the recession he inherited, Clinton did pay down debt - and would have been able to do so much faster without that 2.6% of our GDP committed to interest alone.

...So in the end, George W. Bush inherited a national budget surplus, not a national budget deficit. And then he followed the same pattern as Reagan and his dad... deficit spending to pull us out of recession... and then instead of cutting budgets when things were booming, he kept spending.

By even conservative economist's estimates, $10 trillion of our now almost $13 trillion debt can be directly attributed to Reagan, Bush & Bush. And even when you look at it as a percentage of GDP, the rising levels of debt have been aggressive since basically 1980.

So we entered this recession with a handicap. And while austerity certainly has a time and place - I believe that time is when things are good, not when they're falling apart.

Well, I think eventually we reach a point of equilibrium - the question is whether we'll like where it is or not. Personally, I think you've hit the nail on the head with the idea that a tipping point has occurred. We've been writing that it's both sociological and economic, and what's happening is the aging of the baby boomer.

Born between 1943 and 1960, the “boomers” hit their peak earnings years between the ages of 35 and 54. Peak earnings for the boomer generation began in 1978 and ends in 2014. Interestingly, the unprecedented rise in asset prices began when the boomers entered their peak earning years. As our baby boomers begin to retire, what happens next? What happens when this demographic anomaly begins to sell its assets to fund retirement because they've lost their jobs or they've been funding their spending with the equity in their homes?

I mean... the official unemployment rate peaked at 10.1% last October. The post-war high was in 1982 at 10.8%... but the composition of the work force was very different in the 1980s. The boomers were just entering their peak years - they were 30 years younger. Adjusted for age, unemployment this time is much worse. Of the current 15 million unemployed, more than 2.2 million are 55 or older. Nearly half of these have been unemployed for six months or longer. The unemployment rate in this group is at a record 7.3% - yet this recession has only increased the need to extend working life!

Perhaps you mean mainstream media, but there were definitely people out there saying we were already in a recession. Gary and I were two of them, and I believe it's documented on this site, actually. We were warning of this in either December 2007 or January 2008 - I'd have to go look it up.

This is just not correct. The NBER has been tracking "peaks" and "troughs" in the economy since 1920. It is a committee of some of the most respected economists in this country, and they use consistent indicators. That's why this "trough" was identified to be when it was, because they haven't changed the inputs they use to determine economic cycles. The last three recessions have had "jobless recoveries," and there is now great debate within the "economic community" about the possibility of redefining how the NBER identifies the peaks and troughs in cycles. They're hesitant to do this for reasons of historic consistency.

Yes, and 74 senators voted for TARP; 25 voted against it. Of those 74, 34 were Republican (of a total of 49 Republicans, meaning 70% of Republican Senators voted for it).

And I provided a link to all of the monies committed and spent in the various stimulus/bailout/federal packages. The total committed is $11 trillion (by both Bush and Obama); approximately $3 trillion has been spent.

But of TARP funds specifically, actually after what has been paid back, as of April of this year, the estimate is that TARP is down to costing taxpayers $89 billion. Remember - TARP is Troubled Asset Relief Program, and it had provisions for payback. Of $245 billion invested in US banks, approximately $170 billion has already been paid back.

I don't take political sides in these issues, my interest is just the economics. I've already pointed out in these forums back when the housing crisis was first happening that deregulation of financial institutions occurred under Clinton.

There is no question there were serious problems at Fannie Mae and Freddie Mac and that the Bush administration tried to call attention to this. That said, Fannie Mae and Freddie Mac did not cause the collapse of the financial system. They contributed to the problem, certainly, but 1 1/2 years before their potential collapse, the subprime mortgage lenders were going bankrupt. Unchecked demand and easy lending practices, bundled with complex insurance on mortgages sold and packaging of derivatives built on those mortgages and insurance packages is what spread the risk internationally and ultimately the inability of people to pay their mortgages was what caused the financial collapse that exposed (decisively) the problems at Fannie and Freddie.

I merely included the entire list of efforts. You're the one being political.