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Growth - Lehman

 
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PostPosted: Fri Feb 06, 2015 6:08 am    Post subject: Growth - Lehman Reply with quote

PeakTrader:

Consumption increased over those four quarters, e.g. because of faster job growth and falling oil prices.

Of course, lower oil prices benefit lower income consumers the most, who also have the highest marginal propensities to consume.

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Tom, at this point in the expansion, even more government life support (than the economy is already getting) won’t benefit U.S. households more than higher job growth and lower oil prices.

U.S. consumer spending in December weakest since 2009
Feb 2, 2015

“The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.3 percent after gaining 0.5 percent in November and 0.3 percent in October.

The drop, the largest since September 2009, reflected a decline in spending at service stations as gasoline prices fell, as well as weak auto receipts and weather-related softness in demand for utilities.

The spending data was included in Friday’s fourth-quarter gross domestic product report, which showed the economy growing at a 2.6 percent annual pace, with consumer spending rising at a brisk 4.3 percent rate – the fastest since 2006.

In another good omen for consumer spending, income at the disposal of households after inflation recorded its largest gain since last March, while the saving rate hit a five-month high.”

http://www.reuters.com/article/2015/02/02/usa-economy-idUSL1N0VC0OK20150202

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Janet Yellen – January 2009

“Typically, recessions occur when monetary policy is tightened to subdue the inflationary pressures that emerge during a boom. This time, the cause was the eruption of a severe financial crisis.”

My comment: However, the recession began in December 2007, when the economy peaked.

Restrictive monetary policy likely caused the recession initially (e.g. Bernanke trying to prove he wasn’t an “inflation dove”). The Fed Funds Rate was too high for too long.

Yet, the Fed deserves a lot of credit for easing the money supply starting in September 2007, while oil prices continued to surge to $150 a barrel by mid-2008, and Bush deserves a lot of credit for the tax cut in early 2008, to give the Fed time catching-up, after falling behind the curve, and putting the economy on the path to another mild recession, until Lehman failed in September 2008, which caused the economy to fall off a cliff.

Much better economic policies out of Washington would’ve resulted in a much stronger recovery.

The Fed could’ve began a tightening cycle in 2010.

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Lehman failed, because it took too much risk to make too much money during the housing boom and then lost too much money during the housing bust.

“Lehman’s demise made it the largest victim of the U.S. subprime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman’s collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in October 2008.

Lehman’s high degree of leverage – the ratio of total assets to shareholders equity – was 31 in 2007, and its huge portfolio of mortgage securities made it increasingly vulnerable to deteriorating market conditions.

Cheap money…found easy prey in restless bankers – and restless borrowers who had no income, no job and no assets.

According to 2007 news reports, financial firms and hedge funds owned more than $1 trillion in securities backed by these now-failing subprime mortgages – enough to start a global financial tsunami if more subprime borrowers started defaulting.”

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Q4 GDP Per Capita Drops to 1.9%

January 30, 2015

“…the Advance Estimate for Q4 2014 real GDP came in at 2.6 percent down from 5.0 percent in Q3. Real GDP per capita was lower at 1.9 percent, a decline from 4.2 percent per capita in Q3.

Updated Chart:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

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One economist, basically, sees the domestic economy as an engine that normally fires on four cylinders:

1. Inventories.
2. Employment gains.
3. Consumer spending growth.
4. Residential construction.

The relatively weak cylinder is residential construction.

Charts:

http://www.census.gov/briefrm/esbr/www/esbr020.html

http://research.stlouisfed.org/fred2/series/HOUST

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