Kudlow 101: Perfect Sunshine of Econ. Recovery
CNBC's Larry Kudlow looks at indicators of an economic recovery, including the TED spread as featured yesterday on Carpe Diem.
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Wednesday, September 16, 2009
CNBC's Larry Kudlow looks at indicators of an economic recovery, including the TED spread as featured yesterday on Carpe Diem.
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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5 Comments:
U.S. bankers need to read Mark Perry and watch Larry Kudlow because they are not lending. The definition of creditworthy has gone from absurdly loose to extremely tight. The Fed's July of Senior Loan Officers says "domestic banks indicated thay they continued to tighten standards and terms over the last three months".
The survey says that banks won't lend except to the creditworthy customers and the creditworthy customers are not borrowing! Any comments from senior banking officers?
Things are looking good according to Larry but he was positive about things in the middle of the meltdown. Him and Cramer are both positive 90% of the time. At least Cramer comes out with his tail between his legs every other week and begs for forgiveness.
Now can we cancel the stimulus?
There are good reasons banks aren't lending.
First, declining balance sheets have made most people uncreditworthy. Second, there's a significant risk from rising unemployment. Third, many banks are undercapitalized with anticipation of higher Allowances for Loan and Lease Losses from increasing defaults on residential and commercial loans. Fourth, many banks are too reliant on non-core funding for capital and are trying to reduce their ratios of non-core to Tier 1 capital. Fourth, they're trying to offset the risky assets in their portfolios with only the best new assets. Fifth, there is still tremendous uncertainty of the economy and public policy regardless of what the TED spread says.
Simply put, banks are in a bad storm which will last a very long time and they have battened down the hatches. All this macro garbage we hear of green shoots ignores the fundamentals of how the economy works. The second half of this year will reveal the true weaknesses and Obama will soon give his "Things are worse than we thought" speech.
Dano is right. If we were in recovery there would be no need for further stimulus. In fact, it would be damaging. Obama is holding it in his pocket for the mid-term elections. What makes anyone think a community organizer/lawyer and his team of Keynesians know what they're doing? The green shoots are only political spin and opportunism on the part of people who want to say they correctly called the bottom.
The economy isn't in recovery until all the factors under which the recession was called have reached an unambiguous bottom. Personal Income less Transfers, Non-Farm employment are still declining. Industrial production is up for one month due to C4C. If it's down in September there goes the bottom. So we'll have exactly one or two indicators out of five which show recovery, and both of those are government debt induced improvements.
I agree with Steve. I have more confidence hearing someone with economics degrees, rather than Larry Kudlow or Robert Reich. Of course, even economists can be right for the wrong reasons.
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