Friday, December 09, 2011

Chart of the Day: Gas Prices Falling, Merry Xmas

At the national level, retail gas prices have fallen by 17% from the April high of about $4 per gallon to the current national average of about $3.28 (red line in chart above), according to price data from GasBuddy.com.  In Albuquerque, New Mexico, gas prices have fallen about 25% from the April peak and are currently the lowest in the country at $2.80 per gallon (see blue line and national gas price heat map here).   

It's an early Christmas present for U.S. consumers, who save about $1.35 billion annually (updated, see below) for every one cent decrease in gas prices.

Update 1: Gasoline consumption is currently averaging about 377.1 million gallons per day, or 135,450,000,000 gallons per year, according to data from the EIA.  Each one cent per gallon change in gasoline prices would translate into an annual change of about $1.35 billion for total spending on gas. 

Update 2: The chart below displays retail gas prices over the last 12 months, and shows that gas prices have increased 10.5% over the last year.  But the point I was making above is that most people don't think about what they were paying at the pump a year ago, they think more about: a) what they were paying a month ago, two months ago, three months ago, last summer, etc., and b) the recent trend in prices.  Now that we're in the holiday shopping season, I predict that the fact that gas prices are at their lowest levels since last February, and trending downward, will boost many consumers' spirits!


53 Comments:

At 12/09/2011 11:11 AM, Blogger juandos said...

Still a far cry from the halcyon days of 2002

 
At 12/09/2011 11:20 AM, Blogger cruiser said...

One has to wonder (in an election year) why gasoline is falling when oil prices are above $100. Value of the dollar? drop in economic activity? I dunno, but whith this administration, I can't help but have doubts.

 
At 12/09/2011 11:21 AM, Blogger Todd Sullivan said...

think the savings is $150M, not "B"

 
At 12/09/2011 11:23 AM, Blogger Mark J. Perry said...

Sorry, should be $1.5 billion annually, it's corrected now.

 
At 12/09/2011 11:46 AM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

 
At 12/09/2011 11:58 AM, Blogger VangelV said...

Makes sense to me. People are nervous and demand is down. As long as the Euro is weak and the USD holds up prices should be trending down.

 
At 12/09/2011 12:00 PM, Blogger Buddy R Pacifico said...

"It's an early Christmas present for U.S. consumers, who save about $1.50 billion annually for ever one cent decrease in gas prices."

That is astounding. The drop of 72 cents, from the high, results in savings greater than the 2010 GDP of 161 countries.

 
At 12/09/2011 12:36 PM, Blogger morganovich said...

isn't this just a typical seasonal pattern?

spike for the build up at the beginning of the summer driving season, then drop?

prices are up 33c from this time a year ago. (just over 10%)

it would be interesting to see this chart expressed as difference in price from a year ago.

 
At 12/09/2011 12:37 PM, Blogger morganovich said...

fwiw, inflation in diesel has been much worse.

the price is 3.93 up 73c (a whopping 22%) from a year ago.

 
At 12/09/2011 12:40 PM, Blogger Benjamin said...

Oh no! Inflation, inflation, inflation!!!!!

The USA prospered mightily from 1982 to 2007, all the while inflation ran in the two percent to six percent range.

Why now this peevish fixation on inflation, really a type of unhealthy obsession?

When Romney wins (if he does) look for the right-wing hysterics about inflation to fade away.

 
At 12/09/2011 12:44 PM, Blogger morganovich said...

"That is astounding. The drop of 72 cents, from the high, results in savings greater than the 2010 GDP of 161 countries."

however, it is only $108bn, 0.7% of us gdp. context here is meaningful.

further, as gasoline is up from a year ago and seasonality is a big factor, one could also say that it has been a $50bn increase in cost from last year, no?

both overall inflation and gasoline prices are highly seasonal.

you need to be very careful comparing periods of less than a year.

mark like to do this during the seasonal low periods (as he did with the BPP) and ignore the more valid year on year comps, but i think that often hides more than it reveals.

it's the equivalent of saying "look how much colder the US is getting" in february by comparing it to august and ignoring the fact that it does this every year.

 
At 12/09/2011 1:07 PM, Blogger Buddy R Pacifico said...

"it's the equivalent of saying "look how much colder the US is getting" in february by comparing it to august and ignoring the fact that it does this every year."

Yes, gasoline prices often peak in the summer, BUT...

this year's peak would have to be compared to the summer of 2008, when gas prices were as high!

Gas prices in 2009 and 2010 were lower in summer than the winter of 2008 (see gasbuddy.com historical charts).

 
At 12/09/2011 1:31 PM, Blogger VangelV said...

isn't this just a typical seasonal pattern?

spike for the build up at the beginning of the summer driving season, then drop?

prices are up 33c from this time a year ago. (just over 10%)

it would be interesting to see this chart expressed as difference in price from a year ago.


A chart expressed as difference in price from a year ago would be no fun because it does not support Mark's thesis. And it would still require a lot of digging to figure out the drivers because we have pressure from both the supply and demand side.

 
At 12/09/2011 1:32 PM, Blogger VangelV said...

The USA prospered mightily from 1982 to 2007, all the while inflation ran in the two percent to six percent range.

Why now this peevish fixation on inflation, really a type of unhealthy obsession?


Because inflation destroys the middle class by wiping away the power of savings.

 
At 12/09/2011 1:35 PM, Blogger pkd said...

Regular gas in Albuquerque is 86 octane (because of the altitude). Maybe that makes it cheaper?

 
At 12/09/2011 2:14 PM, Blogger morganovich said...

buddy-

i'm not sure i follow you.

cas is way up from 2010.

saying it was once higher tells us little about year on year inflation.

picking 2008 is also pretty arbitrary.

we could pick 2001 too and say it's been a huge jump.

there is no question that oil and gas prices dropped a ton in 2008, but it then essentially doubled from dec 2008 to now.

in the first week of of dec 10 years ago, gasoline was 1.108.

thus, in 10 years we have seen a 199% increase in price, or 11.6% a year.

taking the $4.11 2008 high and calling this deflation seems a bit disingenuous.

it's really just a blip in a long term trend of very high price increases.

it's also apples to oranges seasonally.

in wk1 dec 2008, gas was 1.81, so we are up 82% from there.

if fact, gasoline prices for the first week of december this year are higher than at any time in the dataset i have (back to 1990).

thus, i think your comparison is inapt.

you cannot take the high from 2008 and leave out seasonality etc.

you are trying to take the highest prices ever for wk 1 dec for gasoline and call them deflation.

i used this data:

http://www.eia.gov/petroleum/gasdiesel/

download the full set.

i used "regular all formulations" but i doubt the others would look any different (apart from diesel which will show more inflation).

 
At 12/09/2011 2:37 PM, Blogger Paul said...

"When Romney wins (if he does) look for the right-wing hysterics about inflation to fade away."

The more things change, the more Benji remains the same blithering idiot. It was just a year ago when he was ranting the GOP's obsession about the deficit would be gone if they won in Congress.

 
At 12/09/2011 2:42 PM, Blogger Buddy R Pacifico said...

morgan states:

"you are trying to take the highest prices ever for wk 1 dec for gasoline and call them deflation."

No, according to a private company, gasbuddy.com, gas prices peaked in July, 2008 at $4.12.

I can't speak for the professor, but I think his point is that gasoline prices have fallen dramatically in the last several months.

The gasbuddy.com historical chart on their homepage is for nine months. So, this is not an argument about deflation, but rather a holiday, good news for the pocketbook story.

 
At 12/09/2011 2:49 PM, Blogger VangelV said...

I can't speak for the professor, but I think his point is that gasoline prices have fallen dramatically in the last several months.

The same is true for almost every year. You have an increase in price as the summer travel season begins and a decline in the fall. To eliminate the seasonal effect you have to do comparisons on a y-o-y basis.

 
At 12/09/2011 2:58 PM, Blogger morganovich said...

buddy-

"I can't speak for the professor, but I think his point is that gasoline prices have fallen dramatically in the last several months."

and my point is that both you and he are missing the point.

gasoline does this ever year.

this is literally the equivalent of saying that temperatures drop from august to december.

of course they do.

but you cannot compare july of 2008 to dec of 2011 in a meaningful way. it's like comparing temperatures in july 2008 to those of dec 2011 and saying, wow, what a drop or department store sales in december to those in june and saying, wow, these are up a ton.

compared to the same week in 2008, gasoline prices are up 82%.

9 months of data is useless for determining a trend. you are getting all seasonality and missing the underlying price moves.

pull up the eia data (download the full set) and this will become extremely clear.

mark does this all the time.

he picks out a seasonal trend and represents it as deflation, when, on a year over year basis, it's really inflation. then, during the upward pointing part of the seasonal cycle, this data disappears and is not mentioned.

it seems like very misleading and selective, agenda driven use of data to me.

 
At 12/09/2011 3:14 PM, Blogger morganovich said...

"what they were paying a month ago, two months, three months, etc. and b) the recent trend in prices. Now that we're in the holiday shopping season, I predict that the fact that gas prices are at their lowest levels in almost a year, and trending downward, will boost most consumers' spirits!"

but they would have felt the exact same thing last year too. this seasonal issue happens every year.

the question, to my mind, is how this years boost and shopping will compare to last years.

with gasoline up 11% and income flattish, this seems like quite a headwind.

 
At 12/09/2011 3:16 PM, Blogger morganovich said...

also worth noting:

december is almost always the annual low in gasoline prices.

it's generally all up from here to may.

 
At 12/09/2011 3:26 PM, Blogger Benjamin said...

Vange-

"Because inflation destroys the middle class by wiping away the power of savings."

really?

you mean the guy who buys a house is not helped by inflation? The guy in stocks or who owns business properties?

Bondholders who bought bonds did so with an inflation-risk premium built into the bonds. They took a risk, as did stock-buyers and property buyers. They actually have done well the last three years and yields have fallen.

There is no morally superior or sacrosanct group. Stock buyers, bond buyers or property buyers or gold buyers: All the same.

Americans as whole prospered much from 1982 to 2007, all the while there was moderate inflation.

 
At 12/09/2011 3:52 PM, Blogger morganovich said...

bunny-

if you think stocks are a good hedge on inflation, i suggest you take a look at the 70's.

even now, since 2000, stocks are way down.

they are flat with 12 years ago, and that's nominally.

inflation adjusted, they are down what, 40-50% even if we use CPI?

yeah, that's been a killer way to save. buying power cut pretty much in half in 12 years? nice one.

you really do not understand finance at all.

perhaps rather than continuing to be a mouthy know nothing, you should actually educate yourself before you start yapping.

bond did much better than stocks over that period, but with yields where they are now, buying them is a mug's game.

housing, well, we saw how driving inflation there went, didn't we? inflationary bubbles in highly levered assets always end in tears.

so where is all this wonderfully performing savings you are babbling about?

unless you were in commodities (which i am sure an inflation denier like you was not) which are up 183% since 2000, what asset class has not taking a huge hit in real buying power?

this is the direct effect of the "print money till the plates melt" policies you advocate.

all but few americans have lost a big part, all, or even more than all of their savings in real terms since 2000.

negative home equity is at levels not seen since the 30's.

stocks have been a disaster in real terms.

bonds, maybe a push, though if you bought them in 2001-2, you did not come anywhere close to keeping up with inflation.

the only good asset class bet in the last 10 years was inflation and dollar debasement.

if you had your savings in swiss francs, you did quite well. if you invested in commodities, better still.

i propose a new order of operations for you bunny:

1. get some facts.
2. learn what they mean.
3. speak.

your current policy of:

1. make stuff up.
2. mouth off

is not serving you well.

 
At 12/09/2011 3:57 PM, Blogger morganovich said...

also:

americans did not prosper from 2000-7.

they ran up record debt, saw savings erode, and lost their shirts in repeated crashes.

that's what super loose money does.

if you have $100 in the bank and earn $100 a year, spending $400 and running up $200 in debt is not "prospering"

over half the incremental GDP growth from 2000-7 was funded by debt. that is a breathtaking number.

that's not prosperity, that's going into hock.

this may well even makes sense when real interest rates are negative, but that does not make it a good idea. like any party, the hangover comes at some point. welcome to the world loose money made bunny.

you asked for it and you got it. now, like a crackhead, you want more of the same stuff that made this mess hoping it will make you feel better for a while and ignoring that it's just going to make the overall mess worse when it comes.

 
At 12/09/2011 4:22 PM, Blogger VangelV said...

really?

you mean the guy who buys a house is not helped by inflation? The guy in stocks or who owns business properties?


Correct. The value goes up in nominal terms as do all of the payments needed to maintain and operate the homes. But there is a real loss as purchasing power declines and the cash flows needed to maintain and operate the homes rise faster than the value of the home.

Bondholders who bought bonds did so with an inflation-risk premium built into the bonds. They took a risk, as did stock-buyers and property buyers. They actually have done well the last three years and yields have fallen.

The people who bought TIPS are only betting on the CPI, not the true inflation rate.

There is no morally superior or sacrosanct group. Stock buyers, bond buyers or property buyers or gold buyers: All the same.

Morality has nothing to do with anything. The question is who is making the right bets.

Americans as whole prospered much from 1982 to 2007, all the while there was moderate inflation.

You are confused because you picked as your starting point the bottom of a major contraction and picked an end point that was a high. If you look at real home prices you would notice a peak around 1971 that was followed by a significant collapse in prices until the early 1980s. From then the Fed's disinflationary policies nurtured a housing bubble that ended in early 2000s. We now have seen house prices near long time lows, which could mean that the bottom could be just a few months away.

And let us keep in mind that if we used the same CPI calculation method as was used in the 1970s the housing picture looks very different than the reported nominal levels.

 
At 12/09/2011 4:22 PM, Blogger Ron H. said...

i propose a new order of operations for you bunny:

1. get some facts.
2. learn what they mean.
3. keep it to yourself

 
At 12/09/2011 4:25 PM, Blogger VangelV said...

i propose a new order of operations for you bunny:

1. get some facts.
2. learn what they mean.
3. keep it to yourself


He may be playing a con. I do not believe that bunny is as dumb as he wants us to appear. You can tell because once in a while he lets on that he is not that familiar with the topic and merely stating opinions. He compares very favourably to some of the empty suits on this site.

 
At 12/09/2011 4:28 PM, Blogger Ron H. said...

V: "He may be playing a con. I do not believe that bunny is as dumb as he wants us to appear. You can tell because once in a while he lets on that he is not that familiar with the topic and merely stating opinions. He compares very favourably to some of the empty suits on this site."

True. I believe he likes to irritate.

 
At 12/09/2011 4:41 PM, Blogger Benjamin said...

Ron and Vange-

I have different points of view than you do (although usually I like Vange's strict adherence to true libertarianism).

Commenter Paul is more a GOP'er with partisan rose-colored glasses and blinders on, inside the right-wing echo chamber. Not much to emulate there.

My views do make me better or worse than you--just different.

I think moderate inflation is fine, and the record bears me out.

The record in Japan suggests mild deflation is a wreck.

For the record, I like Ron Paul (though he be a gold nut), and I may vote for Romney or Newt.

Bush jr., and the ceaseless duncery and boondoggles globally, booted me from the GOP. For that I am surely forgiven.

 
At 12/09/2011 4:52 PM, Blogger VangelV said...

I predict that the fact that gas prices are at their lowest levels since last February, and trending downward, will boost many consumers' spirits!

LOL...If the economy is strong the price of gas will rise sharply again during the usual shoulder season. I don't know about others but I see the chart confirming weakness.

 
At 12/09/2011 7:51 PM, Blogger Craig said...

The USA prospered mightily from 1982 to 2007, all the while inflation ran in the two percent to six percent range.

Yeah, dude, but it was the inflation that eventually caused the crash.

 
At 12/09/2011 8:24 PM, Blogger NormanB said...

Oh Joy, gasoline prices are coming down. The last time gasoline prices peaked the stock market proceeded to drop by 50%.

 
At 12/09/2011 9:09 PM, Blogger VangelV said...

For the record, I like Ron Paul (though he be a gold nut), and I may vote for Romney or Newt.

Why would anyone vote for Newt or Romney? You might as well vote for Obama or Hillary. The US elections do not bring about regime change. Bush served out Clinton's third term just as Obama is serving out Bush's third term. If you love your country you have to reject both of the mainstream parties.

 
At 12/09/2011 9:26 PM, Blogger VangelV said...

Oh Joy, gasoline prices are coming down. The last time gasoline prices peaked the stock market proceeded to drop by 50%.

Isn't it wonderful? You can use all that cash to buy stocks cheaply right after the companies that issued them get bailed out by the government and Fed. That should help fuel the holiday spirit.

 
At 12/09/2011 11:11 PM, Blogger Paul said...

Benji,

"Commenter Paul is more a GOP'er with partisan rose-colored glasses and blinders on, inside the right-wing echo chamber."

Now that's priceless coming from one of the morons who helped saddle the country with the worst President in history. The blinders/rose-colored glasses(how moronic, btw) were worn by the mindless millions who jumped on the hopeandchange train to nowhere.

 
At 12/09/2011 11:17 PM, Blogger Paul said...

Vangel,

"Why would anyone vote for Newt or Romney? You might as well vote for Obama or Hillary"

Yes, yes, your master and chickenhawk Ron Paul is the only choice for the pure-o'-heart like yourself. It doesn't matter that he's a pork-shoveling, Congressional layabout with no real achievments to show for all his years at the public trough. The only thing that matters is that he would never dream of soiling himself by engaging in the grimy work of legislating. By God, there are screeds for him to pen run by anti-semitic newsletters and websites!

 
At 12/09/2011 11:21 PM, Blogger Rufus II said...

I wouldn't overlook the fact that the Obama administration, and the other IEA countries dropped 60 Million Barrels onto market from the "Strategic" Petroleum Reserves a couple of weeks, IIRC, after the beginning of the decline

(which started, coincidentally, on about the same day that the U.S. informed Saudi Arabia, Kuwait, and the UAE of the coming dump.)

 
At 12/10/2011 3:51 AM, Blogger PeakTrader said...

Craig says: "...it was the inflation that eventually caused the crash (of the 1982-07 economy).

It was restrictive monetary policy (e.g. the Fed Funds rate at 5 1/4% for too long, after the 2004-06 tightening cycle) and contractionary fiscal policy (the budget deficit shrunk to $162 billion by 2007) that caused the "crash" or recession.

Also, the Bush Administration tried to tighten lending standards in the housing market in 2004, but was blocked by Congress, which eventually caused the financial crisis in 2008 (along with the recession that began in Dec '07).

The 2008 oil shock, the biggest in U.S. history, was unsustainable and the U.S. economy could've absorbed it (PCE inflation rose from a little less than 2% in 2006 to a little more than 4% in 2008).

Whether or not we had a mild or severe recession in 2008, the economy subsequently underperformed by a huge margin, because there remains too many idle resources, e.g. labor (high unemployment) and capital (e.g. corporations holding over $2 trillion in cash).

It has become even more difficult to start or expand businesses, when it should be easier, for entrepreneurs, and invention-innovation.

 
At 12/10/2011 6:26 AM, Blogger juandos said...

"context here is meaningfu"...

Yes it is M...

From USAToday: Economy, gas prices make Americans drive less

Americans have been driving fewer miles every month since March, a decline fueled by factors ranging from the weak economy to high gas prices to aging boomers and teens driving less...

It's the first time the nation has seen six consecutive monthly decreases since October of 2008...

 
At 12/10/2011 9:16 AM, Blogger VangelV said...

It was restrictive monetary policy (e.g. the Fed Funds rate at 5 1/4% for too long, after the 2004-06 tightening cycle) and contractionary fiscal policy (the budget deficit shrunk to $162 billion by 2007) that caused the "crash" or recession.

Nonsense. Boom are caused by artificially low interest rates. The artificially low rates send the wrong signals to investors and money flows to companies that should not have been financed in the first place.

When the Fed lowered rates in the 1990s the money went into companies that were selling pet food or groceries on-line and whose metric of success was eyeballs instead of cash flow or profitability. Traditional investors were told that they just did not get IT, whatever IT was supposed to be. Once the liquidity increases slowed a crash followed and the lousy investments were liquidated.

Following the 2000 crash the Fed panicked and lowered rates sharply. The money flew into the financial sector and into housing. But the damage was great and the housing bubble ended in 2005. Actually, in real terms housing hit its peak in 2001 and when measured in gold the decline since then is down by more than 80%.

At this time the Fed is engaged in an attempt to blow up another bubble but that is not working out very well. Rates are close to zero and the Fed has already engaged in a round of debt monetization that has destroyed its balance sheet. Even though the Euro is under massive amounts of pressure as the EU is ready to split up, the USD is still quite weak. With labour participation rates near long time lows, housing down, municipalities and states broke and with GAAP deficits around 30% of national GDP as unfunded liabilities are several times global GDP the only thing that is holding up the dollar is the lousy conditions in Europe.

The contractions are caused by Fed's meddling. But the Fed is running out of ammo and the only way to 'save' the economy is by destroying the USD. While we could see a huge jump in the USD as the EU breaks apart at best such an event would only give us a decent opportunity to buy gold, silver, and energy perhaps for one last time before the blow off phase for commodities begins.

 
At 12/10/2011 9:19 AM, Blogger VangelV said...

Americans have been driving fewer miles every month since March, a decline fueled by factors ranging from the weak economy to high gas prices to aging boomers and teens driving less...

It's the first time the nation has seen six consecutive monthly decreases since October of 2008...


Yes, my friend, but economic weakness is not exactly what Mark is pushing on his site. And as an optimist he is prone to try and look at the bright side of every development.

 
At 12/10/2011 2:23 PM, Blogger morganovich said...

"My views do make me better or worse than you--just different."

spoken like someone unable to support his views with evidence and argument.

 
At 12/10/2011 2:32 PM, Blogger morganovich said...

"The people who bought TIPS are only betting on the CPI, not the true inflation rate. "

this is a crucial distinction that bunny and others continually miss.

those most concerned about inflation are also least convinced that CPI measures it.

given such a set grouping, is it any surprise they trade cheap?

those worried about inflation would never even look at them as a valid hedge. why play a rigged game when you can buy commodities and currencies and get a return that reflects actual inflation, not a misweighted set of manipulated data that has all the items that go up in price adjusted down and dropped out before it is compiled?

TIPS spread is a meaningless indicator, because no one actually concerned about inflation and possessed of even moderate sophistication would ever buy one.

i know lots of people seeking inflation hedges. i do not know a single one who bought tips.

numerous hedge funds are so disgusted with the dollar that they have gone to a gold backing.

 
At 12/10/2011 5:10 PM, Blogger PeakTrader said...

VangelV, you don't even understand the difference between an asset boom (in the housing market, stock market, commodities market, etc.) and an economic boom (in the production of goods & services).

The U.S. macroeconomy didn't overproduce in the 2000s.

The Fed has done an excellent job working in the future economy (because of lags in the adjustment process) smoothing-out business cycles to achieve sustainable economic growth, which is optimal growth.

In 2007-08, the Fed had to balance a slowing economy with an oil shock more severe than the 1973 oil embargo, using crude tools, since the Fed doesn't micromanage the economy.

 
At 12/10/2011 8:13 PM, Blogger VangelV said...

VangelV, you don't even understand the difference between an asset boom (in the housing market, stock market, commodities market, etc.) and an economic boom (in the production of goods & services).

The U.S. macroeconomy didn't overproduce in the 2000s.


The US economy produced far too many houses. It produced far too many cars. It produced far too much asset backed paper. It produced far too much debt. And the Fed controlled banking system produced far too much money and credit. Which is why there was a huge crash.

The Fed has done an excellent job working in the future economy (because of lags in the adjustment process) smoothing-out business cycles to achieve sustainable economic growth, which is optimal growth.

The Fed has managed to do what the USSR could not; destroy the real economy and the financial system of the United States. The real economy has no buttons to be pushed or levers to be pulled. It is each and every one of us acting according to our individual goals. So please spare us the support for central planners and be brave enough to pull back the curtains. The men behind it are no more capable than you or I are.

In 2007-08, the Fed had to balance a slowing economy with an oil shock more severe than the 1973 oil embargo, using crude tools, since the Fed doesn't micromanage the economy.

The Fed could not solve a problem that it created by using the same methods that it used to create the problem in the first place. If you want to save the US economy get rid of the Fed.

 
At 12/10/2011 9:57 PM, Blogger PeakTrader said...

VangelV, you continue to confuse asset markets with the macroeconomy.

U.S. actual output roughly equaled potential output in 2003-07, i.e. about 3% real growth. Actual output was below potential output in 2001-02 and 2008-11.

You also continue to confuse the Fed with Congress, which sets laws the Fed must obey.

Moreover, the Fed has less power over the banking system then you believe. For example, it can make lending cheaper, but can't force banks to lend.

Nonetheless, the Fed has been most successful in helping to direct the economy towards optimal growth.

 
At 12/11/2011 11:56 AM, Blogger morganovich said...

peak-

on what basis can you possibly make such a claim about the business cycle?

since the fed became heavily interventionist in 2000, we have had 11 years of growth way under trend.

if you use the old gdp deflator and inflation measures to make the data series comparable (whatever your inflation belief, you canto change the delfator calculation and graft the 2 series together as has been done) then we were in recession for about half that time.

so, i'm terribly curious: where is the evidence of this wonderful business cycle management? looks to me like it's been a catastrophe.

also: you cannot separate asset markets and GDP as you try to do. the two have strong links, and asset bubbles and busts (which you may have noticed have become much more frequent lately) have profound effects on the macroeconomy by misallocating resources (home building) on the way up, then demolishing purchasing power and leaving piles of debt behind on the way down.

if that's your idea of "successful" i'd hate to see failure.

 
At 12/11/2011 1:01 PM, Blogger PeakTrader said...

Morganovich, I don't know where you've been the last 25 or 30 years, but I guess you didn't notice the strong disinflationary growth from 1982-07 (with only a moderate recession in 1990-91 and a mild recession in 2001).

The Fed has no control over the economic policies of others, particularly the policies of the past few years that either failed to prevent a severe recession, or failed to achieve a V-shaped recovery. The Fed can only attempt to offset poor economic policies.

Also, I may add, saying there's a difference between asset bubbles and a macroeconomy is not the same as assuming I'm trying to de-link them.

Moreover, I may add, if you're going to continue overstating inflation, using inferior methods, why don't you also overstate nominal income growth too?

The 1995-00 and 2002-07 asset bubbles raised U.S. net wealth:

US household net wealth rises
But remains below the record level set in Q3 2007.
15 June 2010

At the end of Q1 2010, the value of US household assets amounted to $68.53 trillion.

At the end of Q1 2010, the level of US total household debt was $13.97 trillion.

US net wealth now represents a very respectable 491% of household disposable income. The current ratio is actually exactly in-line with the long-term ratio, which dates back to 1952, although there have been times when the ratio has risen over 600%.

Overall the US consumer remains extremely wealthy by historical and international standards; despite the high level of debt.

 
At 12/11/2011 7:45 PM, Blogger morganovich said...

peak-

"don't know where you've been the last 25 or 30 years, but I guess you didn't notice the strong disinflationary growth from 1982-07 (with only a moderate recession in 1990-91 and a mild recession in 2001)."

you're joking, right?

remember the massive bubble in 1999-2000 that loose money inflate4d? that was the last growth of any note we saw. since 2000, it's been dreadful.

further, the fed took an easy bubble to clean up (equity funded in productive assets) and turned it into the hardest bubble to clean up (debt funded non productive assets).

so we have a decade of sub par growth and the swapping of a very manageable bubble for a far more intractable and durable one while the dollar loses half it's buying power in forex terms and asset markets are a disaster.

even if we accept the laughably manipulated CPI, you are down 40% in 12 year in real terms on the S+P.

half the gdp growth (cumulative) from 2000-7 was funded by debt, which soared to stunning levels due to negative real interest rates. that's going to be with us for decades.

no, this same fed is playing the most dangerous game of all and monetizing government debt by the trillion.

nothing has been successfully managed.

this has been hideous misrule and astounding stupidity.

we have just had the worst decade for growth and asset markets since the 30's.

if we used the GDP deflator from the 80's, we were in recession for 6 of the last 12 years.

it's only by fudging the number that this even looks like growth in real terms.

in reality, it's been all inflation and debt accumulation.

you net wealth figures are meaningless.

they cannot tell inflation from real gains.

in real terms, households are MUCH worse off than in 2000.

"Moreover, I may add, if you're going to continue overstating inflation, using inferior methods, why don't you also overstate nominal income growth too?"

and this does not even make sense and demonstrates that you do not understand the math here.

inflation is already built into nominal. it has to be. you sell a car for 10000 one year ans 10100 the next. that's nominal. inflation is already there.

where you get into trouble is reporting it as real. for that, you need to know inflation. i'm not even trying to have the inflation argument with you.

i'm pointing out statistics 101 stuff and you do not seem to be able to grasp it.

you cannot graft 2 series of unlike data together and get a continuous picture. this is a FACT and not arguable in any way.

if i took a chart of celsius temperature before 1992 and Fahrenheit afterward and put the together and said "wow it's much warmer now" you see the problem instantly.

the EXACT same thing was done with CPI (and GDP deflator).

let's leave aside which measure is better (old or new inflation) for a minute. it's irrelevant to this discussion.

what we know to be true is this: new CPI reads lower than the old one would. so does GDP deflator.

whichever is correct, you still have 2 unlike series grafted together. in 1992, there is a break point. either you need to take recent growth and match it to the old series, in which case we just had 6 years of recession in 12, of you can deflate the old series the new way, and get real growth 2-4% higher than previously reported.

in either case, normalizing the series to either standard makes it incredibly obvious that we just had the longest period of sub par growth in the post war US, and that it's been dire since the fed got really active in 2000.

 
At 12/12/2011 2:52 AM, Blogger PeakTrader said...

Morganovich, nothing you say fits in any sound mathematical or empirical model.

According to you, all the "bad" things, e.g. inflation and debt, go up, while all the "good" things, e.g. nominal income (or wages) and assets don't go up (how many workers do you know got a 10% raise from your high inflation rate?).

Also, we had the longest economic expansion in U.S. history from 1991-01, had a recession so mild in 2001 that it wasn't a recession based on annual real per capita GDP (which didn't fall in 2001), and then had another expansion until Dec '07.

The expansion in the 2000s raised living standards at a steeper rate, not only because of the massive "creative-destruction" process, mostly in 2000-02, which made the economy more efficient, and the unemployment rate subsequently fell below 5%, but also because we had up to $800 billion annual trade deficits, i.e. the U.S. consumed up to $800 billion a year more than it produced.

Perhaps, you believe the Information Revolution was just an illusion, and all those goods Americans bought, because of low prices and low interest rates, were not real.

 
At 12/12/2011 10:18 AM, Blogger VangelV said...

so, i'm terribly curious: where is the evidence of this wonderful business cycle management? looks to me like it's been a catastrophe.

There is no evidence. Just a lot of narrative and bad theory.

By the way, you might be interested in this.

 
At 12/12/2011 10:21 AM, Blogger VangelV said...

Morganovich, nothing you say fits in any sound mathematical or empirical model.

Many of us prefer logic and the real world to mathematical models. Belief in bad theories can do a great deal of harm.

 

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