Tuesday, December 01, 2009

NY Fed Treasury Spread Model: Economic Recovery Underway, NO Chance of a Double-Dip Recession

The New York Fed recently released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through October 2009, and the Fed's recession probability forecast through October 2010 (see top chart above). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.32% spread in October) to calculate the probability of a recession in the U.S. twelve months ahead.

The Fed's model (
data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For October 2009, the recession probability is only 0.18% (less than 1/5 of 1%) and by a year from now in October 2010 the recession probability is only .105%, or about 1/10 of one percent.

Further, the Treasury spread has been above 3% for the last six months (since May), a pattern consistent with the economic recoveries following the last two recessions (see bottom chart above). Finally, the pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession.

According to the NY Fed model, the chances of a double-dip recession this year or next year? Zero.


At 12/01/2009 1:25 PM, Blogger KO said...

This comment has been removed by the author.

At 12/01/2009 2:13 PM, Anonymous Benny said...

Big rally on Euro exchanges today. Asia roaring ahead.
Why this double dip talk?
The Bush recession is over, rover.

Let's start making money again!

At 12/01/2009 4:37 PM, Blogger QT said...

What a disappointment to the White House and the "never let a crisis go to waste" crowd....oh well, at the rate they are printing dollars and spending money, i'm sure another crisis is not far away.

At 12/01/2009 6:57 PM, Anonymous Benny Man said...

Give unto to me a cheap dollar, lots of US exports, tourists coming here (especially sexy Candian blondes, low interest rates and some inflation.
The USA can pau back debts in dollars (so far). So we print more money and pay it back.
I have given up on the US ever balancing the federal budget again, the way Clinton did.
Too many sacred cows. The Department of Defense, Agriculture, the VA, Homeland Security, and we have to pay the debt. Right there, those programs consume more than one-half of federal income taxes.
Then, we want income tax cuts and to subsidize ethanol, and we need that home mortgage interest tax deduction.
My only question is: How on Earth did Clinton ever run a federal surplus? Seems like the cards are stacked against it.

At 12/01/2009 7:13 PM, Blogger bobble said...

benny:"My only question is: How on Earth did Clinton ever run a federal surplus? "

easy, he raised taxes and didn't start any unnecessary wars

At 12/01/2009 7:17 PM, Blogger Craig Howard said...

How on Earth did Clinton ever run a federal surplus? "

easy, he raised taxes and didn't start any unnecessary wars

Well, let's not forget that bit about a Republican congress that shamed him into it.

At 12/01/2009 8:09 PM, Anonymous Benny Man said...

Yeah, where was that R-Congress during the Bush years? They controlled House, Senate, Supreme Court and White House. We ran red ink to the moon.
Clinton actually proposed surpluses, and an R-Party Congress did approve them.
Bush never did, and Obama never will, and there is now a structural deficit due to sacred cows galore on both revenue and spending sides.

At 12/01/2009 8:19 PM, Anonymous Anonymous said...

The Fed giveth and the Fed taketh! If you believe the organization that has been largely responsible for the current dilemma and the dollars 95% loss in value since the Feds creation then party on dude. As Mises would put it get ready for the next "Crack Up Boom."

At 12/01/2009 8:21 PM, Blogger Paul said...

"How on Earth did Clinton ever run a federal surplus? "

Newt Gingrich and the dot-com bubble that bursted in 2000 while he was still President.

At 12/01/2009 9:08 PM, Blogger W.E. Heasley said...

A ā€œVā€ shaped recovery like 1979.

At 12/01/2009 9:37 PM, Anonymous morganovich said...

balanced budget?

using GAAP accounting the US has not had a balanced budget since Eisenhower.

further, the "clinton surplus" was based on an accounting scam and some tricky definitional work. it's one of the great and oft repeated lies of modern politics.

national debt = public debt + intergovernmental holdings

national debt went up in every year of his presidency.

he simply used large increases in inter governmental holdings (essentially raiding social security etc) to produce smaller decline in public debt and then called it a surplus, but it's no more a surplus than borrowing money is making a profit.

even 2000, the biggest payroll and cap gains tax bonanza EVER was still a deficit if you include intergovernmental holdings.

national debt still went up.

replacing bonds with IOU's to social security is not debt reduction. try telling a credit rating agency that they should raise your FICO score because you borrowed money from citibank to repay wells fargo...

At 12/02/2009 3:23 AM, Anonymous Anonymous said...

From the first chart:
20% probability 12 mos. in advance of the latest recession?
<20% probability 12 mos. in advance of the 1990 second dip?
Total sample of three recessions?
How very empirical and stat sig.
0% now?
Paging Mr. Taleb.

At 12/02/2009 11:15 AM, Blogger juandos said...

Sadly the unemployment numbers might indicate that many people are excessive in their optimism...

What's worse what will the cost of Obama's nanny state programs do to the supposed recovery...

Note the Unemployment Rate during the Bush years...

Well as usual the lefitst/socialists like pseudo Benny asks the wrong question: "Yeah, where was that R-Congress during the Bush years?"...

Where was the Bush veto pen during his eight years in office?

Then again George Bush wasn't a conservative...

At 12/02/2009 1:47 PM, Anonymous Benny The Man said...


I don't know if you are still reading, but evidently Clinton proposed surplus budgets in fiscal 1999 and 2000, even taking into account (eliminating) excess Social Security revenues.

[edit] Understanding on-budget and off-budget deficits

Comparison of Deficits to Change in Debt 2008Social Security payroll taxes and benefit payments, along with the net balance of the U.S. Postal Service are considered "off-budget." Administrative costs of the Social Security Administration (SSA), however, are classified as "on-budget." The total federal deficit is the sum of the on-budget deficit (or surplus) and the off-budget deficit (or surplus). Since FY1960, the federal government has run on-budget deficits except for FY1999 and FY2000, and total federal deficits except in FY1969 and FY1998-FY2001.[39] In large part because of Social Security surpluses, the total federal budget deficit is smaller than the on-budget deficit.

The surplus of Social Security payroll taxes over benefit payments is invested in special Treasury securities held by the Social Security Trust Fund. Social Security and other federal trust funds are part of the "intergovernmental debt." The total federal debt is divided into "intergovernmental debt" and "debt held by the public."

For example, in FY2008 an off-budget surplus of $183 billion reduced the on-budget deficit of $642 billion, resulting in a total federal deficit of $459 billion. Media often report the latter figure. The national debt increased by $1,035 billion between the end of FY2007 and the end of FY2008

If you read accounts of the Clinton Presidency, or lived through it,you will know That Rubin and Clinton paid serious attention to the federal deifict, and its effect on Treasury bill markets, and interest rates.

Clinton had many faults, but as an economic administration, his eight years were excellent. The Dow tripled.

The Dow sank under Bush's eight years.

If the Dow triples under Obama...we all will be happy.

At 12/02/2009 3:26 PM, Anonymous Anonymous said...

If you read accounts of the Clinton Presidency ... you will know That Rubin and Clinton paid serious attention to the federal deifict ...

Only if you're reading about it in the Nation magazine. As Bob Woodward's book "The Agenda" revealed, Clinton had almost no understanding of how the economy worked. "You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?'', Clinton raged, when he learned that his spending plans would have to be financed by real people.

He put his unelected wife in charge of socializing the American health care system while he played "hide the cigar" with White House interns. Fiscal discipline and "surpluses" were the result of Republican majorities in the House of Representatives led, by Newt Gingrich. Read the Constitution, all spending bills must originate in the House. Clinton was a bystander reduced to assaulting women in the Oval Office and lying in legal depositions.

Clinton had many faults, but as an economic administration, his eight years were excellent.

His eight years were a joke. He laid the foundations for the current crisis by politicizing Fannie and Freddie and by strong-arming banks using the CRA, forcing more than 2 trillion dollars of bad mortgage debt into the system. The lending targets for Fannie and Freddie during the last 8 years were set in legislation passed by Clinton and the Democrats during his administration.

As he was leaving office, a discredited joke, the Nasdaq bubble collapsed leaving an economic mess in it's wake. This was followed by a couple of little events in New York and DC that killed 3000 Americans, wiping out nearly 2 trillion dollars of GDP starting those "unnecessary wars" your friend "booblehead" prattles on about. Bush responded quickly and decisively, cutting taxes and kicking terrorist ass. The White House was once again a safe place for women to work.

But, hey, "Benny The Leftist Hack", keep posting your love letters to Clinton and Obama. Now that the mask is off, we can all see who you are.

At 12/02/2009 5:40 PM, Anonymous morganovich said...


this is a good and succinct explanation of the alleged clinton surpluses.


it has all the numbers in it and links straight to the treasury data.

national debt went up every year of clinton's presidency.

if you include increases in the unfunded liabilities of SS and the health system (as required by GAAP), he wasn't within hundreds of billions of break even. ever.


the irony of all the off balance sheet accounting for which eron and the banks have been excoriated is that the government invented it.

At 12/02/2009 7:20 PM, Anonymous Benny said...


I enjoyed your links and e-mails.

Anon: For the record, I am libertarian leaning, not a leftie. When I see right-wing subsidies--rural subsidies in the hundreds of billions annually, I call it. When I see left-wing waste, I call it.

I am no militarist, and if that makes me left-wing, so be it.

At 12/03/2009 6:38 AM, Blogger juandos said...

Hey morganovich thanks for the link regarding the myth of the Clinton surplus...

The laugh line for me was this: ...but it is disingenuous at the very least to say of promoting Clinton's record as having generated a surplus. It never happened. There was never a surplus and the cold hard facts support that statement. In fact, far from a $360 billion reduction in the national debt in FY1998-FY2000, there was an increase of $281 billion and so there is a gap in those numbers is 600 Billion Dollars!...

At 12/03/2009 11:42 AM, Anonymous Anonymous said...

Poker game of high order with the debt bubble getting bigger.

Next time there will be no chance to get debt to 200% of GDP...


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