Centerfield

Does anybody know what inflation rate (if any) is used to when figuring the official growth percentage for the economy? Because unless one is being used, a 0.6% growth rate would be a contraction -- even at lower inflation rates than we are seeing currently.

I suspect that this time will be worse, but for a different reason. In 2001, the Fed could slash interest rates adn leave them down. Today, they have cut about as far as they can already. Actually, given the inflation numbers, I think they have cut further than they should have. Which means that interest rates will likely have to head up by the fall.

I can see a nasty couple of years while inflation gets wrung out of the system again -- shades of the 1970s! Anybody who can get into an industry which does a lot of exporting or other business overseas will be fine. But the rest of us are in for some hard times.

Short term pain for long term gain... at least I hope. I wish the Fed would stop lowering rates and actually do something to contain inflation. Oil prices are crazy-high right now, largely due to the Fed's relentless rate-cutting that's weakened the dollar. At least it does help our remaining manufacturers.

Th figure is real GDP, which has been adjusted for inflation. The unadjusted 2008Q1 nominal GDP figure was 3.2%.

If you're in an affected sector, it always looks like Armegeddon. If you're not, you always wonder what the big deal is. I've seen much worse. I remember the 1970's and especially the Carter admin. 2001-2002 was no picnic in my area either.

We ARE liquidating a huge chunk of "book" value in real estate and financial stocks. But as you can tell from the market and the yield curve, the market has already factored that in. If you don't have an inflated home "book" value, if you didn't buy in at peak, or didn't leverage your equity up to the max, you're OK. Your mortgage payment hasn't changed (unless you were silly enough to take an adjustable) and you can always re-fi if rates are down far enough. Much of the crying is from people who either overbought in the first place, or are watching ephemeral "value" evaporate. Like the guy who bought Google at $2, watched it go to $100, then cried about the $20/share he "lost" when it dropped to $80.

We can expect an uptick in inflation and a consequent rise in interest rates. But recall also the concept of "real" interest rate, and why fixed-rate mortgages are a good idea. Inflation is not nearly as scary or painful as deflation! I don't think the "strong-dollar" people quite get that.

Now if you overbought at peak on an adjustable, well, it sucks to be you.

Oh, forgot. The real GDP deflator adjustment is based on the entire economy, not on the simple price indexes such as CPI or PPI. So yeah, you're gonna see your energy costs right up there, and CPI inflation is going to be higher than inflation in general.

Oil prices are not really tied to U.S. inflation. The problem is that oil has become more than just a commodity. Today, they're trading "paper barrels" based solely on traders' willingness to pay higher prices, rather than actually basing crude prices on supply/demand factors.

The same mentality that allowed dot-com stocks to soar to irrational heights, or real estate to climb at an obscene rate, is in play here. At some point, the market will crash, only in this case that would be a good thing for the economy.

I'm not enough of an expert to devise a better way of setting international crude prices. But I do know that the need for a real alternative to crude should be a national priority to protect the nation's economy. And no, for anyone that still doesn't know better, ethanol is not an answer.

There is a catch on these numbers to me. If you factor out the growth in exports, largely helped by the declining dollar, you do have a negative GDP for this quarter. Domestic factors were down. So, by technical definitions, no recession and you can say that without laying. Non-export areas are in negative growth right now, though. So it is really an issue of technical definitions.

lying not laying(though I guess you could say it without laying either.

In 2001 about half the states had declining economies, including California which was hit pretty hard. I think we're better positioned this time around. The economy is more diverse and while the real estate has taken a big hit and people are hurting around here, there still hasn't been massive layoffs - although they could come later. Companies are still hiring and if you look at downtown SF we are building high rises like crazy, including the giant Ionic Breeze next to the Bay Bridge. If you're working for Webcor you're doing great. Countrywide? you're screwed.

Question for Tully. If more than half the population are in states in a recession is it necessarily a recession? or not a recesion?

I had a chance to refi with an adjustable but chose to shorten my term so I went with a 15 yr fixed at 5.75. I've always hated the uncertainty of adjustables.
Although my house has dropped probably a 100K in value it's still well, well above the total debt so I'm not in the hole, even if you count the credit card debt that I had to accumulate to put my kid through pvt school while my ex pooped out 50 dollars a night with her lifestyle.

Question for Tully. If more than half the population are in states in a recession is it necessarily a recession? or not a recesion?

A recession is two or more consecutive quarters of declining national real GDP. Period. As I said above, if it's tough where you are (sector or region) it's Armageddon. If it's not you wonder what all the crying is about. There's always some area of the country that is hurting. Always. Sometimes more, sometimes less. And there's always some part doing pretty decent.

Sorry, Jim, it's all real GDP. It's not an issue of differing or diddling or "technical" definitions--two or more consecutive declining real GDP quarters IS the definition of a recession. We haven't had one yet this business cycle. Exports are real GDP. The wages paid to produce them, the prices received for them, it's all real money, real production. Yeah, it's stagnant right now, but I doubt if it's going much deeper. We will as consumers get slapped around a bit by inflation, but most of the hit from energy prices is already working through the system.

I had a chance to refi with an adjustable but chose to shorten my term so I went with a 15 yr fixed at 5.75.

Cheers and applause, Marcus! Always avoid adjustables. Look at it this way--if rates go down you can refinance. If they go up you just laugh. A MAJOR chunk of the real estate pain right now is people who either bought to flip on JUMBO's and got caught short on the bubble, or folks who multi-mortgaged up with adjustables to cash out equity. Pardon me if I hold my sympathies for the small number of poor folks who were suckered into cashing out equity on sucker adjustables by commissioned loan brokers.

Yeah, the ethanol thing drives me up the wall, too - that's vote patronage, not an actual good alternative to gas.

If you're in an affected sector, it always looks like Armegeddon. If you're not, you always wonder what the big deal is. I've seen much worse. I remember the 1970's and especially the Carter admin. 2001-2002 was no picnic in my area either.

Yep. My family's industries - higher ed and software - are fine. This time, Last time, of course, software was the #1 target. But, overall, I think we tech types have more squirreled away than construction/real-estate employees, so from that POV it's worse (though I'm sure the bankers are rmostly fine, too).

It's not a recession. that's a matter of a definition, and that hasn't been met, as Tully rightly points out. And it is of course a very good thing that the economy is continuing to grow a bit. All other things being equal, growth is better than shrinkage (there;s your straight line for the day).

Here's the thing though. We've used "recession/no recession" as the best available proxy for economic health. But when we do, what we're really always trying to get at is the average of everyone's individual measure of whether they're getting ahead or falling behind. In other words, if many folks are falling further behind due to inflation, it's a recession for them. After all, even though inflation is as Tully said better than deflation, it's also much worse than no inflation or very minimal inflation.

I think we DO need a stronger dollar, even though I am an economic idiot and have no right to suggest my opinion is worth the paper it aint printed on.I think the extended run of cheap money has led to way too much speculating. It led the tech bubble boom/bust, and it led the real estate boom/bust. when I was akid, they talked about these big speculative bubbles like something that USED TO happen. Well, they're BACK folks. Now all that cheap money is headed into oil and other commodities, and all the people who need energy and food are going to keep suffering. Do we really have to wait until those sufferers leverage their way out of the hole by joining in with the speculation and then getting croaked when THAT bubble bursts?

Cheap money and big returns have turned the world into a giant casino. And we're the ones handing out free drinks for minimum wage.

Oh, BTW, echo Tully loudly on the lack of sympathy for folks who financed overspending by cashing out their equity and so on.Thoguh I don't give a pass to the folks who aggressively and I would say unscrupulously marketed this stuff. I still have enough liberal in me to look askance at folks who KNOW that there is no such thing as a free lunch but make their living selling free lunches.

A little inflation is better than no inflation. It would take pages to explain why, but trust me on this. By little I mean roughly 2% or less.

Our problem with energy is our damn lack of new energy production. I give no pass to anyone on The Hill for that. We've had THREE DECADES to get on the ball, plenty of warning about the problem of relying on imports, and we have not been building new nuke plants or allowing domestic exploration, etc. I most especially blame the Democrats for having blocked new domestic fields from being drilled and new plants from being built, but they've had GOP help in too many places. The oil companies would be ecstatic to put some profits into new US production, but Congress won't let them.

Ethanol isn't bad or stupid. Food-crop ethanol is stupid. Google up cellulosic ethanol. We're just about ready for it. If I have to listen to my own city whine any more about grass clippings and leaves in the trash I may scream. Bag 'em and ship 'em to the Hugoton cellulosic plant, I sez!

I would be happy to make my own 180-proof fuel from home crops and such, but the federal government won't let me moonshine for fuel. By my own calcs a $1000 investment in equipment and some time with an arc welder and I could produce 5-6 gallons of ethanol fuel a week without doing any harm to anyone.

I think that "recession", like "fascism" and "imperialism" has been conveniently unmoored from its customary specific meaning, so that people can simply use it to mean "stuff I don't like" without having to actually bother analyzing the facts of the matter and describing them accurately.

Bingo. And just as Orwell abhorred the corruption of the term "fascism" I abhor the misuse of "recession." It has an exact definition. Fascism once did too--but the only real definitive example of fascism was strung up by the heels from a lamp post long ago. Recessions we still have, so there's little excuse for misusing the term.

Tully, I think you should put a big chunk of blame on those who laughed at conservation, mainly conservatives. Many democrats, except for those who were beholden to the auto companies, tried hard to increase gas mileage. You also need to blame the tax structure that the auto industry liked which encouraged many people to get small trucks and SUVS and of course the exemptions that those vehicles enjoyed from mileage rules.
You also need to place considerable blame on Congress and the WH for many administrations for ignoring energy conservation after Reagan was elected. The irony is that the Carter energy initiatives saved this country tens of billions in oil imports due to conservation AND production.

The proof that conservation works is in California which has not had an appreciable increase in per capita energy use in 30 years while the rest of the nation went up 50%.
You naughty boys.

Too bad Congress has been more willing to subsidize everything from coal to oil to muclear but pass on a mere pittance to conservation and renewable resources. That's why a lot of the big alternative energy concerns are foreign, not domestic. STUPID STUPID STUPID. But then again GM and Ford have been similarly stupid while Toyota, Honda et al dine on their carcasses.

As far as for more domestic drilling - I look on it as maintaining a bank account. I'm for not touching it. It'll still be there if it is really needed 25 years from now, like when we really need petrochemical feedstocks. It's not moving anywhere.

As for new cracking and distillation plants, you make it sound like nothing has been done. Not quite so. There's been a pretty steady increase since the 90's but not from new plants. Why? Lots of plants around the country expanded production. Doesn't make sense to buy whole new real estate, deal with EPA rigamarole on a new site when you can just tack on to existing infrastructure and land use. Legally and financially it is a no-brainer.