A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Friday, January 17, 2014

Transcript: Forecast and Voices

Barry Ritholz, William Dunkelberg, Bill White, William Cohan, P.J. O’Rourke and Bill Gross. The real heavyweight here is Bill White, formerly of the Bank of International Settlements and now the OECD. We featured White and his, well, white paper on the financial cycle last spring. There he was among the first economists, if not the first, with any significant position in an international institution to take a coherent look at debt. We haven’t seen his latest, but the interview is excellent.
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First the forecast. Forecast Friday. Forecast for Fourteen. The beginning of the year is again seeing consensus forecasts in the 3 and 3-plus range. Our estimate is less than half that for real GDP. Of course, we predicted at least one negative print last year. Almost hit it, but not quite. Still, our pessimism was the right call. The optimists were again disappointed.

This year we are again going negative, but not in the aggregate. We expect real median household income to continue to decline. We expect the adjusted headline unemployment to stay above 10 percent for the entire year, with the all-in U-6 measure continuing above 13 percent.

You can see online the chart comparing official U-6 and headline with our adjustments – which simply take into account the participation rate. BUZZ Oops. In our previous chart we misidentified the employment-population ratio as the participation rate. The difference modest, but not zero. It is better to use the participation rate with our methodology, because it is so simple. Simply adding the difference between the benchmark rate and the current rate. Now this is playing with the denominator, too, but unless we get elaborate and thus open to mistakes, we'll have to settle for this. We've put up both, the unemployment rates -- headline and U-6 -- adjusted for participation and adjusted for employment to population ratio. They are instructive.

You often hear, Unemployment is 7 percent, 6.7 percent, BUT ... the difference is primarily due to people dropping out of the workforce. These adjusted measures take the "but" out of it. They combine the two, adding those lost to the workforce to those unemployed. It is certainly not overstating the difficulties of the great majority of those lost to the workforce to call them "unemployed."

Now, In coming weeks we hope to join the theoretical arguments abroad in economics. Lawrence Summers, Mr. Timely Targeted and Temporary -- recently spoke to the effect that we have been experiencing a secular stagnation for many years. This has raised that possibility to a level of respectability it has not enjoyed heretofore, and threatens to include those who have long made this point in the argument. It may mean those -- like Steve Keen -- who have been stubborn in that view will be getting a hearing. It makes for more lively discussion, in any event, when the observed fact is not simply ignored or derided.

Now, a menagerie of voices for illustration of why we have our negative view. Like I said at the top, the heavyweight is Bill White. We'll start, however, with Barry Ritholz, one of the more astute eyes on the Street -- Wall Street -- columnist for Bloomberg and others, here with William Dunkelberg, former Demand Side Idiot of the Week and still chief economist for the NFIB, National Federation of Independent Business. Dunkelberg here leading off with an explanation of the latest Small Business Optimism Index.


First off, we should be happy that the bifurcated economy of John Kenneth Galbraith is visible even through the conservative glass, if you're close enough. The problem Dunkelberg defines elsewhere is uncertainty over health care and the minimum wage. But this is the part of the economy -- small business, Dunkelberg's independent businesses -- that is subordinate to the market the way corporations are not. Subordinate to slack demand, increasing supply costs. Corporate America -- a not too apt designation, since these huge institutions fly their own flags and span continents where governments are more often subservient than not -- anyway, Corporate America is doing fine so far. They are happy with their health care, since it gives them a leg up on the market-dependent sector in competition for talent.

Now for the main event, William White, Bill White. White's cache is his tenure at the Bank for International Settlements, the bank of central banks. It is the world's oldest international financial institution, established in 1930. But he is not there anymore. White has moved to the OECD. The point of highlighting his CV is that White is virtually alone among the banking elite in offering a coherent, almost Minskyan, version of what is going on. Note particularly here that, contrary to the meme that deleveraging is proceeding apace, total debt has jumped 30% since the crisis. The world is more in debt today than five years ago by a big number.


Bill White

Now for something completely different. First William Cohan, author of three bestsellers, including HOUSE OF CARDS on the last days of Bear Stearns. Also, among other things, a Bloomberg contributor. The second voice, P.J. O'Rourke, author of Parliament of Whores, now of NPR's WAIT WAIT DON'T TELL ME, and sometime fellow at the Cato Institute.



William Cohan and P.J. O'Rourke. To cleanse your pallet, from the largest bond fund in history, PIMCO, no less, the house that brought you the phrase "new normal," here is Bill Gross.


Bill Gross, mega-bond fund manager.

Today's podcast brought To you by Pope Francis, Jorge Mario Bergoglio. Why Capitalism? We read from the apostolic exhortation a couple of weeks ago, and played the response from Rush Limbaugh, that it was pure Marxism coming out of the mouth of the pope. His response from an interview with Italian newspaper La Stampa, Pope Francis was asked about criticism.

“Marxist ideology is wrong. But I have met many Marxists in my life who are good people, so I don’t feel offended,” the Pope said. “There is nothing in the Exhortation that cannot be found in the social Doctrine of the Church.”

“The only specific quote I used was the one regarding the ‘trickle-down theories’ which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and social inclusiveness in the world."

"The promise was that when the glass was full, it would overflow, benefiting the poor. But what happens instead, is that when the glass is full, it magically gets bigger, nothing ever comes out for the poor."

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