As discussions about the Great Depression resurface, it’s an opportune moment for David Glasner to reflect on the lessons learned from the gold standard and the profound economic disaster that it represents, often termed “the worst economic catastrophe since the Black Death of the 14th century.” Although this is a long-standing lesson, it appears that understanding is often cyclical in macroeconomics, requiring us to revisit past insights.
In November, the growth rate of retail sales showed signs of slowing down, yet the overall trajectory remained positive. While we can debate whether this diminished growth is indicative of future trends, there’s no clear evidence in today’s consumer spending update that points to an impending recession.
As Thomas Marshall, who served as Woodrow Wilson’s vice president, humorously stated, “What this country needs is a good five-cent cigar.” If we were to modernize this sentiment for today’s financial scene, it might translate to: What investors really need is a reliable risk metric. Unfortunately, what we desire often doesn’t align with what’s accessible. Thus, we resort to various flawed metrics that, while imperfect in their own ways, provide some insight.
At The Economist, Ryan Avent references a groundbreaking research paper featuring a notable lecture by economist Gustav Cassel. He advocated for global central banks to unite and end the depression by openly committing to supplying an abundance of payment means, thereby preventing any further price declines.
Scott Sumner has become one of the most influential economists in the aftermath of the financial crisis for numerous reasons. His insightful blog posts have shed light on monetary policy, clarifying a topic that many find perplexing. With a unique ability to translate complicated concepts into accessible insights, he often reveals what should be obvious but is not. His thoughts are at times revolutionary and refreshing. To see his latest perspective, check out this classic entry:
Is the stock market experiencing a momentum issue? Many market technicians believe so. This notion is supported by the recent performance of the S&P 500 in relation to its 200-day moving average, a key indicator closely observed by professional analysts.
● The Number That Killed Us: A Story of Modern Banking, Flawed Mathematics, and a Big Financial Crisis
By Pablo Triana
Excerpt via publisher, Wiley
The role of VaR (Value at Risk) in shaping market risk measures on trading floors has significantly influenced how banks approach regulatory capital requirements for trading positions. VaR inaccurately characterized high-risk positions as being low risk, which allowed banks to accumulate substantial positions without adequate capital backing. Consequently, without these overly optimistic risk assessments, the investments that led to the banking crisis might not have been pursued as aggressively, as they would not have met internal authorizations and would have become prohibitively costly.
The Economic Cycle Research Institute (ECRI) reported a noteworthy increase in its weekly leading index, which is now at its highest level since September. Nevertheless, ECRI, known as the “leading authority on business cycles,” continues to project a recession for the United States, as co-founder Lakshman Achuthan explained yesterday on Bloomberg TV.
Each new day brings additional economic forecasts. According to the latest Livingston Survey conducted by the Philadelphia Fed, 35 economists predict that real GDP growth for the U.S. will average a 2.5% annualized rate for the latter half of 2011. This forecast has declined from the previous 3.2% estimate made in June. While the growth outlook has moderated, it remains positive.
The latest update on jobless claims reveals a much-needed drop, as new filings for unemployment benefits decreased by 23,000, bringing the total to a seasonally adjusted 381,000. This positive development is crucial for maintaining cyclical optimism in the current economic climate.
