Pretty neat graph here from FRED, showing the conventional gas price by week since 1990. Shaded areas are periods of US recession.

Despite the huge dropoff in oil costs as a result of the Great Recession, prices are more on target to keep their general upward trend for the forseeable future. Blame this on the rising energy consumption of not just China, but India and southern Asia in general, which has steadily become the textiles manufacturer of the world.

The main reason things will be okay is that a growing demand for energy transaltes into a growing demand for other commodities.  Oil prices increase because more people are getting jobs and commuting to work instead of staying in their moms basement. Similarly, when they go to these jobs they earn incomes which then translate as consumer goods purchased. All this takes energy.

The Economist’s Free Exchange posted a fun read on the evolving role the Fed plays in discussions of monetary policy. In the past, the Fed had been pretty cloistered in its speeches to the public at large, and Fed transcripts are still released in 5 year lags.

However, since the onset of the Great Recession, there have been more calls to the Fed to provide clarity in the face of high unemployment and crushingly small inflation. The Chicago Fed called for ‘Forward guidance”. Basically this idea is that the Fed will guarantee their decisions will hold until the economy meets a certain threshold. Now while the threshold that Evans (the Chicago Fed President) wanted has not been agreed to, Chairman Bernanke has been more forthright in his acknowlegement that QE3 with a forward guidance can be effective.

Money quote:

Until 1994, the Fed avoided announcing its decisions until well after the fact. Since then, the central bank has become much more transparent about its intentions, deliberations, and forecasts. Some analysts, like Henry Kaufman, argued that this was a mistake, for similar reasons as Messrs Adrian and Shin. Meanwhile, most central banks stopped paying attention to quantity measures like the monetary and credit aggregates more than two decades ago. There were good reasons why that happened, but new and improved quantitative measures may prove to be more helpful than the price measures (interest rates, credit spreads, etc.) currently favoured.




Hat tip to the Big Picture blog for the source.

New data confirmed today that the British economy shrunk again in the 4th quarter of 2011. It’s been a bad year for the British economy as a whole, with the Tory/Lib-Dem austerity plan cutting deep into the local and municipal government’s access to funds for social programs.

A Chart! Hat tip to the Economist


Money quote:

Superfluousness notwithstanding, prices are low because more people want to save than to lend. It is not that more people wish to save than to lend because prices are low.

All that having been said, I do appreciate Gross’s attempt to weave both elegant prose and metaphysical considerations into financial analysis.


The beginning of any understanding of macroeconomics is the realization that what’s good from a micro point of view can often be irrelevant or even harmful from a macro point of view when the economy is depressed. But that hard-won insight has now been willfully forgotten.

I would be remiss if I didn’t mention the anniversary of the American Recovery Act. The Congressional Budget Office and the Center on Budget and Policy Priorities produced several helpful graphs. In the first graph it is estimated that real GDP increased 1.9%.

Graph 1.

In the second graph, the estimate is that thanks to the stimulus, the economy added up to 2.4 million jobs.

Graph 2.

I am sure there are a lot of naysayers out there who will say that the stimulus might not have had the effect that we had hoped, and/or was actually harmful. These people are likely wrong, but it is hard to irrefutably tell them so, because as Derek Thompson at the Atlantic notes, there isn’t a make-believe world that we can compare it to.

Final point: if you want absolute certainty, never read anything associated with economic or financial theory.