IQR and Percentile of Stock Returns by Month

Below, Corrections plots three percentiles of monthly stock returns (NASDAQ, AMEX, and NYSE) over time.  A 1 corresponds to a 100% gain.  A 0 corresponds to no gain, and a -1 corresponds to a 100% loss (click to enlarge).  

Similarly, we plot the interquartile range (75th percentile minus the 25th percentile) of stock returns in each month (click to enlarge)

Unemployment Rate by Gender over Time

Below, Corrections displays the unemployment rate by gender over time (click to enlarge).

U.S. Bank Failures over Time

Below, Corrections graphs out the number of bank failures by quarter from 1934:Q2 to the 2 bank failures occurring in 2013:Q1 so far (click to enlarge).

Consumer Debt over Time

This recession was a period of U.S. consumers paying off in debt in dramatic fashion.  The first figure is consumer debt as a fraction of GDP by type over time:  mortgage debt has declined precipitously, and the much-talked-about increase in student debt is a minuscule part of U.S. debt (click to enlarge).

Corrections also displays total consumer credit balance by delinquency status:  while we've been paying off debt, a large fraction of debt remains delinquent (click to enlarge).

Different Government Spending Definitions over Time as a Percentage of GDP

Different figures of U.S. Government spending over time are constantly popping up online.  Corrections depicts four such graphs with a (hopefully) clear legend to match (click to enlarge).  All data from the National Income and Product Accounts.

Distribution of Stock Market Returns

Below, Corrections displays the distribution of daily holding period returns in all non-delisted stocks in the U.S. NYSE, NYSE-AMEX, NYSE-ARCA, and NASDAQ (click to enlarge).  Holding period returns include dividends.

We do the same thing but cumulate the net returns over the course of the month (click to enlarge):

What are the Long-Run Returns on Sovereign Bonds of defaulting countries?

Bondholders of defaulting sovereigns often take haircuts between 5 and 70 percent (typically around 20%) of the net present value of their bonds, but they often get large risk premia in the years running up to a default.  What are the long run returns of a portfolio that specializes in bonds of countries that are likely to default?

The answer seems to be that there looks to be a positive but small benefit to holding the bonds, though there is high variance in the outcomes.  Lindert and Morton (1989) look at 1,522 bonds over the course of 150 years and find a 0.42% premium of their portfolio against a portfolio of British and U.S. bonds.  Eichengreen and Portes find that U.S. bonds beat default-prone sovereign bonds, but default-prone sovereign bonds bean U.K. bonds during the 1930's round of defaults.  Klingen, Weder and Zettelmeyer (2004) estimate long run premia of between -0.17% and 0.46%, using various methodologies.

Below, from the book Debt Defaults and Lessons from a Decade of Crises (Sturzenegger and Zettelmeyer), Corrections depicts the degree to which a portfolio of sovereign bonds beats a portfolio of "safe" (U.S. or U.K.) bonds over long time periods for 32 country-time periods (click to enlarge).

Flow of Funds: Net Borrowing as a Percent of U.S. GDP at Annual Rates by Sector

Corrections displays the Fed Flow of Funds data.  The Flow of Funds data breaks the economy, for example, into seven sectors:  the household sector, nonfinancial corporate businesses, nonfinancial noncorporate businesses, state and local governments, federal government, rest of world, and financial sector.  Net lending in the world must add up to zero:  there are two sides to every loan.  The flow of funds breaks up the U.S. and the rest of the world, and then breaks up the U.S.  Nevertheless, the sum must still be zero.

Below, Corrections displays the flow of funds for each sector over time (click to enlarge).

The same graph zoomed into the recent period is depicted graphically below (click to enlarge).  Note that while the Federal government is borrowing much more than it used to, as a country we're receiving less than we used to from the rest of the world:  the Federal deficit is being made up by the financial sector. 

What is the financial sector?  The lending portion is made up of the Monetary authority, chartered banks, foreign banking offices in the U.S., credit unions, insurance companies, private and public pension funds, money market mutual funds, mutual funds, closed-end funds, exchange-traded funds, government sponsored enterprises, agency and GSE-backed mortgage pools, ABS issuers, finance companies, real estate investment trusts, brokers and dealers, holding companies, and funding corporations.  The borrowing portion is similar.  We organize these sources into four main sources:  1) private/stock market, such as mutual funds, exchange traded funds, and private pensions 2) government sans monetary authority, such as GSE-backed mortgage pools, government retirement funds 3)  foreign banking offices in the U.S. 4)  the monetary authority and funding companies (AIG and Bear Stearns, for instance).  We graph these four graphically below (click to enlarge):  they add up to the light blue line in the above graph.

From the second graph, we note that the Federal government is borrowing more and that this is financed by the financial sector.  We further note that within the financial sector, it is being financed primarily by domestic funds and the stock market, rather than the monetary authority.  

Indexed Employment by State

Below, Corrections displays indexed total employment by state over time.  The high outlier is North Dakota, the low outlier is Nevada.

The Impact of War on Economic Growth

Corrections took the dataset present in Growth Dynamics:  The Myth of Economic Recovery: Comment by Hannes Mueller and collapsed the dataset down to a single interesting table, giving the present period growth rates given whether a country was at war last year, this year, and next year.

Interestingly, lapsing back into war:  war last year, no war this year, but war next year, has the lowest growth rate, while failing to lapse back into war: war last year, no war this year, and no war next year, has the highest.

Bond Yields

Below, Corrections plots out bond yields in the recent period: corporate AAA, BBB, and CCC yields according to Merrill Lynch, and Treasury Constant-Maturity yields.  Note that during the housing crisis, corporate bond yields went up, while treasury bond yields went down:  

Women's Labor Force Decisions by Marital Status over Time

Below, Corrections depicts the proportion of women by marital status and labor force status over time from the Current Population Survey (click to enlarge).

What could cause this?  Why are married women working so much more?  It can't be anything special about being married--nonmarried and married women show the same pattern.  Women in general are working more.  

Even though we know it isn't anything to do with martial status, we then depict the proportion of married women by labor force status over time (click to enlarge).  Women used to work about 35% of time (other sources give 35% extending back further) to around 60% of the time, an increase of 35% (doubling the proportion of women working).  

Corrections then offers the proportion of women by martial status, educational status, and labor force status over time.  One trend dominates the pattern: women are becoming more educated, so both red lines decline while both blue increase (click to enlarge).

This is depicted more clearly below (click to enlarge):

Instead, we can normalize by the population of all women within an educational category (click to enlarge):

And we can normalize that to the proportion that was working in 1965, to see how much these proportions change over time (click to enlarge):

Households by Number of Earners

Below, Corrections depicts Households by number of earners from 1980-2011 (click to enlarge):

Making the same graph with proportions (click to enlarge):

State Unemployment

Below, Corrections displays the difference between state unemployment levels in a given month and its minimum from 2002 to that date (click to enlarge) and the difference between state unemployment levels in a given month and its maximum from 2002 to that date (click to enlarge).

U.S. Treasury Holdings by Foreign Entity

Who owns U.S. Treasuries?  Below, Corrections depicts holdings of U.S. Treasuries by Foreign Entity (non-US), from the Treasury International Capital System (click to enlarge).

While Chinese holdings of U.S. Treasuries have leveled off, the holdings of other countries have more than picked up the slack.  This can also be seen by normalizing each period to 100% and seeing the proportion of foreign-owned U.S. Treasuries owned by each actor (click to enlarge).

Measurement without Theory on the Empire State Manufacturing Survey

Corrections examines today's Empire State Manufacturing Survey:  the release contains 88 variables:, current and future estimates of New York manufacturers for: business conditions, orders, future shipments, delivery time, inventories, unfulfilled orders, prices paid, prices received  number of employees, and average employee workweek, along with future capital expenditures and future technology spending.

Corrections takes each series, normalizes it, HP filters it, multiplies it by -1 if it correlates negatively with the average of all series together (so variables that are high when conditions are bad flip sign), and finally sorts the series vertically based on the value in July 2009.  We then graph the series in a heat map:  red when the normalized, filtered, and signed variable is "high" and blue when it is "cold."

The result is blind economics (click to enlarge), without theory, seeing if these variables are telling us anything related to one another, suggesting they're measuring something.

Consumer Price Index Components and Transportation Breakout

Below, Corrections displays the components of the urban CPI (click to enlarge).  Weighted by expenditure, they make up the headline CPI.

Transportation looks interesting enough to break out further.  Below, we display the components of the transportation component (click to enlarge):

Ricardian Equivalence

From the Flow of Funds accounts, Corrections presents net private and net government savings, along with net total U.S. savings (click to enlarge).  Notice the mirror trends of net private and government savings as a percent of GDP.  

The graph certainly doesn't discount Ricardian Equivalence as a first-order effect:  households know that deficit spending means future taxes:  to smooth consumption, they save more  If true, this equivalence would suggest that financing government consumption through deficits or through taxation is equivalent, to a first order approximation:  households know net present value of taxation will rise and save for the event.

The Federal Reserve, "Printing Money" and Debt Monetization

From 2008 to the present, the Federal Reserve has created large quantities of reserves: has "printed" a lot of money: more than doubling the supply.  We know that in the long run, inflation moves 1:1 with money.  Why hasn't there been inflation?

Note that Federal Reserve liabilities have increased dramatically:  liabilities rose dramatically due to emergency lending measures.  These measures were temporary, but the reserves were reinvested into other assets.  Using the Federal Reserve's H.41 historical release plus discontinued series, Corrections displays the Federal Reserve's assets, in a graph inspired by James Hamilton  (click to enlarge).

In another inspired graph, we can clearly see emergency lending dying down (click to enlarge).

Rather than create money and then retire it, the Federal Reserve reinvested money created for loans into mortgage backed securities and treasury bonds.  This is using printed money to finance a deficit, no doubt.

So why no inflation?  One answer, losing credibility for the last five years and counting, is that prices just haven't had enough time to react.  A better answer is that unlike a money drop, the Federal Reserve printed money and put it into the economy, purchasing assets.  Those assets slowly mature, and take money back out of the economy, allowing the Fed to retire reserves.  

Imagine the Fed creates $1 and purchases a Mortgage-Backed Security that matures 10 years from now selling at a 50% discount.  For 10 years, the economy will have one more dollar, and one less MBS in circulation.  Come the end of those ten years, the MBS pays back $2, which the Fed takes to retire reserves, having originally pressed a button to create only $1.  Then the economy now has one less dollar in reserves than before all this, and the Federal Reserve has one more.  

There is no magic in all this:  the point is only to emphasize that the Fed isn't just printing money, creating a liability.  It creates liabilities and assets, generally at a one-to-more-than-one ratio in the long run.  This allows it to have low inflationary effect in the long run, because in the long run, no new reserves are created.

Corrections displays a very simple example of how money creation to purchase assets is inflation neutral (click to enlarge):  anyone can do what the Fed did, in theory:  go into debt to purchase assets, "freeing" money that other people can spend (the person who sold the asset now has a credit in their bank account equal to your debit).  Use the returns for those assets to retire your debt, and the economy is back to where it was: nothing new is created in the end.  

Will the Fed retire those reserves?  Skeptics will say that historically, governments don't do that.  They're wrong.  Throughout its history Britain would go to war, and cease convertibility to gold. It would "print" money (go into debt).  Then, in the years after the war, it would run surpluses and reduce monetary aggregates until the gold standard could be resumed at the same level it was previously.  For example, from 1797 to 1821 Britain departed the gold standard during the Napoleonic Wars, returning to where it left after 24 years.  This happened again in the U.S. after the Civil War, as the U.S. returned to prewar parity.  This happened yet in Britain after WWI in 1925, as they resumed at prewar parity.  

Perhaps the Fed will permanently keep an enormous amount of reserves in circulation.  But the Fed has stayed politically independent since the 1951 Accord, when William McChesney Martin replaced Thomas McCabe as Chairman of the Federal Reserve, betrayed Truman (who had just appointed him) and ended Fed support of low Treasury rates.  While the Fed had agreed to support the Treasury with $200 million worth of purchases over five years, they spent that amount in the first few days, and then refused any further help.  This kicked off a new age of Fed independence.  If this independence continues then debt monetization seems highly unlikely.

Real GDP per Capita as Percent of Previous Peak: 1947Q1-2012Q3

Using the first revision of GDP up to 2012Q3, Corrections displays GDP/capita as percent of previous peak (click to enlarge).

In 2007Q4, real GDP/capita in 2005 dollars peaked at $44,005.  It reached a trough in 2009Q2 at $41,389, (94.1% of its previous peak) and is now at $43,352 (98.5% of its previous peak), growing at an annualized rate of 1.4% per year from trough to now (0.3571% quarterly) 

If the trend between trough to now continues, we will reach the previous peak in the fourth quarter of 2013 (by the first month of the fourth quarter, if we broke things down monthly), having deviated from our previous peak for six years.  The previous longest postwar peak was 2.25 years, in the nine quarter between and including 1981Q2 and 1983Q2.