U.S. Hours per Working Age Person

Below, Corrections takes an estimate of the total hours worked by the non-institutional population and divides it by the U.S. population between 16 and 64 (click to enlarge).

Thinking about the Recession Recoveries

When thinking about the very slow (or extremely impressive, in the view of some) U.S. recovery from the Great Recession, self-serving theories fly fast and furious.  It is useful to discipline theory with data.  Below, Corrections depicts both the percentage change in real GDP per capita for a selection of advanced economies (click to enlarge) and the percentage change in the employment population ratio for the same countries (click to enlarge).  

The U.S. GDP recovery has been quite impressive: while it was the third largest drop from 2007 to 2009, it has had the second largest increase.  On average, it gained ground compared to these other economies.  Only Germany and Canada (for most of the recovery) had better post-recession growth.  

The U.S. labor recovery has been very unimpressive.  While a non-negligible proportion of the drop is due to demographic changes, well more than half is not.  U.S. employment to population ratio has recovered from its bottom slightly, but not by much.

When discussing the drop in labor markets, a joint explanation of all phenomena should be much more attractive than a single theory based on local politics.  For instance, many countries have had slow labor recoveries without sudden increases in socialistic policies.  And some countries have had robust GDP recoveries without sudden increases in socialistic policies.  Indeed, many seem to have had leadership that would be fairly indistinguishable from mildly conservative or mildly liberal leadership.

Quantitative easing: giving cash to the public would have been more effective

The Guardian article "Quantitative easing: giving cash to the public would have been more effective" (10/29/2014) offers rhetorical flourishes rather than understanding when discussing Quantitative Easing.

Central banks have always been wary of “helicopter money” on the grounds that QE is temporary while giving cash to the public is permanent. But the temporary has become permanent. What was once unconventional has now become conventional.

As with most casual commentary about monetary policy, which trades understanding for catchphrases, sophistry, and silliness, this is phenomenally foolish.

QE is temporary in the sense that the Federal Reserve traded one asset for another asset (cash for Mortgage-Backed Securities and U.S. Treasuries).  The Federal Reserve "created money" and purchased these interest-bearing assets.  As these interest-bearing assets bear fruit, they can un-create the money they created (plus some more thanks to interest, if they so desired).  It is in this sense that QE is temporary.

Simply giving money away isn't trading money for an interest-bearing asset: it's giving money away.  Not only would it be illegal for the Federal Reserve to do this (this is fiscal policy, not monetary policy, the purview of Congress), but it would be permanent because the Federal Reserve has no way to "un-do" it, absent taxes which go unspent.

The distinction between "permanent" and "temporary" is not in the timeframe, it's the net change in assets.  The writer of the Guardian's article either misunderstands this meaning of temporary and permanent or ignores it: without this distinction, the article loses coherence.

An Actual Data "Manipulation"

As a rule, all accusations of government economic data manipulation made in a political setting are without basis.  Discussions of the CPI, or manipulated unemployment numbers, or Federal Reserve Bank data are politically motivated and have never panned out (and are never followed up on as time goes on).

In September 2013, the BLS will begin to incorporate a large non-economic code change and "artificially" increase employment.  Specifically, 469,000 people currently employed in private households (such as housekeepers and gardeners) will begin to be included as employees. This change will be "wedged" back into past estimates come the February 2014 report of January 2014 employment data.

This is an improvement in data, but it is an artificial inflation of job numbers compared to past history.  No doubt it will be used by some to hyperbolically account for the 7 million job increase over the last 3 and a half years, but this will be in error.

SNAP Benefit Reduction: Coming this November

Below, Corrections depicts the post-ARRA reductions in benefits coming this November.  The reductions to maximum benefits available by size to households of a given size vary by 5.5% and 6%, and are depicted in monthly dollar amounts below in red (click to enlarge).

The reductions will shave about $5 billion annually from SNAP payments to the approximately 48 million recipients.

Interestingly, the ARRA's plan was initially to allow inflation to whittle the benefits away: in August 2010, President Obama signed P.L. 111-226, which accelerated the sunset due to slow inflation (the bill was focused on reforming the Air Traffic Control system, and this was a rider).

Fannie Mae and Freddie Mac: Borrowing and Payments to Treasury

In September 2008 Fannie Mae and Freddie Mac were placed under the Conservatorship of the Federal Housing Finance Agency.  At the time, they owned around $3.4 trillion in mortgage backed securities and $1.6 trillion in debt.  In return for $100 billion (later $200 billion) in capital investments guarantees, the U.S. Treasury received $1 billion in senior preferred stock with a 10% coupon (later changed to sweep all of Mae and Mac's profits).

How bad a deal was this for U.S. taxpayers?  We know that the Maiden Lane I and II transactions (the bailout of AIG) ended up making money for the Treasury and Federal Reserve Bank (while the Treasury is still $24.2 billion in the hole, it owns 53% of the stock of a company with a market cap of $71 billion).  How much did the bailouts of Fannie and Freddie cost U.S. taxpayers?

Below, Corrections depicts the cumulative draws and dividend payments that Fannie has engaged in with the Treasury (click to enlarge).  Often, the companies were drawing on the Treasury's capital in order to pay the required 10% dividend to Treasury (hence, dividends are being paid to Treasury at the same time draws are being made).

We can alternatively look at the simple difference between net loans and net payments (click to enlarge):

Both Fannie and Freddie look to be on track to pay back the Treasury for capital infusions over the next few years.  However, because these payments are simply payments to the government's preferred stock, and not considered paying back loans (the government offered a capital line, not loans) the government is likely to make a profit on this deal, even if we wind down Fannie and Freddie over the next few years, as both the House, Senate, and White House desire (though in different ways).  

A Tutorial on Bond Yields and Returns

Articles like this one can be confusing to someone not familiar with how fixed-income securities work. Bond yields have gone up, and so bond prices have gone down.  Because the Federal Reserve holds a significant position in different types of bonds, some note that it has "caused a mark-to-market loss of $192 billion on the Fed's holding assets, equivalent to approximately all of the unrealized gains that the Fed had accumulated [emphasis mine]."

Mark-to-market can be dramatically misleading when dealing with fixed-income securities.  They are, after all, fixed income.  Bonds are initially priced with one future set of paths of interest rates in mind.  When new information comes, and interest rates change, their current price naturally changes to fit this new interest rate:  otherwise, there would be an arbitrage opportunity.  However, absent any default risk, the end point of bonds remains fixed:  their price path swivels.  Below, Corrections plots the interest rate path:  in blue, the expected interest rate path, a constant 5%, with a "surprise" in the second period (4 periods before bond maturity) in which interest rates rise to 12% (click to enlarge).

The consequence of these interest rate changes is given simply by calculating the bond prices backwards from maturity (click to enlarge).  Notice that while the surprised bond path went down, the slope increased, as it must catch up to its initial path by maturity.

This idea can be seen most easily by taking the log of these two price paths (click to enlarge).  When the shock hits, the bond price is 0.194 log points lower than it would have been otherwise (the vertical distance between the initial shocked path and the unshocked path).  Not-coincidentally, our slope changed from 0.0488 to 0.113:  a change of 0.0645 log points.  Added together three times for the three remaining periods, they exactly make up the difference, summing to 0.194 again.  

The idea, therefore, is that while the price of bonds has declined and the Fed could lose money in a mark-to-market sense, it now holds bonds that have higher yields, and will make money faster.  Consequently, they only have to hold to maturity to not lose money.  This is especially true the change was due to mid-term rates, as it is empirically true that interest rates are long-term mean reverting.  Such a temporary, mid-course change in interest rates (click to enlarge) yields a temporary change in bond prices (click to enlarge).  Such mark-to-market accounting can be particularly misleading when dealing with price changes in fixed-income securities due to interest rate changes, rather than default risk, as is the case currently.   

One-Year Growth in Employment: Three Surveys

Below, Corrections plots employment growth data from the Quarterly Census of Employment and Wages, the Current Employment Statistics data, and the Current Population Survey.  The QCEW and the CES are related but separate measures, while the CPS is completely independent: a survey of workers not of employers.  The three measures match growth nicely (click to enlarge).

JOLTS Data

Below, Corrections displays the three ways people have been losing their jobs over time, along with job openings (click to enlarge).

We also display the total number of separations and hires:  note the large gross flows generating small net flows.  JOLTS is measured more nosily than the typical CES and CPS employment and unemployment numbers (click to enlarge).

Disability Rolls-II

Below, Corrections displays the growth of Disability Rolls, to supplement the comparison below (click to enlarge):  as explained, we conservatively imputed (likely overstated) the growth of rolls in 2013 and their decline as a proportion of population.

Disability Rolls

Below, Corrections depicts the number of additional workers being paid by Social Security Disability Insurance (SSDI) [1] [2] (click to enlarge).  Note that Obama's 5th year in office (2013) has only 4 months of data:  we took the average of the four months of 2013 and multiplied by 12 to fill in 2013:  it is likely to be lower than that, as the trend has a clear downward trajectory.

The Deleveraging of American Households

Below, Corrections depicts the Debt Service Ratio and Financial Obligations Ratio as a percent of disposable personal income (click to enlarge).  Note the y-axis is non-standard.  The Debt Service Ratio is the amount paid on outstanding mortgage and consumer debt, while the Financial Obligations Ratio adds on automobiles, rental payments, homeowner's insurance, and property taxes.  Disposable personal income takes income, subtracts taxes, and adds transfers.

Who Holds Federal Debt?

Below, Corrections depicts the holders of Federal Debt in three categories:  debt held by the public, minus the Federal Reserve (which is normally counted in debt held by the public), the Federal Reserve, and intergovernmental holdings (primarily Social Security and similar programs).  Click to enlarge.

We depict the same thing in percentage terms (click to enlarge).  Note a modest error in the legend:  "Total" appears where it should not, while "Federal Reserve" is left blank.  Total should not exist: the total is always 1, while the light green line refers to Federal Reserve.

After the financial crisis, the Federal Reserve went from holding around 9% of Federal Debt to around 11%.  The recent increase from about 4.5% to 11% came on the heels of a large decrease during the crisis from 9% to 4.5%.

Data is from the Federal Reserve's H41 release and the Treasury's Bureau of Public Debt data.

Average Annualized Deficit of Past 12 Months

Below, Corrections depicts an annualized average Federal Deficit by taking the surplus or deficit in any given trailing twelve month window (click to enlarge).

Data from the Monthly Treasury Statement.

Foreign Holders of U.S. Treasuries

Below, Corrections depicts the major foreign holdings of U.S. Treasury Securities by major country grouping (click to enlarge).

All data from Treasury's International Capital data.  

Core vs. Headline Inflation: Oct 2007-March 2013

Below, Corrections depicts core and headline inflation from October 2007 to March 2013.  This medium run shows also what the long run shows:  headline inflation generally circulates around core inflation, but is more volatile (click to enlarge).

Delinquent Bank Loans

Below, Corrections depicts delinquent bank loans and their types over time (click to enlarge).

We also depict the loans as a fraction of their maximum, to show clearly the rise and continuing fall of delinquencies (click to enlarge).