QE2 finally pulls into port

Almost eight months ago, the Federal Reserve announced their intention to launch a second round of “quantitative easing,” otherwise known as printing money. In the absence of policies that promote economic growth, the Fed used the one tool they had to encourage investment and enhance exports, which was to devalue the dollar in a way that discouraged cash hoarding. That project comes to an end today, and the Washington Post notes that the results are less than appealing:


The effort, which became known in financial circles as the second round ofquantitative easing, or QE2, was the Fed’s effort to avert a slip into another recession and toward deflation, or falling prices. As it ends, it shows more than anything the limits of the power of monetary policy to correct what ails the U.S. economy.

Economic growth is set to be somewhere around a 2 percent pace in the first half of 2011, when the QE2 bond purchases took place. That is slower than the economy’s long-term growth path and nowhere near enough to dig out of the nation’s deep economic hole.

It’s not that QE2 had no impact. Inflation was well below the Fed’s unofficial target of around 2 percent last summer, and the chance that deflation, or falling prices, might take hold seemed real. That risk is now minuscule, and inflation is roughly in line with the Fed’s target. …

“If you come at it from the point of view that you think deflation risk was significant last summer and you want to avoid that, QE2 was a success,” said Michael Gapen, senior U.S. economist at Barclays Capital. “If you look at it from the point of view that you wanted to make the recovery stronger and more durable, you would have a lingering bad taste in your mouth.”

How successful has QE2 been? Let’s look at the meta numbers for the economy. In 2010Q3, the annualized GDP growth rate was 2.6%, and in Q4 just before the purchases began, it was 3.1%. The QE2 purchases began in January, and the final 2011Q1 number is 1.9% and Q2 is looking at falling below that.

Employment numbers don’t look very good, either, although it’s not as bad at the GDP series. In November 2010, the unemployment rate was 9.8%, which equaled a high for the year. That fell a full percentage point by March, but has since risen again to 9.1%. We have added about 160,000 jobs a month since November, which barely exceeds what is needed to keep up with population growth. Meanwhile, the latest indicators suggest that we’re going to start shedding jobs and may be tipping perilously close to recession.

Some will argue that the problems in 2011 are more external, with gas prices soaring. But that’s part of QE2. One of the motives of the Fed was to encourage exports at the expense of imports by weakening the dollar. The US imports most of its oil, which means that a weaker dollar makes fuel more expensive, leading to inflation in retail markets as well. A few people predicted this very outcome when the Fed announced its QE2 project — one of whom was Sarah Palin, who got roundly ridiculed for her prediction, which turned out to be all too accurate.

The Post notes that the stock market did well during QE2, which is true enough. It’s also true that the rise isn’t as impressive because of the weakened dollar. Artificially inflating the dollar means that price rises don’t indicate a real increase in value, since the dollar doesn’t have the same buying power. On January 1, when the Fed began its QE2 spree, the Dow Jones was at 11670.75; it’s now at 12261.42 as of yesterday’s close. That’s an increase of 5% in six months, which is decent but not terribly impressive, considering the inflation conducted by the Fed to boost it. Now that QE2 has come to an end, we’ll see how much of that momentum continues; I’m betting on not much.

It’s not the Fed’s fault that this didn’t work, and it’s still worth noting that the Fed mainly wanted to avoid deflation, which it did succeed in preventing. The Fed has no other tools left in its bag to boost the economy. The money policy is as loose as it could possibly be at the moment. The problem with the economy is not the money supply, but the economic and regulatory policies of the Obama administration. Until those change, we won’t pull out of the stagnation cycle we’ve seen for the past two years.

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8:31 AM | 0 comments

Does Durbin need a refresher course on the Constitution?

I never thought I’d long for the days of Robert Byrd and his “pocket Constitution,” but alas, Dick Durbin has managed to eke out that much nostalgia after his DREAM Act gaffe yesterday. Real Clear Politics and Doug Powers at the Boss Emeritus’ site caught this tender moment from Durbin as he addressed school-age “undocumented” aliens and promised that his DREAM Act would allow them to become tomorrow’s Congressmen, Senators, and … Presidents?


“When I look around this room, I see America’s future. Our doctors, our teachers, our nurses, our engineers, our scientists, our soldiers, our Congressman, our Senators and maybe our President.”

I know that reading the Constitution has fallen out of fashion on Capitol Hill; Democrats pitched a fit when the new Republican majority in the House wanted to start the 112th Session by reading it aloud. But Durbin might want to read Article II, Section 1 of the founding document, as it’s pretty clear on eligibility for the nation’s top executive position:

“No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President.”

Durbin’s Constitutional illiteracy explains a lot, including his DREAM Act.

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8:24 AM | 0 comments

Weekly jobless claims remain flat

When I first looked at the weekly report from the Department of Labor on initial jobless claims, it didn’t look like news to me. The number remained virtually unchanged from last week, going from 429,000 to 428,000, which barely qualifies as statistical noise:


In the week ending June 25, the advance figure for seasonally adjusted initial claims was 428,000, a decrease of 1,000 from the previous week’s unrevised figure of 429,000. The 4-week moving average was 426,750, an increase of 500 from the previous week’s unrevised average of 426,250.

The advance seasonally adjusted insured unemployment rate was 2.9 percent for the week ending June 18, a decrease of 0.1 percentage point from the prior week’s revised rate of 3.0 percent.

The advance number for seasonally adjusted insured unemployment during the week ending June 18 was 3,702,000, a decrease of 12,000 from the preceding week’s revised level of 3,714,000. The 4-week moving average was 3,703,500, a decrease of 11,250 from the preceding week’s revised average of 3,714,750.

The near-equality of the claims number to the weekly average speaks to the consistency seen in the numbers since early April. Claims rose as the second quarter began, with a significant spike from the Q1 range of 380K and spiked upward to over 470K before settling in around 425K. As I noted last week, the data is as consistent and predictable as anything we’ve seen over the last six months.

So, it’s not really news, or it wasn’t — until news outlets decided to spin the results a little, as Steve Eggleston caught. The AP didn’t try making this week’s numbers look good or overstate the miniscule drop of 1,000 claims, but the outlet did spin the Q1 level:

Applications had fallen in February to 375,000, a level that signals sustainable job growth. They stayed below 400,000 for seven of nine weeks. But applications then surged to an eight-month high of 478,000 in April and have shown only modest improvement since that time.

The four-week average, a less volatile measure, has been stuck at about 426,000 for a month.

Reuters was even worse:

It was the 12th straight week that claims have been above 400,000, a level that is usually associated with a stable labor market. Employment stumbled badly in May, with employers adding just 54,000 jobs — the fewest in eight months.

No, the 375K level does not signal sustainable job growth, and the 400K level doesn’t signal job-market stability, either. I covered this in last week’s analysis, where I used actual DoL data to determine what initial jobless claims level was associated with growth and stability. The only time we’ve gotten to 400K before Obama took office was when we were heading into unemployment crises. And periods associated with sustainable job growth had averages and medians at the 325K level, not the 375K level:

Take a look at the historical series of weekly claims between December 2005 and December 2007, the last time we really had “stability” in the labor force. The highest number in that period was 355,000 in a week, and that was in December 2007 when the economy slid into recession. In fact, between January 2004 and January 2008, we had only two weeks of 400K-level weekly claims, both in September 2005, and they were very much the exception. The average for that four-year span is 326,735, and the median number is 324,000 — which is why I usually use the 325K number in my analyses. We actually didn’t get to the 400K level until July 2008, at which point no one considered the labor market “stable.” …

Think I’m fudging those baseline expectations by using the supposedly “overheated” Bush economic expansion? Well, take a look at the same series for the four years between 1996 and 1999. The average number of initial jobless claims per week in that period was 321,986, and the median was 317,500. There was exactly one week of 400,000 or more claims in a week, and that took place in January 1996.

Perhaps if the AP and Reuters used actual data rather than listen to White House shills on economics, they wouldn’t have to use “unexpectedly” in their reports so often.

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8:21 AM | 0 comments

John Lennon … Reagan Republican?

Second look at John Lennon? If his last personal assistant is to be believed, we may have to imagine John Lennon as a Reaganite. Fred Seaman told a filmmaker compiling anecdotes about the four Beatles that the former radical had begun debating people on the Left and soured on Jimmy Carter:


In new documentary Beatles Stories, Seaman tells filmmaker Seth Swirsky Lennon wasn’t the peace-loving militant fans thought he was while he was his assistant.

He says, “John, basically, made it very clear that if he were an American he would vote for Reagan because he was really sour on (Democrat) Jimmy Carter.

“He’d met Reagan back, I think, in the 70s at some sporting event… Reagan was the guy who had ordered the National Guard, I believe, to go after the young (peace) demonstrators in Berkeley, so I think that John maybe forgot about that… He did express support for Reagan, which shocked me.["]

Lennon met Reagan on Monday Night Football, actually, as Frank Gifford recalled. This would have taken place a few years (December 1974, farther back than Giffords’ recollection) before Seaman started working for Lennon. I read an account about this meeting in another book, which described the interaction as friendly and gracious on the part of both men. That telling squares with the account at this site, although the post there offers no supporting citations.

While I’m a fan of the music of the Beatles, I found Lennon’s solo career to be too preachy for my taste. I especially didn’t care for “Imagine,” a treacly pseudo-philosophical nihilist rant dressed up as a ballad. According to Seaman, I wasn’t alone in that assessment:

“He was a very different person back in 1979 and 80 than he’d been when he wrote Imagine. By 1979 he looked back on that guy and was embarrassed by that guy’s naivete.”

Even so, I have trouble imagining Lennon as a Reagan Republican, but it’s certainly interesting to try. I suspect that there’s a more nuanced explanation for this; Lennon was always an iconoclast, and he may have just been contrarian in that period for the sake of being contrarian. The tragedy is, of course, that Lennon isn’t still around for us to debate and for him to entertain, regardless of his politics.

Update (AP): C’mon. Wasn’t it obvious?

Update II (Ed): The Nation makes a pretty good case that Lennon wasn’t exactly a supply-sider when he was murdered:

What exactly were Lennon’s political views at the end of 1980? Late that November, Lennon spoke out on behalf of striking workers in L.A. and San Francisco. (The story is told in my book “Come Together: John Lennon in his Time.”) The strike was against Japan Foods Corporation, a subsidiary of the Japanese multinational Kikkoman, best known for its soy sauce. The US workers, primarily Japanese, were members of the Teamsters. In L.A. and San Francisco, they went on strike for higher wages. The shop steward of the LA local, Shinya Ono, persuaded John and Yoko to make a public statement addressed to the striking workers:

“We are with you in spirit. . . . In this beautiful country where democracy is the very foundation of its constitution, it is sad that we have to still fight for equal rights and equal pay for the citizens. Boycott it must be, if it is the only way to bring justice and restore the dignity of the constitution for the sake of all citizens of the US and their children.

“Peace and love, John Lennon and Yoko Ono. New York City, December, 1980.”

That was Lennon’s last written political statement. It doesn’t seem to be the work of a “closet Republican.”

Jon Wiener also reminds people that Seaman was found guilty of stealing Lennon’s belongings, including his diaries, and got sentenced to five years’ probation. Like I said, I expect that Lennon may have been contrarian, but I find the notion of him being a Reagan Republican a little unlikely. Let’s face it — if being disenchanted with Jimmy Carter was the only qualifier, everyone in America would have been in the GOP.

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5:22 AM | 0 comments