The Dallas Fed Reminds That The Economy Is Doing Much Worse Than In The Administration's Worst Nightmare

Tyler Durden's picture

The Dallas Fed has released an economic paper titled "Keynes' Wet Dream"... just joking - the real titles is - "Can The Nation Stimulate Its Way to Prosperity" in which the author concludes wisely: "While the overall weight of the evidence suggests the stimulus plan has provided a short-term boost, it’s unclear exactly how large this boost has been. What is clear is that stimulus funds have exacerbated near-term fiscal imbalances." Mm hmm. More taxpayer capital well-spent. Yet in the paper is contained the following chart which we hadn't seen in a while, and which says all one needs to know about not only the real benefits from the stimulus (as opposed to those limited strictly to Wall Street), but also is the best grade card of the Obama administration's economic "prowess" to date.

This is how the Fed explains this damning divergence:

Compared with no stimulus, the stimulus plan in 2009 alone was expected to increase GDP by 1 to 3 percentage points, raise payroll employment by 500,000 to 1 million jobs and lower the unemployment rate by half a percentage point. At first glance, it doesn’t appear the stimulus achieved these  objectives.

In the year after the plan’s passage, the labor market continued to hemorrhage jobs and unemployment climbed above 10 percent. Indeed, the  unemployment rate is now higher than it was expected to be without the stimulus plan—and has been every month since the plan’s passage (Chart 5). This seems inconsistent with official estimates of the plan’s performance. The first quarterly report, including data through September 2009, found that the plan had created or saved about 1 million jobs and boosted GDP 2 to 3 percentage points in the second and third quarters.2 Subsequent analysis from the Council of Economic Advisers and several private forecasting firms found even more favorable results, seeing the stimulus on track to save or create the 3.5 million jobs that were originally forecast for the 2009–10 period. How can this be?

The key proviso is this: what might have been. Simply put, there’s no way to know how badly the economy would have performed in the absence of fiscal stimulus and no way to prove how many jobs would have existed without stimulus.

And that's the whole point - all assumptions about "alternate worlds" hypotheses are always flawed, starting at the very top, with the guarantee that the world would have ended if the TBTFs were left to fail. Newsflash - it wouldn't, and the economic situation would likely have been far better now, had we taken the bitter pill at the proper time two years ago, reset the system, and started afresh. Instead we are now preparing the latest stimulus which is Obama funding the digging of holes all across the country (soon to be used as a terminal repository for worthless US currency).

h/t Joel

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VK's picture

That figure should be adjusted for em-pop and the participation rate. Wonder what effect a more realistic 14pc+ figure would do for Keynesians?

Greater Fool's picture

'[A]ll assumptions about "alternate worlds" hypotheses are always flawed,...and the economic situation would likely have been far better now, had we taken the bitter pill at the proper time two years ago, reset the system, and started afresh.'

Pot, I have a kettle you need to meet....

rwe2late's picture

Greater Fool,

You are correct to question the validity of ALL such macro-prognostications.

The further from the here and now,

the farther into the future,

the more the variables and happenstance,

the greater are miscalculations and bias magnified.

Nonetheless, some authorities, despite obvious human existential limitations, maintain a conviction of infallibility regarding their godlike predictions as to the future (or past hypothetical) course of events.

Unfortunately, from such unwavering conviction about macro history is derived the willingness and the excuses to commit all sorts of mass atrocities and injustices in the here and now. From arbitrary imprisonment and torture, to pre-emptive wars, mass starvation, or mass suffering, it’s all done for the “future good”.

Perhaps a little more humility is in order.

The economic “stimulus” policies of our government have made unemployment worse even by the standard of the government’s own employment goal. That is indeed, ridiculously pathetic.

But should we have ever believed those who claimed to know what’s bad now is good for the future?

Should we have ever believed those who claimed that public borrowing to subsidize billionaires and mega-banks would improve the economic lot of us all?

Should we have ever believed that starting wars now best prevents future wars?

Should we have ever believed that garrisoning the planet and increasing investments in unproductive military activities safeguards our future?

And should we now believe those who insist that draconian cutbacks in social spending will improve our future?

And should we also ignore that the nation’s total municipal budget shortfall is hardly one month’s budgeted spending on wars and militarism?

In short, are our troubles essentially self-imposed?

Are we too ready to believe the charlatans who claim the worse tasting their medicine, and the higher the price, the better for us in the “long run”

(when we will all eventually of course, be dead)?

Racer's picture

I nearly choked with laughter when I saw that chart..

It would be funny if it wasn't so seriously bad for those affected.

And it proves just how WRONG these idiots, who are throwing more money at the banksters, are

 

Mitchman's picture

The best part is the authors of the chart!

Cognitive Dissonance's picture

Yeah but the trend is your friend. :>)

Right up until it isn't anymore.

Mitchman's picture

I had an old boss who used to say "If you can't point to the numbers, point to the trend!"

Walt Whitman's picture

To top it off...

I read after Romer's departure from Team Obama, that she was being considered for the top spot at the San Fran Fed.

Destruction "...from California to the New York Island" as the song goes.

Problem Is's picture

"...to the gulf stream waters"

LOL Walt!

leftcoastfool's picture

...(In) this land the slaves are you and me...

breezer1's picture

obama is the idiot. they need an idiot in charge so they can steal the world.

traderjoe's picture

He's no idiot. Great book deal, great job, eternal fame (or infamy), huge speech fees for decades, etc. 

He's a very smart shill for his corporate bosses. Playing his hand well. Doesn't mean it works well for you or the rest of us. 

I do get the sense every now and then that they really are frustrated their policies aren't working. Which would be idiocy, because they weren't designed to work for anyone but the bankers. 

New_Meat's picture

maybe bosses of the corporate bosses, n'est ce pas?

- Ned

Ripped Chunk's picture

Like a bunch of lying little kids. They know they will be caught but they have to lie. It's a compulsion.

Only compulsive liars run for political office. All candidates are narcissistic sociopaths. Lying is one of their many undesirable traits. 

DaveyJones's picture

"At first glance, it doesn’t appear the stimulus achieved these  objectives...

but if you keep staring at the chart for sixty seconds, then look at a blank wall, the color bars will change and you will see job growth  

ShankyS's picture

Newsflash - it wouldn't, and the economic situation would likely have
been far better now, had we taken the bitter pill at the proper time two
years ago, reset the system, and started afresh.

Amen to that brother.

 

 

 

DB Cooper's picture

If we'd have taken the bitter pill then we would not have needed any new FinReg - the survivors would certainly know to regulate themselves, and the suffering would have fallen with those that caused the problem instead of the rest of us.

Cognitive Dissonance's picture

Overheard in the Fed hallway during a whispered conversation between Timmy and Bernanke:

"Someone needs to stick an annulus up the Dallas Fed's butt and shut them up."

hangemhigh's picture

"Someone needs to stick an annulus up the Dallas Fed's butt and shut them up."

magic eight ball says go long covert probing sessions on the mother ship............

 

Thomas's picture

I hope Christina Romer is brighter than she looks.

Commander Cody's picture

And so what does bright look like chauvanist?

Thomas's picture

So if I said, "I hope Bush is brighter than he looks" you would call me a chauvinist also, or are only guys allowed to look like nitwits. Speaking of looking like a nitwit...

Monkey Craig's picture

i don't trust fat pigs like Romer or Summers

Commander Cody's picture

How about trim ones like Geithner?  He's OK?  Hank "the shank" Paulson?

hangemhigh's picture

i don't trust fat pigs like Romer or Summers

How about trim ones like Geithner?  He's OK?  Hank "the shank" Paulson?

fat, skinny......those values don't compute.  all that matter is that mission ready replicants be of recent manufacture and equipped with easily programmable chip assemblies in place .............  

New_Meat's picture

monkey, you can trust me, I'm not fat yet.

and I'm not like the others ;-)

- Ned

SimpleSimon's picture

Three highly 'stimulated' persons, Ben, Obama and Geithner, have been spotted in Dallas today enquiring for the whereabouts of the author of this paper....they want to make a direct deposit.

Lucky Guesst's picture

Yes, but many jobs will be created and the deficit will be cut drastically once the healthcare bill takes effect. Wizard!

Lucky Guesst's picture

WHYYYYYYYY?

I was being sarcastic so TAKE IT BACK!

You just couldn't tell I was doing my Nancy Pelosi imitation because you couldn't see my eyes bugging out or my my big head wobbling on my skinny neck.

:-P

Problem Is's picture

Health Care Saves Jobs
If your proctologist does not run over 12 pedestrians on the way to work...

Did he save 12 jobs?

CrockettAlmanac.com's picture

If your proctologist does not run over 12 pedestrians on the way to work...

Ah, the ASSMAN.

ShankyS's picture

Instead we are now preparing the latest stimulus which is Obama funding
the digging of holes all across the country (soon to be used as a
terminal repository for worthless US currency).

Uh, didn't Iran beat us to the punch on that one?

StychoKiller's picture

I miss Bahgdad Bob -- he would've had something brilliant to say about all of this.

American Dreams's picture

Yes and good ole' stained pig chin Romer did such a good job on this report that she is next in line to head the San Fran Fed.  Brilliant!!

 

there be no shelter here

RSDallas's picture

The only thing we can accurately ass-u-me here is that the FED, Treasury and our lawmakers have made an ass out of you and me. 

mortpiedra's picture

Keynes wrote in 'Inflation as a Method of Taxation':

"A Government can pay its way … by printing paper money.  That is to say, it can by this means secure the command of real resources—resources just as real as those obtained by taxation.  The method is reprobated, but its efficiency cannot be disputed.  A Government can live by this means when it can live by no other.  This is the form of taxing the people which it is most difficult to evade and which even the weakest Government can enforce when it can enforce nothing else.

“On whom has the tax fallen?  Clearly on the holders of the original notes … The burden of the tax is well spread, cannot be evaded, costs nothing to collect, and falls, in a rough sort of way, in proportion to the wealth of the victim.  No wonder its superficial advantages have attracted Ministers of Finance.

“Experience shows that the public generally is very slow to grasp the situation and embrace the remedy….  But sooner or later the second phase sets in.  The public discover, in effect, that it is the holders of notes who suffer taxation and defray the expenses of government, and they begin to change their habits and economise in the holding of notes….  The public try to protect themselves in this way when they have convinced by experience that their money is always falling in value and that every holder of it loses.

“It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation.  That is not so….  The same arguments which I have here applied to the note issue can be extended, with a few modifications, to all the forms of internal Government debt….  What a Government spends, the public pay for.  There is no such thing as an uncovered deficit,” (Italics added)

 

Out of Dyning of Money by Jens O. Parsson (1974)

John_Coltrane's picture

Great quote which illustrates just how great and insightful a thinker Keynes really was.  Its his so-called followers like Krugman who are complete idiots.   In the 20th century only Hayek can rival him for contributions to economic ideas.  Hayek's most trenchant insight was of course, debt=serfdom, and that all central planners and "experts" use debt to take away freedom and enslave the masses.  So far, so good, on that plan.

traderjoe's picture

In the glib cable news/reality TV world, it would be relatively easy to hijack a 'famous' economist and boil their theories down into a conveniently self-serving thought-process: print and spend as much as a government wants. 

Gully Foyle's picture

President Camacho: Now I understand everyone's shit's emotional right now. But I've got a 3 point plan that's going to fix EVERYTHING.
Congressman #1: Break it down, Camacho!
President Camacho: Number 1: We've got this guy Not Sure. Number 2: He's got a higher IQ than ANY MAN ALIVE. and Number 3: He's going to fix EVERYTHING.

Biggvs's picture

Just watched Idiocracy last night. Funny flick.

IE's picture

It's got Electrolytes!

IE's picture

Agreed... fantastic. 

RichardENixon's picture

Mike Judge is doing some new Beavis and  Butthead I hear.

OldTrooper's picture

And here's deep-cover video straight from the most recent Fed meeting:

http://www.youtube.com/watch?v=-Vw2CrY9Igs

ptoemmes's picture

Re the comment "...and the economic situation would likely have been far better now, had we taken the bitter pill at the proper time two years ago..."

So true and Karl Denninger - for one of many - has argued that a bitter pill needed to be taken as far back as 2001, but no - the housing bubble was blown among other things.

Of course one could argue that the root of the rot in today's financial-economic system is from still further back - it's been a slow rot at times.

All that aside someone or something is gonna force us to swallow a big ole bitter pill one day (soon) only that "cure" may choke us to death.

Pete

 

truont's picture

What is clear is that stimulus funds have exacerbated near-term fiscal imbalances.

Wow!  The Regional FEDs have been taking a lot of pot-shots at the Central FED and USCONgress. 

Welcome aboard the USS Sanity, Dallas FED!