Second Depression Averted Due to Bailouts: Study

Discussion in 'Economics' started by S2007S, Jul 28, 2010.

  1. S2007S


    Notice how easy is was for them to prop up the economy and keep the depression away by stimulating gdp growth. A couple of trillion here and there and like magic growth reappears, but lets not get to ahead of ourselves just yet and remember and gdp growth over the last 18 months has been nothing but an illusion. I am waiting ever so patiently to see how long they take to stop these easy money policies and free handouts, then just maybe we can get the opportunity to see the economy stand on its own but that probably wont happen for another 10-20 years.

    Second Depression Averted Due to Bailouts: Study
    The New York Times | July 28, 2010 | 05:18 AM EDT

    Like a mantra, officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.

    Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.

    In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

    In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

    The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.

    “While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write.

    Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.

    By comparison, the savings and loan crisis cost about $350 billion in today’s dollars: $275 billion in direct cost and an additional $75 billion from the recession of 1990-91 — or about 6 percent of G.D.P. at the time.

    But the new analysis might not be of immediate solace to officials in the Obama administration, who have been trying to promote the “summer of recovery” at events across the nation in the face of polls indicating persistent doubts about the impact of the $787 billion stimulus program.

    For one thing, Mr. Blinder and Mr. Zandi find that the financial stabilization measures — the Troubled Asset Relief Program, as the bailout is known, along with the bank stress tests and the Fed’s actions — have had a relatively greater impact than the stimulus program.

    If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.

    The combined effects of both sets of policies cannot be directly compared with the sum of each in isolation, they found, “because the policies tend to reinforce each other.”

    Told about the findings, another leading economist was unconvinced.

    “I’m very surprised that they find these big impacts,” said John B. Taylor, a Stanford professor and a senior fellow at the Hoover Institution. “It doesn’t correspond at all to my empirical work.”

    Mr. Taylor said the Fed had successfully stabilized the commercial paper and money markets, but he argued that its purchases of $1.25 trillion in mortgage-backed securities have not been effective. And he said the Obama administration’s stimulus program has had “very little impact and not much to show for it except a legacy of higher debt.”

    The disagreement underscored the extent to which econometric estimates are heavily reliant on underlying assumptions and models, but Mr. Blinder and Mr. Zandi said they hoped their analysis would withstand scrutiny by other scholars.

    “When all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policy makers had not acted at all,” they write.
  2. You know as well as I do that is far from objective feedback. Who knows maybe it did? I strongly believe we will have at minimum a double dip recession. All it did was postpone the inevitable. Look at the numbers we have deflation currently like the Great Depression. Unemployment as calculated like it was pre Clinton is about 18%.
  3. Change the word "averted" to "delayed". :eek: :(
  4. What we see in the newspapers is an orchestrated play.

    This press release prepares public opinion for a second round of stimulus.

    What I call "Son of Stimulus".
  5. jem


    its funny - I suspect the most successful measure for the public was the FHA 96.5% to 100% loans at incredibly low rates and the first time home buyers tax incentive.

    Along with the overhyped but "time buying" short sale and loan mod option....

    these things combined prevented millions and millions more homes going on the market.

    which would have collapsed prices further - which would have taken down more institutions.
  6. The key phrase: Told about the findings, another leading economist was unconvinced.
  7. many traders at prop firms are already in a depression since beginning 2009
  8. pspr


    An exercise in making the model fit the results desired. Nothing more.
  9. I would say more postponed than averted.
  10. olias


    good point. Time will tell if we really get this ship righted or not. Right now, that is far from a foregone conclusion.

    But I tend to think these studies are more or less correct. Look, we are in a mess now. Where would we be without the government stimulus? At least they 'delayed' the great depression and (perhaps) given the country a chance to right itself.

    That's just my thoughts
    #10     Jul 28, 2010