by Mario Rizzo
Of course, the recovery in terms of real output from the Great Depression began in the 3Q of 1933 and that did not preclude high unemployment rates and a further recession in 1937. Here. Let that pass for the moment.
If recovery begins, the discussion about why will also begin. Let’s confine ourselves to evaluating policies designed by the government to produce recovery. Some of the likely candidates are:
Since the signs are recovery are supposedly now – a mere three months after the stimulus package was passed – and at a point where only about 19% [$148.6 billion of $787 billion] of the stimulus money has been expended by May 15th, I think it implausible that we could attribute a recovery to stimulus.
TARP Lending to Banks
It will be slightly easier to attribute recovery to TARP (“Troubled Asset Relief Program”) lending to banks. However, bank credit was never the major problem. Here and here. It hardly budged during the early months of the recession. Then with the initial TARP lending it spiked and has been gradually falling but it is still greater than at the beginning of the recession.
TALF and Securitized Lending
Perhaps TALF (“Term Asset-Backed Securities Loan Facility”) is rescuing us. The Treasury has been buying mortgage backed securities, securities backed by student loans, etc. After all, the problem, so to speak, is securitized lending. However, just before the recession began securitized consumer lending was $689 billion and by March 31, 2009 it was $640 billion — about a 7% drop. There seems to have been a small revival in securitized consumer lending but only in recent weeks.
One could argue that the drop would have been worse without TALF. Let’s see some evidence.
The Confidence God
Perhaps what is causing the recovery (if such there is) is the expectation of stimulus, of bank bailouts, of a government-induced revival of securitized lending, etc. On the other hand, the markets seem to be expecting inflation. See Sandy Ikeda’s post immediately below.
In any event, if there is recovery soon, the public will no doubt attribute it to Team Obama. But then when the inflation occurs they may well do the same. It is also likely that such inflation will be accompanied by high unemployment because the recovery will have barely begun. Welcome back to the 1970s.
At least this is one plausible scenario.