Tracking the TARP

The TARP continues to grab headlines, so I thought it would be useful to summarize how the TARP money has been used to date.

As you may recall, the Troubled Asset Relief Program (TARP) created a pool of $700 billion that the Treasury Secretary could use to stabilize the financial sector.  The following chart summarizes the TARP transactions that have already occurred (dark blue) and any additional funds that Treasury has announced for each program (grayish):

Tracking the TARP

As the chart illustrates, Treasury has announced plans for about $645 billion of the TARP money, of which $435 billion has been committed to specific transactions.  But the most interesting facts involve the specific programs:

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Cloudy Jobs Data

Markets greeted this morning’s jobs reports with enthusiasm, as the headline measure of job losses in May — 345,000 — came in significantly lower than expected.  Under normal circumstances, losing more than 300,000 jobs would be bad news.  Of course, these aren’t normal circumstances.

The unemployment rate in May was much less welcome, rising to 9.4% from 8.9% in April.  Part of the increase was due to the labor force expanding — a positive sign — but most was due to an increased number of people being unemployed.

These figures all refer to the headline measure of unemployment (U-3, in the lingo), which focuses on workers who have lost a job and are looking for a new one.  The government also publishes several broader measures of unemployment that account for other ways in which workers may be less employed than they desire.  The broadest of these, known as U-6, adds two groups to the regular measure: those who are marginally attached to the labor force (people who are willing to work and have worked in the past, but aren’t actively looking; this includes discouraged workers) and those who are working part-time even though they want to work full-time.

As shown in the following chart, the U-6 paints a grimmer picture of the U.S. labor market:

Unemployment

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Growing Government Transfers

I’ve received several emails today about a story posted last night by USA Today.  The story points out that government transfers now make up more than one-sixth of American incomes, the highest ever.  Naturally, some observers welcome this development, while others denounce it.

I thought it would be useful to side-step that debate and instead provide some historical context.  To begin, the following chart shows the ratio of government transfers to personal income from January 1959 through April 2009 (the most recent data):

Government Transfers 0 Continue reading “Growing Government Transfers”

The Long U

Like many economists, I do not expect the U.S. economy to rebound briskly from its current troubles. The economy may well return to positive growth in the third or fourth quarter, as many forecasters anticipate, but that doesn’t mean that the suffering is over. In short, I don’t expect the recovery to be a V, with recent declines offset by a rapid recovery. Nor, for that matter, do I expect a Japan-like L, in which the economy flattens at its new low level. Instead, I expect a Long U, in which the economy heals slowly before eventually returning to solid growth.

My recent post comparing the magnitude of economic downturns certainly generated lots of feedback.  Some comments were constructive and inspired edits to the original post, some comments were constructive but didn’t lead me to change anything, and some were, er, less than constructive.

Taken together, the comments did inspire me to think through the issues again, and I realized that there is one significant limitation to my analysis that is worth emphasizing: the Long U problem.

Like many economists, I do not expect the U.S. economy to rebound briskly from its current troubles.  The economy may well return to positive growth in the third or fourth quarter, as many forecasters anticipate, but that doesn’t mean that the suffering is over.

In short, I don’t expect the recovery to be a V, with recent declines offset by a rapid recovery.  Nor, for that matter, do I expect a Japan-like L, in which the economy flattens at its new low level.  Instead, I expect a Long U, in which the economy heals slowly before eventually returning to solid growth.

Continue reading “The Long U”

What a Strange Round Trip It Has Been

In the months after Lehman’s fall, yields on regular Treasuries plummeted in a massive flight to liquidity, while yields on less-liquid inflation-indexed bonds rose sharply. Those moves have reversed in recent months bringing both 10-year Treasury yields back to where they started.

Treasury yields have been surging.  The yield on 10-year Treasuries, for example, closed at 3.71 percent on Wednesday, up more than 60 basis points over the past two weeks.  That’s a big move.

Economic commentators are grappling to understand the causes and implications of this increase.  Is it the return of bond vigilantes worrying about the grim U.S. fiscal situation?  Concern that aggressive policy actions will ignite inflationary pressures?  Or, perhaps, just a sign of healing in the financial markets?

I don’t have an answer for you today.  But I did find one tidbit that suggests that there’s something to the healing hypothesis.  Treasury yields – on both regular 10-year bonds and their inflation-indexed equivalents – are almost exactly where they were before the fall of Lehman:

                                    9/12/2008                           5/27/2009

     Regular                      3.74%                                      3.71%                                   

     Inflation-Indexed       1.79%                                      1.83%

In the months after Lehman’s fall, yields on regular Treasuries plummeted in a massive flight to liquidity, while yields on less-liquid inflation-indexed bonds rose sharply.

Those moves have reversed in recent months bringing both 10-year Treasury yields back to where they started.

Source: Federal Reserve Board, Release H.15