Mind Over Market

From Director Douglas Elmendorf Congressional Budget Office February 2012 The rate of unemployment in the United States has exceeded 8 percent since February 2009, making the past three years the longest stretch of high unemployment in this country since the Great Depression. Moreover, the Congressional Budget Office (CBO) projects that the unemployment rate will remain above 8 percent until 2014. The official unemployment rate excludes those individuals who would like to work but have not searched for a job in the past four weeks as well as those who are working part-time but would prefer full-time work; if those people were counted among the unemployed, the unemployment rate in January 2012 would have been about 15 percent. Compounding the problem of high unemployment, the share of unemployed people looking for work for more than six months—referred to as the long-term unemployed—topped 40 percent in December 2009 for the first time since 1948, when such data began to be collected; i...

Congressional Budget Director Doug Elmendorf writes on the Director's Blog at the CBO web site: Federal Debt and the Risk of a Financial Crisis In fiscal crises in a number of countries around the world, investors have lost confidence in governments’ abilities to manage their budgets, and those governments have lost their ability to borrow at affordable rates. With U.S. government debt already at a level that is high by historical standards, and the prospect that, under current policies, federal debt would continue to grow, it is possible that interest rates might rise gradually as investors’ confidence in the U.S. government’s finances declined, giving legislators sufficient time to make policy choices that could avert a crisis. It is also possible, however, that investors would lose confidence abruptly and interest rates on government debt would rise sharply, as evidenced by the experiences of other countries. Unfortunately, there is no way to predict with any confidence whether ...

At the request of Senator Judd Gregg, New Hampshire Republican and ranking member of the Senate Budget Committee, the Congressional Budget Office has completed a report titled The Budgetary Impact and Subsidy Costs of the Federal Reserve's Actions During the Financial Crisis. See the report at this link: http://www.cbo.gov/ftpdocs/115xx/doc11524/05-24-FederalReserve.pdf The report, written by Kim Kowalewski and Wendy Kiska of CBO's Macroeconomic Anlaysis Division, comes up with what most willl surely think is a low ball estimate of the subsidy cost of the extraordinary actions during the financial crisis of 2007 and 2008. From July 2007 to the end of 2008, the Fed's balance sheet grew from $790 billion to $2.275 trillion. Of that total, loans and other types of support extended to financial institution made up $1.686 trillion. By the end of 2009, direct loans and other support had fallen to $280 billion, but the Fed held just over $1 trillion in mortgage-related securities...