There is a lot of nonsense from the mouths of Jackson Hole participants, especially Bernanke and the NBER. Bloomberg highlights the latter in Jackson Hole Debate on Recession Risk Shows Bernanke Challenge.

Economists who decide when recessions begin and end in the U.S. are divided over the odds of a renewed downturn, underscoring the challenge faced by Federal Reserve Chairman Ben S. Bernanke as he vows the Fed “will do all that it can” to sustain growth.

“There’s still a significant risk, maybe one chance in three, that there will be a double dip,” said Harvard University Professor Martin Feldstein, who sits on the Business Cycle Dating Committee of the National Bureau of Economic Research. Fellow panel member and Princeton University Professor Mark Watson said those odds are “way too high” and puts them instead at “one in 10 or maybe one in 20.”

In a paper written with Harvard’s James Stock, Princeton’s Watson concluded that the U.S. inflation rate by the second quarter of next year is “expected to drop” 0.5 percentage point from the second quarter of this year as disinflation forces build.

Stock nevertheless said the economy will keep growing, while Watson, another member of the NBER committee, said a renewed recession is “quite unlikely” because of the absence of a major shock. The NBER committee in April issued a statement that it was too soon to declare an end to the recession that began in December 2007.

Disingenuous NBER

How the hell can the NBER put odds of a double-dip at 5% to 33% without having declared the end to the last recession?

Of course, as I have pointed out a number of times, that could make sense if the 2007 recession was still not over. However, that is not what the NBER is suggesting above.

If we want to discuss odds, I believe there is about a 65% chance 3rd quarter GDP is negative!

Will the 4th quarter be any better? Why? Stimulus will have run its full course by then. Note that stimulus was supposed to peak in the 2nd or 3rd quarter, yet 2nd quarter GDP came in at a “red hot” 1.6%.

For discussion of 2nd quarter GDP please see Market Cheers 1.6% Growth; Treasuries Hammered; What’s Next?

Can stimulus peak with GDP flat to negative? It appears that way, so what does that portend for next year? Nonetheless Princeton University Professor Mark Watson says the odds of a double-dip are “one in 10 or maybe one in 20”, in other words 5% to 10%.

Do these guys have a clue about how to formulate odds? If the odds are that low, why can’t they declare the end of the recession?

There has been a lot of nonsense from Jackson Hole. Add discussion of double-dip odds to the list.

Mike “Mish” Shedlock
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