3 Possible Future US Economic Scenarios Highlighted By Dallas Fed Bank Economists

Economists at the Federal Reserve Bank Of Dallas highlight three general scenarios that the US economy could follow in these unusually uncertain economic times.

From "Oh, the Places We’ll Go: Three Scenarios for Economic Trajectory" by Tyler Atkinson and David Luttrell:

The recent recession proved to be one of the largest setbacks to U.S. output and the largest contraction in employment in the post–World War II era. After starting strong, the subsequent recovery has begun to show signs of slowing down, with second quarter 2010 real gross domestic product (GDP) growing at a revised 1.6 percent annualized rate. While the recovery has exhibited an overall growth rate that would be acceptable during normal periods of growth in the business cycle, one would expect more robust growth at the current phase of recovery given the magnitude of the recession. In fact, stronger growth is required if the U.S. economy is to return to its prerecession path of output growth (Chart 1).

While the economic outlook is unusually uncertain, there are three general scenarios that the economy could follow.

Read the Atkinson and Lutrell's complete article about the trajectory of US growth here.

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Fed Economists Refute Lewis' Book: The Big Short

Paul Willen, research economist and policy adviser at the Boston Fed, with Boston Fed economist Christopher Foote and Atlanta Fed economist Kris Gerardi, refute the claims made in the best selling book, "The Big Short" by Michael Lewis:

In this post, we focus on the logic of the "sure thing" claim, which is that the subprime bears were exploiting the ignorance of the subprime bulls. The idea that subprime bulls were ignorant is central to the thesis of the book, because it explains both why investors made such huge errors and why it was possible for the subprime bears to exploit, with little risk, the collapse of the mortgage market.

Lewis argues that the ignorance of the subprime bulls resulted from a combination of laziness and obfuscation by issuers of the securities they were buying. We argue, however, that the evidence, including some in the book itself, shows this claim to be patently incorrect. Issuers provided staggering amounts of information about mortgage securities and there was a whole industry of analysts on Wall Street who pored over that data and published literally thousands of reports.

Read "A closer look at Michael Lewis's 'The Big Short' ", the complete Federal Reserve Bank of Atlanta article here.

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Bernanke's Assessment Of the Causes Of The Recent Financial Crisis

From Federal Reserve Chairman Ben Bernanke's testimony, "Causes of the Recent Financial and Economic Crisis" before the Financial Crisis Inquiry Commission, September 2, 2010:

In discussing the causes of the crisis, it is essential to distinguish between triggers (the particular events or factors that touched off the crisis) and vulnerabilities (the structural weaknesses in the financial system and in regulation and supervision that propagated and amplified the initial shocks).

Read his entire prepared testimony as a PDF here.

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