Julia Pilyavskaya, a Ukrainian on the MBS team provides a perspective of current events:

I read many discussions about Ukraine and how different it is from the

rest of the world. People ask me how it is to live in Ukraine. Well,
certainly it is different, it cannot be the same. We grew up having
different realities, different mentality and conditions of life.

Being isolated from the rest of the world for many years, some things unusual
for foreigners are “normal” for Ukrainians, because they have never
seen different.  And many years will pass before things will change.

Government doesn’t really care about people and not many believe this
will change with new elections. People don’t know where taxes go and
prefer not to pay them. People don’t trust banks and that is why cash
everywhere.

With our “free medicine” one would think twice before going to a hospital without money.  And so on… Most people wonder why change if it’s not going to change.

And now the most popular word is “crisis”. Whenever you go, you hear
it, in the streets, transport, restaurants, homes, television…  90 %
of conversations are only about it, and also prices that go up
constantly and are higher than in Europe, exchange rate, business that
is down, unemployment and certainly government that people can’t trust
anymore.

It will definitely take time for people to understand how to do things
properly, how to work in customers’ service, how to change attitude
and make our country more attractive to live in for ourselves first of
all.

Although there may be gloating on the part of some Russians regarding the fate of their neighbors in Ukraine, this article from Russia Today (ww.russiatoday.com) does reflect the reality here.

As the Ukrainian government goes begging for loans around the World with the IMF holding  back on the next tranche of a promised loan, the hryvnia experiencing new lows daily, and workers being laid off throughout Ukraine, the “crisis” is certainly getting worse. The political stalemate is adding to the pain.

Workers suffer under deepening economic crisis in Ukraine

The economic crisis in Ukraine is escalating, and while the government is pointing fingers at each other, social unrest is growing as people lose their jobs or remain unpaid for months.

The crisis is most visible in the Ukrainian city of Kherson, where more than a thousand workers at a combine harvester factory have not received any wages since September.

“They were forcing us to retire. But I didn’t. Where else do we have to go? It’s the same thing everywhere,” said one disgruntled factory worker.

The average salary here is around $US 200, which is barely enough to make ends meet as prices in Ukraine are growing rapidly.

Aleksandra Tkachenko works at the factory and says that she lives in the fear that tomorrow she’ll have nothing left to be able to feed her family. Her entire family now lives off the pension of Aleksandra’s husband, which is less than $US 100 a month.

Recently, her husband suffered a brain hemorrhage and the strain is taking its toll.

“You can’t imagine what a life we life. I’ve spent half of the pension on medicine for my husband, but that won’t even last till the end of the month,” says Tkachenko.

The owners of the factory say they can’t pay the salaries because the combine harvesters are not being sold. The situation in Kherson is one of the first explosions of public rage in Ukraine over the current economic crisis. Experts claim work at almost all factories and mines in the country is either suspended or under threat.
 
By spring, unemployment is expected to grow by four times, topping almost four million people. The public outcry to the consequences of the economic crisis that is gripping Ukraine is getting louder, as more workers put down their tools to protest. 

Unemployment in Ukraine is soon expected to hit levels not seen since the fall of the Soviet Union. Public opinion indicates that what people want is for the government to stop the infighting and to give them the helping hand they desperately need. The crisis of trust among the country’s political elite isn’t helping the situation either.

The president and the opposition blame the government of Yulia Timoshenko for failing to tackle the crisis, or find the right ways to spend the billions of dollars loaned from the International Monetary fund.

Timoshenko says the government needs more money and fewer obstacles from both the parliament and the president. Her latest move – a request for more loans, including five billion dollars from Russia – has yet again provoked the wrath of the president.

“President Yushchenko says the step undertaken by the government without his knowledge is unacceptable and has obvious signs of corruption,” says Irina Vannikova from the Ukrainian Presidential Administration.

With the president and his government failing to agree upon ways out of the crisis, the country plunges ever deeper into a recession, leaving millions of people without work, and in the fear that they will soon have nothing to put on the table.

From www.reuters.com:

Fitch sees more E.Europe downgrades

Ratings agency Fitch expects more downgrades in emerging Europe after cutting Russia`s rating this week, it said on Thursday, warning political risk was a mounting threat to creditworthiness in the region, Reuters reported.

Head of emerging European sovereigns Edward Parker said that with nine countries in the region on negative outlook and the financial crisis deepening, creditworthiness in a string of countries was deteriorating.

“I would expect that we would see more negative ratings actions,” he told Reuters in a telephone interview.

Parker said deepening economic pain and rising unemployment across the region heightened the risk of political instability and governments failing to take austerity measures out of fear of rising unrest.

“Clearly, there is going to be a rise in political risk,” he said. “Obviously, political shocks by their nature are often unpredictable but as well as that we would be particularly concerned over the risk of governments failing to pursue prudent and responsible policies.”

He would not say which country would likely be next to follow Russia, which on Wednesday suffered its first rating cut from Fitch in a decade on slumping reserves, corporate and banking problems and economic contraction.

But he said Fitch was watching the upcoming review of Ukraine`s International Monetary Fund deal particularly carefully.

Fitch has said previously that any failure of that deal would lead to a further negative move on Ukraine, which has suffered a currency slump and deep recession as its steel industry and banking sector suffered from the global financial crisis.

In contrast, he said that Turkey might be able to survive without an IMF deal with its current rating intact. Turkey has held back from concluding an IMF deal ahead of local elections.

“We would see an IMF deal as a positive development for Turkey,” he said. “But if one was not agreed they might be able to find other financing and it would not alone be enough for negative ratings action.”

Parker said Fitch was continuing to watch Russia closely in the aftermath of its downgrade, with ongoing low oil prices, any further loss of reserves, worsening of corporate balance sheets or difficulty refinancing debt or rising political risk potentially prompting further action.

Both Russia and Kazakhstan have allowed their currencies to depreciate after spending considerable reserves defending them. Parker said those devaluations had been necessary to take into account the drastic fall in oil prices.

With the Baltic states also entering deep recessions, some analysts believe their currencies — either pegged or trading in narrow bands — might also be forced to devalue.

Parker said this would potentially be negative for their ratings.

“It would make it more difficult for companies and others to repay foreign currency debt and it would undermine balance sheets,” he said.

Currency falls in Central and Eastern Europe were already having a similar effect, he said, with the high proportion of foreign currency loans in Hungary making it more vulnerable than other regional economies such as Poland and the Czech Republic.Technorati

Tags: www.reuters.com, Anton Olff, MBS Ltd., Fitch, Europe, Russia, credit rating, unemployment, austerity, oil reserves, International Monetary Fund, steel industry, Ukraine, Turkey, Kazakhstan, Baltic States, Eastern Europe, Czech Republic

The “dismal scientists” are at it again.  The National Bureau of Economic Research (NBER) recently released a statement saying that the United States is in the midst of a recession that begun one year ago.

Now, it doesn’t take a rocket scientist or even an economist reading tea leaves to tell us what is obvious to most people-the World, not just the USA, is in deep economic trouble. The question remains: how do we…the collective we…define economic conditions?

For most of us, recessions and depressions are measured from a personal perspective. Recession is when someone you know loses their job or your business has slowed down. Depression is when YOU lose YOUR job or your business has gone bankrupt. This is a very simple, transparent and easily definable standard for economic cycles.

Of course, anecdotal  forms for measuring national or global economic cycles would never be considered “scientific,” accurate or informative beyond the personal. They do however point to something the article from www.americanthinker.com illustrates:

·         What are the standards for measuring economic cycles?

·         What specific data and formulas are used?

·         Are there personal or political factors that affect the determination?

·         Are the standards applied equally?

As economist Randall Hoven indicates, the NBER may not have adhered to a strict scientific analysis. So…whom do we trust? Perhaps the personal definition of economic cycles is the one we should utilize after all…….

December 03, 2008

NBER’s Anomalous Recession Calls

By Randall Hoven

The National Bureau of Economic Research, the official caller of recessions, recently said we are now in a recession that started one year ago, in December 2007 .

The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

This struck me as odd.  Not that I don’t believe we are in a recession now, but the starting date of December 2007 just seemed too early to me.  To see if this made sense, I looked at some underlying economic data and the NBER’s explanation, such as it is.  Why this might be important, I’ll explain later.

The rule of thumb for defining a recession is two consecutive quarters of negative real growth in GDP.  This is now the second recession called by the NBER in the two terms of President George W. Bush, yet in neither case were there two such consecutive quarters.  In fact, at no time in Bush’s Presidency were there two such quarters.

Of all 11 NBER-called recessions since 1947, only one other involved no two consecutive quarters of negative real growth.  That was the recession of April 1960 to February 1961.  However, that recession involved one quarter with significant negative growth, -5.1% annualized, and a cumulative -1.0% growth for a whole year

Compare that to Bush’s two “recessions.”  In 2001

• No two consecutive quarters of negative growth.
• Worst single quarter: -1.4% annualized.
• Year-to-year: +0.2% (positive real growth, 4Q2000 to 4Q2001).

In 2007

• No two consecutive quarters of negative growth.
• Last four quarters: -0.2%, +0.9%, +2.8%, -0.5%.
• Year-to-year: +0.7% (positive real growth, 3Q2007 to 3Q2008).

In all the other nine recessions since 1947, the NBER-called recession involved at least one quarter of year-over-year negative real growth.

President Bush deserves some sort of prize for getting two recessions assigned to him, yet never presiding over either (1) two consecutive quarters of negative real growth, or (2) year-over-year negative real growth.  I think that’s a first.  It certainly is in the last 60 years.

But the NBER does not use the “rule of thumb.”  Here is how the NBER explains its method.

The committee’s procedure for identifying turning points differs from the two-quarter rule in a number of ways. First, we do not identify economic activity solely with real GDP, but use a range of indicators. Second, we place considerable emphasis on monthly indicators in arriving at a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in activity.”  Fourth, in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates.  The differences between these two sets of estimates were particularly evident in 2007 and 2008.

Get it?  I don’t.  I mean I sort of understand it, but I could never duplicate the NBER’s results with that explanation.  No one could.  It lacks transparency.  If the NBER explains its method elsewhere, I could not find it and no such link was provided in its FAQ on the matter.

For example, in the 2001 “recession”, why does the NBER say it started in March, under Bush, and not in 2000, under Clinton?  The first quarter of negative real growth was actually the third quarter of 2000, under President Clinton.  It showed -0.5% growth contraction, annualized.  But the NBER said no recession.  When it again showed -0.5% growth six months later, under Bush, the NBER said recession.

In 2007, the final revision of the estimate of fourth quarter growth was slightly negative: -0.2%.  The NBER now says that was a recession.  One quarter of -0.5% under Clinton, not a recession.  One quarter of -0.2% under Bush, a recession.

Maybe unemployment was more of a factor in the NBER’s analysis.

When the NBER said the recession of 2001 started, the unemployment rate was 4.3%.  That’s pretty low.  In fact, the unemployment rate was 4.3% or higher in every single month of President Clinton’s first term, and every single month of his second term until March of 1999.  No recession that whole time.

What about in December 2007, the beginning of our current “recession”?  The unemployment rate was 5.0%.  Then it dropped below that for the next two months and still stood at 5.0% in April of 2008.  Again, the unemployment rate was at or above 5.0% in every single month of Clinton’s recession-free first term.  It did not go below 5.0% until May of 1997.

Well, neither real GDP nor the unemployment rate quite explains the NBER’s method.  The NBER said it looks at the “income side.”  So let’s try Disposable Personal Income in real dollars.

In three of the last four months of 2000, all under President Clinton, real DPI declined.  NBER said no recession.  In the next three months, or the first three months of 2001 and mostly under President Bush, real DPI increased in each month.  NBER said recession.  Decline in three of four months, no recession.  Increase in three of three months, recession.

Just for fun, I looked at quarterly GDP numbers since 1947 and all 11 NBER recessions called since that year.  Here are a couple of interesting observations.

(1) Every time there was at least one quarter of year-to-year negative real GDP growth, there was a recession associated with it.  There were no recessions without such negative year-to-year growth, with two exceptions.

(2) With simple rules based on real GDP numbers alone, a recession as well as its beginning and ending quarters could be called.  Every recession called by these rules was also called by the NBER.  Every recession called by the NBER was also called by these rules, with two exceptions.  For every recession these rules called that matched the NBER recessions (9 of the 11), the starting and ending quarters matched within one quarter, at worst.  What were these simple rules?

• A recession starts in a given quarter when that quarter-to-next-quarter’s growth is negative and the total growth over the two quarters combined is also negative.  (A somewhat weaker version of the “two quarters” rule.)
• A recession ends as many quarters after that beginning quarter as there remains cumulative negative growth.

That is, without trying really hard, using real GDP data easily available from the St. Louis Fed only, and programming simple rules in a spreadsheet, I was able to match 9 of the 11 NBER-called recessions, with no false alarms and with, at most, one quarter mis-match in timing.  The only two exceptions in any of this?  The two recessions under George W. Bush.

My simple rules said no recession in either case (yet called all other recessions, with no false alarms).

The year-to-year negative growth rule said no recession in either case (yet called all other recessions, with no false alarms).

The “two quarters” in a row rule said no recession in either case (yet called all but one other recession, with no false alarms).

(It’s still possible, by any of these rules, that we are in a recession now, but one that started in the third quarter of 2008, meaning July at the earliest.  But for any of these rules to kick into effect, we need the fourth quarter’s data.)

I’m sure the NBER has good reasons for calling and timing the two Bush recessions. But even it would have to admit that those two recessions are anomalous — oddballs among the 11 recessions in the last 60 years.

Why would this matter?  Why would it matter whether the US recession started in December of 2007 or July of 2008, for example?  After all, President Bush presided in either case.

Here is why.  Europe is now in recession, and it started in the second quarter measured the old-fashioned way: two consecutive quarters of negative real growth in 2008.  The US did not have its first quarter of negative growth until the third quarter of 2008.  The question is whether the recession spread from Europe to the US or vice versa.

If the US recession started in 2007, as the NBER states, Europe caught our cold.  If we go by the simple rule of two negative quarters in a row, we are catching Europe’s cold.  It’s all about who gets the blame, at least plausibly so.

In 2001, President Bush got the blame instead of President Clinton, per the NBER.

In both cases, blame Bush.  In this second case, blame Bush not only for a US recession, but a global recession.  If Iceland is bankrupt, it must be Bush’s fault.

Yet in both cases, we don’t know exactly how the NBER did it.

Here is what the NBER says about itself:

Committee members are: Robert Hall, Stanford University (chair); Martin Feldstein, Harvard University and NBER President Emeritus; Jeffrey Frankel, Harvard University; Robert Gordon, Northwestern University; James Poterba, MIT and NBER President; David Romer, University of California, Berkeley; and Victor Zarnowitz, the Conference Board. Christina Romer of the University of California, Berkeley, resigned from the committee on November 25, 2008, and did not participate in its deliberations of November 28.

Christina Romer (formerly on the committee) was just designated as the chair of Barack Obama’s economic advisors.  She is married to David Romer (on the committee).

Here’s how the NBER might help: tell us exactly the formula for calling and timing a recession and give us the input data so that we can reproduce its results.  If it can’t, or won’t, it should not be considered the “official” caller of recessions in my opinion.

In my opinion, there should be both transparency and clear objectivity in calling and timing recessions.  The method should be repeatable and based on publicly available data.  It should be more than simply the considered, consensus opinion of a panel of seven experts.  Otherwise we invite public doubt — public doubt in the area of cause and effect of economic downturns.  This is important stuff — or should be, in a democracy.

Data sources:

• St. Louis Federal Reserve Economic Data (http://research.stlouisfed.org/fred2/) for real GDP (GDPC96), real Disposable Personal Income (DSPIC96) and Civilian Unemployment Rate (UNRATE).
• NBER (http://wwwdev.nber.org/cycles/dec2008.html) for latest recession announcement, FAQs on recession definition, and official recession dates (http://www.nber.org/cycles.html).

Anton Olff

Technorati Tags: dismal scientists, Europe, GDP, Federal Reserve, Disposable Personal Income, unemployment, economic activity, Bill Clinton, George W. Bush, Civilian Unemployment Rate, Randall Hoven, americanthinker.com, Depression, business cycle, National Bureau of Economic Research, NBER, recession, rocket scientist, economist, the World, United States,

The activity at gaming tables are a good indicator of the state of the Global Economy. Both Las Vegas and Macau are seeing declining revenues, though traffic to the former Portugese colony is also suffering from recent Chinese restrictions on travel. Here is the take from Gerald Campbell in Las Vegas:

Technorati Tags: Global Economy, Las Vegas, Macau, China, Gerald Campbell, Casino, U.S., Great Depression, hotels, entertainment venues, housing values, unemployment, criminal activity