Tuesday, March 16, 2010

Reflections on 25 Years Following The U.S. Economy1 Lessons Learned from 25 Years of Forecasting the Economy $SPY

The summer of 2009 marked my 25th year of analyzing the economy on a professional basis. Through this period I have had a front row seat to the Reagan Revolution and economic boom that followed it, the 1987 stock market crash, the collapse of the savings and loan industry, the fall of the Soviet Union, a couple of huge real estate cycles and credit crunches, a stunning stock market boom and spectacular crash, the rise, fall and re-emergence of newly industrialized economies, a handful of oil shocks, the 9/11 attacks, a couple of wars and the rewriting of the rules governing the financial markets.
Through this period three significant mentors have shown me the ropes. The first was John Godfrey, who hired me straight out of the University of Georgia. John was a veteran of the Federal Reserve Bank of Atlanta and taught me how to sift through the various economic indicators, pull out what was important, and then explain why. He also offered up great advice on how to analyze the Fed. It was much more difficult back then because the Fed made few public statements, even when it changed policy. Early years on the job were interspersed with tidbits of economic history lessons, including “Operation Twist,”2 the infamous “Saturday Night Massacre,”3 and the ongoing struggles the Federal Reserve faced in meeting the dual mandates of the Humphrey-Hawkins act of 1978.
The second major influence was David Orr, Chief Economist at First Union National Bank. David taught me how to view the economy through the eyes of a business decision maker. GDP was not simply a number we tried to understand and predict but also represented the volume of goods and services being produced, in real terms, and the revenues businesses, sole proprietorships and governments earned, in nominal terms. David’s humble, no-nonsense approach to analyzing the economy is something that I think about every day when I review the latest economic numbers or read the daily headlines.
The third mentor is John Silvia, who explained how to view monetary and fiscal policy through the eyes of policymakers. John’s background on Capital Hill as the Senior Economist at the Senate Joint Economic Committee and Chief Economist for the U.S. Senate Banking, Housing and Urban Affairs Committee provided some keen insights into the motivations behind key policy choices and how intractable certain choices are. One of the key lessons John taught is that once policy has made a major turn in a different direction, as it has recently, the impacts are slow to build but are typically very long lasting.

Reflections on 25 Years Following The U.S. Economy1 Lessons Learned from 25 Years of Forecasting the Economy

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