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Tag Archives: Banking Crisis

Below is the link to the 3Q12 Economic Report I wrote for a Colorado Bank’s Board of Directors and  (reproduced with permission):

Below is the link to the 3Q12 Economic Report I wrote for a Colorado Bank’s Board of Directors and  (reproduced with permission):

I’ve temporarily had to put aside QuantumRisk, since the data pricing was raised to $800,000 p.a., and now work for a bank. The link below provides the 2Q12 Economic Report I wrote for the  bank’s Board of Directors (reproduced with permission):

Here are responses to some comments.

Bernard commented that there are other factors that need to be taken into account. Correct.

I was looking for a short cut to get a sense of how things will unfold in the next 2 year, because nobody did predict this housing bust or its magnitude, the recession or for that matter that the banks would get into this supersized mess.

Some times when modeling I divide factors into fast and slow variables, (its an art) compared to oil price swings almost everything looks like slow variables, and are in an approximate steady state, then oil becomes the major drive in the short term.

Zachary was curious how much reliance you can put on using average numbers, in particular with respect to arriving at gas costs as a % of discretionary income.

I usually don’t like using average numbers (because I’d rather build fairly detailed models) but in the absence of good publically available data, averages will do. We’ll know by 1Q 2010 how this gas price hypothesis works out.

My bet is that gas cost as a % of discretionary income is a pretty good indicator of consumer spending but needs testing. To get some idea of its potential effectiveness, look at what happened by 2Q 2008. In Denver many people stopped driving cars and switched to Light Rail and buses. The Light Rail, usually not crowded, was packed. Jammed packed.

Another way to look at things is that any policy that increases discretionary income will help restore the consumer spending (and therefore this economy), while that which reduces discretionary income will retard the consumer spending.

To this we can add, an oil price hike just transfers the funds from US government policies to oil producing nations because the effects of the enlargened discretionary income is negated by the increased energy costs.

If you keep enlargening the ‘pie’ you get inflation, if you don’t, you lock down consumer spending. Not easy.

So the ‘answer’ to this recession severity question seems to be not to stimulate consumer spending, but to stimulate industrial growth and job creation.

Any ideas?

Benjamin T Solomon
Managing Principal
QuantumRisk LLC

Disclosure: I’m a capitalist too, and my musings & opinions on this blog are part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. These musing are not to be taken as an endorsement or disapproval of any persons, entity, goods or services.