President–elect Obama demonstrated excellent judgment in choosing my former Fed colleague, Tim Geithner, as his Treasury Secretary. Tim is not only highly qualified for the job, but he also brings needed continuity in dealing with the worst financial crisis since the Great Depression.

My Thanksgiving would be complete if Mr. Obama demonstrates similar wisdom by asking Robert Gates to remain Defense Secretary through the end game in Iraq. He too is ideally qualified, doing an excellent job, and appears to be well along the way to peace with honor, which I define as victory.

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The Business Cycle Dating Committee of the NBER will likely say the recession began in January 2008, when total employment started dropping. However, the net job losses accelerated this September and October likely signaling a steeper rate of decline.  

Payrolls declined 240,000 in the October after a revised decline of 284,000 in September. The household survey showed a larger 297,000 decline in October, which, combined with a labor force increase of 306,000, drove the unemployment rate up from 6.1 to 6.5 percent. Total payroll employment has fallen by 1.2 million in the first 10 months of 2008, with over half of the decline in the past three months."  We are clearly experiencing a nasty inflexion point in the economy.

My latest New York Times post goes through the traditional categories of spending, asking the question: Where is the strength to pull us out of the recession going to come from? The answers aren't encouraging. You may find that post here.

This morning, on CNBCʼs Squawk Box, I discussed what further actions the Fed could take to ease the financial crisis. View the video here.

I keep looking for an appropriate analogy to describe simply how the subprime slime eventually wreaked so much havoc on our financial system. When it first surfaced, I assumed, like most people, that the damage would be limited to those associated with the bad mortgages in addition to the impact on the housing market. I never dreamed that it would spread so far and wide and so deep. A useful analogy should probably involve a phase one and a phase two, if not more. I keep thinking of the Three Little Pigs, but that one is not perfect.

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The economy is facing quite a dilemma-or paradox. Actually, John Maynard Keynes called it the Paradox of Thrift, but most economists I know don't talk about it much for fear of being labeled a Keynesian. The paradox is this: most of us need to save more, i.e., consume less of our disposable income. Yet, if all or most of us try to save more at the same time, income will fall. The paradox comes in because out of the lower income we will likely end up saving less, not more.

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My latest contribution to the NY Times Economix blog discusses how to beat the stock market. View it here.

A Random Walk Off a Cliff: ‘Beating' the Market

By Bob McTeer

I've always been fascinated by the question, "If you're so smart, why aren't you rich?" Why don't the experts have an advantage in stock-picking? Or do they? Are markets so efficient that they incorporate all relevant information instantly and leave us nothing to trade on? Or, can some investors "beat the market" consistently?

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Don't be afraid to bring in the best to help you. He or she won't outshine you because you are the president.

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In my October 29 New York Times blog post, I discuss my first-hand experience with the Federal Open Market Committee (FOMC).  See it here.

Come With Me to the F.O.M.C.: A Sneak Peak Into Fed Life

By Bob McTeer

Today is the second day of a two-day Federal Open Market Committee meeting. The rate decision along with the accompanying verbiage will be released at 2:15 p.m. If I were still there, I'd go in with a tentative idea of how I would vote, but would try to keep an open mind during the presentations and discussions. Today, I would be inclined toward a half percentage point cut, from 1.50 to 1.00 percent.

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Forbes has posted another one of my articles, this time on the Fed's balance sheet. To see the full article go here.

The Fed's Balance Sheet
Bob McTeer 10-29-08

The sharp growth in the Fed's consolidated balance sheet has received much attention lately. Some have questioned the Fed's balance-sheet capacity to continue providing liquidity at home and abroad, and some have worried about the inflationary consequences of its balance-sheet growth down the road. This essay will address these issues–briefly.

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