The Dallas Fed head spoke to the Austin Headliners Club yesterday where, yet again, he boiled down "The Current State of the Economy and a Look to the Future" into language easily understood by those of us who were told there would be no math. The man also manages to work in references to W. Somerset Maugham, Don Ameche and the film Things Change, and Harold Arlen and Johnny Mercer among others. To wit:
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Efforts to free up bank credit have helped slow the pace at which banks have tightened their credit standards. The latest reports we have received from bank lending officers, released just yesterday, confirm this. However, with the lagging effects of loan quality problems, difficulties in the commercial real estate market and uncertainty over regulatory reform, a full resuscitation of bank credit has yet to take place and will take considerable time.
The progress we've made on each of these fronts is most certainly a welcome relief, but questions remain. Where are we headed, and when will we get there?
As we closed out the summer, I pointed out in an interview with The Dallas Morning News that there were good reasons to expect fairly strong output growth -- what an economist would call "above trend growth" -- in the second half of this year. The reason? I like to call it the "Johnny Mercer effect," after the great Hollywood lyricist of the 1940s: Growth follows almost automatically if you "ac-cen-chu-ate the positive and e-lim-i-nate the negative."