Strange “Coincidences” – “A graphic novel”

The graphics:

Graphic Novel

The takeaway:

When house prices peak and begin a gentle decline, real output “recedes” from its trend level.

When nominal spending (NGDP) detaches itself from trend real output worsens.

When nominal spending “tanks” real output follows suit, while house prices intensify the fall.

Through all this time, fiscal policy was expansionary (rising deficit).

“Coincidentally”, when fiscal policy ceases to be expansionary and becomes contractionary, real output starts on its slow “upward trek”. But, also “coincidentally”, that´s the time that nominal spending reverses direction and begins a “slow climb”.

The 2013 “fiscal cliff” does not change “trends”.

At the time of the “fiscal cliff”, Lord Skidelsky, proxying for many and Krugman in particular, wrote: “Fiscal contractions are not expansionary, period”.

As illustrated, you could also say: “Fiscal expansions are not expansionary, period”, or, “Fiscal contractions are not contractionary, period”!

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