Stress Test "Adverse Scenario" Looks a Lot Like Reality, Part II

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A few weeks back, Conor Clarke pointed out that the stress tests' more adverse projection for the US economy looked frighteningly like the front page of that day's newspaper. The pessimistic hypothetical for the economy projected 8.9% unemployment, a 22% decline in housing prices, and a 3.3% decline in GDP in 2009. The unemployment numbers came out that day and, well, they were 8.9% exactly.

Today there's another graph that makes it look like we've living through the adverse scenario of our recession:

Here's a graph from Calculated Risk on house prices. The red line is the three months of data since December 2008. The green line is the baseline scenario for the stress tests and the blue line is the adverse. As you can see, the Red (for Reality) is nearly tracing the Blue (for Bummer).

baselinescen.png

I think the conclusion here is pretty simple. Whatever the positive impact of the stress tests -- the semblance of transparency they provided, the endorphins that floated from Wall Street to Main Street when they revealed that our banks were not completely hosed -- it's clear that the word stress in the name works less like a descriptor, and more like an aspirational term with the added benefit off being a near-rhyme. It remains to be seen how long we'll track the adverse scenario, or how stressed we'll feel to be riding the blue line.


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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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