ONE OF THE WORST RECOVERIES EVER….
24 January 2012 by Cullen Roche
7 Comments
The Council on Foreign Relations highlights the weakness of the recent economic recovery in their quarterly update (via Warren Mosler):
- Real GDP is growing, but weakly compared with the postwar average recovery.
- The recovery from the 1980 recession was even weaker at this stage, but that reflected a double-dip recession in 1981.
- The economy would have to grow at a 7.6 percent annualized rate in order to catch up with the average postwar recovery by the end of 2012.
- The consensus forecast for 2012 growth as reported by Bloomberg is 2.1 percent, up just slightly from a forecast of 2.0 percent as of last October.
- The slow recovery is obvious in the labor market, where job growth remains painfully sluggish compared to the average recovery.
- The recent uptick at the end of the Current Recovery linev(red) is the result of encouraging payroll data announced on January 6th 2012.
- Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.
- Despite the predicted snapback, the increase in industrial production during this recovery is actually slightly slower than in the average postwar case.
An interesting article on how GDP is calculated.
It seems the velocity of money has been going down, so without huge government deficits, the GDP would be much lower.
Go to:
financialsense.com
Read “The GDP Deception.”
Don Levit
One of the worst recoveries ever… in spite of
1) The on-going zero interest rate policy of the FED.
2) More than $1 trillion per year of fiscal stimulation.
Bernanke has talked positively of the Great Moderation that was used to reduce the volatility of business cycle fluctuations starting in the mid-1980′s. The weakness of the current recovery illustrates the failure of this policy. The economy can barely recover even with more fiscal and monetary stimulation than ever before.
It seems to me that what has happened is that, with each new recession, the fiscal and monetary stimulation led to greater financialization of the economy and to the preservation (not the elimination) of failed businesses and malinvestment.
What’s next for our economy, $2 trillion per year fiscal stimulation … then $4 trillion per year?
Econ data continues its positive march. Note, among other things, amazing yoy gain in Dec truck tonnage.
http://www.calculatedriskblog.com/
Don Levit,
Frankly, I don’t get this: financialsense.com “The GDP Deception.” by Barry Ferguson 24 Jan 2012
“Had the Fed not increased the money supply from the 2008 level of about $6.5 trillion to the current $9 trillion, a money velocity rate at the current 1.6 ratio would produce a GDP of about $10.4 trillion. Thatʼs a 30% smaller GDP than the current pretense. Is it safe to say that our current $14.5 trillion GDP is due to the addition of $4 trillion in extra debt since 2008? … “money velocity is much more important than money supply.” … “Massive levels of debt, such as the soon to be $16 trillion the US owes, serves to drain the money supply. Someone has to buy all that debt and that is $16 trillion turning over at a velocity of zero.”
Since the Fed has purchased and taken off the market a substantial amount of high interest rate US debt using $(?), thereafter passed on to the US Treasury any interest gained on those notes over time, then when the notes are due what is there that would inhibit the Fed/Treasury from tossing all that debt purchased debt into the trash at the behest of the powers that be? A kind of modest Jubilee.
This is flawed analysis. Mr. Ferguson’s own observation at the decline in velocity following increase in money supply should have clued in that the “30% smaller GDP” calculation is not instructive.
See: http://pragcap.com/your-textbooks-lied-to-you-the-money-multiplier-is-a-myth and http://pragcap.com/the-myth-of-the-money-multiplier-a-follow-up
Let’s see: a) how much has private sector deleveraged; b) despite record government spending and paper flipping around the world?
The productivity of debt is falling and the trend still is the same after 2007, not only that but we have managed to not delever to any significant level in OCDE countries (and the world economy as a whole is increasing leverage even more). Purchasing power is falling, stagnating wages and inflations keeps raising despite ‘muddle throughts’ and fantasy recoveries (only thing that has recovered are top 1% income and big corporation balance sheets, not the 90% of the economy) plus private sector debts still raising (even if governments deficits are increasing and injecting trillions a year in the economy).
When will people recognize the world economy has deep structural flaws and that we are just kickin the can to keep an unsustainable status quo with falling productivity and unsustainable consumption which will make oil go beyond 200$/barrel in few years if we keep this pace.
Clueless and in the edge of the abyss.
The reason I liked this article is that it seemed to very simply define GDP, and how important money velocity is for a growing GDP, without increasing government debt.
I had never seen GDP defined this way, and was curious if he was accurate?
I told the author about the story on pragcap, so maybe he will respond.
Don Levit