2 Comments

  1. underground May 2, 2008 @ 1:49 pm

    Isn’t the “real” GDP number also based on a CPI number of 1% per quarter? I love this line “The recession that does not exist will continue” – and it seems so very true because so many people are in denial that there is little hope that any political capital will be spent to tighten the belts in D.C. I just don’t see the weak dollar helping us, at the consumer level the dollar *is* the problem.

  2. Franklin May 2, 2008 @ 2:43 pm

    Yes, it is the “real” GDP number based on the imaginary CPI number. But that’s another story.
    The weak dollar is not helping us consumers, it is helping to inflate the GDP numbers.

US Economy: Fit, Fat or Bloated?

Economy, Politics Comments (2)

President Bush’s refusal to admit the US economy is in a recession is just proof of his delusional state of mind. If you dismissed his idea that people were going to be waiting for the US army with flowers in the streets of Baghdad as an honest mistake, and his handling of the Katrina crisis as the works of an over-optimistic mind, you must now admit that his illusion of having still a slight chance to leave a legacy other than derision, shame or pain, must come from a highly delusional mind.

What other reason, I wonder, may he have to refuse to admit what is a blunt truth for the rest of the country? The GDP numbers, you may answer, and perhaps he is delusional enough to believe what the GPD readings say.

So let’s take a look at the GDP, what it is, and what it means.

The GDP measures the size of the economy and nothing else. Compared to a person, it would be the weight of that person. It is all that it measures, it is all that it is. So how can anybody use the growth of the GDP alone to measure anything, you may wonder. The answer is, they can’t, unless they are disingenuous, that is.

So, when you define a recession as a number of consecutive negative growth numbers of the GDP, and say there is no recession because the GDP is growing, but you do not specify where the growth comes from,  you are saying next to nothing. The definition of recession was a valid one when the core of the GDP was the growth of industrial production, nowadays, the definition is only valid for academics and politicians.

The GDP number, again, only measures the total weight of the economy, it does not say where the weight gain is coming from.

Measuring your weight, and considering that weight increases are good is only valid in one case: if you are fit. Take, for example, these three guys. They all weigh the same, however, Steve goes to the gym four times a week, Dave is a couch potato, and Paul is a drunk couch potato. When each of them gains weight, it means different things: Steve is gaining muscle, Dave is gaining fat, and Paul is getting bloated.

The question is, which one of these is the American economy. For the president and his cohort of adulators, the American economy is a fit Steve who may be getting tired. So let’s see if that could be true. I will be looking at the Contributions to Percent Change in Real Gross Domestic Product to figure out if the productive economy is actually growing (i.e., we are building muscle).

Measure What is it Positive/Negative What does it mean
Durable goods It is the important stuff that we may buy for future productivity. Mostly machinery and vehicles. Negative
-0.48
We are spending less on our future. Or, we can’t, or won’t, buy what we need for the future.
Nondurable goods Nondurable, or soft, goods are those which are consumed immediately or within a short time (three years). Negative
-0.27
We are buying less stuff.
Services Hotels; establishments providing personal, business, repair, and amusement services; health, legal, engineering, and other professional services; educational institutions; membership organizations, and other miscellaneous services, are included. Positive!!!
1.43
Either we are going to hotels or the price of electricity and gas is trough the roof.
And it looks like spending on electricity and gas was up 14.2% from the previous quarter.

Conclusion Personal consumption expenditure was up because the cost of electricity and gas was up 14% from the previous quarter. The American economy is losing muscle.

Measure What is it Positive/Negative What does it mean
Gross private domestic investment It is the important business investments needed for future productivity Negative for a second quarter
-0.7
We are investing less in our future. The recession that does not exist will continue.

Conclusion

The American economy is losing muscle.

Measure What is it Positive/Negative What does it mean
Net exports of goods and services The stuff that we sell to other countries Positive!!!
0.22
Since we are not selling more, all it means is that we are getting more Dollars for the stuff we sell, that’s only due to the decline of the price of the Dollar.

Conclusion

The American economy is an international commerce weakling.

Measure What is it Positive/Negative What does it mean
Government consumption expenditures and gross investment The money that the Federal and State governments spend Positive!!!
0.39
Since the government is running a deficit, it only means that, as the economy contracts, the government bloats.

Conclusion

The American economy looks a lot like a bloated couch potato that is gaining weight by taking on debt.

So, of the four components of GDP (consumption + gross investment + government spending + (exportsimports)) we found that consumption is higher because of higher prices of gas and electricity while actual consumption is down; gross investment is down; government spending is up (surprise, surprise) and exports are up because the cost of the dollar is down, while actual production is down after three quarters of negative job growth.

So, the productive sectors of the economy are contracting, and the rest are growing because of the weakness of the Dollar, or because the Government is overspending during a contraction.

And now that I think of it, the answer to why President Bush does not see a recession is obvious: the business of being the Federal Government is expanding, it is just its subjects who are suffering.

Franklin @ May 2, 2008

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