Then stop digging.
Posted on 07/24/2009 5:54:59 AM PDT by SeekAndFind
How’s the economy, you ask? I have the proverbial good news and bad news, but in this case, they’re exactly the same: The U.S. economy appears to be hitting bottom.
First, the good news. Right now, it looks like second-quarter GDP growth will come in only slightly negative, and third-quarter growth will finally turn positive. Compared to the catastrophic decline we recently experienced—with GDP dropping at roughly a 6% annual rate in the fourth quarter of last year and the first quarter of this year—that would be a gigantic improvement.
Furthermore, there is a reasonable chance—not a certainty, mind you, but a reasonable chance—that the second half of 2009 will surprise us on the upside. (Can anyone remember what an upside surprise feels like?) Three-percent growth is eminently doable. Four percent is even possible. Surprised? How, with all our economic travails, could we possibly mount such a boom? The answer is that this seemingly high growth scenario isn’t a boom at all. Rather, it follows directly from the arithmetic of hitting bottom.
Bear with me for two paragraphs while I do some numbers. In recent quarters, several critical components of GDP have declined at truly astounding annual rates—like minus 30% and minus 40%. You know the culprits: housing, automobiles and business investment. (Also inventories, about which more later.) Eventually, those huge negative numbers must turn into (at least) zeroes. Notice that the move to zero doesn’t constitute a boom, not even a dead cat bounce, but merely the cessation of catastrophic decline. In fact, hitting zero growth and staying there would be a disaster scenario. We’ll almost certainly do better.
But watch what happens when—and remember, it’s when not if—the arithmetic of bottoming out takes hold. Housing, which is down to 2.6% of GDP, will serve as an example.
(Excerpt) Read more at online.wsj.com ...
Nobody knows what “the bottom” is with a Marxist president.
No employer is going to be hiring with cap-and-trade and the threat of nationalized health care and its associated nightmares hanging over his head.
The man’s main points are the following :
1) One of the main complaints is that little of the stimulus money has been spent to date. But that means that most of the spending is in our future. Which means the future will be better.
2)And then there are all those interest-rate cuts the Federal Reserve engineered in 2008, in a supposedly futile effort to stem the slide.
The Fed’s efforts were futile largely because widening risk and liquidity spreads negated any impacts on the interest rates real people and real businesses pay to borrow.
Now those spreads are narrowing, which allows the Fed’s rate cuts to start showing through to consumer loan rates, business loan rates, corporate bond rates, and the like. In short, monetary stimulus is in the pipeline—a pipeline that was formerly blocked. Now that the blockage is slowly being removed, expect the liquidity to start flowing.
3) Economic conditions are ALWAYS dreadful at the bottom of a deep recession. Jobs are scarce. Layoffs abound. Businesses scramble for customers. Companies go bankrupt. Banks suffer loan losses. Tax receipts plunge, ballooning government budget deficits.
That’s what happened in 1982. After the last big recession bottomed out at the end of 1982, the U.S. economy rebounded sharply, with a remarkable six-quarter spurt in which annual GDP growth averaged 7.7%. That spurt induced President Ronald Reagan, running for reelection in 1984, to declare “It’s morning again in America.”
(I might add that Mr. Blinder is “blinded” by the fact that Reagan’s policies are the OPPOSITE of what Obama and Congress are doing now ).
“Nobody knows what “the bottom” is with a Marxist president.”
Exactly. What can anyone hang their hat on? What percentage of your 401K or other investment portfolio contains health care related investments? What do you do about those? What is going to be the ‘growth’ area in the economy? Housing? Autos? Light manufacturing? Technology? Energy? How does cap and trade affect the energy sector? What are consumers supposed to be confident about? Does the average American investor want to hang his or her hat on what comes out of the mouth of a President who doesn’t know the difference between a pediatrician and a surgeon, but who thinks he knows enough to totally remake health care? What are you confident about? Your job security? Your salary? Your taxes? Will you still have your mortgage deduction in a year or two? Will you be paying taxes on your health care benefits? What will your gas and electricity bill be in a year?
The market is rising on the trading of borrowed funds. Those funds, underlying the entire economy, must still be paid back.
Once it looks like that debt will NOT be paid back, or our debt holders call in their marks, the market will sink like a stone. Which may be what zero wants.
The fed says it will be 4 years before turning up. They also have unemployment peaking above 11%. They predict 5 years with no real job growth.
Bottom, yeah sure.
I wonder why the good news wasn’t rushed out in the delayed July report on the economy.
Here’s something I have been thinking about:
Can the government, through multiple venues of transfer payments, buying its own bonds, making liquidity available to banks and mortgage companies, perhaps interfering in the stock markets, hiring more government workers, etc, et al, keep the velocity going in the economy enough to simulate a *recovery*?
I wonder if most people would accept this as *growth*, especially if the tame media touts it as such? How long before the laws of economics kick in under this sort of manipulation?
How in the world do you have a sustained recovery with all the dead-weight anchors Obama and Democrats are currently lashing to our free-market economy?
“So expect a BIG push to get consumers shopping before Christmas!”
Yep. They’ll try their best. If a Republican was in office we’d already be hearing one sad story on TV after another but a Democrat is in office so we hear nothing.
The economy hasn’t hit bottom but the government certainly has.
Then stop digging.
by: Trader Mark July 22, 2009
On my end, I just call this one big Great Recession, already by multiples longer than anything we've faced post World War II, that most likely will "technically" be classified as double dip due to the massive amount of government spending that will buffet official government statistics and paper over damage for a few quarters. So after we clap and cheer about the GDP turning positive perhaps in Q3, we'll see much of it was due to a massive drop in imports combined with massive government transfer payments. Yee haw.
[snip]
Yes, and the new Democrat talking points are already on the street and being spouted ad nauseum in the state-run media.
If this were a patient it would simply mean the very last system had failed. Nothing left to fail. In aviation it's the smoking hole in the ground. In nautical terms it's the boatless horizon when there was a boat there a few minutes ago. The list goes on, but I think we get the idea.
Let’s see how the economy reacts when the new deluge of taxation really takes hold.
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