The economist John Williams posits that the GDP number put out by the BEA are significantly off due to the massive underestimation of inflation. John Williams provides an alternative measure of inflation and GDP numbers that uses the methodology that the government used before they made all of the changes in the 1990s to make inflation appear lower. Using these numbers inflation is around 8% and the GDP has been bottom bouncing after the sharp downturn in the 2008 recession.
The Federal Reserve has continued to taper, down from 85 billion a month to 35 billion a month. The market expects the Fed to end QE by the end of the year. The market also believes that the economy is picking up and is gradually getting better. Although QE might not end if the economy continues to contract. It is interesting that the economy started to contract when the Fed started to taper at the beginning of the year. To put the "end" of QE into perspective, you need to put the latest rounds of QE into the broader context of all of the QE programs: the Fed launched and ended QE 1, QE 2, and operation twist(?) while QE 3&4 are in the process of being "ended". Considering all the QE programs as one large program, QE has not ended since 2008. It is also better to think of QE as monetizing the debt as opposed to the euphemism QE. (What has happened to the debt that the Fed stopped buying? Maybe the ECB is picking up the slack for the Fed. The Fed did help bail out Europe.) Speaking of Europe, the ECB has launched NIRP or negative interest rate policy and is expected to launch QE in the not-too-distant-future.
This is quite a large drop. I find it very hard to believe (as with most 'explanations' from the administration and its sycophants) that the weather is primarily responsible for this. We've certainly had severe winters in the past that didn't result in anything like this.
ReplyDeleteHow we could be this far into a recovery and be performing this poorly, well, it's UNPRECEDENTED, just like everything else in the Obama administration.
One more negative quarter and we've got a bona fide recession! And no more room to lower interest rates or inject a litte QE wealth devaluing.
If the next quarter is at all negative, Obama administration is well and truly over.
Of course, we'll be living with the economic effects as well.
Luckily for ToeJamm and me, people still need beer and electricity. I hope you're in a recession-proof industry, 00139x!
The surprising thing is that craft beers continue to grow in sales. This is despite them having higher prices. As the economy shrinks, people are buying more beer and spending more on it. This doesn't make sense. I keep trying to pitch the value beer but no one is buying.
ReplyDeleteThe news was reporting that the 1q GDP decline was due to the weather, but now they are saying something else was going on. I think according to the BEA 60% of the revision down was due to less consumer spending on health care than was originally thought. I think the implementation of Obamacare distored the 1Q GDP. Most economists were forecasting 2Q GDP to be around 3-4% but know they are revising down their estimates to 2-3%. This was suppose to be the year that the economy took off. Now the economy is being forecasted to grow around 1-2% this year.
ReplyDeleteAs far a a recession goes, if you believe John Williams in the link above and use the 1980 and 1990 based methodology to calculate inflation and in turn GDP, the economy has never got out of recession. The economy is acutally 3% smaller than it was in 2000 using these inflation numbers.
The next recession is going to be much worse than 2008, whenever it does happen. The dollar will most likely lose its reserve status, even the mainstream financial media is starting to realize this. This will be very bad for Americans. No job is recession proof. Most people will have multiple jobs throughout their careers and should not expect to be in the same job 10 years from now. I don't have an industry yet. I am not on that level yet. Hopefully, next year I will have a real job.
Obama is not done and will not be done. He is just getting started with his "fundamental transformation of America" that he promised before the 2008 election. Obama is rebalancing the economy towards a more centrally-planned economic system and this low-to-no growth economy is part of the plan. Just like rebalacing the economy back towards a free market system would most likely require a mini-depression to achieve this. We should not commit mirror imaging or thinking that our enemy thinks like we do.
Beer sales were impacted by the recession. I found out in the Beer institute. I was surprised by that. I thought beer sales, like condom sales, would have increased during a recession because people are trying to drown out their troubles.