The Greening of America

Andrew Leonard has a short piece over at Salon titled, Chicago School: Bloodied But Unbowed. It's an interesting little piece full of links to previous articles and statements. It also includes this zinger:

.... some of the Chicago economists don't sound a whole lot different from your typical South Carolina Republican. Here's Sam Peltzman, the Ralph and Dorothy Keller distinguished service professor emeritus of economics (italics mine):

"This experience is going to seal the tomb on socialism for all time," he says. "If this can't bring it back, it's hard to think about what could." A burst of Keynesianism should surprise no one, he argues. Of course we hope the government can step in and save the economy. In a crisis people "become infantilized and go back to what's comforting to you as a child."

Study shows economy twice as bad as first reported

It looks like you weren't crazy after all. This Depression really is as bad as it seems.

(Bloomberg) -- The first 12 months of the U.S. recession saw the economy shrink more than twice as much as previously estimated, reflecting even bigger declines in consumer spending and housing, revised figures showed.

The Commerce Department’s Bureau of Economic Analysis actually went back and revised their economic figures all the way to 1929, although most of the revisions are since 1997. So as not to bore you with too many details, I'll keep this short and sweet and only touch on the highlights.

February 14th, 2008 – Paulson: (the economy) "is fundamentally strong, diverse and resilient."

United States GDP, Q2 2009 in at -1%

I know it sounds like an oxymoron, but this number is actually better than expected news.

The estimates were -1.5%. From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009,
(that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.

Ok, now let's go digging into the details.

Firstly, what is GDP?

GDP = private consumption + gross investment + government spending + (exports − imports), or, GDP = C + I + G + (X − M).

So, why was the drop only -1% instead of the -1.5% expected?

Delveraging Anyone?

Economic growth in the U.S. since the mid- 90's has not been organic - it was synthesized with CREDIT.

 From Reuters:U.S. consumers fall behind on loans at record pace


NEW YORK (Reuters) - Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt and home equity loans to all-time highs in the first quarter as a record number of cash-strapped consumers fell behind on their bills.

Can We Rely on Inventory Cycle for Recovery?

I read a very interesting letter to editor by Professor Eileen Appelbaum today. She argued that we cannot rely on the inventory cycle to lead us to recovery. She argued in the past we may have been able to rely on inventory cycle because increased demand caused by public and private demand would increase output and employment but not this time:

Unfortunately, this time around, things are likely to be very different. The US no longer manufactures most of the goods it needs to replace liquidated inventories, so will need to turn to imports to restock its shelves. Any gains from a rebound in inventories will be largely offset by the negative effects on gross domestic product from an increase in imports.

Japan's Annual GDP - 12.7% Contraction

Japan's Economy Shrinks by 12.7% is reported by Bloomberg.

Japans exports in one quarter dropped 13.9%. Their quarterly GDP was 3.3% contraction and exports accounted for 3% of that drop.

Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, as recessions in the U.S. and Europe triggered a record drop in exports.

GDP drops 3.8%, Autos 2.04% of that

GDP statistics were released today and it ain't pretty.

From Bureau of Economic Analysis:

GDP -3.8% 4th Quarter 2008

U.S. exports are way down, imports are also.

Inventory build up reduced the decline of GDP from -5.1% to 3.8%.

Autos was 2.04% of the GDP drop. These means nobody is buying cars and trucks!

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.

5.5% GDP Contraction for Q4, Analysts Predict

The actual numbers from the Commerce Department are not out until January 30th. Yet both Bloomberg and Marketwatch are reporting a 5.5% annual rate drop in GDP for Q4.

Gross domestic product contracted at a 5.5 percent annual rate from October through December, the biggest drop since 1982, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due Jan. 30.

Real economic activity fell off a cliff during the fourth quarter, producing a sharp drop in employment, output and spending," wrote economists at Wachovia.
And the worst part is that it's not over. Economists expect another huge decline in the first quarter, with a smaller contraction in the second quarter