Obama’s Economic Wizardry On Display! LSM Misleads Public!

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US economy contracts for the first time in 3-1/2 years

We’ve all seen the headlines by now.  It’s interesting how the LSM is playing this, even Fox

Still, the weakness may be because of one-time factors. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth.

CNN had this laughable spin….

It’s “the best-looking contraction in U.S. GDP you’ll ever see,” Paul Ashworth, chief U.S. economist for Capital Economics said in a research note. “The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging.”

NBC…..

The weakness may be because of one-time factors, though. Government spending cuts and slower inventory growth subtracted a total of 2.6 percentage points from growth. Both are volatile. And they offset faster growth in consumer spending, business investment and housing.

And on it goes with every major news source I could find.  So, what’s the problem with this explanation?  Is the defense spending cuts a one-time event?  Maybe.  But, what does slower inventory growth indicate?  Businesses reduce inventory because of reduced demand.  It isn’t a one-time thing, it is an harbinger of things to come.  I’ll show you what else is an harbinger…….

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There’s only been one time in recent past that the 1st of the year quarter outperformed the preceding last of the year quarter.  Sort of, the 5.3% contraction was still a contraction compared to the previous quarter but I don’t want to get bogged down in discussing less negative growth. 

Will we double dip?  Probably, I’m not sure.  I’m even less sure of this metric (GDP) holding much value considering all of the QE we’re doing.  This is an amazing feat considering the Fed is pumping $100 billion into the economy every month! 

We should also note, this occurred before every American saw an increase in taxes and less take-home pay.  “Best-looking contraction in U.S. GDP you’ll ever see“?  I see no reason for the Pollyanna outlook.  OTOH, if the powers that be understood the perils we’re in, I’m very certain they would react improperly, so maybe this works to our benefit that they don’t recognize what’s coming. 

I don’t know when, no one really does, but we are certainly headed for another recession and it will probably be worse than the one we just experienced/are experiencing.  It could be that our economy will sputter along like it has for the last several quarters, each quarter making the future recession/depression worse. 

The problem is, we haven’t done the necessary things to soften the next blow.  We have done absolutely nothing different in the recent years to prevent what happened in 08-09.  In fact, we’ve done more of the things which created the weaknesses, with the possible exception of lending obscene amounts of money to people with poor credit for home buying, but that could change soon.  And, besides, we’ve found other avenues to indebt the people. 

Things aren’t getting better under this leadership, things will not get better under this leadership.  The sooner the public realizes this, the sooner we can move to a real recovery. 

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27 Responses to Obama’s Economic Wizardry On Display! LSM Misleads Public!

  1. kelly liddle says:

    My current thinking is you could do a Japan or a Greece. The reason for this thinking is your multinationals are doing quite well and maybe they can do what is happening in Japan and take up the slack as foreigners pull out (this can buy a hell of a lot of time and yet to see what happens at the end). Alternately they can’t and the foreigners will pull out eventually creating a Greece type situation where serious cuts must be made in real terms because if you keep printing money then the cash could remain the same but can’t buy as much. My personal fears are dissapating with regard to US and Europe because by all accounts the effect of these areas on the global economy will continue to shrink. There is argument that the US will maintain their share but I am skeptical. China is the unkown that concerns me remembering it turned out in the GFC we did not know what was going on in the US.

    I see where the never increase taxes might have come from, Milton Friedman because that was his argument in one video I watched but he also predicted that government would be much smaller in 2009 and he couldn’t have got that more wrong. Watch this video if you have time https://www.youtube.com/watch?v=UlNxIc9gUMc

    • suyts says:

      The US will continue to be the largest consumer nation for quite a while, so the multinationals won’t pull out anytime soon. Indeed, China’s continued growth is contingent upon the US’s and EU’s consumer. It will continue this way until China reforms to allow more freedom among their own people. India, IMHO, is the wildcard. Friedman missed on the government size because he was wrong about the reaction of our people in power.

      I remain optimistic about the US’s economic condition in the long term. In the short and moderate time frames, it will continue on this course. At some point in the future, the US will realize what we’re sitting on and start, once again, doing the things necessary to economic success. We simply have too many resources not to be successful in the long run. I think, in my lifetime, we’ll see a very strong about-face in the economic views of the American people.

    • DirkH says:

      Blaming Friedman for the government not cutting or freezing its budget? Sounds misguided to me. Friedman didn’t propose ever increasing budgets.

    • kelly liddle says:

      Suyts not about the multinationals pulling out but about them funding a government like happens in Japan. The US will remain the largest consumer for a long time but if you were to reduce by 1% per year and Europe the same then I believe all the slack will be taken up in other countries. According to analysis that I have just looked around for the US will still be way ahead on a per capita basis of most other countries with the OECD putting you second to Norway in 2050. If the analysis is correct you have nothing to worry about but I am a skeptic even though I do like your optimism.

      I agree the continued success of China is somewhat dependant on continued increasing freedoms. It may look very bad to us but they are moving in the right direction slowly I think as I believe many developing countries are.

      • DirkH says:

        You don’t really think the exponentially increasing money printing will be maintainable or REDUCABLE until 2050 do you? Bernanke CAN’T stop printing. Stop printing, the US defaults. Go on printing – you have to print more each year. Ending in a currency collapse.

        China BTW has just reached levels of (internal) debt that indicates they’ll have a bust RSN.

        I don’t know what the OECD has been drinking but I want some of it.

        • kelly liddle says:

          If Japan or US were people with credit cards you would have declared them bankrupt years ago. I don’t understand it that well but a government can do this much longer than would seem reasonable.

        • philjourdan says:

          Part of it is life span. Normally, a “government” has a longer life span than a person. Hence why it is hard to compare the 2.

        • DirkH says:

          No, Kelly; the current level of indebtedness of the US , let’s call it 100% of GDP, is still comparable to a homeowner with a mortgage. But the worrying part is that the homeowner doesn’t make the slightest attempt at paying back the mortgage. Instead takes out more credits each year and works only halftime.

        • philjourdan says:

          Dirk – Sounds like those “balloon payment” loans of a few years back. I wonder what they led to?

        • kelly liddle says:

          Dirk and Phil
          I hear you but if you look at say the last 50 years the default rate of countries in real terms is high and it is harder to cut government spending than a personal budget at least in a democracy anyway.

        • philjourdan says:

          Kelly, we are not in disagreement. I was merely pointing out where the delusions of some originate from. They see a country as eternal, so unlike a mortal person, debt never has to be repaid. To a small degree they are right. Countries can get away with never repaying debts – but then they are wrong. Countries are not eternal, and the cause of the downfall is many times because they spent themselves into oblivion.

    • DirkH says:

      Japan is about to implode. With the intention of weakening the Yen by printing more and firing up inflation there is now the choice:
      1. Big investors can keep buying Japanese bonds but will lose twice, once through weakening of the Yen, second through inflation (and get next to zero nominal interest rate.
      2. Interest rates go up.

      When interest rates go up, the Japanese state will have to default.
      Kyle Bass gives it two years at most.

      Japan currently gets about one new finance minister per month.

    • philjourdan says:

      Friedman did not say “no taxes”, but since the tax rates were so high when he made that statement, he is essentially correct.

      But unlike some academicians of today, Friedman never pretended to know everything. He knew economics. But he did not know government. He assumed rational people would be in control. So yes, in that respect, he was wrong.

  2. philjourdan says:

    I am looking more and more prophetic all the time.

    And you are of course correct. The “fiscal cliff” was not avoided by the middle class. Obamacare taxes kicked in, Obama tax increases kicked in. All of this leaves a very discernible reduction in the capacity for the middle class to continue to support a non-recovery.

    I have no doubt that Obama will try to cook the numbers, but since he won, he now has to slowly adjust past cooking to reflect current reality.

    • suyts says:

      Yes, it’s the simple math part of economics. People who have less to spend will spend less. I don’t know why many people can’t get their head around this tricky concept.

  3. Latitude says:

    obviously the solution is to hire more government employees…..since the government pays them and they don’t cost the rest of us anything…oh, and more infrastructure projects too

    I’m going to barf now………….

  4. DirkH says:

    The best looking contraction ever!
    That’s quite innovative even for a member of the professional News fairy tale inventors.

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