|
As pretty much everyone knew they
would, Congress and the president have stitched together a sad little
"deficit reduction" plan that allows them to keep borrowing through
the next election. But the details are less important than the timing, which
coincides with what might be the start of a double dip recession. Consider this (slightly technical but
well-done analysis) from Consumer Metrics Institute, which explains that the
Great Recession was actually a lot deeper than originally reported and that
it might not be over:
Included in the Bureau of Economic
Analysis' first ("Advance") estimate of second quarter 2011 GDP
were significant downward revisions to previously published data, some of it
dating back to 2003. Astonishingly, the BEA even substantially cut their
annualized GDP growth rate for the quarter that they "finalized"
just 35 days ago -- from an already disappointing 1.92% to only 0.36%,
lopping over 81% off of the month-old published growth rate before the ink
had completely dried on the "final" in their headline number. And
as bad as the reduced 0.36% total annualized GDP growth was, the "Real
Final Sales of Domestic Product" for the first quarter of 2011 was even
lower, at a microscopic 0.04%.
And the revisions to the worst
quarters of the "Great Recession" were even more depressing, with
4Q-2008 pushed down an additional 2.12% to an annualized "growth"
rate of -8.90%. The first quarter of 2009 was similarly downgraded, dropping
another 1.78% to a devilishly low -6.66% "growth" rate. And the
cumulative decline from 4Q-2007 "peak" to 2Q-2009
"trough" in real GDP was revised downward nearly 50 basis points to
-5.14%, now officially over halfway to the technical definition of a full fledged depression.
Unfortunately, meaningful
quarter-to-quarter comparisons are nearly impossible in light of the moving
target provided by the revisions. But among the notable items are:
- Aggregate
consumer expenditures for goods was contracting during the second
quarter, with annualized demand for durable goods dropping 4.4% during
the quarter -- into the ballpark of the numbers we have measured here at
the Consumer Metrics Institute. This decline was enough to shave 0.35%
off of the overall GDP (with just automotive goods removing 0.65% from
the annualized GDP growth rate).
- The
drag on the GDP from governmental cutbacks purportedly moderated by a
full percent, improving to a -0.23% drag from a revised -1.23% impact in
the first quarter. This reversal may be the result of either the waning
effect of expiring stimuli or overly optimistic BEA
"place-holders" while more data gets collected. Many state and
local public sector employees would be shocked to learn that real-world
governmental downsizing has moderated.
- Net
foreign trade added 0.58% to the GDP growth rate after subtracting 0.34%
during 1Q-2011 (a 0.92% positive swing) -- all in spite of oil prices
reaching recent peaks at the end of April. Anomalies in imports caused
by tsunami suppressed trade with Japan may have been the culprit here,
since the growth rate in exports (and their contribution to the overall
GDP growth) actually dropped quarter-over-quarter. Imports reportedly
pulled overall GDP down by only 0.23%, after subtracting 1.35% from the
revised figures for the prior quarter.
And here's the outline of the deficit
plan:
Obama: Congressional Leaders Approve Debt-Limit
Increase
President Barack Obama said tonight
that leaders of both parties in the U.S. House and Senate had approved an
agreement to raise the nation's debt ceiling and cut the federal deficit that
must now be sold to Congress.
"The leaders of both parties in
both chambers have reached an agreement that will reduce the deficit and
avoid default," Obama said at the White House. "This compromise
does make a serious down payment on the deficit-reduction we need. Most
importantly it will allow us to avoid default."
The framework would raise the $14.3
trillion debt ceiling through 2012, and call for enactment of a law shaving
another $1.5 trillion from long-term debt by 2021 -- or institute punishing
reductions across all government areas, including Medicare and defense
programs, according to congressional officials.
Some thoughts:
Those massive revisions in GDP have
less to do with BEA incompetence or the opacity of the data than with the
fact that people tend to focus on the first number they see. This allows the
government to overstate growth up-front, and then dribble out the real, much
weaker numbers over time, safe in the knowledge that most voters have already
formed a favorable (or less unfavorable) opinion and are no longer paying
attention. In other words, like those fake inflation and unemployment
numbers, this is just another way that they're lying to us.
There are two other key things to
understand about this and pretty much every other deficit reduction plan
being discussed around the world: First, sitting governments can't obligate
future ones. So the only number that matters is the current-year reduction,
and this one is miniscule.
Second, even if all the proposed
savings happen, it's still barely a rounding error for a US government that
will continue to pile up several trillion dollars of new obligations each
year.
But this deal does matter in one
significant way: It will produce a bit less fiscal stimulus in the near term.
Not enough to make much of a difference to a normal economy, but since the US
is apparently in the process of dropping back into recession, it adds a bit
of momentum to the already-reaccelerating debt destruction process. For those
with access to the New York Times, here's a long piece
that fleshes out the thesis.
John Rubino
DollarCollapse.com
|
