Is A Double-Dip Recession The Least Of Our Fears?

Yahoo News ^ | 24 Aug 2011 | The Lookout

[edpc]

Amid bleak economic growth and unemployment, the stock market swoon, and the downgrade of the credit rating of the federal government, the fear of a dreaded double-dip recession--or even of a 21st-century Great Depression--has been taking hold.

But a rough consensus among economists may be starting to emerge. According to this line of thinking, although a double-dip is certainly possible, a long period of stagnation--that is, frustratingly low growth--is more likely, much like what we've seen since the recession officially ended two years ago. That would be preferable to another recession, of course. But it would mean that ordinary Americans--especially the roughly 26 million who either can't find a job or have given up looking--can look forward to years of hardship.

[edpc]

Why....? One word: Obama.

Title truncated due to length.

[RayChuang88]

I'll say this though: I've communicated via email with many of the economic doomsayers out there who periodically appear on Coast to Coast AM and they all tell me one thing: if we clean up government regulations, cut down on the sheer size of government, and overhaul the income tax system, a lot of the economic doom everyone predicts could be avoided.

Remember, American residents and businesses are holding US$14 TRILLION in liquid assets outside the USA for income tax avoidance reasons. What would happen if we revamp our tax laws to be something like the Forbes no-loophole flat-rate income tax plan, where one of its salient features would be no more taxation of savings and investments? Most of that US$14 TRILLION return to the USA, a "private bailout" providing such a huge liquidity boost to the economy that it would go from its current doldrums to a full-scale boom in less than a year!

[anniegetyourgun]

The media is full of articles that push the message that we came out of a recession in the first place. They lie. It’s been downhill from Fall/08...and no end in sight.

[Walrus]

INFLATION is the elephant in the room, folks.

Too many freshly-printed dollars chasing too few goods and services.

[ClearCase_guy]

The Establishment likes the current definition of unemployment -- it shows only half of the truth.
The Establishment likes the current definition of Inflation -- it shows that there isn't any.
The Establishment likes the current definition of recession -- it shows that we aren't in one.

At some point, people will start to question the vocabulary and the definitions, and say "I think I'll believe my eyes, not your terminology."

[Savage Beast]

IF THE ECONOMY FAILS--EVERYTHING FAILS!

[Justa]

The downfall started much earlier. Due to federal (deficit) spending couted in GDP the real economy’s GDP is not represented in GDP statistics. If you remove federal spending the GDP started declining in the late 1990s (recession) and a depression (10% yearly decline in GDP) occured in 2008 - 2009. We’ve ‘improved’ to a recession (<10% decline in GDP) with another depressionary contraction looming.

This is why the TEA party advocates massive cuts in spending, regulation and oversight -it’s trying to free private enterprise from the burdens and costs of government so the economy can grow again. This is also why the marginal or non-productive members of society hate the TEA party.

[Rich21IE]

I’ve pondered on this for days and while I’m in some degree of agreement with you, I can’t answer a simple question. Regardless of tax treatment, if I’m Coca Cola, why would I even care about repatriating overseas profits to the U.S.? The real problem coupled with stagnation is the $14 Trillion dollar debt; when the Gov’t spends 4 trillion a year and only takes in 2 trillion a year, it’s borrowing 2 trillion a year to spend more than it takes in. With stagnation, i.e., 0 GDP growth, there’s no way to ever pay back the debt and with the current rate of spending the Gov’t is only digging the debt hole much deeper making default inevitable and likely to occur around 2020. And that may well be the reason the Multinationals don’t repatriate their overseas profits......they don’t want to be holding U.S. currency or debt which explains why they’re investing in Swiss Francs, Germand and Aussie bonds and Aussie currency as a protection from the U.S. default.

[jnsun]

"I think I'll believe my eyes, not your terminology."

Exactly right. This applies likewise to the government "indices" regularly cited, algorithms which can be composed to represent anything certain parties want them to represent by incorporating whatever selected parameters are necessary for such.

Disturbing how many even intelligent people swallow economic "science" when it is now clear it means nada. Our national prosperity depends totally on a set of conservative values, i.e. personal responsibility, self honesty, moral and ethical discipline, courage. But then of course we have marauding gangs in Philadelphia, the Clintons, Cass Sunstein, Chuck Schumer, Barbara Boxer, Barack Obama, unionized school teachers, fatherless black families, the CFR, DC insiders, a corrupted Media, etc. etc. How more obvious can it be?

Johnny Suntrade

[algernonpj]

The downfall started much earlier. Due to federal (deficit) spending couted in GDP the real economy’s GDP is not represented in GDP statistics. If you remove federal spending the GDP started declining in the late 1990s (recession) and a depression (10% yearly decline in GDP) occured in 2008 - 2009. We’ve ‘improved’ to a recession (<10% decline in GDP) with another depressionary contraction looming.

This is why the TEA party advocates massive cuts in spending, regulation and oversight -it’s trying to free private enterprise from the burdens and costs of government so the economy can grow again. This is also why the marginal or non-productive members of society hate the TEA party.

Now image if you factored in the fact that the calculation of the CPI which is used to create the real (not nominal) GDP has been 'enhanced' with a downward bias that changes the CPI from evaluating inflation in terms of a set standard of living to evaluating inflation in terms of a declining standard of living.

Some the tools used: owners equivalent rent, hedonics, geometric weighting, the substitution effect, quality enhancement adjustment, intervention analysis, and chained dollars.

If you removed these enhancements and left in government spending, the GDP would look more like:

[Scutter]

That is very interesting information. I have not previously seen it mentioned that the Government deficit spending was counted in GDP. Do you have a source I could reference for that data?

[Tonytitan]

IF THE ECONOMY FAILS--EVERYTHING FAILS!

King Jesus still sits enthroned above the stars. That dynamic never changes. And He never fails.

[Justa]

GDP = private consumption + gross investment + government spending + (exports − imports).

[Scutter]

The downfall started much earlier. Due to federal (deficit) spending couted in GDP the real economy’s GDP is not represented in GDP statistics. If you remove federal spending the GDP started declining in the late 1990s (recession) and a depression (10% yearly decline in GDP) occured in 2008 - 2009. We’ve ‘improved’ to a recession (<10% decline in GDP) with another depressionary contraction looming.

Disregard my previous question regarding the source for the data backing your assertion (quoted above). I found that the data is available from the Bureau of Economic Analysis.

I created a spreadsheet that adjusts the annual GDP figures for every year from 1929 to 2010 by subtracting off the amount of government expenditures (this number is included in the BEA GDP data).

However, my results from this analysis do not match the assertion that you made - not even close. I have uploaded a simple chart, which shows GDP growth as a percentage after removing that portion of GDP that was composed of government consumption. The Y axis is the percentage growth in annualized GDP from the prior year, after removing government expenditures from the GDP figures (0.1 = 10%), the X-axis is the year, from 1929 - 2010.

Care to comment?

[Justa]

Can you elaborate or summarize your findings? My estimate is based upon removing government debt spending, i.e. the amount of the federal budget deficit. Ex. the current year deficit of 1.4T = approximately 10% of the 14T total GDP. Subtracting 10% from the 2Q GDP of +1.3% = -8.7% private sector GDP growth.

I do not believe the BEA is a reliable souce. They add in too many variables and are constantly revising formulas, weighting and adjustments.

[Soothesayer9]

American residents and businesses are holding US$14 TRILLION in liquid assets outside the USA for income tax avoidance reasons.

And they can get away with it too, in places like Zug, Switzerland, where they can literally buy a PO box, register a patent, and save BILLIONS per year. There, the corp. tax rate is about 14%. Here in the U.S it is 35%.

Traitors, the whole lot of em. They should be executed.

[RayChuang88]

I'd almost agree, but given the European sovereign debt crisis and how that is warping Europe's economy, I wouldn't even consider investing in Swiss francs--that currency is approaching the point of an overvalued bubble and that could crash with extremely unpleasant results. Indeed, if we start getting countries defaulting it could start taking down even supposedly safe German banks, and then all heck breaks loose.

[WOBBLY BOB]

[Scutter]

Can you elaborate or summarize your findings?

Sorry for the delayed response - have been busy with work. I uploaded my spreadsheet here. Basically what I did was to remove that portion of the GDP that was included under the "Government consumption, expenditures, and gross investment". This was using the BEA figures.