Slipping Back Into Recession: Obama Gives Up On Economy
& Spends All His Time On Campaign & Fund Raising
How do we really know that we are sinking back into recession? Let me count the ways.
1. GDP Output Gap
Figure 1 above shows the gap between the real or actual GDP and the Potential GDP at which the economy should be performing. Starting in mid-2008, mirroring the recession, this GDP gap (~ 3/4 of a trillion dollars) showed the impact of the recession on the economy. Note that the GDP gap has continued to the present moment, middle of 2012, which is why so many people opine that they feel we are still in a recession.
2. Lagging Economic Recovery Leaders
Five (5) economic recovery leaders tell us whether the economy is growing out of, or shrinking into, a recession: 1. Consumer Spending, 2. Spending on All Goods, 3. Spending on Durable Goods, 4. Spending on Non-Durable Goods, 5. Spending on Services.
Figure 2 above,("Economic Recovery Leaders Now Lagging"), shows that all 5 of these Leading Indicators have now fallen back, in mid 2012, to the levels of March 2011, when the effects of the Japanese Earthquake and Tsunami roiled world markets. But we are at the Tsunami lows not as a result of any natural catastrophe. It is a catastrophe of failure of leadership by Obama, who after nearly 4 years in office has made things worse. It is noteworthty that at the same point in time in his administration, Reagan, who inherited a much worse economy than Obama did, had the country humming along at over 6% GDP, 3 1/2 years after taking office.
Obama has instead made the economy worse via misguided economic policy, consisting of massive spending financed by debt and mis-directed stimulus which wasted taxpayer money into non-job creating avenues, and successive rounds of fiscal stimulus, bailouts, interventions and injections. Obama has been fully engaged in campaigning and fund raising rather than governing,
and his "spread the wealth" spending has actually made the economy worse, resulting in the current miasma where a descent into double dip recession has become inevitable.
3. No Policy to Deal With Globalization
Globalization has led to a much greater dependence on the exportation of goods and services, as is shown above in Figure 3. The Figure illustrates the reality that exports make a huge part of corporate profitability. Exports have accounted for fully 41% of rebound in the economy post the last recession, which is far outside the norm. The effect of declining wage growth, excess debt and the lack of availability of credit - the U.S. consumer has remained suppressed on many levels while the economy disproportionately gained traction from foreign markets.
As domestic economic police languishes in the doldrums due to Presidential inattention, he shift from a manufacturing to service based economy, combined with globalization, have led to new drivers of the domestic economy. Despite the mainstream media befuddled reporting on this, housing and automobile production are no longer the drivers of the domestic economy that they once were. Residential investment is now comprising only 2.59% of GDP while Automobiles make up 2.9%. Combined, these two former economic powerhouses still do not make up as much of GDP as Equipment and Software. The ravenous quest by businesses to increase productivity, and lower costs, in order to maintain profitability in a sub-par growth environment is evident.
4. Declining Wage Growth, Real Final Sales Falling Into Recessionary Territory
Due to the continued effect of declining wage growth, (recent NY Times article shows median family incomes now 6% lower than in 2000), excess debt and the lack of availability of credit - the U.S. consumer has remained suppressed. With the disproportionate dependence on foreign markets for consumption - the impact to the U.S. economy has been one of sub-par growth.
The Real Final Sales index remains mired at recessionary warning levels (see Figure 4 above: "Real Final Sales Falling Into Recessionary Territory"). In the past, every time real final sales, on a year-over-year basis, has fallen below a 2% growth rate, currently at 1.87%, the economy has either been in, or was about to be in a recession. Since the end of the last recession in 2009 - real final sales have been below 2% growth 10 out of the last 12 quarters. That is unprecedented to any other time in history. Normally, 12 quarters post a recession, real final sales are growing at an average of 3.89% not 1.87%.
Conclusion:
This is clearly not an economy on the path to recovery but one that is still statistically growing through artificial interventions and support. Note that it took more than $2 of debt in the current quarter to create $1 of economic activity - a trend that is clearly unsustainable long term. It is apparent that the successive rounds of fiscal stimulus, bailouts, interventions and injections have kept the economy from succumbing to a statistical recession. Of course, there are those 65% of Americans who currently believe we are in a recession already as they struggle to make ends meet.
How do we really know that we are sinking back into recession? Let me count the ways.
1. GDP Output Gap
Figure 1 above shows the gap between the real or actual GDP and the Potential GDP at which the economy should be performing. Starting in mid-2008, mirroring the recession, this GDP gap (~ 3/4 of a trillion dollars) showed the impact of the recession on the economy. Note that the GDP gap has continued to the present moment, middle of 2012, which is why so many people opine that they feel we are still in a recession.
2. Lagging Economic Recovery Leaders
Five (5) economic recovery leaders tell us whether the economy is growing out of, or shrinking into, a recession: 1. Consumer Spending, 2. Spending on All Goods, 3. Spending on Durable Goods, 4. Spending on Non-Durable Goods, 5. Spending on Services.
Figure 2 above,("Economic Recovery Leaders Now Lagging"), shows that all 5 of these Leading Indicators have now fallen back, in mid 2012, to the levels of March 2011, when the effects of the Japanese Earthquake and Tsunami roiled world markets. But we are at the Tsunami lows not as a result of any natural catastrophe. It is a catastrophe of failure of leadership by Obama, who after nearly 4 years in office has made things worse. It is noteworthty that at the same point in time in his administration, Reagan, who inherited a much worse economy than Obama did, had the country humming along at over 6% GDP, 3 1/2 years after taking office.
Obama has instead made the economy worse via misguided economic policy, consisting of massive spending financed by debt and mis-directed stimulus which wasted taxpayer money into non-job creating avenues, and successive rounds of fiscal stimulus, bailouts, interventions and injections. Obama has been fully engaged in campaigning and fund raising rather than governing,
and his "spread the wealth" spending has actually made the economy worse, resulting in the current miasma where a descent into double dip recession has become inevitable.
3. No Policy to Deal With Globalization
Globalization has led to a much greater dependence on the exportation of goods and services, as is shown above in Figure 3. The Figure illustrates the reality that exports make a huge part of corporate profitability. Exports have accounted for fully 41% of rebound in the economy post the last recession, which is far outside the norm. The effect of declining wage growth, excess debt and the lack of availability of credit - the U.S. consumer has remained suppressed on many levels while the economy disproportionately gained traction from foreign markets.
As domestic economic police languishes in the doldrums due to Presidential inattention, he shift from a manufacturing to service based economy, combined with globalization, have led to new drivers of the domestic economy. Despite the mainstream media befuddled reporting on this, housing and automobile production are no longer the drivers of the domestic economy that they once were. Residential investment is now comprising only 2.59% of GDP while Automobiles make up 2.9%. Combined, these two former economic powerhouses still do not make up as much of GDP as Equipment and Software. The ravenous quest by businesses to increase productivity, and lower costs, in order to maintain profitability in a sub-par growth environment is evident.
4. Declining Wage Growth, Real Final Sales Falling Into Recessionary Territory
Due to the continued effect of declining wage growth, (recent NY Times article shows median family incomes now 6% lower than in 2000), excess debt and the lack of availability of credit - the U.S. consumer has remained suppressed. With the disproportionate dependence on foreign markets for consumption - the impact to the U.S. economy has been one of sub-par growth.
The Real Final Sales index remains mired at recessionary warning levels (see Figure 4 above: "Real Final Sales Falling Into Recessionary Territory"). In the past, every time real final sales, on a year-over-year basis, has fallen below a 2% growth rate, currently at 1.87%, the economy has either been in, or was about to be in a recession. Since the end of the last recession in 2009 - real final sales have been below 2% growth 10 out of the last 12 quarters. That is unprecedented to any other time in history. Normally, 12 quarters post a recession, real final sales are growing at an average of 3.89% not 1.87%.
Conclusion:
This is clearly not an economy on the path to recovery but one that is still statistically growing through artificial interventions and support. Note that it took more than $2 of debt in the current quarter to create $1 of economic activity - a trend that is clearly unsustainable long term. It is apparent that the successive rounds of fiscal stimulus, bailouts, interventions and injections have kept the economy from succumbing to a statistical recession. Of course, there are those 65% of Americans who currently believe we are in a recession already as they struggle to make ends meet.
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