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Thread: GDP Contracted at 1% Pace in First Quarter

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Demon of Light View Post
    Are you suggesting these things were not made markedly worse over the past few years?
    I'm saying that the shrinking of the labor force is a trend that started 8 years before Obama took office. I would also say that neither Bush 43's nor Obama's policies are causal factors.


    More like by pumping up stock prices, which are being artificially inflated by widespread buybacks, high-frequency trading, and trillions of dollars in Fed cash. Look at your graph real closely, and then consider why that graph may not be saying a good thing about the economy.
    1) Buybacks aren't "artificial" inflations, they're a standard practice -- and don't explain multi-year broad-based rises in prices. Plus, if shares are bought back with credit, that will show up on the company's ledger.

    2) Policies like QE have nothing to do with high-frequency trading; even without QE, that was going to happen. Perhaps we can say that the Obama administration hasn't tried to rein in HFT, but then we're back to issues of an obstructionist Congress.

    3) Again, it's not clear how actions like QE would really prop up a stock market. Nor would that seem necessary, since (again) the corporations are reporting huge profits and sitting on big cash hoards.

    4) Stock prices are only one part of the LEI.


    It suggests they aren't spending money because they either have nothing to spend it on or are hoarding cash out of concern that they may need it soon.
    Actually, it suggests that the companies aren't interested in accumulating debt (a practice that contradicts your implication that Fed lending policies are encouraging stock buybacks). There's plenty they could spend it on, such as improving wages or making capital improvements. Regardless of the rationale, it makes the company's bottom line look better, and is a reason for high stock prices, unrelated to Fed actions.


    Actually, pretty much everyone agrees there were other reasons for bad indicators and that weather does not come close to explaining it all. The pent-up demand is probably true, which is why some of the indicators look better right now.
    The bad weather doesn't explain it all, but it's a big chunk. More to the point is that one quarter with a -1% GDP growth is not an indicator that the entire economy is going to hell in a handbasket (as the OP implies). Nor have you actually articulated which indicators are currently negative.


    Oh come, come, the bailouts of big money institutions and moral hazard was Long-Term Capital Management and the housing bubble started getting blown up in the late 90's to cover for the dotcom bubble.
    1) LTCM's bailout was engineered by the New York Fed, not Washington. And it didn't cost the taxpayers a cent.

    2) I do agree that the seeds of the housing bubble do extend to the Clinton years, namely a reluctance to regulate derivatives. However, blaming any President for the housing bubble is incorrect. Aside from a lot of non-governmental factors, the same lax policies were pursued by Clinton and Bush and Greenspan, and aided by players from both sides of the aisle.

    3) It is slightly ridiculous to suggest that anyone intentionally started a housing bubble to cover for a stock market crash. You're looking at nearly 8 years of Fed policies of keeping interest rates low, with wide-spread resistance to the Fed raising any rates. Plus, again, many other factors had nothing to do with any government policies.

    In terms of "moral hazards," it's worth noting that before the modern Fed was created, the banks often bailed each other out in similar crisis. Oddly enough, no one seemed to fear the moral hazard when private banks were taking on the role of the "lender of last resort." Hmmm.


    Hyperinflation is not something a central bank aims to achieve. It is a function of mismanagement. The Fed is not stupid enough to get the U.S. into that sort of mess, in my opinion, which is why I do not think they will do much about another downturn. All they could do in the event of another serious downturn is print money like crazy, which could easily lead to hyperinflation and hyperinflation means default.
    That's pretty much what I'm saying. The Fed doesn't have any more tools to deal with another downturn, though it could step in again to deal with failing banks.

    But that still leaves the question: Which "meaningful indicators" suggest we are heading for another recession this year, as you claim?

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Demon of Light View Post
    It sort of is Bush's fault and Clinton's and Greenspan's and all the various private lenders who played along. Never mind the various Senators and Representatives who had their roles. This was a bipartisan f**kup.



    Are you suggesting these things were not made markedly worse over the past few years?



    More like by pumping up stock prices, which are being artificially inflated by widespread buybacks, high-frequency trading, and trillions of dollars in Fed cash. Look at your graph real closely, and then consider why that graph may not be saying a good thing about the economy.



    Yes, actually. It suggests they aren't spending money because they either have nothing to spend it on or are hoarding cash out of concern that they may need it soon.



    See above.



    Actually, pretty much everyone agrees there were other reasons for bad indicators and that weather does not come close to explaining it all. The pent-up demand is probably true, which is why some of the indicators look better right now.



    Oh come, come, the bailouts of big money institutions and moral hazard was Long-Term Capital Management and the housing bubble started getting blown up in the late 90's to cover for the dotcom bubble.



    Hyperinflation is not something a central bank aims to achieve. It is a function of mismanagement. The Fed is not stupid enough to get the U.S. into that sort of mess, in my opinion, which is why I do not think they will do much about another downturn. All they could do in the event of another serious downturn is print money like crazy, which could easily lead to hyperinflation and hyperinflation means default.

    It was actually more of the Democrats fault.

    Clinton used the manufactured false narrative of "discriminatory lending practices" to force lenders to lower their standards.

    He then co-opted the GSEs into purchasing massive amounts of Sub-Prime loans and securities and then appointed his buddies to their executive and chair positions.

    Fannie and Freddie then were ran like ENRON on steroids as they committed unprecedented Securities fraud, lied about their profits and hid Billions.

    They were the only two Financial entities subject to SEC investigations over their unprecedented corruption during the Sub-Prime build up.

    And they were defended by Democrats until they were declared insolvent in 2008.

    Housing under Clinton went from 63 percent in 1993 to 68 percent in 2000.

    Under Bush it only went up another 1 percent.

    Regardless, the effects of the Sub-Prime Bubble are not a legitimate excuse 6 years in for our continued economic issues.
    Last edited by Fenton; 05-30-14 at 09:11 AM.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by 99percenter View Post
    Obama inherited a mess. What reagan inherited is pale in comparison to GBR.
    How old were you in 81-82? You have no idea what you are talking about. Thy living with a 20 misery index

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by poweRob View Post
    Really? Healthcare? But the GOP told us that Obamacare was supposed to destroy that sector right before destroying our economy altogether... hrrmmmmm
    I wouldn't call that a positive boost for the economy. People spending money on insurance premiums doesn't create much value.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by JRSaindo View Post
    I wouldn't call that a positive boost for the economy. People spending money on insurance premiums doesn't create much value.
    Yea, in fact it means they have less money to spend on additional goods and services.

    Liberalism's concept of " equality " is all about removing more and more of the Middle Class's discretionary income.

    And then WE get the blame when their policies cause a contraction in our GDP.

    Well they blame us and the " Weather ".

    Yea, the largest economy in the world can't fend off a Little Bad weather without it causing our GDP to shrink.

    Lol !

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Visbek View Post
    3) Again, it's not clear how actions like QE would really prop up a stock market. Nor would that seem necessary, since (again) the corporations are reporting huge profits and sitting on big cash hoards.
    Have you looked at the Fed balance sheet vs. the S&P 500 here? They move in lockstep.

    Actually, it suggests that the companies aren't interested in accumulating debt (a practice that contradicts your implication that Fed lending policies are encouraging stock buybacks). There's plenty they could spend it on, such as improving wages or making capital improvements. Regardless of the rationale, it makes the company's bottom line look better, and is a reason for high stock prices, unrelated to Fed actions.
    Depends which companies. Most hoard cash because debt is cheap. Once QE is done, noone will want to accumulate debt and we will see the cash reserves being used again.

    The bad weather doesn't explain it all, but it's a big chunk. More to the point is that one quarter with a -1% GDP growth is not an indicator that the entire economy is going to hell in a handbasket (as the OP implies). Nor have you actually articulated which indicators are currently negative.
    The weather doesn't prevent people from doing anything. It just happens to be a good scapegoat. I bought a house in December. The weather didn't enter my mind when deciding this. I don't see how people can just accept this as the reason for most of the downturn in consumption.

    The two big losers for GDP are:

    1. Net trade, or the combination of exports and imports, declined from -0.83% to -0.95%, far below the positive boost of 0.99% in Q4.

    2. The biggest hit was in the change in private inventories, which tumbled from -0.57% in the first revision to a whopping -1.62%: the biggest contraction in the series since the revised -2.0% print recorded in Q4 2012.

    Remember, we were told by the economists that Q1 would be great. Then they blamed the weather when the numbers weren't there. So when it is 90-100 degrees outside this summer will they blame the weather again?

    3) It is slightly ridiculous to suggest that anyone intentionally started a housing bubble to cover for a stock market crash. You're looking at nearly 8 years of Fed policies of keeping interest rates low, with wide-spread resistance to the Fed raising any rates. Plus, again, many other factors had nothing to do with any government policies.

    In terms of "moral hazards," it's worth noting that before the modern Fed was created, the banks often bailed each other out in similar crisis. Oddly enough, no one seemed to fear the moral hazard when private banks were taking on the role of the "lender of last resort." Hmmm.
    I agree if you are saying the FED is the cause of all the financial problems in this country. Along with the lack & easing of regulations for the financial industry during and ever since the Greenspan years.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Going back to the original topic, I think Calculated Risk Blog had some great comments on this adjustment:

    The BEA reported this morning that GDP declined at a 1.0% annual rate in Q1. This is disappointing, but not concerning looking forward.

    The key driver of the downward revision was a much larger negative change in private inventories (see table below that shows the contribution to GDP from each major category). In the advance release, change in private inventories subtracted 0.57 percentage points from GDP. With the 2nd release - based on more data - change in private inventories subtracted 1.61 percentage point. This was payback from the positive contribution in Q3 last year (change in private inventories tends to bounce around quarter-to-quarter).

    There were also downward revisions to investment in nonresidential structure, trade, and state and local government.

    PCE was revised up from 3.0% to 3.1% in Q1 (annualized growth rate), and the contribution from PCE to GDP increased slightly.

    This weakness will not continue - growth has already picked up in Q2. And I expect both residential investment and state and local governments to add to growth soon. And even investment in nonresidential structures should turn positive.

    The growth story is intact. No worries.
    Read more at Calculated Risk: A comment on GDP Revisions: No Worries
    "I do not claim that every incident in the history of empire can be explained in directly economic terms. Economic interests are filtered through a political process, policies are implemented by a complex state apparatus, and the whole system generates its own momentum."

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Khayembii Communique View Post
    Going back to the original topic, I think Calculated Risk Blog had some great comments on this adjustment:
    He's optimistic to say the least.
    He's wrong but optimistic.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by donsutherland1 View Post
    When ports are periodically closed and bad weather prevails, one would expect hits in exports (goods cannot be shipped from factories to ports and then out of the country) and reduced construction activity. If one takes a closer look at the GDP data, thatís where some of the biggest drag on economic activity occurred (annualized changes): Nonresidential structures: -7.5%; Residential investment: -5.0% (some housing-related dynamics; some weather-related issues); Exports of goods: -9.8%
    If that were the case, one would also expect to see news stories of these severe shipping delays as they occurred. Instead, what you find are reports of low demand for exports (not due to the weather, but poor economic conditions overseas).

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Redress View Post
    You are actually going to claim Obamacare pumped 1 % of GDP into the economy? Care to document that?
    Obamacare Spending In GDP Report - Business Insider
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