Free Markets, Free People


GDP growth: How bad is it?


Real bad according to J.P. Morgan:

This morning we lowered our tracking of Q2 GDP growth from 1.7% to 1.4%. For some time now we have noted that our Q3 GDP call — which was already below consensus at 2.0% — had risks that were skewed to the downside.

After the latest round of data we have decided to lower our projection for Q3 to 1.5%. The strength in inventories reported this morning suggests that businesses may have got caught offsides when final demand weakened this past spring. That inventory build should weigh on production growth in the third quarter as already-cautious businesses seek to work down stockpiles. Added to this downside, the weakness in June real consumer spending will make the arithmetic for Q3 consumption a little more challenging.

Finally, the decline in gasoline prices — which had been seen as an important support to the economy — has partly reversed itself in recent weeks, thereby lessening the impetus to growth from that source. For 2012 as a whole, we are now looking for growth of around 1.7% on a Q4/Q4 basis, about the same as last year and 0.2%-point below our tracking last week. On a year-ago basis real GDP has been growing at a below-trend pace since early last year. If our forecast is anywhere near correct, that pattern will persist for at least another year, and perhaps even longer.

To reiterate:

Q2 – 1.4% growth.

Q3 – 1.5% growth

Q4 – 1.7% growth

For the year, under 2.0%.

The word “pitiful” doesn’t even begin to connote the severity of this forecast.  And note the bottom line of the JP Morgan forecast: “If our forecast is anywhere near correct, that pattern will persist for at least another year, and perhaps even longer.”

And here we are doing the usual – talking about distractions like Bain Capital.



Twitter: @McQandO

Obama’s budget would double public debt by 2021

If you thought President Obama was serious about his rhetorical appeals to fiscal responsibility, one only has to look at the latest CBO report to know better.  There is nothing in the report to support any such contention by the administration.  To the contrary it points to a level of fiscal irresponsibility that is unprecedented in the history of this republic.  Obama’s budget would, if executed, double the public debt by 2021 to $20.8 trillion or 87% of the GDP.  That is if our economic and financial systems, not to mention the dollar, last that long:

In 2012, the deficit under the President’s budget would decline to $1.2 trillion, or 7.4 percent of GDP, CBO estimates. That shortfall is $83 billion greater than the deficit that CBO projects for 2012 in its current baseline. Deficits in succeeding years under the President’s proposals would be smaller than the deficit in 2012, although they would still add significantly to federal debt. The deficit would shrink to 4.1 percent of GDP by 2015 but widen in later years, reaching 4.9 percent of GDP in 2021. In all, deficits would total $9.5 trillion between 2012 and 2021 under the President’s budget (or 4.8 percent of total GDP projected for that period)—$2.7 trillion more than the cumulative deficit in CBO’s baseline. Federal debt held by the public would double under the President’s budget, growing from $10.4 trillion (69 percent of GDP) at the end of 2011 to $20.8 trillion (87 percent of GDP) at the end of 2021.

Given the outright deceit we’re regularly treated too by Democrats concerning their seriousness in addressing the problems we face, or their outright disinterest in  actually doing so (Harry Reid’s recent “see me in 20 years about Social Security” or his whining about defunding “cowboy poets”), it shouldn’t really surprise anyone that we’re in the shape we’re in or that this administration is actually offering these budgets on the one hand while claiming to understand that we can’t continue spending as we are on the other.

We even have Nancy Pelosi claiming Democrats have always been for fiscal responsibility.

It boggles the mind to even consider these numbers and yet we have an administration offering them as the way to go for the future and doing so with a straight face.  

Note the chart included here.  The “baseline projection” is what we’d spend under current law.  CBO claims one of the problems is a decrease in revenues under the President’s proposed policies with, you guessed it, an increase in outlays.  And we’d also see – and this isn’t unexpected at all, given the amount of money we continue to borrow – an increase in the percentage of outlays required to service the debt:

In particular, net interest payments would nearly quadruple in nominal dollars (without an adjustment for inflation) over the 2012–2021 period and would increase from 1.7 percent of GDP to 3.9 percent. Total outlays under the President’s budget would equal 23.6 percent of GDP in 2012, decline slightly as a share of GDP over the following two years, and then rise for the rest of the 10-year projection period. They would equal 24.2 percent of GDP in 2021—about 0.3 percentage points above CBO’s baseline projection for that year and well above the 40-year average for total outlays, 20.8 percent.

So if the President’s budgets were enacted, we’d see government outlays – that’s spending for the rest of us – hit almost a quarter of the GDP and the debt in total about 87% of GDP in 10 years.

Meanwhile Democrats continue to fight against almost every cut for the most inane reasons while we see the debt numbers continue to climb.  Republicans are at least are making an attempt at cutting spending, no matter how weak, but Democrats have given up all pretense.  And all credibility.  The President’s budgets are the final nail in the Dem’s faux “fiscal responsibility” coffin.