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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

GDP Gain Just 1.8%

Posted by WARREN MOSLER on May 26th, 2011

No actual evidence, but my point remains that if the executive branch can cut spending they don’t like simply by not spending what’s authorized by Congress, they can take the pressure off demands for other spending cuts.

Also, again conjecture on my part, the QE and zero rate ‘tax’ (reduced interest income) may be what’s keeping a lid on growth here much like what’s happened to Japan for nearly 20 years.

As previously discussed, with 0 rates seems to me taxes can be quite a bit lower for any given size govt (larger deficit) without being ‘inflationary’. Unfortunately our fearless leaders are all going the other way.

Economic Growth Disappoints as GDP Gain Just 1.8%

May 26 (Reuters) — Surging gasoline prices and sharp cutbacks in government spending caused the economy to grow only weakly in the first three months of the year. Consumer spending slowed even more than previously estimated.

The Commerce Department says the overall economy grew at an annual rate of 1.8 percent in the January-March quarter.

That was the same as the government’s first estimate a month ago. Consumer spending grew at just half the rate of the previous quarter. And a surge in imports widened the U.S. trade deficit.

Many economists believe the economy is growing only slightly better in the current April-June quarter. Consumers remain squeezed by gas prices near $4 a gallon and renewed threats from Europe’s debt crisis.

7 Responses to “GDP Gain Just 1.8%”

  1. dave Says:

    Warren, what do you think about the idea that
    1. initially, low (zero) rates hurt growth because of lower interest income but
    2. eventually, savers get tired of low rates and are forced to increase investment in search of higher yield?

    Could be why job growth has picked up?

    Reply

    WARREN MOSLER Reply:

    yields always gravitate towards ‘indifference levels’ over time so when tsy yields fall other yields adjust to express risk adjusted spreads

    Reply

    PJ Pierre Reply:

    @WARREN MOSLER,
    i.e., lower yeilds in general,right?

    Reply

    WARREN MOSLER Reply:

    yes, in that it should keep the fed on hold that much longer

    but again, keep an eye on crude. if that starts going up again all bets are off

  2. hbl Says:

    Warren said: “my point remains that if the executive branch can cut spending they don’t like simply by not spending what’s authorized by Congress, they can take the pressure off demands for other spending cuts.”

    I must have overlooked this previous discussion. Am curious whether you have specific scenarios in mind, or external articles?

    Warren said: “keeping a lid on growth here much like what’s happened to Japan for nearly 20 years.”

    I’ve recently come to realize that Japan’s growth “problems” aren’t just *partly* demographic as is the conventional wisdom, they are almost exclusively demographic. Japan’s real per capita GDP growth since 1980 has been essentially the same as the US’s! Japan’s surged above the US trend line around 1987-1990 (peak of their real estate and stock bubbles) and fell back to the US trend line around the years 1997-2000 (coincident with Japan’s austerity). But the lines are almost identical since year 2000. See two graphs here:

    http://www.thoughtofferings.com/2011/04/real-gdp-per-capita-and-myths-about.html

    Of course, both economies could have been operating below potential to a similar degree (due to insufficient aggregate demand), even in the past! Throwing in a few other countries for fun:

    http://research.stlouisfed.org/fredgraph.png?g=BK

    Among my semi-random choices of country, the UK has highest real per capita growth over three decades. Japan, the US, and Australia are all in the middle. Germany and Canada come out slowest.

    I know hidden factors could impact the comparison (e.g., differing ratios of working age population to total population between countries) but if I’m overlooking meaningful factors in comparing Japan’s growth in this way, someone please let me know.

    Reply

  3. beowulf Says:

    “I’ve recently come to realize that Japan’s growth “problems” aren’t just *partly* demographic as is the conventional wisdom, they are almost exclusively demographic. Japan’s real per capita GDP growth since 1980 has been essentially the same as the US’s!”

    Shhhh! You’re lucky Japan doesn’t have a Patriot Act. :o)

    “Surprising though this may appear to unacclimatized Westerners, all the evidence is that the Japanese economy’s true growth performance has been systematically, if counterintuitively, understated in the last twenty years.
    For Japanese officials this is a matter of national security: Japan’s previous image as the juggernaut of world trade had proved dangerously counter-productive by the late 1980s. Since then the myth of an often absurdly dysfunctional Japan has been assiduously projected into the Western press. The result is that Western policymakers who once feared Japanese economic expansionism switched to pitying the “basket case.”
    At a stroke, the once-intense diplomatic pressure on Japan to open its markets all but disappeared.

    http://www.fingleton.net/?p=919

    Reply

    hbl Reply:

    @beowulf,

    Oops, maybe I am the clueless kid who didn’t realize everyone else was pretending…!

    Interesting article, thanks.

    Reply

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