GDP and corporate earnings
Posted by WARREN MOSLER on July 30th, 2011
As previously discussed, stocks don’t need a lot of GDP growth to do moderately well.
Even with weak GDP numbers, high unemployment, a week consumer, weak housing, higher crude prices, moderating export markets, near 0 rates, QE, and a major earthquake in Japan, earnings for the first half of 2011, corporate earnings on average were pretty good.
So if govt. isn’t forced to go cold turkey to a balanced budget which could cause stocks to fall out of control, stocks could do well.
Risks remain, however, including the very real possibilities of trouble in the euro zone and China.
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Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan
July 30th, 2011 at 12:50 pm
Hi Warren, I’m a friend of a friend, and recently read your book. I had a question–so my understanding is that, for the U.S., the Clinton surplus we had briefly was not good, and that a higher deficit would counter-intuitively be a good thing (at this time). I agree, but wanted to know what your take on China was. China has both good growth and surplus–is it because of the pegged currency? And, wouldn’t they grow at an even greater rate if there was not that transfer of wealth to us via trade imbalance and holding our gradually inflating currency?
Sorry, I’m a couple of years out of college, so I’m rusty and even while I was there I goofed off in Macroeconomics class.
-Colin
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WARREN MOSLER Reply:
July 30th, 2011 at 1:11 pm
Hi!
China has a budget deficit and pumps out loans from state banks without regard for repayment which, functionally, is deficit spending.
The trade balance is a separate matter but it does alter domestic demand as well
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July 30th, 2011 at 5:54 pm
“Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan”
Warren, by cutting the deficit, we really may turn ourselves into the next Greece.
Rodger Malcolm Mitchell
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WARREN MOSLER Reply:
July 31st, 2011 at 12:06 am
it won’t make interest rates on tsy secs go up and spending won’t be prevented by lack of revenues.
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July 30th, 2011 at 6:06 pm
Warren,
yesterday on cnbc was JP Morgan, I believe, with a research report that concluded that cuts in govt spending seldom lead to lower gdp. Of course this was not about cold turkey cuts.
This would mean that usually there is a lot of waste in gov spending. The poor gdp in Q1 may evidence that once more. It all points in the direction of gov spending cuts now would be ok, but should be followed by even more tax cuts, till the deficit will bring full employment.
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roger erickson Reply:
July 30th, 2011 at 10:25 pm
@Walter,
doesn’t mean anything unless you look at the “moment” of taxes/issuer-spending/private-saving
three degrees of freedom for short-term changes in output;
have to wonder how clueless/disingenuous/”lobbyist” JPM is being with such a statement
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roger erickson Reply:
July 30th, 2011 at 10:28 pm
@roger erickson,
an ill-informed/motivated electorate is giving Control Frauds three degrees of freedom-removal, short term?
It’s more costlier to get lost options/freedoms back than to prevent their loss.
Surely there’s a white paper saying that loss of freedoms statistically leads to lowered GDP?
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WARREN MOSLER Reply:
July 31st, 2011 at 12:09 am
yes, been meaning to write up that report but time short
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August 1st, 2011 at 6:24 pm
Stocks have pretty much gone sideways this year as GDP fell to Q1 0.4% and Q2 1.3%. To say they have done well is incorrect. I also think that stocks will have difficulty making any upside progress if GDP hovers are zero. And I consider that to be a “best case” scenario.
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WARREN MOSLER Reply:
August 2nd, 2011 at 7:19 am
they were doing sort of ok until the debt ceiling thing but understood
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