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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 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.


Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan

10 Responses to “GDP and corporate earnings”

  1. Colin Says:

    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

    Reply

    WARREN MOSLER Reply:

    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

    Reply

  2. Rodger Malcolm Mitchell Says:

    “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

    Reply

    WARREN MOSLER Reply:

    it won’t make interest rates on tsy secs go up and spending won’t be prevented by lack of revenues.

    Reply

  3. Walter Says:

    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.

    Reply

    roger erickson Reply:

    @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

    Reply

    roger erickson Reply:

    @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?

    Reply

    WARREN MOSLER Reply:

    yes, been meaning to write up that report but time short

    Reply

  4. Mike Norman Says:

    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.

    Reply

    WARREN MOSLER Reply:

    they were doing sort of ok until the debt ceiling thing but understood

    Reply

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