Caution: economy may be no worse in July then first half
Posted by WARREN MOSLER on August 5th, 2011
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August 5th, 2011 at 9:52 am
yes, but more people are now aware of how bad it was all along;
plus, alignment of bad news from multiple fronts is slowly building
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August 5th, 2011 at 10:13 am
suspect the winddown of the stimulus will subtract a decent amount of growth.
Although lower energy prices will allow for more consumer spending. If oil holds at $85 or goes lower, it adds huge amounts of spending to the economy. As far as I can tell, lower oil and gasolne prices act very much like a payroll tax holiday due to where it hits the economy.
Also, stock market will take a beating due to lower profits – the stimulus peaked in q2 last year and so we’re heading into times of lower profits. This will dominate headlines and mental share, so even though growth might not be that much lower, CNBC will be freaking out over the bad economy.
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August 5th, 2011 at 11:08 am
This graph shows a consistent, repeating pattern:
1. Reduced federal deficit growth leads to recession
2. Recession is cured during increased federal deficit growth
3. Reduced federal deficit growth leads to next recession.
What part of the graph are we now on? Right: Reduced in federal deficit growth. I wonder what will happen next.
See how simple economics can be?
Rodger Malcolm Mitchell
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Mario Reply:
August 5th, 2011 at 2:34 pm
@Rodger Malcolm Mitchell,
exactly. It doesn’t get more obvious than this
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Gary Reply:
August 5th, 2011 at 5:35 pm
@Rodger Malcolm Mitchell,
I guess the real question is – how long will this stage of “Reduced federal deficit growth leads to recession” last.
Last one lasted about 10 years and contained big equity bubble.
We know that it was driven by private debt. So the question is – can private debt start rising again?
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Mario Reply:
August 5th, 2011 at 6:25 pm
@Gary,
what about business investments considering all the cash they have? If they could get deals on establishing themselves in rentier positions, I’m sure they’d throw in for it and the banks would be happy to do it…all under the guise of “investment is back up again,” etc., etc.
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August 5th, 2011 at 11:08 am
Here’s the graph:
http://research.stlouisfed.org/fredgraph.png?g=1qS
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August 5th, 2011 at 2:37 pm
“But it was that amount of growth that generated the reported employment growth in the first half.”
you’re forgetting the debt ceiling fiasco and the resulting drop in federal spending, which now seems to be a more long-term goal for us. Q1 federal spending is so last year…we’re balancing the budget now!!!
“So the fiscal impact of the governments inactivity during the 2.5 months of useless arguing about the so-called “debt” ceiling: Fiscal was reduced from a previous $115B/mo. rate to a $76B/month rate.”
h/t Matt Franko. here: http://mikenormaneconomics.blogspot.com/2011/08/fiscal-flows-during-period-of-operating.html
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WARREN MOSLER Reply:
August 5th, 2011 at 5:12 pm
Nothing I know of substance has been cut yet?
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Mario Reply:
August 5th, 2011 at 6:23 pm
@WARREN MOSLER,
yes you’re right apparently the cuts are backloaded but does anyone know when the earliest and the latest start dates are for these cuts? I thought they would start Jan 2012 and go into 2013 as well and that they essentially are “guaranteed” cuts based on the way they have set up the arrangement with the super committee, etc. So cuts ARE coming we just don’t know when exactly yet I guess.
Basically I read that to mean that any “respites” we get between now and then we may find some upswing but the trend is still down and sooner than later we’ll get smacked down even harder than this week’s schelacking (as the saying seems to go these days). But again I don’t know jack *&* and I’m not in the business of predicting (thank goodness!!). ;)
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