Posted by: thegreyfalcon | October 29, 2009

Cause and Effect

Today’s report of a third quarter 3.5% increase in GDP was matched by a +199.89 gain in the Dow Jones Industrial  Average.   Barrack Obama has wasted no time in taking credit for this, declaring  “the measures we have taken are working.”    But is this really the case?

Proponents of the stimulus insist that the growth figures are directly accountable to the Obama’s stimulus, and without it the economy would definitely be much worse.  First how do we distinguish between the impact of Obama’s stimulus and Bush’s stimulus last fall.   Is their some magical demarkation that allows the funds allocated by the Obama stimulus to work better than those provided for by the Bush stimulus?

Next one must consider what the 3.5% increase is measuring.  GDP is the measure of  the total value of goods and services in the nation. That includes government spending, which will be  $3.5 trillion.  This is $500 billion more than last year, which has to be figured into the third quarter growth.   Obama and Pelosi are patting themselves on the back for statistics that show how much money they can print up and spend.

Many point to the Dow Jones Average climb back to nearly 10,000 as another example of Obama’s success.  But that is based on the value of the company’s stock, not a direct reflection of the economy’s  actual health.  Much of the year’s rise in the  Dow was due to monies from TARP that were biased toward the larger investment institutions. 

Last year Warren Buffet put over 5 billion dollars into Goldman Sachs, and because of the nature of his investment he is among the first in line to receive any payback, where he stands to make several billion back. 

Further more, this stock market “recovery” has not been matched by employment recovery.  When Barrack Obama came to office unemployment was around 7.8%.  Today, as the administration takes credit for the third quarter growth, unemployment stands at around 10%.  (Real unemployment is really closer to 17%).   Of course, this part is all George Bush’s fault, right?

Obama’s redundancies about “inheriting” a crisis from the previous president reflect a lack of personal accountability.   Though the Federal Reserve continues to hold on to its approach of maintaining artificial low interests rates, the smaller banks are finding money much harder to come by.  

These smaller banks offered small business opportunities to start and expand when other sources were unavailable.  But the regulation mania has led to banks needing to hang on to more of its capital to meet mandatory leverage requirements.

Joe Biden confessed that they miscalculated when they announced that unemployment would not reach 8%.  He said we have to spend money to keep from going bankrupt.   The CBO revealed that the administration has missed its projected 10 year deficit by $2 trillion .   They were also wrong about the price of health care reform and the percentage of private sector jobs created by the spending.  This all does something that negatively affects the economy- uncertainty.

This uncertainty makes to difficult for those administering loans to determine whether or not these loans will be profitable.  Therefore small business loses out while Obama bails out large ones that failed.    Part of  the loan rate a bank charges is based on expected future rates of  inflation, which is almost inevitably going to be higher the way this government is spending our money.

Casual nomenclature holds that we haven’t seen inflation yet, but actually that isn’t true.  Technically inflation is an increase in the money supply, which during this administration is up a frightening 120%.  It usually takes two years for that to increase the CPI(Consumer Price Index).   When it hits it could have a devastating impact on small business and individual households. 

Part of the quarter’s growth was a 22% increase in durable goods, largely driven by “Cash for Clunkers”.  But critical analysis of this program exposed that the cost was $24,000 per car purchased. 

That is because the $3 billion program has to account for cars that would have been purchased anyway.  This simply means that purchases  that would have occurred in the future happened a little sooner, and most families don’t buy two and three new cars within a fiscal year.

So part of the car sales portion of the total growth is merely a temporal phenomenon, as car sales are simply going to be proportionately lower in the next two quarters.   With so many people out of work, this is hardly sustainable.

The 3.5 increase in GDP does not represent a recovery, it represents bad government, bad economics, and bad faith.  If you want a real recovery, get the government out of our way.