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The GDP numbers are reported higher and then revised lower later on when no one is paying attention just like the unemployment numbers or housing data or consumer confidence or industrial production and much more data which is unbelievable and needs to be stopped. Consumer confidence is being destroyed in the markets as this nonsense goes on.
What makes this "recovery" so odd is that the labor force has not grown enough to participate in raising Potential GDP to a level that even closes the "existing" output gap (Potential GDP being lower than Real GDP in the case of a recession).
There's nothing odd about it really. The GDP is not really a good measure of anything, except the number of times money changes hands.
There are a few alternatives to GDP that more accurately reflect what's happening, but no one wants to use them (especially not the government).
What scares me is that the housing inventory is fourteen months in a non job economy. Almost every American location I've looked at has incredible housing inventory. Four months supply in a good economy is a bad indicator. Then the feds have attached to the health bill restrictions greater than Canada on buying, which is going to guarantee you don't move that inventory. Ouch!
There's nothing odd about it really. The GDP is not really a good measure of anything, except the number of times money changes hands.
Actually, the velocity of money measures the number of times money changes hands. GDP measures a country's overall economic output. It is the market value of all final goods and services made within the borders of a country in a year.
The longer potential GDP remains below Real GDP the more likely it is that we will have a "double-dip" or "new recession" as Real and Potential GDP do eventually converge, if only for a moment.
slackjaw, I assume you are asking me, I'm flattered and will try to do my best here.
Inflation, the velocity of money, GDP, and the change in the money supply are all related. Of course you already know that everyone that is paying attention is concerned that, with the Govt printing all of this money, we will find ourselves high inflation in the future.
Inflation has not reared it's ugly head because the velocity of money is very low due to the banks unwillingness to lend in earnest.
I do not have any idea how they could possibly pull this off but, IMO, in order avoid high inflation in the future as a result of all that has been done, [1] the money supply would have to fall, [2] GDP would have to be firmly positive before the banks started lending normally.
Thanks, I've seen the term thrown around but never really understood it completely. I'm still a little fuzzy maybe I'll do some googling today.
It is a "fuzzy" topic in and of itself.
I was trying not to be too technical but the basic equation is:
Inflation = Change in the growth of the money supply + Change in the velocity of money - change in output growth (GDP)
Then there are other factors such as whether or not the Central Bank has actual control of the money supply..etc. All heavily debated issues that causes the water to muddy quite a bit.
Perhaps the equation will help you understand what I was getting at in my analysis.
whether or not you like Krugman, here's his views:
"....Now, alert readers will have noticed that none of these arguments abruptly kicks in when the inflation rate goes from +0.1% to -0.1%. Even with low but positive inflation the zero lower bound may be binding; inflation that comes in lower than borrowers expected leaves them with a worse debt burden than they were counting on, even if the inflation is positive; and since relative wages are shifting around all the time, some nominal wages will have to fall even if the overall rate of inflation is a bit above zero. So the argument that deflation is a bad thing is also an argument saying that some economic problems get worse as inflation falls, and that too low an inflation rate may actually be economically damaging. That’s why the fact that inflation, while still positive, is below the Fed’s target is bad news..."
Push wages down as far as possible. $3/hr is a fair level for minimum wage.
And then push prices as high as possible: a fair price for oil is $600/bbl, a loaf of bread should be at least $10, gold: $10,000/oz.
Oh a party that only investors can only dream of.
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