Cross-posted from Credit Writedowns
I have stopped reporting the quarterly GDP numbers but this last reading bears mentioning. The US Bureau of Economic Analysis reported the following at 830AM ET:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.
The immediate reaction was a drop in the dollar to record lows against the Japanese yen and Swiss franc, a drop in Ten-year yields to 2.88%, a drop in the Dow Futures to –137 and a rise in the Gold price by $10 to $1626.
While the headline number was well below expectations of 1.8%, what must be noted are the major revisions. Q1 2011 is now reported as +0.4%. That’s a major downward revision which demonstrates that QE2 was in fact doing nothing for growth and that the US is already at stall speed even without the negative impact of the European sovereign debt crisis and the debt ceiling fiasco. The double dip scare is real.
Here is how the BEA explains the extensive revisions:
Current-dollar GDP was revised down for all 3 years: $77.6 billion, or 0.5 percent, for 2008; $180.0 billion, or 1.3 percent, for 2009; and $133.9 billion, or 0.9 percent, for 2010. The percent change from the preceding year was revised down from an increase of 2.2 percent to an increase of 1.9 percent for 2008; was revised down from a decrease of 1.7 percent to a decrease of 2.5 percent for 2009; and was revised up from an increase of 3.8 percent to an increase of 4.2 percent for 2010. Current-dollar gross national product (GNP) (GDP plus net receipts of income from the rest of the world) was revised down for all 3 years: $82.9 billion, or 0.6 percent, for 2008; $174.1 billion, or 1.2 percent, for 2009; and $132.8 billion, or 0.9 percent, for 2010… Current-dollar GDP was also revised down for all 4 years from 2004-2007: $14.5 billion for 2004, $15.4 billion for 2005, $21.7 billion for 2006, and $33.1 billion for 2007.
While I am reporting this, I should note that the President made news regarding his understanding of the origins of the deficit and our slow growth recently when he said:
“For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card. As a result, the deficit was on track to top $1 trillion the year I took office.”
This is patently false. In fact, this is scary. Dean Baker tells us:
This is seriously mistaken.
The Congressional Budget Office’s projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not "on track to top $1 trillion."… Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn…. This misunderstanding of the origins of the budget deficit could explain President Obama’s willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid…
Hat tip to Brad DeLong for the information
In sum: The President has no idea why the deficit exploded, we are in jeopardy of default, and we will cut spending in into the teeth of a serious growth slowdown. America is rudderless. God help us.