Archive for June, 2009

Better late than never?

June 29, 2009

Obama goofyNope, don’t think so.

Although I don’t think the stimulus package is overly harmful, it would have been better to not pass it than to give the government the opportunity to take credit for the recovery it has less than nothing to do with.  This is what they’re saying now:

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” Romer said.

How utterly convenient!  The big impact of the stimulus coincides with the consensus economic recovery.  I hope we don’t let them get away with that.  So, they passed this stimulus super fast so it could help when the economy is already ramping up?  This is always the problem with stimulus: the argument for it is to be counter-cyclical by having the government spend money in the troughs of the economy.  What ends up happening is by the time any of it kicks in, the economy is already in an upswing, so the stimulus becomes pro-cyclical, making the peaks and troughs more extreme.  It is political genius to continually change what the original intent was, thereby making you right in the end.  I’m afraid there are many people out there who are ready to except this outcome at face value and there are so few who are willing and able to call the administration on it. We can’t let them fool us!

Iran, We Are With You

June 18, 2009

Iranian FlagWhatever it means coming from some guy in Columbus, Ohio, I wanted to put my two cents in.  I want to tell those in Iran that I and countless other Americans are with them in solodarity in their quest for freedom.  You may not be successful this time around, but this is an extreamly important step.  I am optimistic. I can see a time on the horizon with an Iran free of tyranny and close friends with the US. I don’t think most of us can really understand what you are going through since we have lived our entire life in a country with strong liberty. Good luck.

Obama is About to Become Even More Popular

June 15, 2009

ObamaObama is a likable guy, even if his approval ratings are nothing to write home about for a new president. According to Rasmussen, Obama enjoys a 55% approval rating today, which is a jump off of his low of 53%.  His all time high is 65% on inauguration day.   He’s about to become a really popular president, whether I or anyone else agree with what he’s doing.  I haven’t payed close attention to previous presidents, but I’m pretty sure when the economy improves, so does the president’s poll numbers. It takes skill to screw up a gift like that.

I am among those who predict the economy will jump significantly at the end of this year, and I predict Obama will feel the benefits.   Some think that Obama is creating a huge inflation problem in the near future with his spending, I don’t agree with this.  There might be inflation in the future, and Obama could be held responsible, but it won’t really be his fault, inflation is primarily caused by Fed policy.  When the economy recovers, I see his approval ratings jumping, even though I don’t think he’s done much to help the economy.

Those who are trying to crush him are trying too hard, and they are too negative on the future of the United States, and they are going to be disapointed about how well we come out of this recent slump.  In my opinion, no one should be upset about economic recovery, even if it comes at political costs.  Obama’s tactics will eventually cause some problems.  We will be growing below potential. This will be hard to measure, and hard to argue, but those who are against him should not delude themselves into thinking his acts will instantly be his downfall.  There is incredible lag in the economy, which makes it a hard task to find cause and effect.  The reality is it’s easier to make up false, politically favorable economic arguments, on either side, than actually finding a more convincing true narrative.  A reason, I believe, economics should be required learning.

Quantifying the Economy

June 8, 2009

I mentioned last month that it’s likely the economy bottomed.  I still think that’s true, though we won’t see blinding evidence of this for quite some time, but there are strong indicators that it’s already happened.  My biggest concern is economic growth, because the faster the economy grows, the faster our lives get easier and more stable. How do we measure economic growth?  One of the most widely used indicators is GDP or Gross Domestic Product.  It’s the value of everything we produce in the country.  Another way to look at it is the sum of all of our incomes.  So GDP is basically the nation’s yearly salary.  Currently, it is about $13.86 trillion. A year ago, it was well over $14 trillion if I remember correctly.  So, GDP is a good piece of data to look at, but unfortunately, it doesn’t tell us what’s happening up to the minute.  Lets take a look at how GDP is reported.

GDP growth is calculated for a three month period, or quarter, and released at the end of every month on an annualized basis.  The first month after each quarter (Q1: Jan.-Mar., Q2: Apr.-Jun., Q3: Jul.-Sep., Q4: Oct.-Dec.) we get an advanced reading, which has a lot of estimates since the data isn’t all out that soon after the end of the quarter.  A month later, we get a revision called “preliminary GDP” and then in the 3rd month we get “final GDP.”  We end with the best estimate for economic growth for the previous quarter at the end of the following quarter, but these are still subject to revisions in the months (and years) ahead.  Still, it is a useful measurement for how much our economy improved.

So, at the end of July, we will have the preliminary GDP reading on the 2nd quarter (Apr. – Jun.).  I expect 2nd quarter GDP to end up between -1.0% and 0.0%, and I’m hoping for as close to flat as possible.  The consensus forecast is -1.5%, but luckily(?), they are often pessimistic.  Since Q2 contains the end of the recession and the very early start of the recovery, the average of the two will determine how positive or negative the quarter is.  What this means though, is that all of Q3 will be positive, and it could be hugely so, in the 3% region.  The down side being we won’t actually get the first real positive number until late October.

You’ll be hearing for many months to come that the economy is doing poorly, but just keep in mind that it’s already hit bottom and doing better.  The media thrives on bad news and isn’t brave enough to admit the recovery until it is completely obvious.

On a related note:  I believe the economy would have rebounded now whether or not the “Stimulous Package” was made law.  The stimulus will do something (good or bad no one can really know), but it hasn’t had a chance to do much of anything yet.  This won’t stop the government from taking credit for every good data point though, so when they do, try to take it with a grain of salt.