Isn’t it about time that Obama claim victory over the recession?

Friday, September 4, 2009

It’s a new month which means the Obama Administration will and has begun its formulaic declaration of victory over the economic recession…again. If I remember correctly, we’ve declared victory every month since May, that would make this our fifth major declaration of victory. The only problem is that the recession still hasn’t taken the hint that it’s time to go into retirement. With new figures on unemployment showing a massive 223,000 jobs lost in August and recent news that GDP is stuck still at the falling rate of 1% per annum, who knows how many more victory declarations Obama will need to make before it’s all over? He’s like a weatherman (the non-domestic terrorist kind of weatherman) who calls for rain everyday so that he can say how right he was once it inevitably rains. Maybe it’s more like a Native-American rain dance?

I can’t just blame Obama, there are many economists that are saying stupid things lately. I guess that statement might be a bit too unfair, because honestly I’m not sure if it’s the economists or the reporters that are making the economists look foolish. For example:

"Mark Zandi, chief economist of Moody's, said, "I don't think it's any accident that the economy has gone out of recession and into recovery at the same time stimulus is providing its maximum economic impact."

Huh? Don’t we need to see positive economic growth before we are in a “recovery?”

When he talks about making an impact, perhaps he means this?

“IHS Global Insight, an economic consulting firm, estimates that the stimulus has increased the 2009 gross domestic product by about 1 percent over what it otherwise would have been, with the benefit almost entirely in the second half of the year.”

A little background, we economists use GDP and only GDP as the yardstick for economic recovery or recession. No matter what is going on economically in the US, so long as GDP is increasing, we’ve recovered. GDP is defined in simple terms as Consumption (people’s spending) + Investment (company’s spending) + Government (government spending) +/- our net imports/exports (balance of trade between other nations). As with all measurements, it takes a little interpretation. If you think you are sick and the thermometer reads 56 degrees, the obvious question to ask is “are you a corpse or is your thermometer broken?”

Let’s take a look at our recession thermometer. According to last month’s GDP report:

“The decrease in real GDP in the second quarter primarily reflected negative contributions from private inventory investment, nonresidential fixed investment, personal consumption expenditures PCE), residential fixed investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction
in the calculation of GDP, decreased.”

In simple speak, GDP decreased a little less than the previous month, but not because of consumption or business investment were doing great, but because the government spent a ton of your money. The government spent so much of your money it made up for the fact you and your employer aren’t doing so well. If the government continues to Spend-Big (we are at a $2 trillion deficit just this year), we might finally have some positive GDP figures. This is what everybody in the economics world is getting excited about. This is how the stimulus is being heralded as a success. Since government spending is getting bigger and bigger, soon the GDP number will finally go up. The reality of the situation will be that a single number ticked up, we aren’t going to be better off because of it. It’s like getting fired from your job, but you’ve managed to get so many credit cards and loans you might be able to completely replace your income. It’s a hollow achievement if government spending does nothing for people and businesses to increase their side of the GDP equation. The USSR used to post massive GDP gains while they were a communist nation and all they had was government spending driving their GDP, the people in the country lived in squalor.

Congressman Davis had a recent Op-Ed and he gave the stimulus outlays to date:

“Despite promises that this money would be spent quickly to stimulate the economy, an estimated $80 billion of the $787 billion has been spent to date. Those funds breakout roughly as follows: $26 billion on Medicaid grants to States; $13 billion to States for education; $16 billion for unemployment insurance; $13 billion for one-time Social Security payments; $3 billion for food stamps; and $1.7 billion for transportation infrastructure.”

The ugly truth is that to date the stimulus has been more of a bail-out for government than an economic shot to the arm for consumers and businesses. It certainly hasn’t lived up to the sales pitch the Obama Administration made for the bill back in February.

So when team Obama goes out to claim victory over the recession in September and the Obamabots go out to echo the claim that the stimulus is working great, please suggest to them that we might as well repeal the remaining 90% of the unspent funds. After all, the recession is over and the stimulus has worked already. Do they need the money anyways? I’m fairly certain team Obama can package and use the properly poll-tested words on the teleprompter this month to convince the recession to leave the US, never to return.

Related Links:

Robert Verdi had a great fact check on Biden today. If you don't follow his blog The 46 you should. He finds all the interesting articles that are easily missed by the media.

Robert have another excellent find today!


Great write-up Cgen, if only our press were as acute as you, then again you wouldn't have anything to write!

September 4, 2009 at 5:58 PM
Nick said...

The inclusion of government deficit spending in the GDP ranks up there with hedonic regression in the CPI as one of the largest BS government accounting outright lies which is astonishingly not regularly ridiculed by anyone with a couple of functioning brain cells to rub together. In fact, that should be an entry-level qualification to render an economic opinion without being summarily dismissed as an idiotic tool.

September 4, 2009 at 6:09 PM
TAO said...

So, Con Gen, what is "private inventory investment?"

September 4, 2009 at 6:26 PM
Anonymous said...

His claim to victory may be a key part of his address to the school children. They might actually fall for it.

September 4, 2009 at 6:44 PM
TAO said...

Maybe he could borrow that banner that GWB used on the aircraft carrier "MISSION ACCOMPLISHED"

Anyone here know where it is stored?

Seems to me that taking claim for successes that are not yet successful is a common trait of ALL politicians..nothing unique to Obama.

If you really want fancy government accounting then not including the Iraq War in the budget but rather funding it as a supplemental spending bill is really a whopper!

September 4, 2009 at 8:01 PM

Get over it TAO! Bush may have been a big spender, but nothing compared to Obama. And at least he only flew that banner once and didn't do it again. And again. And again.

September 4, 2009 at 11:44 PM
TAO said...

Dear Lonely,

What is there to get over? Obama doesn't look all that much different to me than Bush all looks like a long line of continous incompetence...

They are all big spenders, including Ronald Reagan, and that the only difference now is that a few people, and that is why you are Lonely, because there are only a few of you, believe that somehow Obama represents something new, something different, and for so long you used the words "liberals' and 'democrats' to signify all that was evil with government and now you actually have a real fire breathing liberal democrat in office...

While you will say that you had issues with Bush the truth of the matter is you really didn't because you actually believed somehow that he was a free market guy...

Republicans use the system to benefit there group of supporters and Liberals do the same...

As a small business owner I have not benefitted from either party because neither one gives a hoot about a little company with 250 employees...

On one hand I have to buy cotton, a commodity whos price has sky rocketed due to investor speculation, on the other I have to compete with foreign companies from China and India, and in between I have raising healthcare and taxes...oh and I had to deal with NAFTA.

My only saving grace is that I sell a basic product to a niche market and when the economy goes bad my business improves because people are going to buy less expensive clothing rather than the fashion stuff...

Don't be an apologist for Bush...Every year for the last 15 I have watched one statistic, personal household income and household debt since consumers are the core of my business the consumers ability to buy is important and that analysis showed that credit was a disaster waiting to happen...

I lost three long term suppliers during the credit meltdown last year: companies that could not operate any longer once their credit was pulled.

That caused me by surprise because I never thought that intelligent businessmen would allow themselves to use credit as cash flow...

I don't want tax credits for my business...I want a logically established, free of gimmicks, free of accounting tricks, economy.

But now I realize that our whole country has been living on credit that for years...Barack Obama has only been President for a few months.

So, to constantly go on and on about Obama is just a distraction from what are the real issues of this country...he and his bunch are not the solutions for ails this country but neither are they the problem as you so much want to see them.

I think if you take off your rose colored glasses you will notice that the Bush Administration was going on and on every month about the jobs they created, that the economy was sound (the economy is fundamentally sound) and John McCain said the same thing when the shit hit the fan....

Our economy hasn't been fundamentally sound for at least the last couple of decades...

Banks and consumers that thought that interest only, no down payment, loans for 115% of your purchase price, were sound logical safe products...geez! Get real....

Oh, and you want to dump on Obama? Really fixes things doesn't it! If it makes you happy then go for it...

It doesn't solve anything for me...I started my business 20 years ago and I have made it through lots of stupid politicans and I can outlast another one...right now my business is 27% higher than it was this time last year and I am up over 2007 too...

September 5, 2009 at 7:34 AM

LCR - If I didn't have anything to write about, I wouldn't be wasting so much time blogging.

Nick - You are so right. I've been meaning to do a post along the lines of what you are saying. However, let's look at it a different way. If we are going to take an inventory of water in this country, I suppose we would need to also include toilet water for acurracy sake, even if we only plan to flush it!

September 5, 2009 at 8:58 AM

Tao - private inventory investment is essentially the total amount of capital expenditures that companies have incurred for inventory.

September 5, 2009 at 9:05 AM

Nickie - If he tries to do that, all the hubbub about his little speech to the students be proven ridiculous. He'd put them all to sleep.

September 5, 2009 at 9:06 AM

Tao - By all means, GDP is not fancy government accounting. However, there is an inconsistency regarding how it is reported about in the media. It seems that when there is a President with an R in front of their names and GDP is going up, things are deteriorating in the economy. When the President has a D and GDP is going down, things are improving in the economy.

Obama's claims are silly, his stimulus plan was ridiculous waste of money and the results are painfully obvious.

September 5, 2009 at 9:13 AM

Lonely - I remember being taught that there was a difference between billions and trillions in math!

September 5, 2009 at 9:14 AM
TAO said...

So, Con Gen, if I believe that the economy has been detoriating for years, and still is that that makes me what? A "D" or an "R"?

If I say that government cannot get us out of the mess we find ourselves in that makes me a cosnervative but if I also say that our mess was created by greed and stupidity on the part of capitalism and that the concept of "too big to fail" actually is just a code word amongst some capitalists that society is beholden to them and them alone that that makes me a Liberal?

Then when I say that we have not generated any profits but rather found accounting tricks to paint lipstick on a pig and that there is a big difference between living on cash flow and living profitably that makes me what?

September 5, 2009 at 9:25 AM
Andrew33 said...

Obama thinks that just because banks are reporting more profits and the stock market is going up that he can claim that the stimulus is working. There is one problem with that theory. The rest of the economy which is now the real indicator of where we are headed is going down. The reason the banks and stock markets are going up as because there is so much printed money on the sidelines that it has to go somewhere. There is no advantage in loaning it out because there is no interest rate. The bottom line is what we are seeing is a "decoupling" of the banking system and Wall Street from the real economy which is the first sign of RUNAWAY INFLATION. The other problem is, if interest rates are raised, the economy will slow down, so we have RUNAWAY STAGFLATION. TO ANYONE OUT THERE WHO WILL LISTEN, THE DOLLAR IS ABOUT TO CRASH, GET ALL INVESTMENTS OUT OF THE DOLLAR WHILE YOU CAN

September 5, 2009 at 9:36 AM

Tao - I don't see anything wrong with spending, do you? When you take out a lone for an investment is that foolish? The answer is maybe, right? It's maybe, because it depends on the investment. It's maybe because it depends on how much debt you are already in and can afford. It's maybe because it depends on the type of debt you are taking out.

I don't disagree with your overall assessment on politicians. They do lots of stupid things. However, there is a difference between Bush and Obama and that is the total amount of debt - $2 trillion in the first 8 months of Obama and $1 trillion over the full 8 years of Bush. Obama's still looking to spend.

Obama's stimulus was a horrible investment. It was a waste of money at a time where it is essential to our economy that we don't waste money, and we are paying tons of interest to do it and even that's not enough so the Fed has monetized some of it.

Whether or not you believe Obama, Bush, Clinton, Reagan are different is irrelevant. Whether you like it or not, one of them is currently President and I don't see why it's so silly to provide criticism when the current leader makes a stupid decision.

September 5, 2009 at 9:44 AM

Tao - are comments are a little out of sink. My last one was to your second comment.

September 5, 2009 at 9:45 AM


"So, Con Gen, if I believe that the economy has been detoriating for years, and still is that that makes me what? A "D" or an "R"?"

As I've always said, I have great respect for you. Please give me the same courtesy and carefully read my comments. This statement was about the media. Are you the media? I was explaining my post, not making a generalization about you.

"If I say that government cannot get us out of the mess we find ourselves in that makes me a cosnervative but if I also say that our mess was created by greed and stupidity on the part of capitalism and that the concept of "too big to fail" actually is just a code word amongst some capitalists that society is beholden to them and them alone that that makes me a Liberal?

Then when I say that we have not generated any profits but rather found accounting tricks to paint lipstick on a pig and that there is a big difference between living on cash flow and living profitably that makes me what?"

And you are mad at me mistakenly generalizing you? Capitalism equals greed and stupidity? You are really opening up the door for quite a large debate. However, I think you might agree that there is so much more to the economy and our economic situation that this accusation you've made.

September 5, 2009 at 9:52 AM
nacilbupera said...

Could we just un-do the stimulous and not spend the rest of the money since we've already spent $80B of it only to lose over $2M jobs?
We agree, C-gen: a horrible investment!
We should divest now!

September 5, 2009 at 4:05 PM
TAO said...

Con GEn,

Why not review this rather than going on and on about Obama and the media's treatment of conservatives...

Might serve a higher purpose:

September 14, 2009 at 10:40 AM


I will explain once again, as I have in my post and on your post as well. Please stop and actually think about it. This is why I won’t waste my time as the NYTs did:

GDP, HDI, GNI…ect. It makes no difference. They are simply measurements and are only useful, helpful, whatever…when you understand how they work and what their problems are. If France wants to use the UN’s HDI or something else that incorporates it, that’s fine, but it’ll have shortcomings just the same as GDP. If Zimbabwe had some sort of dramatic improvement, like instituting a way to feed almost all of its citizens and sustain the program, this would translate into a longer LE, how long would it take for their LE to peak out to the reality of a program that might take a few months to implement and therefore show a real picture of HDI? The answer is that Zimbabwe’s HDI measurement would be artificially low for decades and decades.

Why use LE and not DALE? Who says that the health of an economy is directly linked to one’s LE? Most importantly, does it matter what measurement is used if you don’t understand it? Switch to HDI, I’ll still be here talking about the problems with HDI, because a measurement is only as good as the reasoning that interprets it. It’s a lateral move.

The keystone to my piece was an assumption about my readers. I assumed that if only government spending increased as a result from government stimulus, then everyone reading would conclude that this is essentially…bad. You have yet to disagree. No one has disagreed so far with this point. It would appear, so far, that everyone has something in common in this area. It’s an educated guess at the essential values of most Americans. If you don’t disagree, then what’s the problem?

As far as your comments here - “Might serve a higher purpose”

I’m still waiting for you to level with me. If you have a problem, feel free to say it. At least we’d come to an understanding and can move on or part ways. Instead you make your intentions appear duplicitous at the worst and hypocritical at best. I assume your intentions are more virtuous then that, but how long do I go on assuming?

September 14, 2009 at 1:38 PM
TAO said...

Con Gen, you believe that somehow it is personal between you and I and for the life of me I do not know where you could make that accusation. I do not know you thus how can I have any feelings for you one way or the other.

Now, I have been around for a long time and I have found that I become clearer in my own thinking and more successful as a businessman when I associate with people that I disagree with philosophically because that keeps me on my toes and makes me question my own thoughts before I act.

If I did not respect you and your knowledge I wouldn't waste my time interacting with you and if you believe that I comment and question on your blog for fun or to annoy you then obviously I am wasting my time. If I wanted to blog just for the sake of being 'cute' and making fun of others then obviously I could find quite a few more easier targets than you ( in other words you are not low lying fruit...and thats a compliment)

I own a business and I am interested in economics: I would like to believe that consumer spending will return to levels we saw in the past, but I realise that this recession/depression, with the high levels of consumer debt, will most likely create a more permenant change in consumer spending.

Its not a conservative/liberal thing for me, because I don't look at the economy from a political perspective. For example healthcare reform, when I see that 10% of all doctors polled were for a single payer option and 63% of all doctors polled were for a public option and as doctors ARE our healthcare system then I ask, "why are doctors so against heath insurers and so for a government option when I thought Medicare currently pays them less?"

Its a question to think about and research. I don't look at it from a pro healthcare and or anti healthcare perspective....I just look at it as it is.

Its just a question to think about and come to an understanding of.

I think we had a recession AND an economic meltdown of the financial/credit markets and that makes this different than the recessions in the past. I also think we need to look at GDP, as a country, and realize that it is just a guage to measure ourselves against other countries but it is not necessarily a guage to determine our own goals.

Of course the government is pumping money into the economy and none of us should be surprised. It is natural human nature to respond to an emergency and I can safely assume that a Republican President would have done relatively the same things that Obama is doing. Somebody was bound to throw money at our economy because an economy needs money and if consumers are the ones throwing money then the government will always step in there...

I think that healthcare reform is all about the reality that our standard of living, our GDP, will not grow in the future as it has in the past and reform is just an acknowledgement that of that fact and since it accounts for 16% of our GDP and there is a serious need to do something to control this.

I am not sure that the current reform is the answer but I am more interested in trying to come to grips with why healthcare? Why now?

So, basically I read blogs and I comment to THINK and to QUESTION...not to entertain. If you believe that your blog is for readers who want to be entertained then just say so and I will move on....

September 15, 2009 at 7:55 AM

Tao - Sorry for my delay in response. As I posted recently I've been swamped and won't be around much for the next coming weeks.

I greatly appreciate your comments and your blog. I'm glad you took the time to clear a few things up for me. I really appreciate it. As I've stated once before, written communication has very serious limitations, especially when one is engaged in debate.

From economics and business prospective. I believe you are right, home consumption will not recover anytime soon. In fact, the longer unemployment rate remains high, the longer you are likely to see permanent consumer purchasing changes. For example, my Grandmother still leaves out ingredients when making pie, because it's cheaper. She learned it during the Great Depression. The mentality never wore off.

If you don't mind me asking. Do you have a strategy for your company during the downturn? If you are a low cost leader, you have a real opportunity being that people will be looking to trade down from the Abercrombie's and Hollister's that are out there.

I respect you as a reader and writer and as someone worth listening to.

As far as this blog goes. You need to know your audience. I pride myself in reaching out to those that regularly disagree. Yourself, the Law, CJ...However, my audience is conservatives and so about 85% of my posts are directed at them. This post, is one sided. I've had many where I've tried to reach out to others and understand their point of view.

September 21, 2009 at 12:17 PM

Post a Comment