Celebrations have broken out across the American nation, declaring the end of the Great Recession. Statistics published by the government claim that the nation grew at an annualized rate of 3.5%. Consumption, which is almost 71% of GDP contributed roughly proportionally to the increase in GDP. Investment as a whole, which has fallen to just about 11% of GDP amounted to approximately 35% of Q3 growth. However, a further breakdown of the data provides a revealing look at the continued lack of real improvement and growth in the American economy.
Auto Sales: 1.66%, or almost half, of the 3.5% increase in GDP can be attributed to "Cash for Clunkers" program. Upon termination, auto sales dramatically declined and returned to levels seen earlier in the recession. According to Reuters, "U.S. consumers are expected to buy only between 10 million and 10.5 million cars and light trucks this year, well below the pre-recession peak near 17 million hit in 2005." It is therefore certain that future vehicle sales will not have as much contribution as this quarter.
Housing Tax Credit: An $8,000 tax credit was offered to first time buyers of houses as an incentive. This program added another 0.53% to GDP. According to Bloomberg, "Many buyers accelerated purchases of new homes to take advantage of the $8,000 tax credit before it expires Nov. 30." Systematic fraud has been observed in the program. Out of the 400,000 people who participated in the program, at least 70,000 cases could have been fraudulent, as in 500 cases where children applied for the credit. In addition, sales of new homes decreased for the first time in six months, falling 3.6%. Year-over-year, new home sales were 7.8% lower and the year-over-year median sales price of a new home fell 9.1%. Foreclosure rates are up 5% in the Q3 and are at record highs in Nevada, Arizona and California. Altogether, the housing market is far from stabilized and little reprieve should be anticipated.
Military Expenditures: National defense increased 8.4 percent or 0.45% of GDP. This portion represents continued combat in Iraq, Afghanistan, and now Pakistan and other related Pentagon build-ups. In terms of real stimulus value, this is the worst of the lot. Under the Bush years, GDP was always inflated due to the immense cost and waste incurred by the GWOT. Iraq alone is still costing the US taxpayer, as of October 2009, nearly $8 billion dollars a month. Unlike infrastructure and other forms of long-term domestic investment in such things as people and the environment, military expenditures are a black hole. There is no wealth creation in producing bullets or tanks except to those who manufacture these implements of war.
Inventory: The final reason for this past quarter’s growth is through companies dumping inventory, though less aggressively than during the previous quarter. This too is hardly any reason to be dancing in the streets.
Thus, what can be discerned from the poor growth numbers is that the government’s attempts at pump-priming the economy, in hopes of restarting the engines of growth, have been inadequate and in the long-term, possibly fruitless as the recession continues to shed jobs, shutter real businesses, and foreclose on homes. The conceit of the consumer being king is dead; the bills are past due, consumer confidence is shot, and everyone is hoarding every penny they have.
At least the rat-bastards at Goldman Sachs are happy.
Auto Sales: 1.66%, or almost half, of the 3.5% increase in GDP can be attributed to "Cash for Clunkers" program. Upon termination, auto sales dramatically declined and returned to levels seen earlier in the recession. According to Reuters, "U.S. consumers are expected to buy only between 10 million and 10.5 million cars and light trucks this year, well below the pre-recession peak near 17 million hit in 2005." It is therefore certain that future vehicle sales will not have as much contribution as this quarter.
Housing Tax Credit: An $8,000 tax credit was offered to first time buyers of houses as an incentive. This program added another 0.53% to GDP. According to Bloomberg, "Many buyers accelerated purchases of new homes to take advantage of the $8,000 tax credit before it expires Nov. 30." Systematic fraud has been observed in the program. Out of the 400,000 people who participated in the program, at least 70,000 cases could have been fraudulent, as in 500 cases where children applied for the credit. In addition, sales of new homes decreased for the first time in six months, falling 3.6%. Year-over-year, new home sales were 7.8% lower and the year-over-year median sales price of a new home fell 9.1%. Foreclosure rates are up 5% in the Q3 and are at record highs in Nevada, Arizona and California. Altogether, the housing market is far from stabilized and little reprieve should be anticipated.
Military Expenditures: National defense increased 8.4 percent or 0.45% of GDP. This portion represents continued combat in Iraq, Afghanistan, and now Pakistan and other related Pentagon build-ups. In terms of real stimulus value, this is the worst of the lot. Under the Bush years, GDP was always inflated due to the immense cost and waste incurred by the GWOT. Iraq alone is still costing the US taxpayer, as of October 2009, nearly $8 billion dollars a month. Unlike infrastructure and other forms of long-term domestic investment in such things as people and the environment, military expenditures are a black hole. There is no wealth creation in producing bullets or tanks except to those who manufacture these implements of war.
Inventory: The final reason for this past quarter’s growth is through companies dumping inventory, though less aggressively than during the previous quarter. This too is hardly any reason to be dancing in the streets.
Thus, what can be discerned from the poor growth numbers is that the government’s attempts at pump-priming the economy, in hopes of restarting the engines of growth, have been inadequate and in the long-term, possibly fruitless as the recession continues to shed jobs, shutter real businesses, and foreclose on homes. The conceit of the consumer being king is dead; the bills are past due, consumer confidence is shot, and everyone is hoarding every penny they have.
At least the rat-bastards at Goldman Sachs are happy.
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