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Yesterday, I wrote about my prediction for an “official” double-dip recession. One of the points I covered was the release by the Commerce Department of the second quarter GDP figures (along with the downward revision of the figures for the first quarter 2011 back to before the start of the Great Recession/Lesser Depression.)
Today, I have seen a couple of articles pointing out that the (lack of) government spending at all levels has been a large factor in the “disappointing” GDP figures. First up is this blog post from yesterday’s Washington Post with the title “GDP Shocker: ‘Much of the drag was government’:
So what was the problem?
Government, according to Faucher. “The major drag came from government, on both the federal and state and local sides. Government subtracted 1.2 percentage points from growth in the first quarter, with the federal government accounting for about two-thirds of that,” he said.
Hoocoudanode, right?
Bloomberg reported it this way:
Spending and investment by state and local governments shrank at a 3.4 percent annual rate in the second quarter, matching the decline in the first three months of 2011, the U.S. Commerce Department said today. The fourth consecutive drop is the longest such slump since the government began compiling quarterly data in 1947.
The U.S. economy expanded at a less-than-forecast 1.3 percent annual rate, the Commerce Department said. State and local governments accounted for a 0.41 percentage point drag, the same as the first quarter, as governors and mayors adjusted to lower revenue by cutting employees and services.
Peterr over at Firedoglake has this post today pointing out the problems of folks at all levels when they have too much month left at the end of the money compounded by worry that Social Security checks may not be forthcoming in August. But this little nugget really says it all for me:
When even the Chamber of Commerce is telling Congress to worry about the economy, you know that the GOP has gone way off the deep end. OSK-Deutsche Bank economists concur, as do the folks at Macroeconomic Advisors
Now I do have to ask how many folks remember the response of Speaker of the House Boehner way back in February when it was pointed out to him that cutting jobs could hurt the economy:
So be it.
You really should be careful of what you ask for Mr Speaker.
And because I can:
Cross posted from Just A Small Town Country Boy
27 Comments
Just pointing out that all of this is really no surprise at all unless you are of the belief that government workers aren’t real workers and in the economy.
Then reality sets in – or should
I don’t see any problem that more govt. cuts won’t solve. We the people are on the way to Shock Doctrine for Main Street only and dod/vedors and ws are safe to steal the last $$$$$ of the middle class as the good ship Amerika sinks in the sunset.
Let’s start a pool to predict when we’ll begin seeing apples sold on street corners and people living in tent cities.
Government does not create jobs. What FDR did is a fairy tale.
The 9% unemployment will go UP! We should get used to this as the new “normal”.
Austerity is good for the country. What FDR did is a fairly tale.
We WILL for much less, more hours, NO benefits at all. Our jobs will in the service sector making minimum wage. Get used to it. We have to be “competitive” with the country in the world that pays the least. BTW, there’s slavery still present in the world. They just don’t call it that. So we have to compete with … slaves. Meaning we get paid nothing.
Tax cuts will create jobs. It will happen.
The poor, or unemployed, or [insert weak and defenseless group here] DESERVE their lot in life. They deserve it. Give them some bootstraps.
Any fascist talking points I missed?
People already living in tent cities.
The corporate media doesn’t cover it because it’s “sad”.
Tent cities are already in and around major cities. They will grow by the end of theyr when IE runs out for millions more and who knows what’s in this bill, cut in food stamps?
Time to go back outside before it’s to hot. A mild 95 here today in the central valley calif.
You do hit most of them at least.
I’m sure there’s few more but the list looks good to me;)
The only good fascist is a dead fascist.
The Federal government currently is borrowing money amounting to 11% of GDP and spending it.
To backtrack a little bit, if that money that is usually borrowed, in this case by the Treasury, stays in the lenders bank account or under the mattress then it does not enter the economy. On a systematic basis that is what in effect happens to money not lent, it stays in the mattress. That is why the expansion of credit is the number one driver of economic growth. Credit expansion defines growth and credit contraction defines recession and depression.
Because households, business and finance have for 3 years not expanded their borrowing at all essentially it has been the explosion of government borrowing, here and worldwide, that has kept the economic boat afloat.
If the US Treasury is not allowed to borrow and spend at a rate somewhere north of 5% of GDP then we will have a crushing recession. And that is not even trying to calculate the credit implosion that will come as everyone else becomes afraid to lend and borrow and as much existing debt slides into default.
I think you missed a few on the Security State and militarization, but you got the high points.
I never understood the term “Prematurely Anti-Fascist”. Well, OK, I understand the term, but the concept boggles the mind.
The impacted people are under reported in the reports as well as the media. The perps that are causing this recession were hidden by the reporting agencies.
It is shocking that the real numbers have not been reported for three years. Another criminal coverup as the pain goes untreated and the suffering contunues.
Competing for slave wages, off-shoring jobs and cutting local, state and federal jobs and budgets is the cause of all this unecesary sufferring, Obama administration is very complicit as are the democrats.
I don’t think it will be a recession. It will embolden the crazies and we’ll get what will be known as The Greater Depression.
Yeah, I used to get in a little trouble back in my ROTC days when I would question that phrase
You you are absolutely correct.
SS and military. Big ones I missed.
Next time.
It is incredibly odd that virtually nobody grasps the implication of this. Truth be told the role of credit in the economy has been ignored or buried by the economics profession and everyone else.
Instead they talk about ‘confidence’. This fetish for confidence has it completely backwards. To the extent that they imply that confidence is what leads to an expansion in credit, which they rarely do. If credit expands then the economy can expand. If credit contracts the economy contracts. I said it before and I will say it again, it is the direction and degree of credit expansion or contraction which determines, directly, the direction of the economy.
Some, many people just refuse to understand Keynes’s principle of effective demand that spending, any kind, including government, determines employment (i.e., unemployment) and output.
The one largest cost in household budget is home mortgage or rent. This graph shows that rents were cheaper during the bubble as more people were buying. Now many more are putting pressure on the rest of us as they move out of foreclosure into rentals.
http://cr4re.com/charts/charts.html?Home-Prices#category=Home-Prices&chart=PriceRentMay2011.jpg
Even more interesting the graph shows were have never gotten out of the recession.
Goldman downgraded their own predictions for Q4 and the next quarter. Stop the insanity we are canabalizing our selves.
Most people don’t even know they must understand that it is credit financed demand which creates growth. If households, business or the financial sector are not expanding their credit then as Keynes said, it can be government. It is credit driven spending/demand that makes the system work.
I know the concept is hard to get into the head because while it is readily apparent it has been buried by the economic consensus.
To say the least government borrowing north of 10% of GDP just to keep growth in the fractional plus column is a disaster of epic proportion. Such in fact is not sustainable. To go there however plunges one into a political discussion which eliminates understanding. I am simply talking about the mechanisms of the economy.
Disagree; the role of credit in the economy HAS been addressed; see Richard Wolff and “Capitalism has hit the fan’. He’s not the only one who has pointed out that easy credit was given in order to not having to increase wages.
It is not just easy credit. I don’t know the book or his case but the case I make is more fundamental. Credit growth determines the direction of the economy. That is how the system works.
I will restate the case. Currently the Treasury easily borrows money in the amount of 11+% of GDP. Lenders prefer that to lending to others of putting the money to work directly buying capital or just stuff. So the Treasury borrows and puts it to work by sending out checks amounting to about $110 billion a month. If the Treasury does not borrow that where will the people who buy Treasury securities put their money? Under the mattress, in essence. Lend it to others. Unlikely. Nobody else is trusted. (If the Treasury is to be trusted is another matter but it is by habit and thus default) Into stocks, gold, real estate, oil leases, fine art, who knows? Bidding up asset prices like that does bleed into the economy but indirectly and slowly and if it is into basic commodities then that inflates the prices at the consumer level. Most likely is the money will stay frozen.
So if the limit is not raised then a good part of approx $120 billion a month is going to be absent from the economy. Period. Money not sent to vendors. Money not sent to contractors. Money not sent to whoever draws the short straw. This is a disaster of massive proportion.
The last time the alarms were blinking red – as they are now, that Administration ignored it to our peril. It was August of 2001.
The alarms are blinking red again, and our current Administration is as blind to the threat or danger (or not blind- depending on your interpretation) no jobs and austerity as the answer to it.
I don’t know about your particular communities, but in mine, the security gates are not high enough to keep out those who may perceive that their futures were sold for the collction of trinkets that now reside on the other side of the security gates.
In 1984 the symbolic picture of fascism was a black boot grinding under humanity forever. Sounds about right.
bigbrother wrote,
‘complicit’? How? It wasn’t Dems who tried to destroy unions or keep down wages or cut state & local jobs & budgets.
Actually it was “democrats” like Clinton who aided and abetted and it is Dems like Cuomo, Patrick, and Malloy who are doing nearly the same things as Walker, Scott, Perry, etc – just using the “we’re not being as mean as the other guys” to get away with it
It is credit driven spending/demand that makes the system work.
No. This sentence of yours is the result of stagnant wages. No one should have to go into debt to make the system work.
you argued with ubetchiam above, but he is an economist. There are some diaries here by selise that lay the concept out really well. Others are masaccio, Beowulf, scarecrow and there are others too.
http://my.firedoglake.com/selise/2011/06/06/stephanie-kelton-what-happens-when-the-government-tightens-its-belt/
http://my.firedoglake.com/selise/2011/04/14/usg-deficits-the-economics-the-politics-the-banksters-and-you/
http://my.firedoglake.com/selise/2011/03/29/pavlina-tcherneva-modern-monetary-theory-and-mr-paul-krugman-a-way-forward/
http://my.firedoglake.com/selise/2011/03/29/why-paul-krugman-and-we-need-to-take-mmt-economists-seriously/