What is the real economy doing? While yesterday’s GDP printed a surprisingly strong 3.5%, are we to take that on face value? If we care to most effectively navigate the economic landscape, we should dig a little deeper.

A full 2.2% of the 3.5% rise was directly correlated to Uncle Sam’s support of the auto and residential construction sectors of the economy. Another .6% of the GDP was directly correlated to federal spending. Obviously, the Uncle Sam economy implies a large presence by that jolly old man. However, all that money Sam is pumping is nothing more than borrowing from future generations and pulling demand forward.

What would the economy have done on its own without the government support? Let’s listen to Christina Romer. Recall that Ms. Romer referenced last week that this quarter would provide the peak impact of benefits accruing from Uncle Sam’s economic stimulus. What does she say about this GDP report?

The Wall Street Journal references Ms. Romer in writing, Economy Snaps Long Slump:

Without stimulus programs such as “cash for clunkers” and a first-time homebuyer’s credit, “real GDP would have risen little, if at all, this past quarter,” Christina Romer, president of the White House Council of Economic Advisers, said in a statement.

Why does Ms. Romer provide that sobering view of the economy? Very simply, if the American consumer represents 70% of the economy, then we should largely focus on that consumer. What did we learn about the consumer over the last quarter?

The Financial Times’ John Auther informs us in writing, Short View: GDP Grows, but Pain Remains:

Household disposable incomes actually fell during the quarter, by 3.4 per cent, but consumer spending rose, also by 3.4 per cent. This is not a pattern that can be sustained for long, and it is inconsistent with the need for US families to pay down their debts.

What does that disparity between income and spending represent? An unsustainable economic path. What else does it mean? The U.S. economy just had “Christmas in July.”

Did you get anything in your stocking?


  • elaine

    lark, you say we need deflation. What’s your answer to the millions of people who are on the hook for hundreds of thousands of dollars on their mortgages & all the investors who bought the securitized debt & Freddie/Fanny who guarantee those mortgages should they all just file bankruptcy? It’s not that simple. Who pays back the Chinese under your deflationary theory?

  • FrenchNail

    I have to vote in few days…. The parties have succeeded in offering me the choice between a crook and a thug. Same backers, same difference. The independant is a washy-washy liberal. No term limit in sight, no balanced budget commitment. Same coin, two sides.

    Anyway since I read the article on Naked Short Sales (stock market short sales, not real estate market short sale) by Taibbi I realized we have turned the point of no return about 3 years ago. I highly recommend the read. It’s long and heavy but a MUST.

    This administration got bought and paid for by the people who knew the point of no return had past and who knew they were facing ruin and prison if uncovered. They bought themselves freedom while flushing ours down the toilet.

    I do not know what America will look at the end of the tunnel, but we are getting deeper and deeper in the dark. Who knew that already Q1 2008 looked like prosperity compared at Q3 2009? And yes Q4 2009 will be bad, and that will be nothing compared to Q1 2010.

  • elaine

    Larry Kudlowe did a spot of the Cash for Clunkers tonight on CNBC & he had some statistician on who claimed every car costs the tax payers 24K. I honestly couldn’t follow the argument. Then Kudlowe says the stimulus that the Dems claim “created” or “saved” a million jobs actually cost $250,000 per job, that argument I followed. As for future generations paying for these bailouts: Geithner said on the CMBC town hall last month that he intends for our generation to pay off most of it.

  • Tammy

    I just got a letter from a group called Americans for Prosperity. I know, it’s a conservative group, but listen to this:
    The government now runs or owns 30% of the economy. If health care passes they will run 48%.

    This is clearly a takeover of the free market system, and this is almost exactly what Chavez did in Venezuela.

    If you aren’t frightened by this take over, then I don’t know WHAT will scare you.

    • FrenchNail

      The real goal is to create a close to majority level block of people depending on the gov for their paycheck. Once that’s achieved the lock is in forever. The unions move in and the coffin is closed on American capitalism.

  • HC123

    Its amazing how the O administration flagrantly cooks the books to get the headlines they want. Economy Fixed!

    What is really amazing is that it works on people.

  • Lana

    Apparently Edmunds.com has taken aim at the Cash for Clunkers program and the White House is attacking them on the White House blog. Edmunds saysm aybe the White House should not be shooting the messenger. Hmmm…shooting the messenger…WH attacks….where have I heard this before?

  • Tammy

    And just as I predicted: The stock market would take a nose dive at the end of October.

    This artificial “boost” in the economy was almost ALL a result of “cash for clunkers”. This last quarter is the one that is going to be SCARY.

    Buy gold or swiss francs. Your dollars will be worth less than toilet paper in another six months.

  • Carlaforhillary

    Thanks for the clear, concise post. This is fake recovery to make Obama look good to get support for his healthcare plan.

  • Diana L. C.

    Did you get anything in your stocking?

    Just tredding water here, can’t take time to check my stocking.

  • lark

    But your question was,

    What would the economy have done on its own without the government support?

    The answer is thousands of houses would have sold except at prices normal people can afford. But no, the thousands of houses that sold are still way above what normal people can afford.

    Thousands of cars would have sold, except at prices normal people can afford.

    If the government would get out of the way, prices would drop to what people can afford, is called “deflation” and it is what we need. But thousands of jobs would be created by people who would like to offer to others their stuff at affordable prices.

    The government is the culprit that durable goods are priced at prices that people can’t afford.

    A lab clinic just open a few blocks from my house and I had my blood work done for 27 dollars. Not bad, hna.

  • jwrjr

    There’s no generosity like somebody (i.e. the Federal Government) giving away somebody else’s money.

    • Onofre’s arm

      You’re right, there IS no generosity like that. It’s called “theft”!

      • Katmoon

        It is time to put some mouse traps in our pockets.

        • Onofre’s arm

          I tried that once. ONCE! I suffered premature entrapulation. OUCH!!!

          • Katmoon

            Rofl..ahaahhaaa its all in the placement of the cheese!

            • Onofre’s arm


  • Onofre’s arm

    I think I’ll prove my patriotism by following Uncle Sam’s lead. I’m going to max out all of my credit cards on fancy vacations, exotic food, plastic surgery, and outrageous clothing. Just think how I’ll be stimulating those industries! Next, I’ll get new credit cards to pay off the old ones. Then, when I’ve exhausted my ability to obtain new cards, when I get the bills, I’ll smile, turn my pockets inside out, and say “Sorry, no money here!”, and file for bankruptcy. Or, if Uncle Sam would let me, I’ll again imitate him by printing up a bunch of $’s to pay off my creditors. Hooray, I’ve just discovered an economic perpetual motion machine! Let’ all try it and see what happens. Ooops, it just occured to me that as a country, we’re already doing this.

    • Smart Blonde

      Have you forgotten that Congress passed legislation to make it far more difficult for individuals to declare bankruptcy? And that the new laws say that, if we do let you declare bankruptcy, you still have to pay off
      all your credit card balances! I believe Joe
      Biden had a lot to do with that legislation, as he was one of the senators from Maryland, home of the credit card industry. We can’t
      really blame O’bama — though he probably voted for it — because Bush* was president then.

      • Onofre’s arm

        So, with Uncle Sam (Obama), it’s do as I say, not as I do.

      • leslie

        Actually, Joe Biden is from Delaware. But he was as involved as they come in the credit card companies victories.

        • elaine

          They don’t call him Mr MBNA for nothing

  • donjo

    It’s too bad we didn’t emulate the recession-busting tactics of the Europeans, who put their stimulus money into the pockets of workers. This kept people employed, often in a part-time mode while collecting full wages guaranteed by the govts., and, as a result, they spent their wages which kept their economies flowing.

    The only 2 systems, the US and GB, that passed out their dough to the selfish cretins who caused the problem are still suffering and quite likely will face round 2 of the “recession.”

  • sowsear

    Wake me when it’s over.

  • Khan Krum

    This generational theft is worse than anything Bernie Madoff did. Can you imagine what our great-great grandchildren are going to think of us when they are born to live in a third world country because of all this nonsense?!!