Thursday, May 27, 2010

Ignorance Is Bliss

Sometimes the most interesting news of the day is the news that got ignored. The Gulf Oil Spill currently dominates the general news. The Obama's bribe of Pennsylvania senate hopeful Joe Sestak currently dominates the political news. All economic news today was trumped by China's denial that they were selling European debt. But what about today's GDP revision/report?

There was a GDP revision today? Yes, there was...and it was bad. I guess that's why it was ignored.

First-quarter growth revised down to 3.0%
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) -- The U.S. economy grew at a 3.0% pace in the first quarter -- lower than previously estimated -- owing to slightly smaller increases in consumer spending and purchases of business software.

The Commerce Department last month originally reported that gross domestic product expanded at a 3.2% clip in the first three months of 2010. The latest revision incorporates data that is not available for the first reading of GDP.

Economists surveyed by MarketWatch expected first-quarter growth to be revised up to 3.5%.

US growth slows as stimulus wears off
Alexandra Frean, US Business Correspondent, Times Online
Economic growth in the United States slowed more than expected in the first quarter of this year as the boost received from the Government’s fiscal stimulus started to fade and the rate of corporate profit growth declined.

The economy grew at an annualised rate of 3 per cent between January and March, according to the US Department of Commerce in its second estimates for the period.

The pace was slower than the estimated 3.2 per cent growth rate published last month and the 3.4 per cent expected by economists.

It was also significantly less than the 5.6 per cent recorded in the fourth quarter of last year, when growth surged as businesses restocked inventories and the Government spent heavily to stimulate the economy.

It's always rewarding to read "the news" from various sources to get a true perspective of the story behind the news. In the Marketwatch post from Wall Street, you get the sanitized version of the GDP revision. While in the Times Online post from London you get the dirty truth about the GDP revision.

First and second quarter GDP growth were both more about federal government stimulus than they were about true economic growth. In fact, both quarters numbers are probably more reflective of "growth in inflation", than they are in legitimate economic growth from manufacturing and spending. Like almost, if not all, government economic statistics released these days, these GDP numbers are just phony enough to the upside to keep the "hope" of a recovery alive, and the confidence of the public in the governments ability to steer us clear of this Great Recession [Depression].

It just looks like today, nobody seemed to care about the economy.

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real
Contributed by The Economic Collapse Blog
If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery. In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before. But is that really the case? Of course not. You would have to be delusional to believe that. What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time. But they have also made our long-term economic problems far worse. The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever. At some point the charade is going to come crashing down.

And GDP is not a really good measure of the economic health of a nation. For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving. German citizens were spending increasingly massive amounts of money. But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase. So just because Americans are spending a little bit more money than before really doesn't mean much of anything. As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble.

Any "recovery" that the U.S. economy is experiencing is illusory and will be quite temporary. The entire financial system of the United States is falling apart, and the powers that be can try to patch it up and prop it up for a while, but in the end this thing is going to come crashing down.

But as obvious as that may seem to most of us, there are still quite a few people out there that are absolutely convinced that the U.S. economy will fully recover and will soon be stronger than ever.

So the following are 25 questions to ask anyone who is delusional enough to believe that this economic recovery is real...

America biggest security risk: our debt
By Frank Ryan
As Milton Friedman said in “Capitalism and Freedom”: “Ever since the New Deal, a primary excuse for the expansion of governmental activity at the federal level has been the supposed necessity for government spending to eliminate unemployment. ... This view has been thoroughly discredited by theoretical analysis, and even more by actual experience.” Friedman concludes that the arguments deployed for fiscal stimulus are part of economic mythology, not the demonstrated conclusions of economic analysis or quantitative studies.

Until the federal government returns to the authority defined for it in the Constitution Article 1, Section 8 and further refined in the Ninth and 10th Amendments to the Constitution, we are likely to be vulnerable to an economic attack.

If we act now, the decision is ours. If our nation waits, the decision of our fate is in the hands of our mainly overseas creditors.

Deficit spending is not leadership
This week, Congress is to vote on a spending extension bill, complete with a price tag of nearly $200 billion in tax increases and deficit spending. Also this week, our national debt is forecast to hit the $13 trillion (with a 't') mark — another sad and ignominious milestone.

In 1987, when the national debt was approaching $1 trillion, President Ronald Reagan called it "out of control." I shudder to think what he would say now that we're about to cross the $13 trillion threshold.

The federal government continues its binge spending at an astonishing pace — running up our national debt and leaving our children, grandchildren and great-grandchildren with an ever-expanding IOU. Words like "billion" and "trillion" are thrown around with little regard for the impact these staggering numbers will have on our nation's economy — both now and in the years to come.

In coming months, Congress is poised to contribute to the problem with several proposals that add to our nation's financial instability.

One such piece of legislation is this week's spending extension bill, which would temporarily extend unemployment benefits and other programs. We should provide temporarily relief for the neediest among us — but we need to find a way to pay for it without taxing or resorting to more borrowing.

The fact is, we could easily pay for this extension by cutting unnecessary spending or by using the nearly $50 billion of unused and obligated stimulus funds.

We could also demand a clawback of some of the hundreds of millions in overpayments made to federal contractors. Fraud in Medicare and Medicaid costs the taxpayers more than $60 billion annually.

The Government Accountability Office has investigated numerous programs that are failing to fulfill their missions, and yet get more money from Congress year after year. No respectable business would be run this way.

The leadership in Congress wants to pay for the extensions by raising taxes on Americans to the tune of $56 billion in new permanent taxes and by adding $132 billion in new debt — largely borrowed from China.

This push for higher taxes and more dependence on government debt leads us down the path of the discredited European model that is decaying before our eyes. Just look at Greece, where massive spending has threatened the stability of the entire European Union.

Instead, we need to address our fiscal crisis the way America always has: by keeping government in check and lowering taxes to spur growth and private enterprise.

This spending extension bill is just another example of the "anything goes" mentality when it comes to Washington. Consider this staggering statistic: During the past 18 months, this administration and this Congress have spent more money than the previous administration spent on Iraq, Afghanistan and the Katrina recovery combined. Yet with a straight face they promised to usher in a new era of responsibility.

Last year, President Barack Obama and Congress pushed through an omnibus appropriations bill that included an 8 percent increase in discretionary spending. This was followed by the infamous nearly trillion "stimulus" bill that has not led to one new net job. In fact, the unemployment rate has increased in Massachusetts since the passage of the stimulus.

Then the president signed another omnibus spending bill, with a 12 percent annual increase and jammed through the trillion-dollar government-run health care bill that was clearly opposed by the American people.

Congress and the president pledged to operate under the "pay as you go" rules. However, in the 111th Congress, Democrats have voted to circumvent those rules by labeling $1 trillion as "emergency" deficit spending.

That's why Sen. Judd Gregg (R-N.H.) has aptly labeled the Democrats' version of these rules "Swiss cheese-go" — the holes are everywhere.

The president has said he'd like to go through the federal budget — line by line — to identify wasteful programs. In his budget, Obama has identified programs for termination and cuts that would save about $25 billion next year alone. This could help pay for some of these emergency extensions. I challenge all of us to live up to the promise of eliminating wasteful spending, so we can pay for worthy programs like the unemployment benefit extension.

Both parties bear guilt for this sorry state of affairs. The interest alone on our $13 trillion national debt is due to exceed $700 billion per year by 2019 — an increase of $500 billion from current levels.

To put this large sum in perspective, $500 billion is more than what it will take this year to fund our missions in Iraq and Afghanistan and the departments of education, energy and homeland security.

Simply put: We must start offsetting the cost of worthy programs by cutting wasteful spending. If we do not, taxes and our national debt will continue spiraling upward. If we do not, our status as the world?s superpower — even our very economic stability — is at risk.

There is no shortage of ways that Washington can rein in its excessive spending habits while also funding worthwhile programs. But it's going to require elected officials making hard, even unpopular decisions.

If we begin using common-sense steps to get our fiscal house in order, we will put our country back on a path to fiscal sanity and get our appetites for spending and borrowing under control.

Both are crucial for the fiscal stability of our country's future.

Scott Brown (R- Mass.) is on the Subcommittee on Oversight of Government Management.

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