GDP & the Sinking Economy - Tilted Forum Project Discussion Community

unlawflcombatnt · 03-31-2006, 01:54 AM

Today's final 4th quarter 2005 GDP report came in showing a 1.7% annualized growth rate for the quarter. Though this decline is concerning, the actual breakdown of contributions is even more concerning. The total increase in GDP during the 4th quarter was only $46 billion in chained 2000 dollars. (i.e., it was adjusted for inflation using the government-controlled BEA's own secret formula.)

Normally, consumer spending is 2/3rds of economic activity. This was not the case in the 4th quarter, however. In fact, personal consumption expenditures accounted for only $17.5 billion of that growth, or only 38%. The biggest contribution came from capital investment (overinvestment?) The total gross private domestic investment was $72.5 billion, or over 4 times as much as consumer spending. Of this investment, $51.2 billion is accounted for as increase in private inventories. In other words, $51.2 billion of the contribution to that $46 billion came from unsold goods (surplus.) With a GDP growth as low as it was, and an increase in unsold goods greater than the GDP increase, there are no signs that this is an economy that is "strong, and getting stronger." Producing 4 times more goods than Americans can purchase is a recipe for disaster. Since American consumers account for 80-90% of the purchase of American goods, this is especially concerning.

To complete the picture, the subtractions from the total GDP should be mentioned. Our 4th quarter trade balance was -$37.7 billion. Government spending declined $4-6 billion. (I'm giving a range, since the published numbers don't add up perfectly.)

Below is a modified copy of a chart showing this information from the U.S. Bureau of Economic Analysis:

The above chart can be found in its entire (unreadable) form at: BEA-GDP

Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course.

unlawflcombatnt

BigBen · 03-31-2006, 06:30 AM

Hey, didn't you get your pee-pee spanked for posting something about housing costs without starting any kind of discussion?

I see no discussion here, and I have to caution you that this might be strike 2.

As for your statement :

Quote:

Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course.

I say it is fine. You seem to have a problem with inventories. We aren't talking about ripe bananas here; inventories are stable, and businesses pick their inventory levels on purpose. They don't want to run out of shit before their production cycle is over.

Imagine a production line with no raw goods or parts available to make the finished product. Kind of scary, in my opinion.

Your choice of words "Overinvestment" is so absurd to me that it is funny.

"Stop saving money and start spending!" ummm. With what, credit cards?

aceventura3 · 03-31-2006, 09:29 AM

We can call this a "no win" economy.

*It seems like the Fed thinks the economy is growing too fast, and have concerns about inflation.
*Unemployment is low but there is no real wage growth.
*The yeild curv is flat, indicating pessimism.
*Trade deficit is too high.
*GDP growth is too low.
*No jobs are being created.
*Corporate profits are too high.
*Consumer spending is too low.
*Consumer debt is too high.
*No consumer savings.
*Major US comapnies are downsizing.
*Government deficit spending is the worst in history.

It kind of funny, because inspite of all of that my portfolio is up about 7% so far this year. Perhaps its time to cash-out and buy gold.

Jinn · 03-31-2006, 10:22 AM

host · 03-31-2006, 11:18 AM

<a href="http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_baum&sid=abJD2CVu7kHk">On Nov. 10, 2005, the Federal Reserve Announced that it would stop posting M3 money supply data.</a>

On Nov. 10, 2005, the price of an ounce gold, quoted in U.S. dollars, was <a href="http://www.kitco.com/gold.londonfix05.html">$467.00.</a>

Today, gold traded as high as <a href="http://www.kitco.com">$588.00</a>

Gold, silver, and other commodities (for example....petroleum) are in competition as stores of intrinsic
value, with fiat, paper currencies. Since all paper currencies are supported only by the ability of various
governments to convince those holding their "paper", that it is "worth" "such and such" amount, it is easy for more and more folks to make a risk comparison between this "paper" and hard assets, and gradually, hard assets are winning. The rising inflation trend in the U.S. and in the rest of the world, is demand influenced, but not in the sense of too many dollars chasing too few manufactured goods. Rather, there is an increasing loss of faith in the stability of paper currency. The Fed is increasing interest rates to slow the flight from the dollar into non-paper stores of value, such as gold, and to attract the continuing need for $3 billion in new, daily investment flow into the U.S.

The "smart" money recognized why the Fed will no loneger disclose M3 data, and they are buying more gold.....

aceventura3 · 03-31-2006, 02:04 PM

Quote:

Originally Posted by host

<a href="http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_baum&sid=abJD2CVu7kHk">On Nov. 10, 2005, the Federal Reserve Announced that it would stop posting M3 money supply data.</a>

On Nov. 10, 2005, the price of an ounce gold, quoted in U.S. dollars, was <a href="http://www.kitco.com/gold.londonfix05.html">$467.00.</a>

Today, gold traded as high as <a href="http://www.kitco.com">$588.00</a>

Gold, silver, and other commodities (for example....petroleum) are in competition as stores of intrinsic
value, with fiat, paper currencies. Since all paper currencies are supported only by the ability of various
governments to convince those holding their "paper", that it is "worth" "such and such" amount, it is easy for more and more folks to make a risk comparison between this "paper" and hard assets, and gradually, hard assets are winning. The rising inflation trend in the U.S. and in the rest of the world, is demand influenced, but not in the sense of too many dollars chasing too few manufactured goods. Rather, there is an increasing loss of faith in the stability of paper currency. The Fed is increasing interest rates to slow the flight from the dollar into non-paper stores of value, such as gold, and to attract the continuing need for $3 billion in new, daily investment flow into the U.S.

The "smart" money recognized why the Fed will no loneger disclose M3 data, and they are buying more gold.....

Yea-but, wasn't gold trading at about $580 in the 1980's?

If people are loosing faith in "paper" currency why are interest rates so low in this country? Why is inflation so low?

I am not a doom and gloom kinda guy, and I think the obsession some have with finding the negatives in a mostly strong and dynamic economy will lead them to lost opportunity. I am going to stay invested in equities.

It is interesting - there are several posters who feel the bottom is falling out of the economy, that we are headed toward disaster - yet I would bet that they are not taking any action to prepare for that disaster. For example - selling "paper" assets and buying gold - selling real-estate prior to the bubble bursting - stock piling non-perishable food - or buying wet-suits to prepare for global warming. Do they really believe or just full talk?

stevo · 04-03-2006, 09:29 AM

full of talk.

flstf · 04-03-2006, 11:30 AM

Quote:

Originally Posted by aceventura3

It is interesting - there are several posters who feel the bottom is falling out of the economy, that we are headed toward disaster - yet I would bet that they are not taking any action to prepare for that disaster. For example - selling "paper" assets and buying gold - selling real-estate prior to the bubble bursting - stock piling non-perishable food - or buying wet-suits to prepare for global warming. Do they really believe or just full talk?

Even during the tulip and dot.com crazes there was money to be made before the crash. For the time being I'm keeping a substantial position in domestic and foreign stocks. The pundits are all over the place as usual. If there is any good or bad news by the time we hear it, it is probably too late to profit from it anyway.

03-31-2006, 01:54 AM	#1 (permalink)
unlawflcombatnt Upright Location: California	GDP & the Sinking Economy Today's final 4th quarter 2005 GDP report came in showing a 1.7% annualized growth rate for the quarter. Though this decline is concerning, the actual breakdown of contributions is even more concerning. The total increase in GDP during the 4th quarter was only $46 billion in chained 2000 dollars. (i.e., it was adjusted for inflation using the government-controlled BEA's own secret formula.) Normally, consumer spending is 2/3rds of economic activity. This was not the case in the 4th quarter, however. In fact, personal consumption expenditures accounted for only $17.5 billion of that growth, or only 38%. The biggest contribution came from capital investment (overinvestment?) The total gross private domestic investment was $72.5 billion, or over 4 times as much as consumer spending. Of this investment, $51.2 billion is accounted for as increase in private inventories. In other words, $51.2 billion of the contribution to that $46 billion came from unsold goods (surplus.) With a GDP growth as low as it was, and an increase in unsold goods greater than the GDP increase, there are no signs that this is an economy that is "strong, and getting stronger." Producing 4 times more goods than Americans can purchase is a recipe for disaster. Since American consumers account for 80-90% of the purchase of American goods, this is especially concerning. To complete the picture, the subtractions from the total GDP should be mentioned. Our 4th quarter trade balance was -$37.7 billion. Government spending declined $4-6 billion. (I'm giving a range, since the published numbers don't add up perfectly.) Below is a modified copy of a chart showing this information from the U.S. Bureau of Economic Analysis: The above chart can be found in its entire (unreadable) form at: BEA-GDP Our economy is in MAJOR trouble if we continue to prop up our GDP with unsold inventories and overinvestment, instead of consumer spending. Our economy cannot continue to devote only a 38% fraction of GDP to consumer spending. Unsold inventories are worth nothing if they aren't sold. This is not a sustainable course. unlawflcombatnt

03-31-2006, 09:29 AM	#3 (permalink)
aceventura3 Junkie Location: Ventura County	We can call this a "no win" economy. It seems like the Fed thinks the economy is growing too fast, and have concerns about inflation. Unemployment is low but there is no real wage growth. The yeild curv is flat, indicating pessimism. Trade deficit is too high. GDP growth is too low. No jobs are being created. Corporate profits are too high. Consumer spending is too low. Consumer debt is too high. No consumer savings. Major US comapnies are downsizing. Government deficit spending is the worst in history. It kind of funny, because inspite of all of that my portfolio is up about 7% so far this year. Perhaps its time to cash-out and buy gold. __________________ "Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers."

03-31-2006, 10:22 AM	#4 (permalink)
Jinn Lover - Protector - Teacher Location: Seattle, WA	<img src="http://www.factcheck.org/imagefiles/image002.png"></img> __________________ "I'm typing on a computer of science, which is being sent by science wires to a little science server where you can access it. I'm not typing on a computer of philosophy or religion or whatever other thing you think can be used to understand the universe because they're a poor substitute in the role of understanding the universe which exists independent from ourselves." - Willravel

04-03-2006, 09:29 AM	#7 (permalink)
stevo Rail Baron Location: Tallyfla	full of talk. __________________ "If I am such a genius why am I drunk, lost in the desert, with a bullet in my ass?" -Otto Mannkusser

03-31-2006, 11:18 AM	#5 (permalink)
host Banned	<a href="http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_baum&sid=abJD2CVu7kHk">On Nov. 10, 2005, the Federal Reserve Announced that it would stop posting M3 money supply data.</a> On Nov. 10, 2005, the price of an ounce gold, quoted in U.S. dollars, was <a href="http://www.kitco.com/gold.londonfix05.html">$467.00.</a> Today, gold traded as high as <a href="http://www.kitco.com">$588.00</a> Gold, silver, and other commodities (for example....petroleum) are in competition as stores of intrinsic value, with fiat, paper currencies. Since all paper currencies are supported only by the ability of various governments to convince those holding their "paper", that it is "worth" "such and such" amount, it is easy for more and more folks to make a risk comparison between this "paper" and hard assets, and gradually, hard assets are winning. The rising inflation trend in the U.S. and in the rest of the world, is demand influenced, but not in the sense of too many dollars chasing too few manufactured goods. Rather, there is an increasing loss of faith in the stability of paper currency. The Fed is increasing interest rates to slow the flight from the dollar into non-paper stores of value, such as gold, and to attract the continuing need for $3 billion in new, daily investment flow into the U.S. The "smart" money recognized why the Fed will no loneger disclose M3 data, and they are buying more gold.....