GDP: Is the Recovery Coming?

Friday, October 31, 2003
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It seems everyone is going gaga over the latest GDP figures. I’m not. I’m still seeing the same household debt-to-income ratios, an all-time high of bankruptcies, the same housing bubbles, the same paper asset bubbles, the same unemployment rates, and the same growth in the money supply. It seems that few are willing to say that this GDP growth (read: consumer spending) is financed by debt, but this is how it goes in this easy-credit time we are in: if you have a pulse, you can get a loan.


See how the Christian Science Monitor reports the new GDP figures:

Consumers, flush with cash, are positively strutting, snapping up everything from jeans to Jeeps. Their confidence has spread to business, which is ordering everything from new fork lifts to wireless technology.

Other “indicators” of a robust economy are ice cream and jean sales. Spend, spend, spend our way into prosperity, but as Jeff Tucker and Frank Shostak point out on, “8% increases through the summer months can create an impressive boomlet.” In addition, Tucker notes this from The Economist:

While America’s corporations have been strengthening their balance sheets, the same cannot be said for households. According to Thursday’s figures, consumer spending rose at an annual rate of 6.6% in the last quarter. Pre-tax incomes, however, grew by much less. Part of the difference was filled by borrowing, which was growing at an annualised rate of over 5% in the summer months. Borrowing at such a rate seems unsustainable but, for the moment, households seem happy to add to their debts because they are easier than ever to service. Interest rates recall the fifties not the nineties. On Tuesday, the Federal Reserve voted to keep its target interest rate at its lowest level since 1958 for a ‘considerable period’. Rates on mortgages, personal loans and car loans are at the lowest that most borrowers can remember…. Borrowing from the future is made even easier when the government does it for you. The federal government ran an unprecedented deficit of $374 billion in the fiscal year just ended

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