Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The US Economies Path to Recession

Economics / Recession Mar 09, 2008 - 03:49 PM GMT

By: Ronald_R_Cooke

Economics In March of 2007, I predicted America would have a recession before the end of 2008. (see Warning: Recession Ahead at http://www.theculturaleconomist blog.blogspot.com/ . At that point in time, my thoughts were greeted with a certain amount of – shall we say – skepticism.  Well.  Here we are one year later.  It would appear the number of skeptics has decreased.


So.  What is happening to our economy?

It has been my contention the Bureau Of Labor Statistics (BLS) understates inflation when it reports the Consumer Price Index (CPI), and the Bureau of Economic Analysis (BEA) overstates “real” economic growth when it reports Gross Domestic Product (GDP). In other words, our economy is in worse shape than the federal government is willing to admit.

The BLS continues to underweight the percentage of aggregate household budgets spent on food and fuel. That decreases the CPI estimates of inflation.  Since the BEA deducts inflation from current dollar GDP (and makes some other adjustments) to calculate “Real” GDP, the result is an overstatement of Real GDP.  We can summarize the equation as follows:  Current dollar GDP - the rate of inflation = Real GDP. The effect of the BLS understatement shows up in the reported data for Q3 and Q4 of 2007.

  • The BLS reported a CPI –U increase of 2.36% for Q3 2007, and an increase of 3.97% for Q4 2007.
  • The BEA reported a current dollar GDP of 5.14% for Q4 2007. After deducting the effect of inflation, the BEA reported a very anemic Real GDP of .6%.

By my calculations (see CPI: Sophisticated Economic Theory, Terrible Ethics at www.tce.name ) the rate of inflation for Q3 2007 was closer to 4.02%. It is my belief consumer living costs actually went up by 5.18% in Q4. In my essay on GDP (see American GDP: Can We Trust The BEA Data? at  www.tce.name ) I projected that Q4 2007 Net GDP would be neutral or negative.  Based on reported data, Net GDP in Q4 – by my methodology – was a negative .04%  (5.14% - 5.18% = -.o4%). Furthermore, I believe Net GDP for all of 2007 versus all of 2006 was a very sluggish .61%.

So what can we look for in Q1 and Q2 of 2008?  Do not be surprised if inflation exceeds 4%, and economic growth is negative . And furthermore, when the books are closed on 2008, it would appear we could record an annual rate of inflation of more than 4.5%, a GDP of less than “zero”, and an unemployment rate of over 5.5%. 

By contrast, the United States Federal Reserve has forecasted our economy will be just fine in 2008 with a GDP growth rate of 1.3 to 2 percent, an annual average unemployment rate of 5.2 to 5.3%, and an inflation rate of 2.1 to 2.4%. 

Does it appear the Fed is overly optimistic? 

There is more downside risk in 2008 and 2009. High fuel prices, Federal fuel policy, low interest rates, declining currency values, and the Federal Reserve's easy money strategy are all inflationary.  Why on earth would anyone believe the Federal Reserve's inflation forecast?  In truth, the Federal Reserve will be caught between a rock and a hard place. Do they raise interest rates to combat inflation?  Or keep them low to float the economy? 

If our over-extended credit markets and banking system come unglued (highly likely), we could be in for a period of severe fixed asset deflation, and much higher unemployment by mid-2009. Foreign creditors will be reluctant to fund more American debt. That will drive international interest rates UP.  And what about GDP?  Pundits will be debating the terminology: is this a recession or a depression?

Am I being too pessimistic?  You decide. I could be wrong.

Ronald R. Cooke
The Cultural Economist
Author:  Detensive Nation
www.tce.name

Cultural economics is the study of how we interact with economic events and conditions. Culture, in this sense, includes our political systems, religious beliefs, psychology, history, customs, arts, sciences, and education. The term "Economics" refers to the extent and process of how we employ capital, labor and materials. If human existence is dynamic, then economics – as a science – must be able to characterize the interaction of culture and economics in contemporaneous terms.

Ronald R Cooke Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in