GDP is what what a nation produces. Without international trade also it would be what a nation consumes. If we leave aside minor international flows we can say that GDP (what a nation produces) plus net flows of capital plus net flows of goods and services is what that nation consumes.
Now we have to decide which is the main goal of that economy. In my opinion, now in 2010Q1 what Americans want is to revive economy. It means to make GDP higher and unemployment lower. Although everything is connected to everything else, foreign trade, flows of capital, etc. as lower priorities in USA now in 2010Q1. Therefore, positive GDP is news without any doubt good news. How much? and how sustainable is it? I try to elaborate now. To clearify at which exact point we are I think we have to desaggregate those figures. In my opinion, the BEA reflects accurately what is happening in the very short term (quarter on quarter). First "The pick up in real GDP growth reflected a slowdown in the rate at which businesses drew down inventories" (1). Second The pick up also reflected a upturn in business investment, mainly due to a pick up in equipment and software." (1) And third " In addition, imports ... rose less than in the third quarter." (1). In my opinion, the most positive fact is the third one: gap between domestic demand and domestic supply is shorter because it is the root problem in US economy. While the first one, inventories, is the most important risk, as I posted some days ago. Unfortunately it does not come while American householders improve standard of life, rather the opposite. It comes as a consequence of declining standard of life. But again in the possitive side, Americans are increasingly turning from standard of life to savings "The personal saving rate, saving as a percent of disposable personal income, rose to 4.6 percent from 4.5 percent" (1) although as I posted some weeks or months ago, its pace of change is not enough. Therefore, wat pres. Obama told is absolutely accurate "President Barack Obama said reducing the federal budget deficit is “critical” (2) However, words do not change economies, facts do. Does it mean a change in priorities? If so, is it short term goal or long term wish? I should add, that in current risky circumstances, US economy should not consider aims beyond one quarter because short term risks of derailing are too high. To push GDP higher and higher should be the one and only priority yet. While for householders to raise futher savings (to cut consumption) should be their first priority. What about longer term? is this raise sustainable? In my opinion, it will be sustained some months. Probably GDP growth between 1.5% and 2.5% will be its natural pace along one or two quarters. But not longer unless a decissive intervention tranfering householders savings into real investments (not inventories and update of obsolete machinery). As that decissive intervention is not going to happen through the "new normal" policy, I have to agree with prof. Roubini "replenishing of inventories and that consumption depended on monetary and fiscal stimulus. As these forces ebb, growth will slow to just 1.5 percent in the second half of 2010" (3) although I disagree that “It’s going to feel like a recession even if technically we’re not going to be in a recession” (3) In my opinion, it is going to be a recession, technically too. Now we have to add foreign influence into this equation. US economy has benefitted from global recovery. However that benefit is going to fade because economies ahead in the curve must put exit strategies in place in the very short term. And they are doing it already. Conclusion. Only a real and decissive expansionary policy in the very short term (or rather urgency term) will make US economy to be in the possitive GDP growth side at the end of 2010. As I did not hear anything about such a policy I have to believe that it is not going to happen. Therefore, time to save, time to cut expenses and to get ready for a worse 2010H2 and for a worse 2011. Peace and bet wishes. Xi -- You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/world-thread?hl=en.
