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Friday, October 30, 2009

Obama's Economic Bridge to Nowhere

Many are starting to doubt the staying power of the GDP growth just announced.
President Barack Obama and Federal Reserve Chairman Ben S. Bernanke built a bridge they anticipate will lead to a lasting U.S. economic recovery. It may end up being a bridge to nowhere they want to be.

The economy grew in the third quarter for the first time in more than a year, propelled by emergency programs to boost buying of cars and homes, according to Commerce Department figures released yesterday. Policy makers are betting those temporary measures will pave the way to a self-sustaining expansion as companies hire and consumers increase spending.

The risk is that the biggest government intrusion into the economy since World War II will leave the U.S. saddled with trillions of dollars of debt and not much to show for it. The worst financial crisis since the Great Depression may have shaken companies and consumers so much that their spending won’t be enough to replace federal support.

Third-quarter growth “was boosted by the various fiscal stimulus policies,” Harvard University professor Martin Feldstein said in an e-mail. “The danger remains of a serious slowdown after this and a possible double dip” of the economy in 2010, he said.

Consumer spending on cars and homes helped power the 3.5 percent annual pace of growth. Sales at Dearborn, Michigan-based Ford Motor Co. and Detroit-based General Motors Co. were spurred by the government’s “cash for clunkers” plan, which expired in August. Builders including Miami-based Lennar Corp. benefited from a first-time home-buyers tax credit that may be extended beyond its Nov. 30 expiration date.

Excluding sales, production and inventories of vehicles, the economy grew 1.9 percent last quarter, the Commerce Department said.
As many have pointed out GDP = Consumption + Investment + Government spending.

The problem that you have with the government spending part of it is this comes at the cost of debt and higher taxes. When you take away the impact of the auto industry manipulations, the GDP growth was 1.9% according to the article above. That is pitiful and nothing to get excited about.

By the way, the Obama administration is claiming 650,000 jobs saved or created by the stimulus package so far. I highly doubt the accuracy of those numbers. How do you calculate jobs saved? You make the number up is what you do.

What I do know for a fact is that 3,000,000 jobs have been destroyed since Obama got into the White House. That is reality. I also know that we have about 14.5 million unemployed, and many are losing their unemployment benefits every day.

And this situation is going to get a lot worse before it gets any better.

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