Thursday, October 4, 2012

Down We Go: USA 2nd Quarter GDP Muddles Along at Overstated +1.3%

Bureau of Economic Analysis: Gross Domestic Product

The Bureau of Economic Analysis released the third (final) estimate of Q2 2012 GDP which was +1.3% quarter over quarter, a decrease from the prior Q1 2012 estimate of +2.0%, and a drop from Q4 2011 of +4.1%. The total GDP reached an all-time high $15.59 trillion annualized. The GDP has increased quarter over quarter for 12 consecutive quarters, since Q3 2009. Growth rates have ranged from a near-recessionary +0.1% in Q1 2011 to a robust +4.1% in Q4 2011.

That's a slow growth rate, but the inflation rate utilized for gross domestic purchases was +0.7% annualized for the quarter. Where in the USA was there such a low inflation rate? There wasn't and you, me, and the BEA know this. So the actual inflation rate is much higher and the higher the real-life inflation rate the lower the headline GDP growth rate. At best the GDP for Q2 2012 was hovering around 0.00% and probably was negative, which defines a recession. Therefore, GDP is overstated and Washington horse hockey!

The Big Question: Where is the USA economy headed? An offiicial recession in 2012 does not appear probable unless the BEA decides so. So the storyline is the USA economy is growing very slowly. Unofficially America is probably in a recession as noted above. Three scenarios are usually discussed: (1) a double dip recession whereby the GDP will turn negative yet again with a higher unemployment rate, (2) the economy will continue "bottom bouncing" with slow to very slow growth and a continuing relatively high unemployment rate, or (3) the bottom is in and GDP growth will accelerate and full employment and is on the horizon.

Scenario (2) with slow to very slow officially-reported economic growth and a continuing relatively high unemployment rate has been occurring per the BEA in Washington and is the most likely scenario for 2012, with an annual GDP growth projected of approximately +2.0%. The average of the most recent 4 quarters reported by the Bureau of Economic Analysis is +2.18%.

There is a more important chapter developing in the Story of America. The annualized GDP is $15+ trillion and the funded national debt is now $16+ trillion. Yes, the USA funded debt exceeds GDP as the federal budget deficits continue uncontrolled. The funded sovereign debt to GDP ratio has now exceeded 100%. The unfunded debt is much higher and Washington pretends that doesn't exist.

In the minds of many Americans, the 100% benchmark is usually surpassed by socialist and totalitarian countries as these misguided, financially inept nations implode into chaos and poverty. An updated review of this USA milestone and the upcoming American Day of Reckoning is reviewed periodically:

America: Land of Indefinite Corporate Power, Debt, Detention, Quantitative Easing, Wars

USA Sovereign Debt Now Exceeds GDP: Greetings From Big Brother


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