Welcome To The Recovery!

Poor Tim Geithner. History will not treat the Secretary of the Treasury kindly, nor should it. This dedicated public servant has taken the fine art of political flackery to new, unexplored heights. Ever alert for signs that the Obama Administration is perceived to be a failure, Tim is always ready to step into the breach to defend the indefensible, distort the facts, and rewrite history.

Geithner's latest attempt to demonstrate to others how Political Propaganda works appeared in the New York Times—where else would it appear? Tim wrote an "opinion" piece called Welcome To The Recovery—

The devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes. The scars of the crisis are fresh, and every new economic report brings another wave of anxiety. That uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth.

The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.

[blah, blah, blah]

I'll pause for a moment so you can stop laughing, or crying, or swearing. I hope you weren't eating just then.

A few examples will suffice to expose Tim for the mendacious courtier he is. Let's examine GDP and net exports.

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.

Together, private consumption and fixed investment contributed about 3.25 percent to growth. Even the surge in imports, which lowered the rate of increase of GDP, actually reflects healthy and growing American demand.

As the economists Ken Rogoff and Carmen Reinhart have written, recoveries that follow financial crises are typically a hard climb. That is reality. The process of repair means economic growth will come slower than we would like. But despite these challenges, there is good news to report:

• Exports are booming because American companies are very competitive and lead the world in many high-tech industries...

Last week's "data on economic growth" consists of the GDP number and its components. The annual growth rate in the 2nd quarter came in at a less-than-stunning 2.4%. The consensus view of this number was that it was 1) anemic & worrisome and 2) would probably be revised downward. Timmy tells us that despite the surge in imports, exports are booming. Well, are they? And how does this affect GDP?

Taken from Calculated Risk's Trade Deficit Increases Sharply In June. The trade gap widened despite the fact that money spent on oil imports decreased in the June (compared to May)

If you are not among the cognoscenti, you need to know that a negative trade balance (net exports) gets subtracted from GDP. Thus we get Wider Trade Gap Signals Weaker Second-Quarter Growth from Bloomberg, which was published about a week after Tim's editorial in the Times—

A swelling trade gap, less stockpiling and weaker construction indicate the U.S. economy slowed even more in the second quarter than the government estimated last month, economists said. Revisions due later this month may shave last quarter’s 2.4 percent annual growth rate by 1 percentage point or more...

“The slowdown occurred earlier than we thought,” said Harm Bandholz, chief U.S. economist at UniCredit Global Research in New York. “We expected the recovery to lose momentum only in the second half and now it occurred in the second quarter.”

Trade probably subtracted 3.25 percentage points from growth, the most since 1982 and up from the 2.78 points the government estimated last month, Bandholz said.

By Nomura Securities International Inc.’s David Resler’s calculations, the world’s largest economy probably grew at a 1.3 percent pace from April through June, while Morgan Stanley’s David Greenlaw’s estimate is down to 1.4 percent.

 That's clear enough. And there's one more thing Geithner said—

According to a report released last week by Alan Blinder and Mark Zandi, advisers to President Bill Clinton and Senator John McCain, respectively, the combined actions since the fall of 2007 of the Federal Reserve, the White House and Congress helped save 8.5 million jobs and increased gross domestic product by 6.5 percent relative to what would have happened had we done nothing. The study showed that government action delivered a powerful bang for the buck, and that the bank rescue on its own will turn a profit for taxpayers.

I've been waiting for this one ever since I posted my Memo To Blinder And Zandi—Stop Your Bullshit! OK, I'm done beating Tim over the head. I'm sure most of the rest of what he said is nonsense too.

I've spent this week arguing that economic Progress has come to an Ignoble End, which was inevitable because Progress was just an illusion to begin with (see here and here). But the best demonstration of my conclusion lies in the utter inability of those Inside The Beltway to do anything about the Empire's ongoing decline, which they themselves have done so much to effect. Earlier this week, the Fed's Open Market Committee (FOMC) came up with Quantitative Nothingness to fight looming deflation. The Treasury Secretary's pathetic propaganda efforts are part & parcel of our decay. Geithner can't walk the walk, so he must talk the talk and hope we'll buy the crap he's selling. Sorry, Tim, No Can Do.

Even if they understood the problems, which they don't, our Imperial Leaders would be completely helpless in the face of our decline. They've got nothing to offer. They are impotent. They have no answers because there are no answers.

Here's a video from Tech Ticker discussing the shift in Fed policy, which has been called "Quantitative Easing 2." Aaron Task interviews Michael Pento and Dan Greenhaus, who make some of the same points I do.

The FOMC's move is like "pouring gasoline into the tank of a vehicle that doesn't have an engine"

Comments

[Edward Boyle]

If the numbers are bad they should adjust the measuring method. Unfortunately they cannot do this in real time as that would look too much like cheating. Say you are playing chess and about to lose and you say "but now my horse can move like a queen" that would be unfair. Only if you said at the beginning of a new game that "horses will be allowed to move like queens" would it be acceptable. Adjustments to statistical measurments have been made often. What Geithner and others like him do is to trumptet only those aspects of the stats that appeal to them. This tactic may be referred to as "The glass is half full" approach and is quite effective when the press is a willing prostitute of the economic system and the population is drugged by distractions so nobody notices what is really going on.

I got curious about this and got a couple links from the end of wikipedia's entry on GDP:

A whole little course on how the govt. compiles some main stats:
http://ingrimayne.com/econ/Measuring/overview6ma.html

A lecture by Roubini:
http://pages.stern.nyu.edu/~nroubini/MEASURE.HTM

Jay Hanson's take on the subject:
http://dieoff.org/page11.htm

An academic download PDF "Abolish GDP":
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962343