Q3 GDP – Nothing to Celebrate

Jeff Harding has written an excellent analysis of Q3 GDP. I’ve read several such efforts, but this is clearer, more concise, and more conclusive than most. Here’s his bottom line outlook:

This leads me to conclude that we’ll have a sluggish economy, propped up by stimulus spending. Like most government projects, the impact of the $787 billion stimulus spending will not have a lasting effect, and will leave us with high debt, high taxes, and a lackluster economy. I would expect Q4 GDP to show positive, but close to flat,  growth, most of it will be from government stimulus.

After that it will depend on the state of our personal, bank, and institutional balance sheets. If toxic debt is wiped out from bankruptcy, write off, foreclosure, or recapitalization, then we’ll see real growth and recovery, although it will be subdued. If the government continues to discourage its liquidation, then credit will remain scarce and the economy will stagnate.

I see the elimination of bad debt as needing years to complete. The sheer size of the required liquidation is overwhelming the institutions involved. There are plenty of bad mortgages in the queue for processing and the disaster of commercial real estate is just starting to reveal itself. I’m amazed that the economy is as strong as it is!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: