Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20
Facebook (FB) AI Mega-trend Tech Stocks Investing 2020 - 10th Feb 20
The US Constitution IS the Crisis - 10th Feb 20
Stock Market Correction Continues - 10th Feb 20
Useful Tips for Becoming a Better Man - 10th Feb 20
Will CoronaVirus Pandemic Trigger a Stocks Bear Market 2020? Part1 - 9th Feb 20
Could Silver Break-out like it did in 2011? - 9th Feb 20
The End of the Global Economy - 9th Feb 20
Fed to Stimulate in Any Crisis; Don’t Let Short-Term Events Bother You - 9th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

While Washington Fiddled The U.S. Economy Burned!

Politics / US Debt Jul 30, 2011 - 12:03 PM GMT

By: Sy_Harding

Politics Best Financial Markets Analysis ArticleWhile media focus has been almost entirely on the short-term debt ceiling foolishness in Washington, not much attention has been paid to the more serious worsening of the six-month recessionary trend in the economy.

Yet that information and how you handle it will almost surely have more influence on your well-being going forward than Washington’s short-term political game-playing.

As I’ve noted numerous times over the last six months, Wall Street economists and the Federal Reserve have been woefully behind the curve on what is going on with the economy and inflation, even as the reality has been clear enough to those on Main Street.

The latest evidence of that can be seen in the Commerce Department’s release Friday morning of the GDP growth report for the second quarter.

There’s no way to sugar coat it, although Wall Street will no doubt try.

The economy grew at a 3.1% rate in the December quarter, not robust but reasonably solid. The consensus forecast of economists and the Fed was that under the influence of QE2 stimulus, growth would improve to 3.5% in the March quarter and for the rest of the year, with the economy’s underpinnings improving so it could stand on its own when QE2 expired in June.

 Instead, March quarter GDP growth declined to only 1.9%. Economists and the Fed were sure that was only temporary and left their forecasts for the June quarter and rest of the year at 3.2% growth. Continuing negative economic reports in May and June forced them to scramble to lower their June quarter growth forecasts dramatically, to 2.8%, 2.6%, 2.0%, and finally to 1.8%.

Not enough. They were still way behind the curve.

Friday’s report was that the economy grew only 1.3% in the 2nd quarter, worse than the 1.9% originally reported for the 1st quarter.

But there’s more. These numbers are subject to revision as later information comes in. And in Friday’s report GDP growth for the 1st quarter was revised down to, if you can believe it, only 0.4%.

That is bad enough. But what are the odds that the 1.3% just reported for the 2nd quarter will also have to be revised dramatically lower as later information comes in?

I would say quite high given the evidence.

For instance, consumer spending accounts for 75% of the economy, and tepid consumer spending was cited in Friday’s GDP report as one reason for the dismal growth in the first half.

Unfortunately, it was also reported Friday that the closely watched University of Michigan’s Consumer Sentiment Index plunged from 71.5 in June to only 63.7 in July, the first month of the third quarter. It’s the lowest level of the consumer sentiment index in more than two years. That does not bode well for consumer spending going forward.

Meanwhile, small businesses account for most of the jobs in the U.S., and the National Federation of Independent Businesses (NFIB) reported last week that its Small-Business Optimism Index dropped in June for the fourth straight month, and “is solidly in recession territory.” That does not bode well for an improvement in the jobs picture going forward.

Those aren’t the only recent troubling reports. The Fed’s own National Activity Index, released by the Chicago Fed on Monday, is an index compiled from 85 monthly economic reports. It remained negative in June for the 3rd straight month, and its 3-month moving average declined to minus 0.6, perilously close to the minus 0.7 level that has marked the beginning of the last 7 recessions since 1970.

I don’t like to be the bearer of bad news, but this looks like another of those times when facing reality and making preparations could be of utmost importance.   

Everyone is looking for relief from the stalemate in Washington, and it will be a relief to get that additional worry behind us.

But the fact is that an agreement on raising the debt limit will not change what is happening in the economy.

In fact, no matter which way it is resolved, it will likely add to the economic weakness.

An agreement to raise the debt ceiling would likely include long-term government spending cuts, basically a withdrawal of the stimulus that a high level of government spending has been providing to the economy. And failure to raise the debt limit would create serious problems for the U.S. in global financial markets, and raise interest rates in the U.S., both of which would be serious additional negatives for the economy.

As far as markets are concerned, my technical indicators remain on the sell signal of May 8. I expect brief rally attempts will continue, as was seen a few weeks ago in relief that another bailout effort for Greece was produced. There will probably be similar brief relief when the stalemate in Washington is resolved. But if so, when focus then returns to the economy, the market correction is quite likely to resume, with profits most likely for some time yet from downside positions against the market, and select safe havens.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website, and the free daily market blog,

© 2011 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


30 Jul 11, 16:44
There's Much Squabbling, But Little Understanding

It's obvious to all that there's much squabbling and bickering, and that the American public is much feed up.

How do I know that there is little or no understanding of the deficit problem by the executive branch, the congress, or the senate? It's simple--firstly, the problem must be considered in context. The context includes the deficit, all unfunded government obligations, and most important of all, the FED. Looking just at the deficit in isolation is STUPID! My opinion is that the only rider on the deficit extension itself should be a complete and independent audit of the Fed. There should be understandings as to a debt reduction program, but this should not be unbalanced, simple minded, nor part of the law.

Secondly, all relevant data should gathered, structured, and analyzed. This must include the Fed data.

Thirdly, alternative goal sets, measures of effectiveness,

and contingency plans for accomplishing these goals should be defined.

Finally, once a particular plan is selected for implementation, it must be carefully administrated with the understanding that unforeseen economic or world events may require modification of the schedule, the goals, and/or the plan itself.

The whole process could be much simplified by getting rid of the Fed and the CIA.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules