As expected, the Bureau of Economic Analysis has further revised the third quarter of 2009 downward, from 3.5 to 2.8 and now 2.2 percent.  Although the contribution of Cash for Clunkers has also been revised downward, from 1.66 percent to 1.45 percent, the automotive stimulus program now officially accounts for two-thirds of the reported Q3 growth.

This chart shows what debt-deflation looks like. To put it into perspective, the 8.71% decline in commercial bank credit from the October 2008 peak represents the disappearance of $637 billion in debt. (7.34% of that decline has taken place in 2009, as shown in the chart.) That represents 1.87% of the $34 trillion in total debt that will have to be deleveraged to reduce debt/GDP to post-Great Depression levels. For a very good explanation of how the debt-deflation process takes place, I recommend reading the article Debt-Deflation: Just the beginning?

“Since the rate of bank failure has been increasing, from 25 in all of 2008 to 45 in the first half of 2009 alone, total deposits in failed banks for 2009 will likely be in excess of $105 billion and 1.4% of total deposits held by U.S. depository institutions.”
- The Return of the Great Depression, p. 147

“U.S. Bank, NA, of Minneapolis, Minnesota, Assumes All of the Deposits of Nine Failed Banks in Arizona, California, Illinois and Texas…. the banks had combined assets of $19.4 billion and deposits of $15.4 billion.”
- FDIC, October 30, 2009

This brings the 2009 total of failed …more

Recession unofficially ends as economy grows 3.5 percent. The U.S. economy grew in the third quarter for the first time in a year, beating market expectations, as consumer spending and new home-building rebounded, signaling the end of the worst recession in 70 years.

While the stock market and the mainstream economists are busy celebrating the end of the recession, it is probably wise to contemplate the reliability of these GDP Advance reports before joining in the party. Less than a year ago, the Q4 2008 Advance reported -3.8 percent growth, which was revised downward to -6.2 percent growth in …more

“[T]he rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading …more

It is becoming increasingly obvious that equating economic growth with GDP is not a reasonable thing to do.  Since 1973, nominal U.S. GDP growth has averaged 6.8 percent.  So-called “real” GDP has averaged 3 percent, but this result is achieved by applying a different measure for inflation, known as the GDP deflator, than is normally used.  The GDP deflator understates the changes in price levels that are reported for the rest of the economy by the Consumer Price Index.  Because the CPI-U has averaged 4.6 percent growth in the last 37 years, real GDP growth has been closer to 2.2 …more

Further demonstrating the inability of mainstream economists to correctly calculate the present, let alone predict the future, the UK Office of National Statistics reported an unexpected contraction of -0.4% GDP growth in the third quarter. This confounded widespread expectations of 0.2% growth and extends the length of the “recession” to six quarters, which is the longest continuous contraction since the 1950s. The news prompted Edmund Conway, the Economics Editor of The Telegraph, to declare the recession had just become a depression, while financial traders openly mocked the economists who had announced the onset of economic recovery over the …more

On October 23rd, the FDIC shut down seven insolvent banks with $1.03 billion in deposits. FDIC-estimated losses as a percent of assets were 30.6%. This brings the total number of seized banks in 2009 to 106, the amount of failed deposits to $91.8 billion, estimated losses as a percent of deposits to 29.3%, and the percentage of failed deposits to 1.21 percent. The percentage of failed deposits in 2008 and 2009 is averaging 2.3% annually, which is twice as high as the 1.1% average rate of failed deposits in 1929 and 1930.  Note also that even estimated …more

While the differences may look fairly small in percentage terms, note that the variance from one report to the next – for the same quarter – can be as much as 3.2 percent! This is remarkable, especially considering that this is not only equivalent to failing account for $460 billion, but is more than the average annual rate of GDP growth since 1973. When one realizes that the Advance GDP reports are a major datapoint upon which policymakers are basing their decisions, it quickly becomes apparent why those decisions so often go awry. For nearly half of …more