Sunday, September 11, 2011

Here is my short take on why we are in between the proverbial rock and a hard place in terms of the economy...I think this is a worthy two cents...

I can see alot by looking at numbers. One source of our economic problems can be seen in just looking at one key government statistic.

Gross Domestic Product (GDP) is the sum total of a nations domestic output of finished goods and services. There are four major categories of expenditures: Personal Consumption Expenditures (what you and I purchase), Gross Private Investment (what businesses buy AND residential housing), Govenment Expenditures (what Federal, State and Local govts purchase) and Net Exports (exports minus imports). These categories are totaled below in (2), (7), (22) and (14). 

The recession officially started in the first half of 2008. Starting from left and going right, look at line 1.  Notice how total GDP declines, then recovers.  We are back to square one---Almost.

Look at the number in 2008 III and 2011 II.  Three out of the  four categories ARE back to 2008 levels or better.  How can that be and we have 9.1% unemployment vs 5% in 2008?

Source: Bureau of Economic Analysis (BEA)

Category Gross Private Investment is still in the red by approx. -$220 billion. Look at the subcategories on this line.  Non-residential structures (factories, office buildings, etc) and residential---the housing industry are still in a funk.  There is an acute lack of spending in these critical, job creating industries.

There is what is called "Excess Capacity" in the system---too many existing idle resources (factories, buildings, houses) in place that prevent new spending by businesses. In the simplest terms, we appear to have too many "structures chasing too few productive uses".

 If I own a business and want to expand, due to cutbacks in the last two years, I probably have extra space in my own  building or there is an empty one nearby.

Until this excess capacity is absorbed or becomes depreciated beyond productive use, seems we will be in slow period for an extended period of time. 
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