Still wondering why the government is blowing its horn on GDP growth in October of 2009? After all with a Trillion or two in economic stimulation most of us expected this reflection in Q1 or Q2. The fact is as we pump money into the economy, (let’s not forget this is borrowed money see national debt clock and regular snapshot), we should see a cycle of spending that circulates through the economy. This circulation results in the purchase of goods and services and is expected to creates “job” growth. Well at least that’s is what we have thought historically.

What’s really happening? Are you curious if “job” growth will follow the stimulation of the economy as the channel delivers goods and services? Well according to the most recent statistics on unemployment we can visually see the rapid decline as unemployment rates begin to rise to over 10.2% as of this article. See the Visual Geography of a Recession here!

The real reason for GDP growth in October of 2009 is directly related to a couple of programs:

• Cash for Clunkers
• The $8,000 for first time home buyers

The Cash for Clunkers programs allowed car buyers to trade in their older cars, those ten years or older, to purchase new cars and receive a $4,000 buying credit at the dealership. It was a good thing for the dealers. Was it good for the Taxpayer? Well the Wall Street Journal suggested the following:

On the other hand, this is crackpot economics. The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

…

Clearly, we spoilsports need an attitude adjustment to Washington’s new economics. And since money is no object, let’s give everyone a $4,500 voucher for other consumer goods. Let’s have taxpayers subsidize the purchase of kitchen appliances, women’s clothing, the latest Big Bertha driver—our Taylor-made is certainly a clunker—and new fishing boats. These are hardly less deserving of subsidies than cars, and as long as everyone thinks we can conjure wealth out of $4,500 giveaways, let’s go all the way.

Wall Street Journal Online

The question remains though what was the real cost of running the program. I know what your thinking, It was $4500 per car right? Wrong, don’t forget how efficiently the government runs “government” programs. Estimates are that each car sold in the program cost the taxpayers over $24,000. Wow! CNN Money states the following:

…auto sales contributed heavily to the economy’s expansion in the third quarter, adding 1.7 percentage points to the nation’s gross domestic product growth.

Clunkers: Taxpayers paid $24,000 per car

We now know that the GDP has been revised down to 2.8% from the 3.5% originally reported. So we might say that real GDP growth minus the Cash for Clunkers program is 1.1%. A significant difference I might say to what was REALLY reported and what the stock market has reacted to.

Economy: The government announced its revised figure for the GDP, showing an annual rate of increase of 2.8% in the third quarter. That matched consensus expectations from Briefing.com.

It was a downward adjustment from the preliminary GDP figure released by the government in October, which showed growth of 3.5% in the third quarter.

Stocks slip on GDP

So we have created an artificial stimulus package for the automobile industry that has resulted in an increase in cost to the tax payer and has been suggested was unnecessary for the economy anyway, Edmunds October, 28th 2009. In future posts we need to consider the words of the Car Czar Ron Bloom who stated the following:

“Generally speaking we get the joke. We know that the free market is nonsense. We know that the whole point is to game the system, to beat the market, or at least find someone who will pay you a lot of money because they’re convinced that there is a free lunch. We know this is largely about power, that it’s an adults only, no limit game. We kind of agree with Mao that political power comes largely from the barrel of a gun. And we get it that if you want a friend, you should get a dog.”

Is the United States leadership espousing that they are following Chinese social architect Mao?

While we stand to learn a great deal from the Chinese I don’t think we embrace their social architecture also known as Communism, do we? See Ron Bloom’s on video saying the above at:  “Ron Bloom does not believe in the Free Market System“.

So we have rambled on a bit here on but in closing we should note the following:

• We owe you a further discussion and review of the impact of the first time home buyers program
  • Look closely fellow Americans as this was not truly a first time buyers program but rather if you had not purchased a home in the last three years.
• Anytime the government reports the GDP we can expect a revision, especially if the White House is pushing an entitlement program.
• Stimulus programs are adding to the national debt and should be adding new jobs also, don’t forget to review: “geography of a recession“.
• The Leadership of the United States of America is sending a mixed message as to their understanding of the U.S. Constitution by suggesting alliance with communism through statement’s such as Ron Bloom’s.

Recommendation

Let’s all look more closely at the spin coming out of Washington and discover the reality of what is happening today. Get your hip waders on it’s deep and treacherous. Until confidence in the leadership of this country is restored I am questioning whether we can sustain any real growth. Hopefully I will be wrong and we will find that the American spirit pulls us through our current leadership crisis and confidence is restored by those who can make a difference in our economic future. In the meantime we need to adjust that point between our ears with knowledge to manage the road ahead. Stay tuned here for more insight and analysis in the days and weeks ahead.