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PeakTrader: Government has spent an enormous sum of money to achieve a slow recovery, after a severe recession. It seems inevitable taxes will rise substantially, one way or another. We can expect U.S. living standards to rise at a much slower rate (or perhaps decline) compared to the two superbubbles in 1995-00 and 2002-07, where living standards rose at high annual rates.

Anon: The Minnie Fed sayeth thus far that this is the only post-WWII recession wherein real GDP is still negative from the prior peak eight quarters after the recession date quarter. In comparative terms, the other uglies in 1973 and 1981 had fully recovered and were in expansion.

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A build-up in inventories, an increase in exports, and a decrease in imports:

GROSS DOMESTIC PRODUCT: FOURTH QUARTER 2009 (ADVANCE ESTIMATE)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.7 percent in the fourth quarter of 2009.

Real final sales of domestic product -- GDP less change in private inventories -- increased 2.2 percent in the fourth quarter, compared with an increase of 1.5 percent in the third.

Real exports of goods and services increased 18.1 percent in the fourth quarter, compared with an increase of 17.8 percent in the third. Real imports of goods and services increased 10.5 percent, compared with an increase of 21.3 percent.

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PeakTrader: A slow recovery after a severe recession:

IMF Sees 3.9% Global Growth
Wall Street Journal
JANUARY 27, 2010

WASHINGTON—The International Monetary Fund said the global economy is set to rebound sharply this year, with 3.9% growth, but the U.S. and other rich countries aren't likely to grow fast enough to reduce unemployment substantially.

Growth in what the IMF categorizes as "advanced countries" is expected to average only 2.1% this year and 2.4% in 2011, adjusted for inflation...The IMF expects the U.S. economy to grow 2.7% this year (2010) and then fall back to 2.4% growth next year (2011).

Germany is expected to grow 1.5% in 2010 and 1.9% in 2011, while Britain expands 1.3% this year and 2.7% in 2011, and Japan grows 1.7% in 2010 and 2.2% in 2011...China's growth rate will be 10% this year and nearly as fast in 2011, while India's growth rate will be close to 8% both years.

My comment: This isn't a V-shaped recovery. It'll be a U, W, or L-shaped recovery, although the U.S. can't afford a double dip recession. The U.S. current account deficit shrunk from 6% of GDP to 3% of GDP. All the growth is from the destruction of imports (exports increase GDP and imports decrease GDP).

1. Wall Street forced U.S. corporations to become more efficient resulting in a record 20 consecutive quarters of double-digit U.S. earnings growth in the 2000s.

2. U.S. banks distributed trillions of dollars to the masses fueling a home building boom, and related goods, which helped raise actual output towards potential output.

3. U.S. GDP growth and the U.S. current account deficit show U.S. living standards rose at a steeper rate in 2002-07 than in 1995-00.

4. Export-led economies buying Treasury bonds, U.S. restrictive monetary policy, and contractionary fiscal policy drained dollars out of the U.S. private sector creating a recession.

5. Rather than government "refunding" dollars back to households and banks, it spent them. Moreover, government will make "profits" through taxes and bank "bailouts."

6. So, we can expect weak economic growth, a peak in economic efficiency (in 2007), goods and capital destruction, and lower income workers suffering the most through higher taxes, interest rates, and inflation.

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PeakTrader:

There may be a "free lunch." Efficiency can create 11 lunches at the cost of 10. Some people believe when a business makes a profit on that 11th lunch, it's evil. Yet, when government creates 9 lunches (or less) at the cost of 10, that's good.

The increases in the quantity and quality of output per person is important (including health care). Yet, many ignore the real economy, and focus on other data instead, which often contradict the real economy.

Also, I may add, regarding health care. Government intervention in Europe created shortages (including long waiting lists, lack of specialists and treatments, poor hospital conditions, etc.), while in America, it created higher prices. Yet, many people blame the health care industry and insurance firms for expensive health care rather than the 130,000 pages of government regulations.

Although U.S. real wages peaked in 1973, and been flat since then, there are relatively far fewer (grossly overpaid) union workers. So, it seems, real wages in the non-union private sector increased substantially. I'm sure, there are still too many grossly overpaid government workers.

It should be noted, the European and Japanese economies were destroyed after WWII. So, the U.S. could afford poor economic policies. Also, there was little to buy in 1973 compared to today. What good is a high wage when there's nothing to buy?

Anon:

"Also, there was little to buy in 1973 compared to today. What good is a high wage when there's nothing to buy?"

We could all try savings and investments if we had the high wages. The results of this might be a min. 20% home down payment or cash purchase of a vehicle -- just like in 1973.

PeakTrader:

Anon, when there's little to buy, or goods are too expensive, then of course you'll save.

However, who wants to save or invest like the Japanese?

Why save to buy a house or an auto when you're 35, when you can buy them when you're 25?

It's easier to spend, and harder to save, when there are bargains.

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If Obama understood a large economy and was honest, he'd say:

"Over the past year, I threw trillions of dollars of your money at problems, but they weren't solved. They were made worse, because I failed to understand the real problems. Without the help of the Fed's quantitative easing, it would've been a bigger disaster. So, now we're heading into a Japanese-style "Lost Decade" rather than a third superbubble, which would've been more of a production than a consumption boom."

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Quality improvements are difficult to measure. In the 1970s, an automaker could add a (cheap) headrest, raise the auto price 2%, and raise wages 3% (2/3rds of production costs and 1% rise in real wages).

In the 2000s, a computer maker could improve processing speed 100%, cut its price 50%, sell 100% more computers, and real wages could be unchanged.

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Real Consumption is a component of GDP. China, for example, is a U.S. factory and imports subtract from GDP (the current account deficit was 6% of GDP recently, although now its 3%). Bargains induced Americans to spend rather than save.

Americans earn money creating, improving, and selling products, while our foreign partners produce them cheaply. If quality improvements were measured correctly, U.S. real wages increased, because inflation has been overstated (export-led economies made up in volume what they lost in value, while the U.S. made up in value what it lost in volume).