PeakTrader.com

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PeakTrader said...

Anyone who believes Bart has to believe real GDP is contracting by a huge margin each year, because nominal growth equals real growth and inflation.

Bill Gross
Jan 2007

Tom Keene: "...As you know, I'm a big fan of nominal GDP - this, folks, is real GDP plus inflation. It's the 'animal spirits' that's out there. You say be careful, Bill Gross.

It looks real good to me, Bill. I see 6% year-over-year nominal. You say that's going to end?"

Bill Gross: "I think almost assuredly, because of oil prices. I'm not suggesting it end because of real growth going down. With oil prices doing what they're doing - if they hold in the $55 range - gosh, we're going to see CPI prints y-o-y over the next three or four months of 0.5% or 1.0% and that means nominal GDP is down in the 3% range."

"Ultimately, the inflation component affects the real growth component. To the extend that you have nominal GDP - in my forecast 3 to 3.5%, that's really not enough growth in terms of the economy itself to support asset prices at existing levels. And so, declining assets prices ultimately factor into eventually lower real growth. But that's not for mid-2007 but perhaps for later in the year."

Tom Keene: "When we look at six months of low nominal GDP, is that enough to link directly into the 'animal spirits" of the business investment component of GDP - the "animal spirits" of business men and women?"

Bill Gross: "Well sure it is. When you realize that the average cost of debt in the bond market - and therefore in the economy and this includes mortgages - it is about 5.5%. If you can only grow your wealth and service that debt at 3.5% rate, then that has serious implications.

When you go back to 1965, Merrill [Lynch] did this study - in terms of asset prices during periods of time when nominal growth grew less than 4%. Risk assets have been negative in terms of their appreciation and actually bonds have done pretty well.

The question becomes why hasn't that happened yet, and I think we're simply in a period of time where there are leads and lags that are much like the leads and lags of Federal Reserve policy.

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http://www.americanthinker.com/2012/02/gasoline_prices_and_dollar_prices.html

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Well, Juandos's article doesn't make much sense.

Exchanging less silver for gasoline today compared to three years ago doesn't mean gasoline prices fell.

It means silver prices rose faster than gasoline prices, the demand for silver has been greater than the demand for gasoline, saving increased relative to spending, there's less driving or more smaller vehicles, etc.

If Americans shifted to buying gasoline with silver instead of dollars, silver prices would fall and gasoline prices would rise only relative to silver prices, not from quantity of gasoline demanded.

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The article states: "It is not that the price of gas is more expensive; it is that your dollars are worth less."

The price of gasoline is more expensive, because demand for gasoline increased between 2009 and today, more than supply.

And dollars are worth less doesn't mean much, unless prices increase faster than income, i.e. real income falls.

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It's really quite amazing. The people who believe the Fed is "printing" too many dollars would make dollars worth less if they had their way, because real aggregate income would fall.

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The Fed is not printing too many or too few dollars. It's printing enough dollars to maximize economic growth and maintain price stability.

Economic growth is too slow, because of inappropriate policies by the Administration and Congress, not the Fed, to deal with the downturn.

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Morganovich, I've shown you about a hundred different ways why you're wrong. I think, you would've understood long ago if you knew something about economics.

For example, it makes no sense the economy contracted, while millions of net jobs were created, since the 2009 trough. Typically, jobs are lost in a contraction.

Also, firms aren't firing productive workers and hiring destructive workers to shrink the economy. It doesn't work that way.

They tend hire the best workers first and the worst workers last, or fire the worst workers first and the best workers last.

Moreover, jobs recovered more slowly after recent recessions, because more new jobs require higher skills (e.g. in the Information and Biotech Revolutions), which takes more time to acquire.

******

Also, I may add, lending remains tight. See "excess reserves."

You're confusing a slow recovery-expansion with a contraction.

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Morganovich, I've shown all your statements are wrong before and more than once.

So, I'll just reply to one of them.

You say: "there was basically no growth from 2000-7 and such growth as there was was all debt funded...sure, we picked up 5 million jobs from 2000-7."

In 2000, the economy peaked. Nasdaq was over 5,000 and the spectacular 18-year structural bull market ended.

We had a mild recession in 2001. It was so mild that annual per capita real GDP didn't fall (in 2001).

We had an economic expansion and cyclical bull market with full employment in the 2000s.

So, how can you say we had "no growth from 2000-7." I've shown you lots of data before that there was not only substantial real growth with an even steeper rise in living standards, but also assets increased much faster than liabilities (i.e. net wealth rose substantially). Obviously, you completely ignored it all.

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http://www.blogger.com/comment.g?blogID=28997633&postID=5181152079593793804

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PeakTrader said...

Many people talked about the "jobless recovery" in the early 2000s.

However, they didn't realize the relatively small job gains after the 2001 recession (and relatively small job losses in the recession) were on top of huge job gains in the second half of the 1990s.

Normally, strong expansions follow severe recessions. However, the Obama recovery is weak, because of ineffective and counterproductive policies by the Administration and Congress.

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PeakTrader said...

Based on jobs not recovered in the depression and population growth, the U.S. will need to add more than 550,000 jobs per month on average over the next 24 months to reach a 5% unemployment rate or full employment.

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