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GDP growth not good enough in Q3

I'm trying to find an elegant way to say GDP growth sucked in the third quarter. Maybe "GDP growth modestly underperformed hopes that it would be about 250 percent faster?" Or how about, "GDP growth was very naught in the third quarter of 2010/"

At any rate, the economy grew at an annualized rate of two percentage points. That's slow-but-not-catastrophic in normal times. But these aren't normal times. What it means, rather, is that we're not catching up to where we need to be. We'd need a bit of time at 5 percent growth or so to really get back on track. That often happens after normal recessions, but balance-sheet recessions, where banks and consumers have to spend a long time getting their finances back in order before they can start expanding again, tend to take longer.

By Ezra Klein  | October 29, 2010; 10:25 AM ET
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Worse still, 72% of that GDP growth was inventory build.

Real final sales of domestic production only grew 0.6% at an annual pace last quarter. This compares with 1.7% annual growth during 2001 and 0.8% annual growth during 2002.

A decline in net exports absorbed about 2% of domestic purchases (e.g. GDP less net exports grew 3.9%).

Posted by: justin84 | October 29, 2010 10:47 AM | Report abuse

Ezra, don't you remeber we had this discussion a week or two ago? You wrote that we could grow our way out of this, and I suggested the deficit numbers were too large for GDP growth rates to make that possible?

This is why another stimulus would be crazy because you would be borrowing money in amounts which GDP can never accelerate to reach!

Posted by: 54465446 | October 29, 2010 12:00 PM | Report abuse

Very good post, Ezra.

Posted by: bigless55 | October 29, 2010 1:14 PM | Report abuse

Let's recap ...

Banks are getting loans from the Fed at around 1% interest, which they turn around and buy long term government debt at 4% to 5%. But they aren't lending any of this cheap money to medium and small businesses, which are usually the jobs generators in our consumerist economy (because those banks have to keep up their profit margins, CEO salaries and bonuses).

Corporations are sitting on trillions of dollars, waiting for the consumer to start consuming again.

Consumers aren't consuming at historical rates because they are unemployed or underemployed or facing paycheck cuts, not to mention the loss of their homes (because those corporations have to trim costs).

Some consumer are unemployed because their middle-class manufacturing jobs have been and are continuing to be shipped overseas or south of the border (because those corporations have to trim costs). Their jobs won't be coming back anytime soon, which means the younger blue-collar workers will be hard pressed to find the kind of job their parents had.

Some consumes are unemployed because the technology jobs they had were either outsourced or taken over by HB1 visa holders, the modern, high-tech Bracero program (because those corporations have to trim costs). Never mind that the older software engineers had no problem learning software languages but are supposed incapable of that now. So, the young white-collar and technical students heading for the work force will find a dearth of jobs and reduced salaries.

Meanwhile Wall Street banks are back to their usual tricks, generating huge profits (and bonuses) by having money chase money to make more money, but none of it put to productive use. Profit has become the end, not the means to an end, such as investing in creating new products and services that consumers can afford.

So, in an economy 70% dependent on consumer spending, the banks and big businesses are keeping money out of their hands. And Congress, which has the power to invest in stimulus like infrastructure investment in the long term and extended unemployment benefits in the short, both of which have high dollar return rates than tax cuts or tax credits, is either wringing its hands or twiddling its fingers and saying we can't afford to increase the deficit, which is what they've been doing steadily for most of this decade. (Never mind that government debt can be financed at dirt-cheap rates for the next few years.)

And now the Republicans are talking about shutting the government down in a fit of pique, while the Tea Party just wants to dismantle the whole thing.

Somewhere Jefferson, Adams and Franklin are shaking their heads and wondering why they bothered. Let hope that Stewart and Colbert provide a few laughs this weekend. We consumers sure could use one.

Posted by: tomcammarata | October 29, 2010 3:04 PM | Report abuse

Tom wrote:

"Somewhere Jefferson, Adams and Franklin are shaking their heads and wondering why they bothered."

Jefferson would be horrified because he hated banks and business in general. Adams would be neutral and Franklin would he highly in favor.

Posted by: 54465446 | October 29, 2010 4:08 PM | Report abuse

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