GDP sinks .5%
The GDP is often considered the most important economic indicator as it includes every facet of the economy and tracks how productive each economy is by a measure of the exchange of goods and services for cash. The GDP calculation is simple, yet huge, and includes everything. Here is the most simple explanation for the GDP equation:
GDP = consumption + gross investment + government spending + (exports − imports)
The calculation is heavily skewed towards input 1 and 3, the consumption of the American people and government spending including stimulus. Considering that the US economy by GDP is comprised 70% of consumption, the spending of the American people plays a huge role in the GDP ups and downs. Likewise, government spending is another input that can be manipulated with stimulus, tax cuts, and government borrowing. For example, the stimulus package expected from the Obama administration will add $850 Billion to the GDP.
This quarter’s .5% drop in GDP would have never happened had the $350 Billion that flew through TARP been lent to consumers. The US economy is worth $13 Trillion in GDP each year, $350 Billion of that is roughly 2.7%. Over the course of four quarters that number is well over a half a percentage point per quarter or about .675% per quarter. The difference of TARP lending could keep GDP afloat.
All in all the change in GDP is nothing, its the difference of lenders seizing up on credit and borrowers cutting back and saving. There is nothing bad with US consumers saving, this GDP figure is more positive than it is negative. Obama’s stimulus package for the next two years will add a considerable amount to the current GDP levels to the tune of 3.25% growth.
The numbers should turn around shortly and so should the markets. Its easy to see how economic stimulus in January could force a second half turnaround in 2009.
had the money been given to consumers in the first place, the economy might have righted itself already, as the populace could have used the money to pay down debt, etc. you build a house from the bottom up, not the top down. any economist worth a whit knows that. this was just to cover up the mess the dem congress created, by not listening to bush when he said regulation was needed. the ceo’s should fly their jets into a mountain for the all the greedy damage they have done. the insurance payments on the jets could probably bail out the whole banking industry.