New US T-Shirt Slogan: "The Government Took on $300+ Billion in Debt, And All I Got Was Negative GDP"

Adam Taggart
By Adam Taggart on Wed, Jan 30, 2013 - 10:15am

How can you spot the moment at which the Fed's efforts hit the point of diminishing returns?

A picture, as they say, is worth a thousand words. Or in this case, $312 billion USD.

From Zero Hedge:

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20 Comments

Adam Taggart's picture
Adam Taggart
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The details

It's important to be eyes wide open about the details in the latest GDP report, as there are positives within:

  • the negative number was mostly caused by the biggest drop in military spending in 40 years (many may see lower military spenditures as a good thing)
  • much of the remainder of the drop was due to lower growth in inventories (again, this can be argued as a plus; that "channel stuffing" is slowing)
  • household consumption increased - at a rate of 2.2%
  • Corporate spending on equipment and software climbed at 12.4%
  • Residential construction increased at 15.3%
  • Q4 was impacted by Hurricane Sandy - a (hopefully) rare event

Much of the GDP commentary today is upbeat about the growing strength promised by these underlying details, especially housing (which we have our doubts about). The equity markets haven't moved much on the news, though the precious metals have spiked higher on it.

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Contradiction?

The graphic does visually illustrate the amount of additional debt taken on far outwieghs the GDP results, but as you point out the GDP results are laced with good news.  Does the debt really have diminishing returns?  Or are we in such bad shape it takes THAT much to move the needle in a positive direction?

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Adam, what are your thoughts?

With the six bullets you listed. What is your opinion as to the positive and negative effects? Some I can see being interpreted in both a negative or positive light. For instance, corporate spending on equipment and software. Is this a ramping up (ahead of increased production) or just the usual expected updating (that may have been postponed until now)? Same goes for military spending...less money spent on an industry that has a poor track record of creating residual wealth (pro), but a diminishing of geopolitical strenght to protect currency (possible con). Would like to hear your opinion.

Thank You

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How much of the military

How much of the military spending cuts are the wind down of the Iraq and Afghanistan wars? In addition the military will use this to spin something else and report these societal benefits now so they get theirs later. Ahhhh paranoia, doesn't it feel great?!

BOB

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Pros/Cons

Gillbilly -

High level: I think it's too early to make definitive calls from this GDP 'surprise' and its underlying activity. But I'll do my best to share my initial thoughts since you've asked for them:

Military spending: Personally, I'd like to see the US reduce its military spending as I think our economy is far too directed by the military-industrial complex President Eisenhower warned about in his farewell address to the nation. This has led to an oversized global presence and commensurate level of spending that is way out of line with the requirements (as I see them) for defending our homeland's interests.

So, should folks like me get excited by the large drop (-22%) in Q4 defense spending? Probably not yet. Defense spending is typically seasonal; and since the Pentagon's fiscal year ends in September, Q4 spending is always lower than Q3 (when departments spend their remaining budget, in hopes of showing they need even more in the following fiscal year).

Also, some analysts think the Pentagon slowed spending more than normal last quarter to build up "dry powder" in case the sequestration is enacted.

So, call this one too premature to celebrate.

Inventories: Again, probably too soon to call any trends here, though I suspect the drop in inventory growth was made to lessen the impact of prior channel stuffing (a negative practice, IMO), and uncertainty in predicting future demand due to Hurricane Sandy and the fiscal cliff showdown. 

Household consumption: Here I think you need to realize there is a tale of 2 America's going on. Those at the top have seen a healthy wealth gain over the past year as stocks have powered higher. I have yet to see data breaking out this growth by income strata, but I would surmise it's heavily driven by the top percentiles.

The rest of America is still struggling, and I will not put confidence in any reports of "recovery" until I see data that shows real wages and savings increases are happening at the middle class level. Which, just to be clear, I have not seen.

I fear the media will continue its blindness to this duality and simply celebrate any numbers driven higher by the top 5%. And poor policy and corporate decisions will be made, assuming a national level of prosperity that simply isn't there.

Corporate spending: I think this is real, in the sense that corporations have a lot of cash on hand to deploy (and corresponding debt, that is cheap - for now). Also, there is data (see point above) that provides some encouragement that the US is coming out of recession, and corporations want to be in front of that. TBD on whether that expected demand actually materializes.

Residential construction: see my comments (and others') in yesterday's thread on the housing "recovery"

Hurricane Sandy: hard to quantify this one, those some economists estimate it shaved 0.5% of growth off of GDP. Unlike some economists, I think natural disasters are 100% bad for the economy. The jobs involved in repair efforts represent productive capacity that otherwise could have been used to enhance value vs simply restoring it.

Bottom line: it shut down the entire US east coast for several days, and some areas for weeks or longer. So its economic impact is real.

My only real feedback is this (and this isn't Sandy-specific): there are a number of residential spots on the Atlantic coastline that experience material damage every few years by hurricanes, flooding, etc. They get declared emergency zones, and are restored at taxpayer expense. IMO, there are places where it does not make economic (or net energy) sense to rebuild, given the high probability of future damage. We need to start having that discussion and stop enabling nonsensical development.

Conclusion: Too soon for either the bulls or the bears to claim victory - we'll need more data, which the next few weeks/months should provide. In reading the many sanguine articles today that claim this is the "best looking GDP drop you'll ever see", my defenses are making me think that perhaps they doth protest too much. And possibly they are more worried than they claim to be.

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Thanks Adam

That gives me/us more context and things to ponder. I appreciate you taking the time. I guess we'll have to wait to see how this plays out.

Thanks Again

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someday they will have to

someday they will have to face the reality that the age of growth has past and the job at hand is managing the decline... as gracefully as possible. digging the hole deeper just wont work anymore.

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We wasted $312 BILLION DOLLARS!

We cut military spending, and we spent $312 Billion dollars!

We also proved up that housing is a fabrication.  

So, couldn't we have done better?

If we paid laborers $62,444 dollar salary building an electrical infrastructure for instance. Wouldn't we get 500,000 jobs for the same amount of cash representing one years salary? Cash that would be able to buy homes, consume something, pay their bills, and float some cash around the economy? All of this building a productive asset for years to come and NOT just vaporizing this cash into a negative reading this quarter alone?

We won't include spin off jobs either here. 

Then lets get cute and employ those collecting unemployment insurance and food stamps. That would save the treasury 700,000 payments being made to those sitting around watching ESPN.

Lets get cute again and just say collectively we get 700,000 jobs and a really nice positive feed back loop to the economy.

All this cash would end up in the banks hands anyways and they could collect interest and banks would be banks again, and the Fed wouldn't need to borrow so much cash or create more and more fiat paper. My goodness, the World would love us again.

To complete what I know is a little more complicated than I have stated (?) we save yet again as imported Oil has now been replaced with electricity (to some degree) so the premium being placed on Oil because the market fears a strategic strike on Iran is pulled off the price of a barrel of Oil. Lets say 20 bucks worth. More discretionary cash then, for every driver on the road around the world.

Housing bounces back better than stated in this quarters stats because $62,444 dollars a year salary is probably enough to actually afford some of the housing in todays market especially if banks are required to put all the inventory on the market. Big ticket items would be purchased, government saves on welfare, Folks have a sense of pride again, we have actual and real positive numbers we can report, and we get a nice start to an electrical infrastructure build. Ooops, forgot the cost savings of policing the shipping channels to get Oil flowing to all parts of the world and those needing Oil the most can police their own waters and save us even more. Plus business would have certainty again as we finally have a positive and functional government again (remember I am musing here) and we change the tax code, realize the importance of small business again, and the CEO's start spending the $TRILLIONS they have gathering dust in some vault somewhere. Banks would have to pay interest again on the cash gathering dust at the Federal Reserve and Holy Cow the Fed would have to start getting all this cash out of the market, and the Treasurt Dept would actually collect enough taxes to balance their books especially if we cut all the waste out of Government. This is fun Folks!

1.5 to 2 Trillion in spending is needed by utilities to upgrade the grid by 2030. What is so amazing is that we lose anywhere from $25 to $180 billion per year (that's a wide split I know) to lost productivity because of outages and bottle necks (redundant statement ?) because our electrical system is so 1950ish.

If I did the math right then $150 to $200 Billion a year each year for 10 years.

Subtract loss of productivity and lets be generous and say $75 Billion yoy lost productivity.

Actual cost then is $75 to $100 Billion a year by saving lost productivity in spending for our brand new Smart Grid.

Then we charge a sur-charge (a small one) to all utilities for the cheapest electricity in the world and it pays for all of this.

Note: Could we please stop spending restoring beaches aand water front homes that are constantly being destroyed by Hurricane erosion. Just build the beach back a little further and the homes are my thoughts.

Lets even say the top end of lost productivity is $180 Billion a year and multiply this by 10 years. That's $1.8 trillion dollars and we could build this thing on the cheap. That's one helluva austerity program and we wouldn't have to cut a damn thing!

We got nothing for $312 Billion (1 quarter of spending) plus we saved on military spending. So lets waste another 3 quarters and have a state of the Arts, world class Electrical Economy, some windmills, geothermal and solar, and I think we are doing WAY BETTER than we have in the last 6 years combined.

We could produce the cheapest energy system in the world, bring manufacturing back to become exporters again, and then we may as well build out a transportation system right along side this electrical build.

We spend all this cash into the communities where work is being done, and last I looked everyone works where they live, and the cash is spent into all corners of the country so would benefit everyone equally.

Hmmm, lets do it, and I would bet that Congress would get a 90% approval rating instead of a 90% disapproval rating. The President would go down as the best ever, the country would feel terrific again, and everyone would be bitching again about working to many hours. The wife or husband at home would want more but are really happy again, and we can get back to being positive about life again! Imagine that. Plus Congress can still go about taking their bribes, and perks, and all things we all know they do but when things are good we don't care. Everyone's happy again.

I probably butchered this a bit but I am not too far off the mark. Plus, I needed to think of something that was actually pleasing to imagine than to have thoughts of all you Folks losing your jobs to some Robot, and my grandson's could grow up into a world with so much less stress.

Robots and Human labor will have to co-exist. Logic mandates that you can make all the gadgets you want but if no one can buy them then Robots too will sit and rot. So balance is but a math equation away unless of course the Government and the Fed get their outdated models and own interests involved and forget they are working for the people.

I like the idea of Robots fighting each others instead of our kids and grand kids. Imagine, we won't have to worry about our babies fighting in some foreign war again! I love it.

Note: This is my day dream so you conspiratorial types, save it, I don't want to hear it's a Government plot to control the sheeple (I hate this term, too subjective) and Robots will just shoot us all for running a red light somewhere because blah, blah, blah, and all that Jive. You know what, I have been put in detention here at PP twice, and I deserved it. I was censored and put into the penalty box because what I may have said or did say may have been over the top. It is the two times in my life that I was censored or forbidden to speak my mind. Hmmmm, just sayin' Folks.

http://www.infrastructurereportcard.org/fact-sheet/energy

BOB

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Bob

don't feel 2 all full. ive ben in it too ann i cant tipe.

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Robie

ahhh, hmmm, a, oh tay. sage ad viyes. Tanxs

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Adam Taggart wrote: It's

Adam Taggart wrote:

It's important to be eyes wide open about the details in the latest GDP report, as there are positives within:

  • the negative number was mostly caused by the biggest drop in military spending in 40 years (many may see lower military spenditures as a good thing)
  • much of the remainder of the drop was due to lower growth in inventories (again, this can be argued as a plus; that "channel stuffing" is slowing)
  • household consumption increased - at a rate of 2.2%
  • Corporate spending on equipment and software climbed at 12.4%
  • Residential construction increased at 15.3%
  • Q4 was impacted by Hurricane Sandy - a (hopefully) rare event

Much of the GDP commentary today is upbeat about the growing strength promised by these underlying details, especially housing (which we have our doubts about). The equity markets haven't moved much on the news, though the precious metals have spiked higher on it.

Another thing to remember regarding corporate spending on equipment and software - the very generous bonus depreciation and section 179 expense limits expired at the end of 2012 prior to the passage of ATRA.  So there was likely alot of purchasing of depreciable assets prior to year-end in order to take advantage of the generous deductions for equipment and software prior to the expiration of the Bush tax cuts.

Wade

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I stand (not really) corrected

Above I wrote:

I will not put confidence in any reports of "recovery" until I see data that shows real wages and savings increases are happening at the middle class level. Which, just to be clear, I have not seen.

Turns out, just-released data shows the personal savings rate spiked tremendously in December. Another chart from Zero Hedge:

Is this the data needed to reverse my disbelief in a consumer-led recovery? Hardly.

The reason behind this spike:

how did the US consumer see their personal income soar as much as it did? Two things: on one hand the government's generosity, as it was "boosted by lump-sum social security benefit payments." But more importantly it was "boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates."

So, lots of 11th hour scrambling to take more income in 2012, ahead of the expected fiscal cliff-related 2013 tax hikes.

And you can bet that almost all of this "savings" are happening in the top few % income brackets (per my "two Americas" point in my previous comment).

As usual, we need to dig beneath the cheerleading headline to understand what reality actually is.

RJE's picture
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We waste:

$165 Billion dollars of food a year in the United States. 40% of our yearly food supply.

http://www.huffingtonpost.com/2012/08/21/food-waste-americans-throw-away-food-study_n_1819340.html

57% of all the energy we produce is wasted yearly. If we conserved the lost energy we could nearly halve the cost of our energy!

http://ezinearticles.com/?Becoming-Energy-Efficient---How-Much-Energy-Is-Wasted-Each-Year?&id=7180191

$100 Billion is wasted every year in traffic jams. 1.9 BILLION gallons of gasoline flipping off the dude in front, back and to the sides of you, and honking your horn. I wonder what that adds up into doctors visits, drugs, and surgeries for heart attacks?! I bet a lot.

http://www.nbcnews.com/business/we-waste-1-9-billion-gallons-gas-sitting-traffic-558071

We waste in food to fuel over $15 Billion dollars a year turning corn to fuel.

Cut Dept. of Education. $100 Billion dollar savings.

http://www.foxnews.com/story/0,2933,591123,00.html

100 Billion here and 100 Billion there and soon it adds up to real money. That's $380 Billion Dollars not including saving what we waste in energy a year. So $600 Billion Bucks then? This with just using 5 examples of saving wasteful spending from a knucklehead sitting in an office chair trying to use common sense strategies to our problems. 

I think we waste too much.

BOB

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Yeap, Adam you are on top of things...

...and after reading the just outstanding and sobering report by Gregor, and the correspondence's between you and Chris that shows we have lost millions and millions of jobs (WW) to robots since the Recession began with lots and lots more robots being built, shipped, and put into the labor force every day it would be my guess that those numbers you will be looking for WILL NOT materialize. Then again, those numbers are reported by the government, right?

Note: In my muse above I said we could charge the utilities a sur-charge and it should be end user.

BOB

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Personal Income Mirage

Adam Taggart wrote:

So, lots of 11th hour scrambling to take more income in 2012, ahead of the expected fiscal cliff-related 2013 tax hikes.

And you can bet that almost all of this "savings" are happening in the top few % income brackets (per my "two Americas" point in my previous comment).

As usual, we need to dig beneath the cheerleading headline to understand what reality actually is.

...aaaaaand....that didn't take long.

Adam Taggart's picture
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LOL - and it gets worse

Chris -

Was wondering who was going to put that chart up next...

An important thing to keep in mind: with all the "income stuffing" that happened last quarter, expect Q1 savings (and perhaps further into 2013, as well) to be abnormally low

RJE's picture
RJE
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Biderman made this call a couple weeks ago...

...and everyone should have realized that higher taxes in 2013 would realize the capture of profits at year end 2012. Plus maxing out 401K and IRA's and such is still worth the risk, perhaps.

http://www.viddler.com/v/8f98b7c2?secret=52313301

BOB

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Hey...and the charts correlate

What are the chances? Lol Nice job, that was fast!

Thank You

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Backwardation

Is there such a thing as "income backwardation".  If not, I think we just invented it!

H

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Slogan in T-shirts

In t-shirts we have found different types of slogan and quotes now days. Slogans are looking more stylish and attractive in t-shirts; it comes with different design and flavor such as; funny quotes and pictures, controversial, social message and many others. But here we have found a different slogan about American government debt and GDP issues. I hope apart from that we can get more t-shirt designs and quotes in near future.

custom t-shirt printing

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