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Economic Growth: Not What We Hoped For, and not What it Needs to Be

A couple of months ago, I posed the question: “Is the economy slowing down?” And my answer then: “The economy is crawling right now, and I don’t expect to be up and running this year”.

And today, a newly revised answer: that crawl is even slower than we thought.

Last week’s revision of GDP for the first quarter showed that the economy was basically stagnant at the beginning of the year. It was originally reported that the economy expanded 1.9%…that was reduced to .4% growth.

And in the second quarter, the economy grew an anemic 1.3%. And that means one thing: “…the second quarter confirmed what we already knew: the economy isn’t growing as fast as it needs to”, according to Commerce Secretary Gary Locke.

And that is troubling when you consider that it is now 24 months since the recession officially ended.

But it’s not just the fact that the economy stalled this far past the end of a downturn, its why.

A recent Washington Post article explains that what we are facing is not an ordinary recovery… because we didn’t experience an ordinary recession:

“Not only are credit crises different form other cycles, they also differ from other bubbles….the typical investing bubble leaves behind something of value. Whether it was thousands of miles of railroad tracks in the 19th century or thousands of miles of fiber-optic cables in the 1990s, usable infrastructure survives the bubble…Eventually all of this overinvestment in the bubble du jour becomes a productive part of the economy…

Compare that with what gets left behind after a credit bubble bursts: No physical infrastructure, innovations or research breakthroughs; just soul-crushing economy-sapping debt. And not just regular old balance sheet obligations, but huge piles of counterproductive consumer and government liabilities”.

The bottom line: “Credit bubbles produce the exact opposite of productive resources”.

And now we find ourselves in the opposite of a solid recovery.


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