Forget real, think nominal

Michael Sivy writes at Time: The curious capitalist:

In addition to a host of warnings, last Wednesday’s Congressional Budget Office report did contain a little bit of good news. The economy will grow slightly faster in the second half of 2012 than in the first half, and inflation will stay extremely low, according to projections in the CBO’s Update to the Budget and Economic Outlook. The bad news is that unemployment will probably remain above 8%. The worse news is that next year the U.S. faces continued high unemployment, below-average growth and the risk of a double-dip recession.

The U.S. economy never built up much of a head of steam coming out of the 2007-09 recession, which saw the biggest drop in real GDP since the 1940s and the highest unemployment since the early 1980s. Historically, after such a major downturn ends, there’s typically a powerful rebound in which real GDP growth averages more than 4.5% annually over a period of two or three years and briefly hits annualized rates above 9%. By contrast, during the recovery that began in 2009, the economy has never grown faster than 4.5% and has averaged about 2.2% a year.

Yes, typically. But that doesn´t mean it´s in any sense “automatic”. The powerful rebound “typically” observed in RGDP is “typically” the result of the Fed cranking up monetary policy (which is not about “low” interest rates”) driving spending (NGDP) up forcefully. The chart clearly illustrates why there´s been almost no RGDP rebound at all. Just compare spending growth in the two instances.

And if you think inflation will take off like a rocket, think again:

And Michael Sivy plows on with more bad news:

And next year, the global economic situation figures to be even less hospitable to growth, which will make it harder for the U.S. economy to speed up from its current disappointing pace. Indeed, last week the ratings agency Standard & Poor’s released a report saying that the chances of a recession in the U.S. in 2013 had increased to 25%, up from 20% in February. A U.S. recession is by no means inevitable, but the domestic economy faces three large hurdles, any one of which could mean the difference between steady growth and another economic contraction.

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