Now back to reality. The Government released a bunch of numbers this morning that clearly show we've got serious economic issues. If there's one statistic that measures our economy more than any other, it is probably the GDP. That's our gross domestic product, which measures all goods and services that the economy produces. Well, the GDP dropped by 0.3% between July and September, the 3rd quarter. That's the first estimate which could be revised later, but it surely indicates that our economy is contracting. Surprise. Consumer spending makes up 70% of the GDP, and 3rd quarter spending fell by 3.1%. That's the worst number in 28 years. The consensus out there is that these numbers point to the start of what could be a deep and long recession. To add to the problem, inflation soared in the 3rd quarter with the price index for personal consumption increasing by 5.4%. That's the biggest boost since the first three months of 1990. So are we officially in a recession yet? Well, we always here that the official definition of a recession is two straight quarters of economic decline. The GDP rose by 2.8% in the 2nd quarter, so in theory, we have to wait another three months to declare that the recession has arrived. But if you can find an economist who says we're not in a recession now, let me know. If there's any good news about these numbers today, it's that the decline in the GDP wasn't as bad as Wall Street expected. Maybe that's why the stock market had a good day, with the Dow closing up more than 190 points. That reminds me of what we say to loved ones who get a bad medical diagnosis. "Well, it could always be worse."
The more I read about the financial crisis, the more complicated everything seems to be. Just when I think I've got something figured out, some economist or analyst turns everything upside down. So in a way, I was hearted to read a piece today from The New Republic magazine. Basically, it says that nobody really understands what got the economy into this mess, not even the experts. Take a few moments to link to the article and feel better about yourself.
What about the notion that the financial and economic crisis is in the process of toppling the United States as the world's economic superpower. It's a claim that has been most visibly put forward by Germany's Finance Minister, Peer Steinbruck. "The US will lose its superpower status in the global financial system." "The global financial crisis is above all an American problem." "The other G-7 financial ministers in continental Europe share this opinion." "This inadequately regulated system is now collapsing, with far-reaching consequences for the US financial market and contagion effects for the rest of the world." Before we relegate the U.S. to second-class financial citizenship, let's consider the opinion of a Nobel Prize winning economist at Columbia University. Joseph Stiglitz, who definitely leans left and is an often-times critic of the Bush Administration, acknowledges that "our credibility has been destroyed, and there will be a fundamental change in the role of the U.S." But "the U.S. will still be the world's largest economy." Stiglitz makes the point that economies elsewhere in the world are slowing down just as quickly as ours, and the levels of their debt are just as high. Another Columbia economist, Irene Finel-Honigman put it this way, "The U.S. remains and will remain the standard bearer in financial markets. Even in a recession, the U.S. will lead the way out." And this is a concise way of understand how the economy of our primary economic challenger is tied to our economic health. China's number one customer for its enormous export market is, guess who, the U.S. We are after all, the world's biggest consumer. And as stated at CNNMoney.com, "If we don't buy, they don't grow." Now that I can understand.
This blog will probably have to take the day off tomorrow as I'll be at Citizens Bank Park for most of the day covering the Phillies' parade. Such a shame. Have a great weekend.