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Not as Bad as the Consensus Thinks?



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Today’s GDP report showed a small contraction of 0.3 percent. But stocks went up nearly 200 points anyway. Many observers believe the third-quarter downturn was not a catastrophe, especially if you factor in hurricanes and the Boeing strike. On top of that the short-term tax rebates ran out in the third quarter, and that helped depress consumer spending, which did fall 3.1 percent.

However, inventories are quite low after three quarterly declines. And business capex shipments actually rose slightly in the three-month period ending in September. So there’s no collapse, at least yet, in business investment.

Most analysts expect a much worse drop in the fourth quarter, ranging between a 3 and 4 percent contraction. But they are not factoring in a roughly $200 billion annual drop in consumer energy expenses that will accrue from the collapse of oil and gasoline prices. This is gonna be a big consumer booster.

Meanwhile, credit markets continue to defrost and commercial paper is now rising again, as is inter-bank lending. So the economic story may not be near as bad as the consensus thinks. Remember, of course, the Fed is pumping in cash at a huge rate. That’s going to help the whole story.

The dumbest thing I heard today on the economy was a statement from Sen. Obama. He says the decline in GDP is “a direct result of the Bush administration’s trickle down, Wall Street first, Main Street last policies that John McCain has embraced for the last eight years and plans to continue for the next four.”

Wait a minute. Did I miss something here? After the bursting of the tech bubble and the 9/11 attacks, George Bush lowered tax rates across-the-board for individuals and investors. The stock market rallied uninterruptedly for five years. The economy expanded from the end of 2001 to the end of 2007. Are we to really believe the Obama narrative that cutting tax rates is the cause of this downturn? Not the credit shock? Not the Obama-supported government mandate to sell unaffordable homes to low-income people and to pressure Fannie and Freddie to securitize these loans? And not the oil shock, as well?

It was really tax cuts that caused this recession?

That’s the dumbest story ever told.



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