The state of the economy is reportedly improving, but is that truly the case? Despite a 1 percent decline in GDP during the first quarter, economists are offering intriguing explanations for this optimistic perspective.
“Last Friday, the Federal Reserve published the consumer credit figures for April,” reported MarketWatch. “For some time, both student and auto loans have driven this growth, and that trend continued last month: Nonrevolving credit increased at an adjusted annual rate of 9.5 percent, marking the fastest growth since February 2013.
“However, the standout news was in credit-card growth, which surged by 12.3 percent. Not only is this the fastest growth seen in one month since February 2001, but it also stands out because credit-card growth has not surpassed 7.5 percent since the recession.”
This statistic, indicating that consumers are spending borrowed money at an increasing rate, is somehow being cited as evidence of economic improvement. It may sound absurd, yet this is the reality we are facing. Continue reading
Republican leaders are expressing intense opposition. House Speaker John Boehner labeled recent regulations “insane”. Senate Minority Leader Mitch McConnell called it a “lose-lose proposition.”
This is not about President Obama’s chewing gum incident during the D-Day commemoration in Normandy. Rather, we are focusing on something much more outrageous—Obama’s latest effort to impose his will using taxpayer resources.
Recently, Environmental Protection Agency Administrator Gina McCarthy, appointed by Obama, approved a new Clean Air Act proposal aimed at reducing greenhouse gas emissions to a third of 2005 levels by the year 2030. “These new standards will help us ensure our children inherit a safer and more stable world,” President Obama asserted.
Let’s take a moment to suggest a more creative solution. To counter the harmful effects of greenhouse gases, why not dump millions of ice cubes into the ocean and encourage everyone to open their windows and blast the air conditioning to chill the atmosphere? Absurd, right? Continue reading
In the 1950s, economist Hyman Minsky introduced his Financial Instability Hypothesis, which proposes that stability can actually lead to instability. How is this possible?
Minsky noted that financial crises often follow periods of economic prosperity. Such prosperity can encourage borrowers and lenders to engage in increasingly reckless behavior. This rise in credit and debt tends to inflate asset prices.
Over time, this unfounded optimism can spiral into instability, pushing lending and debt to unsustainable levels. Consequently, financial bubbles may burst, leading to a decline in asset prices and revealing the errors made during the preceding boom.
The housing boom and subsequent bust from the last decade exemplified Minsky’s framework precisely. In response to the dot-com crash, the Federal Reserve injected vast amounts of cheap credit into the financial system, which inadvertently flowed into the housing market.
Early investors enjoyed substantial returns, prompting banks to issue riskier loans, fueled by the assumption that “house prices only ever go up.” Continue reading
Recently, the Bureau of Economic Analysis issued a revision that caught attention. The government statisticians revealed that the initial estimate of a 0.1 percent decline in first-quarter GDP was inaccurate.
Upon reevaluation, the decline was significantly worse, at an annual rate of 1 percent. What does this indicate?
In essence, it means the economy is not expanding; it is contracting. Given that the economy relies heavily on vast amounts of debt, even a small contraction can lead to significant vulnerabilities at the margins of this debt structure. In particular, student and auto loans are poised to trigger the next wave of financial ruin.
Yet, the majority of news outlets have chosen to blame the weather for the economic sluggishness. Some have even touted the contraction as a short-lived pause before another period of growth, suggesting that this is, in fact, a good thing as it will enhance second-quarter GDP figures. Continue reading
