July 30, 2020

Largest GDP Drop in History

Timothy Birdnow

I've warned that the big economic crunch wouldn't hit right away, but that it would come down the road as the dominoes inexorably fall.

Well, we now learn the U.S. economy fell during the lockdown at a rate never before seen - 32.9% GDP drop!

Fox Snooze Business:

The Commerce Department’s estimate of the second-quarter decline in the gross domestic product, the total output of goods and services, marked the sharpest such drop on records dating to 1947. The previous worst quarterly contraction, a 10% drop, occurred in 1958 during the Eisenhower administration.

Last quarter’s drop followed a 5% fall in the January-March quarter, during which the economy officially entered a recession triggered by the virus, ending an 11-year economic expansion, the longest on record in the United States.

The contraction last quarter was driven by a deep pullback in consumer spending, which accounts for about 70% of economic activity. Spending by consumers collapsed at a 34% annual rate as travel all but froze and shutdown orders forced many restaurants, bars, entertainment venues and other retail establishments to close.

And a lot of small businesses are going to be unable to dig their way out of the hole. Bankruptcies are going to rise catastrophically this fall, I fear.

You can't just turn the economy on and off like that.

And people are going to die from this.

I hope these people are proud...

Posted by: Timothy Birdnow at 12:02 PM | Comments (2) | Add Comment
Post contains 240 words, total size 2 kb.

1 Consumer spending is, by definition, consumption. An economy which consists of 70% consumption is a disaster waiting to happen. If you are consuming more than you are producing... Come on, who believes that can continue indefinitely? It's surprising it lasted as long as it did.

Posted by: Bill H at July 30, 2020 02:42 PM (vMiSr)

2 Bill, I agree there was too much consumption. But we've based the last fifty years or more on that concept and you can't simply end it without an economic malaise. In fact, the government is now spending gargantuan sums of money to inflate the currency to "stimulate" the economy - and those chickens will come home to roost at some point. One of the great failures of Rome was currency inflation, which led to bankruptcies, which led to foreclosures of small farms and the like, which led to people going on the dole, which led to the institution of serfdom by Diocletian. Serfdom in America isn't all that far off, I fear. It'll be done via corporations and jobs you can't walk away from "for the duration of the emergency" but how is that different from shutting the economy down and making people live off the dole as we just did with this virus?

We need to get back to an economy based on production and not just consumption. But I fear Americans have gotten too used to cheap Chinese (and other foreign) goods. It's going to be hard to ween us all off that.

Posted by: Timothy Birdnow at July 31, 2020 08:40 AM (BtO0P)

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