U.S. economy GDP contracts 6.2% in 4Q

February 27, 2009 by · Leave a Comment
Filed under: Economic News 

This is pretty bad news. By some definitions, a decline of 10% or more in national GDP is considered the signal of a country entering into a depression.  I believe we will have a “soft depression” that would have a slow decline with a longer period of a harsher economic environment.  It is not clear if that is the correct path to take if it is clear we are entering into a depression.  This unprecedented amount of governmental intervention has soften the decline a little, but at the same time, we have more uncertainty and volatility.

Having a quick and severe decline in my opinion would be preferable even though we may have a short period of economic crisis.  This would noticeable restore confidence in our markets by getting these bad debts to market and into the light.  This is turn would allow us to start rebuilding our economy in a manner that is more productive with a long-term outlook to prevent from being so vulnerable to these cyclical crisis-es.  The more we decide to intervene in this important market function, the longer it will take to sort this mess out and move on to even more important issues at hand.

News:

The U.S. economy contracted at its sharpest rate since early 1982 in the fourth quarter, revised data showed on Friday, as exports plunged and consumers cut spending by the most in more than 28 years.

The Commerce Department said gross domestic product, which measures the total output of goods and services within U.S. borders, shrank at a revised annual rate of 6.2 percent in the October-December quarter, much steeper than the 3.8 percent fall estimated last month.

The weaker GDP estimate reflected downward revisions to inventories and exports by the department.

U.S. stock index futures extended losses after the report, and the dollar fell against the yen. U.S. government debt prices were steady at higher levels.

“It’s just doom all over. There’s nothing good to take away from this report. I think there’s a few more bad quarters to come,” said Boris Schlossberg, director of currency research at GFT Forex in New York.

Prospects for the first quarter are equally bleak with data so far pointing to an acceleration in the economic downturn, now in its 14th month.

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