Worse Than Great Depression

US Q2 GDP Crashes By a Record 32.9%, Worse Than Great Depression

This was the headline that hit us this past week. While the drop – which was generally priced in – was some 5 times worse than the adjusted Q1 GDP of -6.9%, it was just fractionally better than the -34.5% expected.

Some more details: The second-quarter decrease in real GDP reflected decreases in consumer spending, exports, inventory investment, business investment, and housing investment that were partially offset by an increase in government spending. Imports, a subtraction in the calculation of GDP, decreased.

That said, the biggest contributor to the overall GDP drop was the crash in consumption – the decrease in consumer spending reflected decreases in services (led by health care) and goods (led by clothing and footwear).

Breaking down the components of GDP we get the following:

  • Personal Consumption accounted for the bulk, or -25.05%, of the overall -32.9% GDP drop, and 5x more than the -4.75% Q1 GDP drop 
  • Fixed Investment subtracted another -5.38% from Q2 GDP, far worse than the modest -0.23% drop in Q1. Nonresidential fixed investment, or spending on equipment, structures and intellectual property fell 27% in 2Q after falling 6.7% prior quarter
  • Change in Private Inventories subtracted another -3.98%, 3x more than
  • the -1.34% in Q1
  • Net Exports contributed 0.68% to GDP, consisting of a -9.38% drop from Exports offset by a 10.06% boost from imports. The decrease in exports primarily reflected a decrease in goods (led by capital goods).
  • Government consumption was a paltry 0.82%, up from 0.22% in the previous quarter

Meanwhile, real disposable personal income (DPI)—personal income adjusted for taxes and inflation—increased 44.9% in the second quarter after increasing 2.6% in the first quarter. The increase in DPI was more than accounted for by an increase in personal current transfer receipts – i.e., government social benefits. Personal saving as a percent of disposable personal income was 25.7 percent in the second quarter, compared with 9.5 percent in the first quarter.

That said, the GDP collapse was expected, albeit a fraction less severe than anticipated. The real question is what happens next, and is Q3 the V-shaped recovery quarter. Alas, as the Fed indicated this past week, high frequency data indicate that the US economy peaked in late June and is once again rolling over.

This is looking more and more like the scenarios I read about in the 1930s. Government transfers and very, very high savings rates. Why are people saving? It’s simple. We are in a depression. Unemployment is extremely high and there is little prospect for many people to find jobs again. 

Whatever happened to Helicopter Ben Bernanke? I thought he was this great student of the Great Depression and he had all the answers. All we had to do was print as much money as it would take and there would be no more business downturns. In a way he is right, because, as Alasdair Macleod has said various times on my radio show, what we have is not a business cycle but a credit cycle. And it is the very credit cycle that Ben Bernanke and all Keynesians have espoused that has, cycle after cycle, taken America and the western world to the precipice of an economic downturn that has no end until Marxist lies and Marxist-light lies of Keynes are put to rest. But until the laws of economics trash our country to the point of repentance, I don’t see any way out of this mess. And those laws of nature are starting to make themselves known by the option out of paper money into gold and silver. For that reason it is the best of times for gold and silver bugs, but the clouds are getting darker and darker for humanity in general because we have bought the big lie of Keynes and other Marxists that we can simply create money out of thin air to bring about prosperity.  

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.