In Advance Of The GDP Report, Goldman's Hatzius Sees 3% GDP Drag From State, Local And Federal In Coming Year

Tyler Durden's picture

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VK's picture

Who needs Goldman when we can have real time data? The charts clearly show the economy is in a recession and that things are worsening! D'oh!!! Oh and I'm not long Chinese solars.

? The amount of damage done to an economy by an economic slowdown can by quantified by multiplying the event's average rate of contraction times the duration of the event. By that measure the 2010 contraction has now inflicted 43% as much pain on the economy during its first 6 months as the 'Great Recession' did during the first 6 months of that slowdown.

? Although this contraction has not yet reached the extreme contraction rates that were seen during 2008, after 6 months it has not yet formed a bottom. Furthermore, it is now likely to last longer than the 2008 event.

? In an even broader perspective, the current level of the Daily Growth Index over the trailing 91-day 'quarter' would put it among the lowest 6% of all calendar quarters of GDP growth since 1947. Only roughly 1 in 17 quarters of GDP activity have been worse.

? The duration of the current contraction event is becoming a real problem. Our trailing 183-day 'two consecutive quarters' growth index has dropped into the 5th percentile among similar two consecutive quarters of GDP 'growth' since 1947. This means that the trailing 6 months have been statistically worse than the trailing 3 months -- less than one in twenty 6-month spans have been worse since the BEA began keeping quarterly records.

thesapein's picture

Seems like they're trying to avoid even the question of a double dip or depression and instead want to focus on a tightening of the belt (around our necks) and an austerity program that micro-focuses on the state and local level. That's my interpretation, and it ain't pretty, looking at Greece.

It's exactly what they did to Greece and why the Greeks hate GS more than we do.

Thisson's picture

Too bad, because austerity is exactly what we need.  We wouldn't have reached this point if y'all had just voted for Ross Perot when you had the chance.

thesapein's picture

I did vote for Perot!

I agree with you, totally.

But I'm also more open to local governments doing whatever those communities want, and going bust if they want. I'm more about downsizing on the national level. The federal government ought to swallow this medicine first and foremost.

slobbermut's picture

The Piper has to be paid...for state and local communities, only BK can allow for the nullification/adjustment to retirement benefits, labor contracts, which will otherwise suck every last discretionary penny from taxpayers to the government.  All academic, as it is too late anyway.  Default is coming, only a matter of time.

thesapein's picture

ah, so they're planning a push for "austerity"

thesapein's picture


Seriously though, they specifically stated the culprit as being state and local governments. This gives me the impression that we'll see a continuation of layoffs for local and state law enforcement (except for those specially trained in Iraq as many are being sent overseas to train) and replacement by federal enforcers, including the military, who will be better equipped to handle riots, gun confiscation, setting up checkpoints, etc.

It all makes perfect sense and even sounds reasonable if you're a zombie.

nmewn's picture

"Seriously though, they specifically stated the culprit as being state and local governments.
Well, I think we all know of the many unfunded mandates that were passed down from on high.

You know, the ole if you don't do X your federal funding for Y will be cut and we'll make sure you, Governor Goldfarb, are held up as the one who stood against X causing Z to happen X was done to balance the yearly Z state & local fiscal budget.

All this blackmailing ponzi crap is coming to an end. And I don't put much stock in the whole Mad Max routine. There have always been more of us than them.

RobotTrader's picture

It's the longest recession we've had in decades.

Bad data keeps coming out.  Sometimes the market sells off.  Sometimes it ignores it.

Bottom line is that we are still at 1,100 with some of the absolute worst economic headlines in a generation.

Eventually things will get better, and the market will start taking off in anticipation.

Fools like Jim Pupulava who are short and won't go long until they see the ECRI turn around will miss out on the first 150 point gain in the SPY...

So bears need to beware.

Just watch "The Squid", MS, and some of the banks.

No weakness yet.

And notice how the CRB has clearly broken out to the upside:





AccreditedEYE's picture

So bears need to beware.

Just watch "The Squid", MS, and some of the banks.

No weakness yet.

Robo, you're killing me bro. Economic data is ignored until it isn't. :) I hope that you have at least been making money on this move up....

Kreditanstalt's picture

Not true: this is a rolling top.

Forget technicians and charts...sentiment, which is what drives markets, is shaky at best, despondent at worst...just waiting for the first big fund or holder of dividend-payers to sidle ~ or flee ~ towards the exits. 

The only real money I've made this week has been SHORT...

nmewn's picture

Colgate & Kellogg yesterday? ;-)

traderjoe's picture

Just wait to see what the GDP impact will be when we get a muni default. 

buzzsaw99's picture

when the squid and cnbc start with the bear-talk it's time to buy.

VK's picture

The only time it pays off to be a 100pc bearish is when a ponzi scheme is falling apart.

Thisson's picture

Good thing that could never happen, right?  /sarcasm/

buzzsaw99's picture

ponzi is our president.

Village Idiot's picture

"ponzi is our president."


New hit television show - Happy Days!

Starring - Barry Obama as "the Ponz"


Somebody take it from here...


Rogerwilco's picture

"It's the longest recession we've had in decades."

IIRC, aren't they called depressions? Markets do funny stuff inside them and the true nature of the mess is typically recognized only at a later date. Subtract 12% from notional GDP and tell me how bullish you feel.

All_In's picture

Question: At what point was the 1930's called The Great Depression?  Was it when it was actually happening or was it 5,10 or 20 years later after it had passed?  Because I would be willing to bet historians will call this period a depression as well some day...

Navigator's picture

Numerous reporters and analysts have been calling this the "Bush Depression" since at least 2007.  Google it if you don't want to believe.  Then tell us why the phrase "Bush Tax Cuts" has his name attached in all mainstream media while, at the same time, so much of the media is shy about placing the cause of this depression where it belongs by routinely using the phrase "Bush Depression".

zen0's picture

I have seen the information but can't recall it right now. I was a few years in, at least before the term was used.


It is somewhere in The Return of the Great Depresson, by Vox Day , but I can't give you a page number.

Rogerwilco's picture

@ All in

The markets recovered nicely after the 1929 crash, and Hoover pronounced that the economic troubles were behind us. Sounds familiar, doesn't it?

Rainman's picture

Squid analysts are now patronizing the palm readers weekly. Hookers and blow are so........2006.

zen0's picture

Isn't the GDP a Chinese number and therefore irrelevant.?

belogical's picture

Non of the economic numbers matter anymore because they are so inaccurate that they always get revised and just about never in a good way

miaent's picture

ZH, You should support differing opinions from the same firm's research team.  This is good... 

pamriallc's picture

goldman knows that this will never happen but they have to give the "world" the "what if?" scenario.  in the real world the FED will do what is necessary to give *the people* what they like to see from a *humanistic side* of investing in anything--  people love rising prices even if overall inflation is rising faster.  we will receive *nominal* returns which are "positive" over time and while taxes and etc. will drag on growth this is not new news.  frankly, the *inflation* that they are currently and desparately trying to create is in fact the goal in the long term.  the FED has never been unsuccessful in this effort, nor will it ever be unsuccessful in creating inflation.  in the end, "common folks" will take "rising prices" of anything in exchange for falling prices where their "personal assets" are concerned.  inflation-adjusted *real* growth is not going to happen, but NOMINAL growth via-inflation is a long term guarantee.  the FED has the power to create as much "nominal" GDP "growth" as it wants to create, and congress and the senate will decide how to spend the money that's printed.  it is the way of the world, and it will continue to happen as it has for literally 2000 years.  goldman is acting as though stimulus will not continue and frankly--- the piece is politically motivated as it clearly encourages the continuation of Bush-era tax cuts which are good for their clients.  a good piece of work, actually, but nominal growth will happen either way.  shawn mesaros, pamria, llc 

vxpatel's picture

It's INFLATION - b/c the economy always has to go grow....and other fairy tales.
Deflation would seem to be the prevailing trend in my neighborhood, Beverly Hills CA. Lots of office space for lease/sale, lots of houses suddenly on the market and used Range Rovers for 10's of thousands less than a few years ago... 

What if the fed printed a bunch of money and no one actually wanted anything new...b/c suddenly they didn't even want the stuff they already had, which they couldn't afford in the first place...which is why they took out the 2nd mortgage on their house (b/c housing prices always go up) 

Suddenly things like extra cars, elective plastic surgery (@#$%&! especially), giant SUVs, extra houses, meals out...etc etc etc suddenly become less appetizing. 

deflation...could be much more serious than inflation, and this is the first time in my life i've ever hear the word tossed about, like that other serious word...austerity.