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They Say a Picture is Worth a Thousand Words

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Check out the graph that shows the cumulative change in economic output (real GDP) since late 2007 for several developed countries. It is interesting on several levels.

Notice that the “Great Recession” in the US was much milder than the rest of the developed world. GDP only dipped 4% hardly a catastrophe and not close to the 25% decline during the Great Depression in the 1930’s, by the way.

And while the cumulative gain in real GDP has been +6% in the US, it is much less in other countries, particularly Europe. The Eurozone has a more fragile banking system and a one size fits all monetary framework. In addition the social welfare state is omnipresent with federal, state and local spending easily over 50% in many countries compared to about 37% in the US.

While the chart doesn’t show this, it is true that this recovery is the slowest on record since the Great Depression. The current US expansion has posted annual growth in the 2% neighborhood since mid-2009 where 4% is more typical.

We have been sluggish because of the massive run up in debt through 2008 and the need to “deleverage” by paying down debt (saving more and consuming less). We have also had a White House with an antibusiness reputation. This has created uncertainty and dampened the famous “animal spirits” that drives business optimism and leads to growth.

It’s a not all bad as the result may be a slower, but longer, economic expansion as imbalances have not built up and inflation remains tame.

Jeff Pantages
Chief Investment Officer

 

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