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The Q4 .6% real GDP growth was based on an inflation rate of about 4%, so nominal growth was 4.6%. As John Williams of Shadow Government statistics points out inflation is, in 1980 terms, underreported by 7% given us a contraction of 6.6%. Q3 07 would have been negative 3% --that's .4% away from calling this a depression.
The federal reserve is flooding the system with money. M3 is estimated to be growing at 18%. This is of course what chopper Ben (and Milton Friedman) think the Fed should have done in 1929. Fiat money lets us inflate our way out of a liquidity crisis. But the cost in inflation and debt is going to be massive.
The underlying economic problem of an overbuilt housing sector won't go away overnight. 50% of Ca job growth during the last recovery was real estate related (construction, finance, sales, insurance etc.). It was similar in other parts of the US. By holding interest rates so low, so long Greenspan revved up the real estate engine to create growth. Now the engine has seized up. Foreclosures are generating housing inventory, job losses and credit standard tightening are reducing the number of potential buyers. The residential sector is going to continue to drag us down for some time.
The credit crisis is bigger than just the real estate problems. Whole classes of derivatives may disappear. One Goldman Sachs economist estimates two trillion in losses over the next couple of years. How much tax payer money will be stuffed into that debt hole to "stabilize" the system?
When they report an official contraction of 1-3%, that if we measured it the way they did in 1929 it would be more, a lot more.
