Wednesday, February 8, 2012

Reality check for a CNN Money Reporter

This is a response to writer Charles Ray of CNN Money.
Here is the article.
Summary: Top Economic Improvement Rates Compared
Reagan: 8%
Obama:  12.4%

Context of Improvement
  •  Low national debt allowed Reagan to drop income tax by 23% for all. 
  •  Interest rates were very high pre-recovery to break inflation.  Once inflation broke, they were dropped to nothing, money was nearly borrowed for free, and the economy exploded.
  • Reagan faced a "garden variety recession," vs. a breakdown of the entire financial system and economy that rivaled the Great Depression once by the day Obama took office.  
  • Massive national debt before Obama took office prevents the scale of action Reagan took.
  • Interest rates were near zero at the start of the recession so the main tool to jump start the economy was already spent.
  • The housing market brought us down, the paperwork is so bad we don't know who owns what, so we can't figure out who to help to fix it, and foreclosures peaked in 2011 and a single home takes 3 years to process.  Putting a massive weight on the economy until at earliest 2014. 
Premise: Under Obama the entire economy swung 12.4% by his third quarter in office.  

Reagan's most impressive growth was 8% when conditions were favorable to use the main tools of recovery.

-------- Descriptors of my bullet point summary.
Reagan achieved 8% GDP growth.  This in the context of a country with no debt and a recovery that began when he was able to floor interest rates.

Obama achieved a swing in the GDP of the country from -8.9% to a positive 3.5% GDP rate.  A 12.4% swing in the GDP of the nation.  This in the context of interest rates at zero at the START of the recession.  And massive national debt that prevented the solutions Reagan used.

Simplified math:  3.5 + 8.9 = 12.4 % swing in economy.

(The swing written in original equation form.  3.5 - (-8.9) = 12.4
Minus a negative makes it plus.)

Intellectual distinction: We are concerned with the rate the economy improved.  This is distinct from GDP growth rate, which measures from 0%.  We measure from -8.9% because the economy did not grow from zero percent.  The economy was in contraction.  Thus, I define a new measure.

% of Economic Improvement: What is the % swing in the positive direction of the economy?  From starting point A to GDP point B?

Reagan's 8% was also achieved when the economy grew 1.6% the quarter before.
Obama's 3.5% was achieved when the economy shrank 8.9%.
Aka - Reagan's economy grew from growing.  Obama's economy displayed a massive turnaround and then grew.

With no debt, Reagan was able to drop income tax by 23% and maintain a government.

This is also in the context of a peak in foreclosures in 2011.  The cause of the crisis.  With foreclosures taking three years to process.  Showing 2014 as the year the foreclosure problem subsides.

Lastly, this is in the context of about 4 Million jobs being available in America that employers cannot fill because nobody has the necessary high tech manufacturing skills for the jobs of today.

Conclusion:  The proper recoveries to compare would be today's recovery to that of the Great Depression.

The Great Depression was from October 1929 to 1940.  11 years.  And only ended with the help of the largest global military conflict in history.
And now my full response to the article

Your article is using old data.  You are way off what measures have told us now on GDP.  In 2008 Q4 the Government data revisions show the economy contracted 8.9%  It was way way worse than anyone knew.

Here is a FAQ regarding this.
You have to do better with your Data.  No-one is reporting the most current data on that period.

Here is the previous data on 3rd quarter 2009 GDP.  There may be a revision out there.

GDP growth as stimulus came in reached 3.5%

If you keep reporting that as what the stimulus did:
1) You are reporting the math wrong
2) You are reporting Obama's effectiveness wrong

Going from -8.9% GDP (with a stimulus targeted for a -6% economic contraction, the max the Republicans would allow) and reaching a 3.5% GDP growth rate by Q3 2009 is a 12.4% swing in the GDP of the entire nation.

Are you measuring the GDP movement based on assumed 0% GDP?

Or, are you measuring the GDP movement from -8.9% to +3.5% because Obama looks to have been an extraordinary parachute.  As we fell out of an airplane, we should be profusely thanking the man that provided the parachute.

A 12.4% swing of the entire US economy, within 3 quarters of taking office is nothing short of extraordinary and should be reported on.  If you are not reporting on it and also reporting on the revisions which showed the economy was far worse than anyone knew - then you are failing at your job as a reporter.

Lastly, your article speaks a tiny bit about the context of the Reagan recovery.  A recovery starting when there is low debt so you can drop tax rates by 23% is an extraordinary difference.  Not even close to the situation.  And, coming into the recession with record low interest rates already is a massive difference.

In critique of your article, you have a major failing.

You ignore the housing market.  You mention a bubble, but that is not the context of today.  So, you fail.

Research when the peak number of foreclosures was occurring.  Then, research the length of time one foreclosure takes.

First, the peak of foreclosures was 2011 and another small peak may happen in 2012.

Second, a foreclosure takes about three years to work through the system from filing date.  If the peak was 2011 and it takes three years - we are looking at 2014 before the current foreclosures that we are processing today moved.

How are you comparing economic records without including that context?  The main cause of the recession was a collapse in housing.

While it is all well and good to look at that data - policy wise - you cannot ignore that it is a super glue situation.  The paperwork was so poorly handled by these mortgage companies that we can't help people.  It is very hard to figure out who owns the property to begin with.  How can we solve problems with assets when the asset holders can't even produce the paperwork?  Mortgage lenders or otherwise?

The fact that each program Obama put forward helped roughly a million people is a God-send because it stabilized home price valuations.  So, the price of homes remains stable while the toxic bubble of assets passes (the bubble hit, but the real toxic bubble is passing through the system now).

Comparing to Reagan.  Comparing to time-lines under Reagan, or solutions under Reagan is a ridiculous comparison.  It also ignores that corporations are multinational and might take profits and hire elsewhere because Obama has no cadre of trained Americans to fill high tech manufacturing jobs... where there are 3 Million - 4 Million jobs available in America that cannot be filled.

So, do you say his jobs recovery was too slow?  Or, do you say... he is investing in the training that allows us to recover the problem.  But, even the training takes 2-5 years once it has begun.  So, your time horizon for solutions is set based on reality.  Not based on comparisons.

Comparing to Reagan is like comparing Nuclear Weapons to Kiwi Fruit.

Follow the GDP down a few extra quarters if Obama had not acted.  And you have WORSE than the great depression.  You can't gloss over that the turn, was from an economy in absolute free fall to one of normalized growth.

So, what is more impressive.  Reagan's 8% growth (when looking at only the numbers at a baseline of 0%.  Or, Obama's 12.4% swing from a -8.9 revised GDP figure?

I am an independent.  I move based on data.  I would take Obama's recovery ANY day.  As an owner of 4 businesses.  I also used every policy he put forth to help business and demand for my services spiked and remained stable since... I am in business because of the Stimulus and Obama.  I was out of business the day he took office.  It was that bad.

The phones rang 13 hours a day for four months... it was that good.

With the profits, I bought a house and opened two of my newest ventures, which now employ people.  

Please, spread my message around CNN.  I used the correct data in my article, you did not.  That is why you are a writer and I am a CEO.  I expect better of you now that you have the links to the data.

Thank you for your time.

Ps.  I did not write this portion to the writer.
Why not compare the recovery of today to the recovery of the most similar economic condition?
The great depression.

Here is some data.  If you look at this image you will see FDR slashes spending to balance the budget.
This is timed with a newly elected run of conservatives.  Look at the election winners of that year.  It was like the Tea Party.  There is a major drop off in GDP and they had to put the foot on the gas to get us out of the problem again.

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