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Wednesday, February 4, 2009

Uncle Sam aritificially "goosing" the Data? lol

I didn't say it. *grin*

Barry Ritzhold said it.

And I didn't pay him to say it *grin*

Here's what he says ....

Source: http://www.ritholtz.com/blog/2009/02/gdp-goosed-by-tarp/


GDP Goosed by TARP (maybe)

Over the weekend, a hedgie friend added to our understanding of how bad GDP really was.

We already knew that the rise in inventory contributed 1.29% points to GDP growth. Without the inventory build, the GDP number would have been down 5.1%.And, it means that we are likely looking at a very ugly Q1 GDP.

What we also knew that the deflator fell 0.1% — the first decline since the 1954. If on top of inventories, the deflator had risen 0.4%, as consensus expected, GDP would have been down -5.6%.

What else was buried in the GDP report besides inventory and falling prices that was artificially goosing the data?

The answer? TARP. It turns out that the TARP money given to banks as recapitalization was a major factor in the total GDP number. (but see update below)

How? Uncle Sam buying a financial asset does not contribute to GDP under normal circumstances. But the Treasury purchased these assets at prices discounted to market prices. (Not as cheap as Buffett’s purchases, but still at somewhat of a discount).


So, besides getting a better understanding of how bad US GDP is, I now learnt a new meaning from Barry as to what the phrase "artificially goosing the data means" ...


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