Howard Richman's  Instablog

The Great Recession began in the first quarter of 2008. So far there have been two upturns. The first upturn only lasted one quarter, the second quarter of 2008, in response to President Bush's stimulus plan. The second blip just started last quarter, in response to Obama's recovery plan:

Don't expect this blip to last much longer than the first. The reason is simple: China. When President Bush wanted to borrow money from China to pay for the first stimulus plan, China started pegging their currency to the dollar. As a result, the United States trade deficit with China stopped improving. During Obama's most recent quarter, our trade deficits got worse:

There is a positive statistic in these data, the stabilization of residential investment, which had been falling ever since the house price bubble popped in 2006, as shown in the graph below:

 The depressing statistic in these data is non-residential fixed investment, which includes building new energy production, building new factories, and retooling old factories. That sort of investment has not yet stopped declining since the current recession began, as shown in the graph below:

There is nothing that wouldn't get better if business fixed investment would increase. New and improved factories would mean more demand for products now, and higher productivity and exports later.

The United States got out of the Great Depression as a result of increased net exports to the warring countries in Europe. Those exports, in turn, resulted in increased fixed investment. If we were to require that China buy our goods in return for us buying Chinese goods, net exports and fixed investment would get the United States out of this current depression.

Disclosure: No Positions