Yes, I've seen that line used before and I understand why it can be an attractive one, although as even Ed Balls doesn't use it any more I think even he's recognised it's based on a misunderstanding of what GDP represents.
What GDP represents is not the size or even necessarily strength of the economy, but the flow of money through it: I think this graph demonstrates that quite well:
That's why GDP growth pre-crash was so strong - there was so much money moving through the economy due to the unsustainably high levels of debt being created I said in this post from back in 2005 it wasn't going to work out well,, and hey, whaddya know, it didn't.
What we see is a collapse in the money flow with the crash, followed by a return to money moving again as QE kicks in; between 2008-11 £375bn was printed and that starts moving through the economy boosting GDP and consumption back up. However, as is made clear above, there was no corresponding recovery in either productivity or employment levels. How anyone can claim a recovery when money flows and consumption rise but employment and productivity don't is beyond me, but that's essentially what people who buy the 'choked off recovery' line are doing.
Obviously, printing forever couldn't happen - the purpose was to recapitalise the banking system to prevent a complete failure, and it worked to do that, don't get me wrong - but it couldn't in and of itself create a recovery due to all the debt already in the system.
As the charts of debt growth above show, there has been a length period of deleveraging since the crash which absolutely had to happen and I'd say that the period of QE and deficit has bought the time for that to happen. I said in this post several years ago that average standard of living in the wake of the credit bubble would fall back to 2005 before recovering and that's just what has happened. We've bottomed out and are on the bounce. What's nice about this bounce is that it isn't based on historically high levels of debt being created; indeed, it's happening during a period of historically low debt origination, which is one of the reasons I'm so bullish - as confidence returns, so will debt origination, and so long as interest rates rise (and they will) that's healthy.
Look on the bright side; it's largely uphill from here.
no subject
What GDP represents is not the size or even necessarily strength of the economy, but the flow of money through it: I think this graph demonstrates that quite well:
That's why GDP growth pre-crash was so strong - there was so much money moving through the economy due to the unsustainably high levels of debt being created I said in this post from back in 2005 it wasn't going to work out well,, and hey, whaddya know, it didn't.
What we see is a collapse in the money flow with the crash, followed by a return to money moving again as QE kicks in; between 2008-11 £375bn was printed and that starts moving through the economy boosting GDP and consumption back up. However, as is made clear above, there was no corresponding recovery in either productivity or employment levels. How anyone can claim a recovery when money flows and consumption rise but employment and productivity don't is beyond me, but that's essentially what people who buy the 'choked off recovery' line are doing.
Obviously, printing forever couldn't happen - the purpose was to recapitalise the banking system to prevent a complete failure, and it worked to do that, don't get me wrong - but it couldn't in and of itself create a recovery due to all the debt already in the system.
As the charts of debt growth above show, there has been a length period of deleveraging since the crash which absolutely had to happen and I'd say that the period of QE and deficit has bought the time for that to happen. I said in this post several years ago that average standard of living in the wake of the credit bubble would fall back to 2005 before recovering and that's just what has happened. We've bottomed out and are on the bounce. What's nice about this bounce is that it isn't based on historically high levels of debt being created; indeed, it's happening during a period of historically low debt origination, which is one of the reasons I'm so bullish - as confidence returns, so will debt origination, and so long as interest rates rise (and they will) that's healthy.
Look on the bright side; it's largely uphill from here.