The Lost Wealth Cost
From Calafia Beach Pundit: What Happened to All The Profits?
In the six years ending June, 2014 the after-tax profits of U.S. corporations totaled about $8.9 trillion. This marked an all-time record for corporate profits, both nominally and relative to GDP: profits averaged about 9.4% of GDP per year. By comparison, over the past 55 years, after-tax corporate profits have averaged only about 6.4% of GDP per year.
Despite assurances from politicians and most economists of Keynesian persuasion, not only did the biggest and most rapid increase in our federal debt burden since WW II fail to boost the economy, it coincided with the weakest recovery in history-growth of only 2.2% per year on average.
The net result is that $8.9 trillion of corporate profits were dumped into the capital markets over a six-year period, and the Treasury borrowed $7.4 trillion from those same capital markets over the same period.
A $7.4 trillion increase in federal borrowing from mid-2008 to mid-2014 resulted in a record, post-war doubling of the federal debt burden in just six years, from 36% to 73% of GDP.
Thus there is arguably a "shortfall" of growth that amounts to $2 trillion or so in lost income each year. We are paying a huge price for this failed experiment in government "stimulus."
The Nattering One muses... $2 Trillion per year in lost income x six years, remember that.
From Brad DeLong: When Do We Start Calling This, The Greater Depression.
Between the start of 2005 and the end of 2007 U.S. real GDP grew at 3.1%/year. The recession trough in 2009 saw the U.S. real GDP level 11% lower than the 2005-2007 trend. Today it stands 16% below.
Things have been even worse in Europe. Eurozone real GDP stood 8% below its 1995-2007 trend at the recession trough. It now stands 15% below.
Cumulative output losses relative to the 1995-2007 trends now stand at 78% of a year's GDP for the United States, and at 60% of a year's GDP for the Eurozone.
Today a five-year return to whatever the new normal might be looks optimistic--and even that scenario carries us to a $20 trillion lost-wealth cost. And a pessimistic scenario of five years that have been like 2012-2014 plus then five years of recovery would get us to a total lost-wealth cost of $35 trillion.
The Nattering One muses... $2 trillion per year in lost income (for those with ADD, from Calafia Beach Pundit, read above) multiply by six years = $12 trillion.
Above BDL estimates the cumulative output loss to be 78% of $16.7 trillion annual GDP = $13 trillion
So the estimates of cumulative output loss are close $12 - $13 trillion, BDL estimates another $20 trillion in lost-wealth cost for a five year return to normalcy.
That would total $33 trillion over a 10 year period or 2 years of current US GDP.
In the six years ending June, 2014 the after-tax profits of U.S. corporations totaled about $8.9 trillion. This marked an all-time record for corporate profits, both nominally and relative to GDP: profits averaged about 9.4% of GDP per year. By comparison, over the past 55 years, after-tax corporate profits have averaged only about 6.4% of GDP per year.
Despite assurances from politicians and most economists of Keynesian persuasion, not only did the biggest and most rapid increase in our federal debt burden since WW II fail to boost the economy, it coincided with the weakest recovery in history-growth of only 2.2% per year on average.
The net result is that $8.9 trillion of corporate profits were dumped into the capital markets over a six-year period, and the Treasury borrowed $7.4 trillion from those same capital markets over the same period.
A $7.4 trillion increase in federal borrowing from mid-2008 to mid-2014 resulted in a record, post-war doubling of the federal debt burden in just six years, from 36% to 73% of GDP.
Thus there is arguably a "shortfall" of growth that amounts to $2 trillion or so in lost income each year. We are paying a huge price for this failed experiment in government "stimulus."
The Nattering One muses... $2 Trillion per year in lost income x six years, remember that.
From Brad DeLong: When Do We Start Calling This, The Greater Depression.
Between the start of 2005 and the end of 2007 U.S. real GDP grew at 3.1%/year. The recession trough in 2009 saw the U.S. real GDP level 11% lower than the 2005-2007 trend. Today it stands 16% below.
Things have been even worse in Europe. Eurozone real GDP stood 8% below its 1995-2007 trend at the recession trough. It now stands 15% below.
Cumulative output losses relative to the 1995-2007 trends now stand at 78% of a year's GDP for the United States, and at 60% of a year's GDP for the Eurozone.
Today a five-year return to whatever the new normal might be looks optimistic--and even that scenario carries us to a $20 trillion lost-wealth cost. And a pessimistic scenario of five years that have been like 2012-2014 plus then five years of recovery would get us to a total lost-wealth cost of $35 trillion.
The Nattering One muses... $2 trillion per year in lost income (for those with ADD, from Calafia Beach Pundit, read above) multiply by six years = $12 trillion.
Above BDL estimates the cumulative output loss to be 78% of $16.7 trillion annual GDP = $13 trillion
So the estimates of cumulative output loss are close $12 - $13 trillion, BDL estimates another $20 trillion in lost-wealth cost for a five year return to normalcy.
That would total $33 trillion over a 10 year period or 2 years of current US GDP.
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