Tags: Roche | miracle | normal | recovery

Pragmatic Capitalism’s Roche: Economy Needs a ‘Miracle’

By Michael Kling   |   Wednesday, 24 Oct 2012 07:39 AM

A “miracle” is needed to get the U.S. economy back to “normal,” says Cullen Roche, editor of the Pragmatic Capitalism.

Just look at the facts and history, writes Roche, founder of financial services firm Orcam Financial Group.

The output gap, the difference between the country's economic potential and actual gross domestic product (GDP), peaked in 2009 at $1.1 trillion, about 8 percent of GDP, according to Roche.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

The output gap is now $1.06 trillion, or about 6.82 percent of GDP. The U.S. economy has averaged 4.6 percent in nominal yearly GDP growth since 1990, 3.8 percent since 2000 and 3.7 percent the last three years.

So to completely eliminate the output gap, the economy needs to grow at about 5 percent for the next five years, or close to its average rate over the last 20 years.

That might not sound extremely difficult, Roche notes, but based on history, that's not very likely.

The average post-war recovery has lasted for five years, and we're already in the third year of the recovery. The economy would have to grow for eight straight years in one of the longest post-war recovery periods ever — not good odds.

"I'd call that a minor miracle given the circumstance and continuing fragility of the U.S. economy," Roche states.

Fiscal uncertainties are hampering recovery in the United States more than anything else, says Richard Fisher, president of the Federal Reserve Bank of Dallas.

The economy continues to grow albeit at a very slow clip, and until businesses know what’s expected of them from the IRS and regulators, expect the economy to plod along as it is today.

“There is some positive growth, but it’s just not robust and here’s the key point, it’s not enough to create the jobs we need in this country,” Fisher tells CNBC.

“The real uncertainty stems from what are my taxes going to be? What kinds of spending patterns are going to come out of the federal government? How do I deal with this explosion of regulatory morass that we have coming out of Washington? How do you make a decision, how do you budget, whether you are Exxon or you’re a 20-person company?”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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