The Recovery Gains Momentum

The recently released gross domestic product report in the United States was seriously impressive – a 5 percent growth rate, and it’s all final demand rather than an inventory bounce. But what does it all mean?

It does not necessarily mean that now is the time to tighten; that depends mainly on how far we still are from target employment and inflation, not on how fast we’re growing. Remember, the American economy grew by 10 percent in 1934, which didn’t mean that the Depression was anywhere near over.

What the report should do, however, is further discredit the “Ma, he’s looking at me funny!” theory of the Obama economy. We were supposed to be having the worst recovery ever because President Obama was a Kenyan socialist who scared businessmen. Actually, we’re having a better recovery than the alleged Bush boom.

Of course, you can count on hearing, any minute now, from people claiming that the numbers are cooked – that we really have plunging output and double-digit inflation, and they’re stealing our precious bodily fluids.

Recession, Recovery and Gold

Bloomberg reporter Dave Weigel recently noted in an article that when Mr. Obama got re-elected in 2012, the usual suspects told us to run for the hills and to buy gold along the way, because Zimbabwe!

Or, actually, not. Gold prices are down a lot.

Still, it’s important to understand why they were high in the first place. Gold is not a hedge against inflation. It’s something people buy when real returns on alternative assets are low.

The price of gold went up as real interest rates turned negative, thanks to a depressed economy in the United States – an economy, by the way, that was prone to deflation, not inflation.

And as the recovery has gathered strength, real rates have gone up and the price of gold has gone down.

So the Obama recovery has both dashed the right wing’s hopes for catastrophe and dealt a body blow to its favorite investment.