17 Jul 2011

Et Tu, Goldman!

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James Pethokoukis suggests that the lights burned late on Friday at the White House and loud sounds of weeping could be heard by anyone nearby.

[Friday] night in a new report, Democrat-friendly Goldman Sachs dropped an economic bomb on President Obama’s chances for reelection (bold is mine):

    Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5% and 2.5%, respectively, from 2% and 3.25%. Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.

    The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations. … Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake. By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth. We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth. Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months. But the slowdown of recent months goes well beyond what can be explained with these temporary effects. … final demand growth has slowed to a pace that is typically only seen in recessions. .. Moreover, if the economy returns to recession—not our forecast, but clearly a possibility given the recent numbers …

Alarms bells must be ringing all over Obamaland today. Unemployment on Election Day about where it is right now? Sputtering — if not stalling — economic growth? To many Americans that would sound like the car is back in the ditch — if it was ever out.

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SDD

Goldman (and other large banks) have a very sweet deal with the current administration (as well they should, given the amount of money they have funneled to Democrats).

1. They can borrow from the Fed at close to zero and invest the money in Treasuries for a risk free spread of 2.5% (http://econocentric.blogspot.com/2011/07/banks-are-doing-just-what-theyre-told.html). Why on earth would you want to seek out a lot of higher risk lending when the government hands it to you on a platter?

2. By being designated “too big to fail”, these banks enjoy an advantage over competitors in their cost of funds of at least 1/4%. That’s a huge advantage in the capital markets.



No Man

Apparently, GS has determined there likely is no more money to be made from Obama’s collision course with national economic destruction.



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