US GDP still going down at 1.5% - the depression absorbs stimulus money with little indication of any recovery- where does Dow go from 9000?
Joe Weinman
Jul. 26, 2009

Major economists expect US economies to show continued weaknesses as the second quarter GDP report is announced on the last day of July. According to some analysts, The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization, however, the fact remains that the economy is weak and is in the middle of a snap back rally within the scope of a secular long term depression.

The worst U.S. recession in five decades most likely have eased in the second quarter as trade and government stimulus money mitigated the damage from declines in housing, inventories and consumer and business spending. However, the real disaster is still waiting in the corridor. The Government budget deficit has ballooned and the stimulus money in effect has made the economy go from a free fall decline to a stable and responsible steady decline.

Many believe that the economy will grow at 1.5% or more in the next six months. But some econometric and quantitative models disagree. They show a clear trend in slow and steady decline for the economy as unemployment edges towards 12% or more. An unemployment level of 12% does not count for underemployment levels. The real unemployment in the main streets of America is way above 30%. That is depression.

Where does Dow go from 9000 level? There are two scenarios. First, the stimulus money can take tow as high as 11,000 slowly in the next six months. Eventaully Dow will move below 3,000 level no matter how high it goes in the next twelve months. The second scenario is more probable. The Dow, according to this model can collapse into 6,000 levels as stimulus money gets used up and the hungry economy devours the basic infrastructure. The Government now is literally broke. It cannot rescue the economy any more without putting dollar in a free fall.

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