The Humpty Dumpty "Recovery"

Remember, this chart is simple to interpret. Boxes above the zero line contribute positively to GDP growth, those below subtract from it or are contracting. Imports and government debt. Buy a new flat screen TV and finance it with government debt-driven stimulus. That sounds like a winning recovery to me.

We have talked about the fact that the U.S. does not suffer the ills of many economies around the world including overinvestment. One data point confirming this is the very lean inventory numbers over the last six or seven years. In the second quarter we see a substantial draw down in already lean inventories. If nothing else, due to this draw down we will see a positive impact of restocking inventories in the third quarter GDP.

The reality remains that financial markets are simply being driven by the largest bailout in history while the underlying economy suffocates. In other words, the credit markets are working fine for now courtesy of the bailout. It's the economy that remains broken. I think we know how this will resolve itself. We already saw that outcome in 2008.

For the umpteenth time, the economy is not coming back without a new economic model.