I read that Gross Domestic Product (GDP) lags the price of crude oil. When the price goes up, then GDP goes down. I decided to look into this and produced the chart below of actual and predicted GDP as a function of time. Since the lag is about 6 months, the predictions extend 6 months into the future. Note that the prediction shows a significant drop in GDP by September 2011 (Which agrees with many analysts).
This is a Google Document, so I'll try and update as new data is available.
I scaled the Oil Prices to 2010 dollars using the CPI data. Then, I used the following simple formula:
GDP_Predicted(date) = a * OilPrice(date - lag) + b
I know that there are many other factors driving GDP, but there seems to be an apparent correlation here. Time will tell whether the predictions show any validity. I probably should have learned my lesson on trying to predict financial futures, since my Stock Predictions failed about 7 months ago (most likely due to Bernanke's QE2).
Data Sources
GDP www.bea.gov
Oil prices www.eia.doe.gov
CPI www.bls.gov
Saturday, February 26, 2011
Tuesday, February 15, 2011
Dieting and Cutting the Deficit
Pres. Obama announced that he plans on cutting the deficit in half. [1] Sounds like a step in the right direction, but consider this:
You had the perfect physique in High School, but every year you've put on a few pounds and the last two years you gained 20 pounds each year. You now weigh an extra 200 lbs and your doctor and loved ones are pleading for you to lose weight. You promise to cut your weight gain in half! Notice the subtle insertion of the word "gain". What this really means is that you will still gain 10 lbs next year. Not exactly losing weight.
The deficit is like your annual weight gain and debt is like the total weight you need to lose. For example, the Federal deficit for fiscal year 2009 was $1.4 trillion (million million) [2] while the debt is ten times that (about $14 trillion) [3. The Debt Clock]. Cutting the deficit in half still means the debt is growing.
I wonder how fat we'll get before we go on a real diet.
You had the perfect physique in High School, but every year you've put on a few pounds and the last two years you gained 20 pounds each year. You now weigh an extra 200 lbs and your doctor and loved ones are pleading for you to lose weight. You promise to cut your weight gain in half! Notice the subtle insertion of the word "gain". What this really means is that you will still gain 10 lbs next year. Not exactly losing weight.
The deficit is like your annual weight gain and debt is like the total weight you need to lose. For example, the Federal deficit for fiscal year 2009 was $1.4 trillion (million million) [2] while the debt is ten times that (about $14 trillion) [3. The Debt Clock]. Cutting the deficit in half still means the debt is growing.
I wonder how fat we'll get before we go on a real diet.
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