Saturday, February 26, 2011

GDP and the Price of Crude Oil

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

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.

Saturday, February 12, 2011

Super Bowl Interview

On Super Bowl Sunday, Bill O'Reilly (Fox News) interviewed President Obama, though I didn't find out about it till Monday.  Ironically, of the several random books downloaded onto my iPod, I finished listening to "Audacity of Hope" by Barack Obama and started "A Bold Fresh Piece of Humanity" by Bill O'Reilly.  So what do I think about these guys?

Barack Obama
I agree with many of the ideas that Pres. Obama preaches about values, politics, faith and family.  However, I can't get over the fact that some of his actions don't match his words.  For example, his action of increasing the Federal debt by more ($3.7 trillion) in 2 years than our country accumulated in its first 225 years [1] is in direct conflict what he said in 2006:
"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. … Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” [2]
To be fair, the first 225 years don't include the last 10 years with the previous four presidents (Bush, Clinton, Bush, Reagan) increasing the debt from $1 trillion to over $10 trillion.  They really should have created surpluses during these decades of relative prosperity.  With a surplus, Pres. Obama would have been better equipped to handle the financial crisis (Pharaoh's dream of  7 years of plenty followed by 7 years of famine keeps coming to mind [3]).


Bill O'Reilly
I watch the O'Reilly factor on occasion so it was interesting to learn more about him.  I also find an inconsistency in what he says and what he does.  He made a very convincing case that he's a simple guy and the driving force behind him is righting wrongs and sticking up for the underdog.  His actions on his television show are not consistent with this.  It seems to me that it is VERY important to him to be right, and if a guest ever starts to win an argument, he talks over them and cuts them off.  He may look out for the underdog, but to Bill O'Reilly the number one underdog to stick up for is Bill O'Reilly.

While his behavior can be annoying, I can choose not to watch him.  Unfortunately I don't have a choice when it comes to the extra $3.7 trillion in federal debt.

The Interview
I think Bill and Barack did very well with the interview.  You have to respect the President while trying to hold him accountable, and Mr. O'Reilly did that as well as could be expected.