Economy will bounce back next quarter - but that's only a straw fire

Next quarters GDP will be much better as a sharp decline in inventories will not be repeated in the same scale and as much important is that government spending will pick up sharply and not decline. Plus the latest consumer confidence proves that consumers are not scaling back rather increase their spending which is not good medium to long term as inevitably bolstering the savings and decreasing the consumption is the way to go. This upbeat temporary phase is not to stay as we can see easily by astrology and statistics who say that house prices have to drop to affordability averages which is always done with a exaggeration. Hence we can expect them to drop another 25% worst case even 40% from current levels none of the stress test does model that kind of realistic statistical evidence. Banks will be in huge trouble as will be the government which has almost shot all bullets indiscriminately. People feel better with rising stock markets but just remind yourself of Japan from 1989 to now and they had a few 'bull runs' but still are 20 years later 70 % below the highs of stocks.
I know I sound like a broken record and we all wish that the bad things go away over night but facing the truth is the only way to handle things with the mantra 'be prepared for the worst and hope for the best'. The IMF has drawn the picture that quite some losses are still to be taken by financial institutions up to 4.1 trillion and according to them we are at 25% of that - I rather have even a more dramatic version but the IMF's version is severe enough to be alert.

Below a link with excellent research on the house price situation take the time to read it

http://www.scribd.com/doc/14166113/T2-Partners-Presentation-on-the-Mortgage-Crisis4309-3

GDP Down 6.1%, Reflecting Continuing Economic Woes

The U.S. economy contracted at a surprisingly sharp 6.1 percent rate in the first quarter as exports and business inventories plummeted.
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GDP, which measures total goods and services output within U.S. borders, has now dropped for three straight quarters for the first time since 1974-1975.
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The advance report from the Commerce Department showed business inventories plunged by a record $103.7 billion in the first quarter, as firms worked to reduce stocks of unsold goods in their warehouses.

That sliced 2.79 percentage points from the overall GDP figure. Excluding inventories, GDP contracted 3.4 percent.

Exports collapsed 30 percent, the biggest decline since 1969, after dropping 23.6 percent in the fourth quarter. The decline in exports knocked off a record 4.06 percentage points from GDP.

Investment by businesses tumbled a record 37.9 percent in the first quarter, while residential investment dived 38 percent, the biggest decline since the second quarter of 1980.

Consumer spending, which accounts for over two-thirds of economic activity, rose 2.2 percent, after collapsing in the second half of last year.

Consumer spending was boosted by a 9.4 percent jump in purchases of durable goods, the first advance after four quarters of decline.

Part of the stimulus package is designed to bolster state and local and government spending, which fell at a 3.9 percent rate in the first quarter, the largest decline since the second quarter of 1981.