Gold News

GDP Fraud

What those numbers really mean...

WE TURN our attention back to our beloved homeland...and its fake-money system, writes Bill Bonner in his Diary of a Rogue Economist.

Almost every day, the press, economists, and politicians cheerfully tell us how great the economy is doing...how the tax cut has revved up old engines...and how the stock market is hitting new highs.

And almost every day here at the Diary, we put on our own smirk and say the contrary: The economy is a sham. The stock market is sleepwalking toward a cliff. And the whole fake-money fantasy is about to enter a new, grim stage.

Now, admit it, Dear Reader: You were beginning to think we were wrong, weren't you?

Oh, ye of little faith...

We were beginning to wonder ourselves. But today, we'll look at more dots. Draw your own conclusion.

First, GDP...

We've found two reasons why the government's GDP numbers are fraudulent.

They pretend to track real growth and prosperity. But IMF chief Christine Lagarde pointed out that you could raise GDP by just putting more women to work.

If Japanese women stopped cooking their own meals and doing their own laundry, for example, GDP would go up 9%!

And Joe Withrow, who heads up the Bonner & Partners research department, showed that GDP went up two Dollars for every one Dollar handed out by the feds.

Neither describes the kind of real growth that produces real wealth.

And now comes another dot to connect – the latest GDP "growth" figure out of Washington.

It didn't come in anywhere near what the Trump Team was hoping for. Not 6%. Not 5%. Not 4%. Not even the 3% expected by a survey of Bloomberg economists.

Instead, the reading for the last three months of 2017 was just...2.6%.

That's no better than we were getting in the Obama years.

The reason given for any growth at all was "strong consumer spending".

That puzzled us. How could consumers spend money they didn't have? As of the final quarter of 2017, they'd gotten no tax savings. Their wages hadn't gone up – the typical working man hasn't had a raise in 30 years.

So where did the money come from?

Simple: Consumers dipped into their meager savings. In other words, the "growth" was fake. It was not real growth of incomes or output...but of using up precious reserves.

Americans don't have much money saved. Studies reveal that seven out of 10 people couldn't raise $1000 in an emergency. Still, so sure are they that no emergency will present itself that they're saving even less.

Over the fourth quarter last year, the household savings rate fell from 3.3% to 2.6%.

If the savings rate had stayed the same, fourth-quarter GDP growth would have come in at barely above zero...which makes us wonder about the first, second, and third quarters of the year ahead.

What if households are suddenly struck by an instinct for caution?

If households try to make up for the money they should have saved in the fourth quarter but did not, the savings rate will jump to 4%. That is still way below the standards of the 1980s and 1990s.

But that modest attempt at prudence would put the Q1 GDP growth rate at MINUS 1.4%...and growth would disappear entirely.

But that is the problem with all these phony-baloney "stimulus" efforts. People borrow from the future; eventually, the future shows up and wants to be paid.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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