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The GDP Figures Leading a Scam Recovery

Not much action on Friday. Stocks and gold were flat. But the pressure is on this week. If the market cracks, Romney has a better chance of winning the White House. If prices move up, Obama may get another four years.

The Obama team celebrated the latest GDP news last week. The US economy expanded more than forecast in the third quarter. Bloomberg was on the case:

‘The U.S. economy expanded more than forecast in the third quarter, paced by a pickup in consumer spending, a rebound in government outlays and gains in residential construction. Gross domestic product rose at a 2 percent annual rate after climbing 1.3 percent in the prior quarter, Commerce Department figures showed today. Michael McKee and Betty Liu report on Bloomberg Television’s “In the Loop”.

‘Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2 percent annual rate after climbing 1.3 percent in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1.8 percent gain.’

With the figure for the third quarter now in, it puts the growth rate for the year at 1.7%.

Wait a minute. As the Wall Street Journal put it, ‘we borrowed $5 trillion and all we got was this lousy 1.7% growth.’

But it’s worse than that. Of the third quarter’s growth, at least a third of it is attributable to growth in government spending. The feds increased their own outlays at a 9.6% rate. Take that out of the picture and the private sector is growing at a 1.3% rate.

This is described in the press as a “fragile recovery”. But it is no recovery at all. It’s a scam. The US population is growing at a 0.9% rate. That leaves actual growth per person at 0.4%.

And that’s a figure that has already been twisted by seasonal, qualitative, substitutional and other “adjustments” that make it meaningless. In other words, there is so much fudge in the GDP figures that you can get tooth decay just looking at them.

And in the end, they just don’t tell you anything worth knowing. In fact, they mislead you… so you think you know something when you really don’t. Which is to say… they have negative information content.

Here’s another headline from the New York Times that tells the tale:

‘Rise in household debt might be sign of a strengthening recovery.’

Come again?

Yes, after falling for 14 quarters, now…for the last two months at least… households are stepping up to the checkout counter… credit cards in hand… and doing their patriotic duty. They are buying stuff. They are going deeper into debt. Auto loans, for example, are up almost 14% this year.

Since 2008 total household borrowing is going down. Now, it is going up again. And this, dear reader, is something economists and the press call a ‘strengthening recovery’.

That is the trouble with this sad métier. We mean our sad trade – reporting on… and trying to understand… the world of money in the Age of Viagra. Anything that will get consumers pumped up is, apparently, a good thing. Anything that brings them to their senses… discouraging them from spending money they don’t have on stuff they don’t need… is bad.

How could it be, dear reader, that going deeper into debt is a good thing? How could genuine wealth and prosperity be built on a foundation of greater debt? How could people be better off when they are actually getting poorer? What kind of a recovery leads households to repeat the same mistakes they made in the bubble years?

Ah… glad you asked.

Tune in tomorrow… for more on why economists and policy makers are jackasses!

Regards,

Bill Bonner
for The Daily Reckoning Australia
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From the Archives…

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The Lost Generation in the US Economy
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Bill Bonner
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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1 Comment

  1. truth and integrity says:

    Productivity is still negative while expenditure increases even if it is only borrowed money. With incomes declining Productivity is probably around -10% income -5% and expenditure around 16.7% giving GDP = 1.7%. How long can they avoid bringing to task the derivative fiasco, putting all these banksters in prison so that our assets are greater than our equities.
    A=E+D Economics is pointless when you can not get the first financial rule to work.

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