US economy is not really growing
A mere $200 bn in stimulus could do little more than slow down the US economic collapse -- and certainly not reverse it
Blurb: The emperor is wearing no clothes, and I'm not afraid to explicitly state this. We will all be better off when other commentators who are not part of the corporate propaganda-machine will cease their own self-censorship and explicitly denounce the endless stream of fraudulent "statistics" of the US government


Jeff Nielson
There was no surprise with the announced third-quarter GDP for the US economy (+3.5%), however, there was some personal disappointment for me. The disappointment relates to the fact that few, if any, commentators were willing to speak up and exclaim that "the emperor is wearing no clothes."
The reason that this is such a big disappointment is that the absurd "official" number for US Q3 GDP cannot withstand the slightest analytical scrutiny. So, allow me to analytically dissect this obviously fraudulent number.
Let's start with the big picture. At the end of 2008, official GDP was -6.4%. This was also likely an understatement, but for the sake of argument let's treat it as "fact". Move ahead to the Q3 2009 reading of +3.5% and we see a swing of 10% in US GDP -- in merely the span of nine months. The only factor in the US economy pushing against this massive contraction (and debt implosion) is the "Obama stimulus package". However, using the Obama regime's own numbers, less than $300 billion of true "stimulus" would reach the US economy over the course of this entire year.
This means that as of the end of Q3, only about $200 billion of true stimulus has entered the US economy. If anyone actually believes that this $200 billion could create a 10% shift in US GDP, the following points will quickly dispel that fantasy.
Regular readers will recall that I have pointed out on a number of occasions that the US economy has lost roughly $2 trillion in spending-power from the peak of the housing bubble. This is comprised of roughly ½ reduced credit, and ½ lost income. On the credit side, at the peak of the bubble, US homeowners extracted $840 billion in (temporary) "equity" in 2006 alone. That source of credit has virtually disappeared -- along with billions in other categories of "consumer credit". The following graph from the St. Louis Fed helps to illustrate this more clearly. (See Table 1)
As you can see, for the first time in the more than 40 years for which this data has been kept, US consumer credit is steadily contracting. This 40-year period also marks the era in which the US economy has become totally dependent on ever expanding debt/credit. Clearly, a mere $200 billion in stimulus could do little more than slow down the US economic collapse -- and certainly not reverse it.
With the US economy now burdened with $60 trillion in total public/private debt, it already spends trillions each year simply paying the interest on this debt. Thus, this Ponzi-scheme economy now requires a steady, significant rise in credit merely for this economy to "tread water" (i.e. zero growth). By itself, contracting credit is a powerful downward force on the US economy. The following point will make this even more obvious.
As I have recently stated, the US government can never afford to voluntarily raise interest rates again. A mere 1% increase in interest rates would result in $600 billion per year in added interest payments (on top of the existing trillions per year in interest payments). I observed that, by itself, this $600 billion extracted from the US economy would be equal to roughly a 5% drop in GDP.
I also added that the total drop in US GDP would be greater than 5% because of the spin-off (or "multiplier") effect of that withdrawal of cash. This begs the question: how large a multiplier effect would be a reasonable estimate?
If we look at the Obama stimulus package, and the purported gain in US GDP, we are supposed to believe that a mere $200 billion could cause a 10% shift in GDP. If that was true, then a 1% increase in US interest rates, which would lead to a subtraction of $600 billion from the economy (three times the amount of Obama stimulus) implies a drop in US GDP of 30%. If anything, a 1% increase in interest rates would cause an even larger collapse in the US economy -- since this additional push would be working with the existing downward momentum, not against it (like the Obama stimulus package).
If I wrote a piece claiming that a 1% increase in US interest rates would cause a 30% drop in US GDP, would anyone believe that? Yet, if you refuse to believe those numbers, then you can't possibly place any credence on the GDP number which the US government fabricated for the third quarter.
However, denouncing this ridiculous farce isn't dependent on logic, alone -- we also have our "smoking gun". In order to fabricate a number as wildly inaccurate as Q3 GDP, the US government had to also fabricate additional data -- most notably the "GDP deflator".
For those who haven't had this explained to them before, every GDP estimate must be "deflated" (by the prevailing inflation in the economy). If this wasn't done, then the "raw" GDP data is totally invalid -- because there is no separation of how much of that "growth" was a genuine increase in economic activity, and how much was merely higher prices.
For the third quarter, the US government used a "deflator" of less than 1%. Again, it is easy to demonstrate that this number has no connection to the real world. As we have all heard, the entire world is engaged in a game of "competitive devaluation" of their currencies. Obviously "devaluing currencies" is identical to "rising prices" (i.e. inflation) since by definition it requires more units of a devalued currency to purchase goods.
In a world of devaluing currencies, the US dollar has managed to fall much farther than almost every other currency in the world. Again, as a matter of logical necessity, this means that the US economy must experience more inflation than other economies -- not less. Yet other governments are beginning to withdraw monetary stimulus from their economies, precisely because of growing inflationary pressures.
As a further rebuttal of the ridiculous inflation numbers of the US government, we have the well-respected John Williams, and his own web-site: shadowstats.com -- which calculates US economic statistics using the same methodology which was used a generation (or two) ago, before the US government added all of its "techniques" for manipulating those same statistics. Williams pegged Q3 US inflation at roughly 7% -- a huge gap from the less-than-1% the US government used to "deflate" its raw GDP data. (See table 2)
In short, any commentator who removed his/her "blinders" to take a close look at the latest US GDP number would have to reject it as being inaccurate to the point of total irrelevance -- assuming one is capable of performing simple arithmetic. The fact that even critics of US official "statistics" refuse to denounce this number as fraud is a regrettable demonstration of their own timidity.
"The emperor is wearing no clothes," and I'm not afraid to explicitly state this. We will all be better off when other commentators who are not part of the corporate propaganda-machine will cease their own self-censorship and explicitly denounce the endless stream of fraudulent "statistics" of the US government.
The writer is editor of bullionbullscanada.com. Republished with permission of the author.



Tag: GDP, ECONOMY, BILLION, GOVERNMENT, STIMULUS, INTEREST, NUMBER, CREDIT, INCREASE, INTEREST RATES, INFLATION, RATES, 1 INCREASE INTEREST, A MERE, INCREASE INTEREST, 200 BILLION,