By Brian Maher
This post The Shocking Truth About Government Debt appeared first on Daily Reckoning.
Dear Reader,
Is the post-recession “recovery” actually a depression obscured by the false prosperity of debt?
A scandalous question… with perhaps a scandalous answer.
Today, we penetrate the “squid ink of official truth”… scatter the statistical fog… and let in an illuminating shaft of light.
Between 2010 and 2016, nominal U.S. GDP expanded an average 2.1% per year.
Some years it expanded more than others. But each year, nominal GDP expanded — officially.
Meantime, the national debt has nearly doubled since 2010. It now floats above $20 trillion.
And the Federal Reserve has nearly quadrupled its balance sheet to nearly $4.5 trillion.
So… how much of the post-recession growth is real… and how much is a debt-spun mirage, a shadow, a phantom?
What would GDP look like absent the artificial stimulus?
Financial advisory firm Baker & Co. Inc. recently hatched a study to answer these questions.
Their findings are illuminating…
The government has borrowed and spent luxuriantly for decades.
And “actual” GDP (details to follow) has always risen with the rising debt — whether because of it — or in spite of it.
But after 2008, Baker & Co. argues, “Something in our economy broke.”
“Actual” GDP is no longer rising with the rising debt.
In fact, it is falling.
They argue the depression has been obscured by the phony fireworks of debt:
Since then, it appears the economy has been in what would be considered a depression but masked by huge federal government stimulus borrowing.
Their conclusion swims outside the mainstream… flouts official wisdom… strips the emperor of his garments.
But is it true?
At the heart of Baker’s tort is a trick the federal government uses to measure GDP.
It begins with this question:
If you take on debt, do you consider it income? Or do you take it at face — debt that must be repaid?
If you answered debt is income, we suggest you apply for a position within the Bureau of Economic Analysis…
In its calculations of GDP, government spending adds juice to the economy.
But it makes no distinction between money the government raises through taxes… and the money it raises by borrowing.
Baker counters that the money government borrows must eventually be repaid. Thus, it is not income. It is “artificial stimulus”:
[We] suggest that government debt is not part of “national income” because it is not income. It is borrowed… and must be paid back eventually… Debt is artificial stimulus, not national income! Governments must pay back debt either through higher taxes, inflation/depreciated currency, reduced services or some combination thereof.
Baker therefore created what they consider a measure of true GDP — the “Actual National Income.”
How does “actual” GDP appear without the smoke screen of debt?
Their shocking answer:
Examine the graph, says Baker, and “tell me if you think the actual economy has healed.”
We did. We can’t.
How much bounce has the post-2008 barrage of debt given GDP?
Since 2008, this artificial stimulus has averaged 7.45% of GDP. The arithmetic… is quite simple; without the artificial stimulus created by spending the proceeds …read more
Source:: Daily Reckoning feed
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