We Are Already In Depression (If Borrowing Money Is Not Income), by Baker and Co. Advisory Group

Back out the “growth” from borrowed money since the 2008 financial crisis and the US has had negative actual growth. This is one of best recent articles written on economics. From Baker and Co. Advisory Group:

  • The U.S. economy is not as solid as it appears.
  • Statistical anomalies hide profound weakness.
  • I will examine actual GDP and actual employment.
  • Warning: not for the faint of heart.

Do you consider debt as income? Before you answer that, let’s perform a thought experiment. Imagine that you had taken a long cruise last fall and charged $10,000 to an American Express card. When you did your taxes this year, would have told the IRS that you had $10,000 income from American Express? Of course you wouldn’t. Suppose a major oil company issues $800 million worth of bonds to develop a new old field. Would the company report that as income to the stockholders or the IRS? Of course they wouldn’t. I am sure those sound like silly questions as the answer is a self evident “NO!” We do not consider borrowed money as income. It is a liability that must be paid back. Then why do we count Federal Government debt when measuring national income? I will leave speculation as to the “why” to the readers and focus on the fact that we do count new Treasury Debt as income.

 The modern concept of GDP was first developed by the Department of Commerce in 1934. Commerce commissioned Nobel Laureate Simon Kuznets of the National Bureau of Economic Research to develop a set of national economic accounts. Professor Kuznets headed a small group within the Bureau of Foreign and Domestic Commerce’s Division of Economic Research. I picture them meeting to develop statistical measures that would help the government to determine if the economy was recovering from the Depression. They are debating on how to measure all of the various sources of income. One economist suggests that regardless of the source of his income, there are only two things he can do… Spend it or invest it and we know how to measure consumption and investment (& savings). This was the foundation of the expenditure approach to measure GDP. I can imagine another one of the economists suggesting that when we sell more to other countries, the excess should be added to national income and subtracted if we buy more than we sell (Balance of Trade). Then another economist suggests that there is a third alternative to the idea that he will either spend or invest his income and that is paying taxes. Since the government takes a portion of National Income and spends it, they decided to add Government spending into the GDP calculations. While each component of this basic formula for GDP breaks down into hundreds or thousands of sub-components, the final calculation is:

GDP= PI + BT + GS

To continue reading: We Are Already In Depression (If Borrowing Money Is Not Income)

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5 responses to “We Are Already In Depression (If Borrowing Money Is Not Income), by Baker and Co. Advisory Group

  1. I discuss and present a case of Economics related to federal debt and federal spending here in the article linked which you didn’t post last time I liked it.

    http://dumpkaine.com/wordpress/index.php/2017/07/03/flyover-america-can-you-hear-us-now/

    The federal government picks a number to spend that makes the economy look like it’s growing. The federal reserve prints the money, puts it in the banks’ Excess Reserve accounts, and the primary dealer banks use it to buy Treasuries. They do this two step dance so that no one can say their monetizing the debt. Not that anyone would know what monetizing the debt means anymore anyway. Or if anyone did, not that anyone would report it if they were doing it.

    Like

  2. I was just hoping to see the hyperlink posted…if you think the article is good enough to post here then by all means please do. Fed Dot gov has been managing the GDP numbers for decades. Obama’s “recovery” has been a bad joke, and a disaster for the working middle class.

    Like

  3. Rantly McTirade

    Can’t access the article; asked for log in.

    Like

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