Posted tagged ‘GDP’

The Market (Individuals) Finds Ways Around Govenment Intervention.

October 7, 2013
600 mm by 300 mm (24 in by 12 in) emergency pl...

(Photo credit: Wikipedia)

INDIVIDUAL DECISION MAKING vs. GOVERNMENT DECISION MAKING

I’ve always thought free market capitalism would always out pace the interventions of Government, but when the bubble burst in 08, I started to change my mind as I began to educate myself about the interventions by the Fed via the double edge sword of low-interest rates and electronically printing counterfeiting money. I had never understood the ramifications of these policies until I started reading about the Austrian Business Cycle Theory. We have talked about these ramifications in these posts: The Role Of Interest Rates In A Market Economy, Thomas Woods Explains The Austrian Business Cycle Theory, Keynes Was Correct In 1919!,  A Look Over The Horizon At What Lies Ahead If We Continue Down The Central Planning Road, What Comes First Production Or Consumption,

I had become more pessimistic about the chances of the market regaining the lead over Government intervention, but recently I’m seeing signs of the market starting to reassert its dynamism. Two examples are the shale oil boom and another is the plummeting sales of electric cars. The oil boom is happening in spite of the best efforts of Government to get in it’s way, and electric car sales prove the consumer ultimately makes the decision on what succeeds and fails in the market, and not the Government. I should never have been pessimistic in the first place because the market is always attempting to correct the interventions perpetrated on it by the Government.

THE BUST IS THE CURE FOR THE PRINTED BOOM

If we look at the case of the housing boom that lead to the 08 bust, the boom was out pacing the corrections by the market, much like the story of the tortious and hare, but once economic reality finally caught up to the fake reality created by Government, the bust in housing occurred. The bust was the cure for the artificial boom created by the Government and the Fed, and should have been allowed to run its course in order to wring out all the misallocations that had been allowed to grow during the boom. From the politicians stand point this much-needed cure was a political nightmare, because they were in the driver seat when the crash happened. So instead of letting the market cure the problem they created, the Government and the Fed stepped in and “saved” the too big to fail banks by lowering interest rates to near zero and injecting close to $3 trillion into the economy through the purchase of mortgage-backed securities and treasury bills. This doesn’t even count the TARP bailout under Bush or the $900 billion economic stimulus package under Obama. What the Fed and the Government did to grow the boom and then “save’ the economy from the bust, was like a doctor prescribing steroids to his young patient in ever-increasing amounts to help build a big strong body. Everyone could see him growing because of his outward appearance, but no one could see what was happening on the inside. When his organs began to fail, and his body began to break down, the doctor prescribed more steroids to try to keep his body growing. This isn’t a perfect analogy but it’s close to describing what the Fed and the Government has done to the economy over the last 15 plus years. Unlike the patient, who will eventually die, the economy won’t die, it will continually keep trying to make corrections for all the interventions by the Fed and the Government. Why won’t the economy die? Because an economy is simply the result of all the decisions made by each individual as they cooperate and compete with other individuals on how to use scarce resources for production and consumption. Government intervention is just one variable that has to be considered when individuals make decisions. When Government intervention grows to a certain point, individuals start spending more time protecting what they have rather than spending  time producing more. The standard of living begins to stagnate as we start to consume more than we produce.

Here is a chart that shows that debt doesn’t create growth. The G7 nations consist of US, UK, France, Germany, Italy Canada, and Japan. The debt that was created to grow these economies has only marginally increased GDP compared to the growth in debt. In fact the GDP number is fake because the electronically printed counterfeit money that gets used for consumption is counted when GDP is calculated. You could say the central banks are counterfeiting a positive GDP number. Read article here.

CONCLUSION

This debt has to be paid back by future production. Future production also has to sustain future consumption by Government and private individuals. If production can’t cover all three (debt, Government consumption, and individual consumption), who do you think will have to sacrifice for the other two? The upcoming debt ceiling fight will answer that question. My prediction is the debt ceiling will go up and there will be no actual cuts in Government spending, just minor reductions in the rate of growth. I hope I’m wrong.

Is The Economy Improving? It Depends On How You Define Improving.

August 20, 2013
Real GDP Contracts Most in 27 Years

Real GDP Contracts Most in 27 Years (Photo credit: inspecie.co.uk)

QUANTITATIVE VS. QUALITATIVE ANALYSIS

We keep hearing  from the administration, and the media, that the economy is slowly improving. They cite unemployment data and GDP data to back this assertion, hoping we won’t dig below the surface in search of the truth hidden in the numbers. How you arrive at the specific numbers, is more important than the numbers themselves. Here’s an example. The environmentalists try to prove global warming by using a vaguely defined  point in the past, and comparing it to this years, or this decades, temperature. If you let me pick the year to be used in the comparison, I could prove global cooling. All I’d have to do is pick a year that was hotter than this year. If you can pick the starting point in a  comparison, you can make the data say whatever you want it to say. This is just one sleight of hand trick that politicians, the elites, and the media use in an attempt to shape our opinion, and move it toward their desired outcome. You have to have a definable standard for a comparison to be made. If the standard can be manipulated, comparisons are meaningless. When they say the economy is improving, we have to ask, “compared to what”. Normally the economy is judged to be improving if (more…)

Charles Hugh Smith, Hits It Out Of The Park With These Articles.

May 6, 2013
Thinker

Thinker (Photo credit: dSeneste.dk)

Lets do some heavy lifting to start the week. Two weeks ago, Charles Hugh Smith, at oftwominds.com, had three outstanding articles that built on top of each other. For him they were relatively short, but as usual were filled with great insights. He talks about what politicians, bureaucrats, central bankers, and intellectuals not only think; but also talks about the incentives and constraints under which they are making decisions: Why their policies of counterfeiting money for funding stimulus programs, bailouts or for increasing their sacred GDP numbers, will continue until economic reality forces a change: Why China and the US are in similar situations, even though (more…)