Thursday, June 02, 2011

Can We Please Stop Pretending the GDP Is "Growing"?

The Federal Government borrowed and spent $6.1 trillion to get $700 billion in total GDP "growth" from 2008-2011. In constant dollars, there was no growth at all.

The Federal government borrowed and spent $6.1 trillion over the past four years to generate a cumulative $700 billion increase in the nation's GDP. That means we've borrowed and spent $8.70 for every $1 of nominal "growth" in GDP.

In constant dollars, GDP is flat: we got no growth at all for our $6.1 trillion: zip, zero, nada. In constant dollars, the GDP in 2011 might return to the 2007 level, if the economy continues "growing" at the same pace reached in the first three months of 2011. If not, then the GDP will actually be lower than pre-recession levels.

If you borrowed $8 to get $1 in your pocket, would that strike you as a good deal?How long do you reckon you could borrow $7 to get $1 of "growth" in your finances?

Let's say you need $3,000 a month to pay all the household bills. No problem, just go borrow $24,000 and your household economy will "grow" by $3,000. If this isn't the height of fiscal nonsense, then what is?

Here are the numbers, drawn from these sources: U.S. GDP by year and U.S. GDP in constant (2005) dollars.

Total public debt in 2007 (pre-recession) was $8.95 trillion.
Total public debt in 2010 was $13.53 trillion. This is an increase of $4.58 trillion. Add in the 2011 deficit of $1.6 trillion and the total is $6.1 trillion in additional debt in the four years from 2008 to 2011.

GDP in 2007 (pre-recession): $14.08 trillion
GDP in 2008 (recession starts): $14.44 trillion ($364 billion gain)
GDP in 2009 (recession officially ends in mid-2009): $14.12 trillion ($322 billion decline)
GDP in 2010: $14.51 trillion ($390 billion gain)

Let's be generous and assume the U.S. economy continues "growing" at the first-quarter pace of 1.8% for all of 2011: GDP advanced 1.8% in Q1 2011 (BEA). That would add $260 billion to the 2010 GDP, so the GDP at the end of fiscal year 2011 would total $14.77 trillion in nominal dollars. In constant dollars, it might reach back up to 2007 levels, but only if the economy doesn't roll over.

Total up the gains and declines in annual GDP for the four years from 2008 through 2011, and you get $690 billion. That's the total sum of each year's gains for the four years. That means we as a nation borrowed and spent $6.1 trillion to get $700 billion in GDP "growth." That means we borrowed and spent $8.70 for each $1 of nominal GDP "growth."

In constant (2005) dollars:

GDP in 2007 (pre-recession): $13.23 trillion
GDP in 2008 (recession starts): $13.31 trillion
GDP in 2009 (recession officially ends in mid-2009): $12.88 trillion
GDP in 2010: 13.04 trillion

GDP in 2011 (assuming 1.8% annual real growth): $13.3 trillion

In constant (2005) dollars, the economy actually shrank in the three year span of 2008-2010. Add in a couple hundred billion of real "growth" in 2011 and we're back to 2007 levels, at best.

That's what we bought with $6.1 trillion in additional debt and Federal spending.

Just as a refresher:

Federal revenues

2007 $2.56 trillion
2010 $2.16 trillion

Federal spending

2007 $2.72 trillion
2010 $3.72 trillion

In three years, Federal spending jumped almost exactly $1 trillion, or 36.7%.

In 2011, the Federal deficit is 11% of the nation's GDP.

In 2011, the Federal government is borrowing 42% of its expenditures.

And don't forget, the recession ended in mid-2009, so we're two years into a "growing economy" here in mid-2011.

Does anyone seriously believe the economy won't buckle if the Federal government doesn't keep borrowing and spending 11% of the entire GDP each and every year until Doomsday?

All we're doing with these vast sums borrowed from future generations is propping up a bloated, no-accountability, cartel-Crony Capitalist/Central State Status Quo.

Here are the deficits of the past three years, and the estimated shortfalls for fiscal year 2011:

2008: $458 billion
2009: $1.4 trillion
2010: $1.3 trillion
2011: $1.6 trillion (est.)

These don't include "supplemental appropriations" for war costs, losses in Fannie Mae and Freddie Mac, etc., which is why the debt has risen by more than the sum of the "official" deficits.

Notice the trend here? The deficits keep getting larger as the "recovery" continues. If we keep "recovering" at this pace, we'll soon be borrowing 50% of the Federal budget each and every year.

And of course this doesn't include the $2 trillion increase in the Federal Reserve's balance sheet--trillions squandered on propping up the housing markets--(look how successful the Fed was in propping up housing valuations), nor does it include TARP and other "off-balance sheet" Treasury bailouts and guarantees.

I have covered this before in regards to the "self-sustaining recovery": Is the Recovery "Self-Sustaining"? Here's a Test (March 22, 2011).

Does borrowing and blowing $8 to get $1 of nominal "growth" seem like a good deal to you? Does it strike you as sustainable? If it does seem sustainable and a good deal, congratulations, you are qualified to run for Congress.

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