Beneath all of the bogus economic data, the US economy is tanking again.
One of the biggest games played by the bean counters in Washington in the US is the overstatement of GDP growth by understating inflation.
Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO. However, announcing ZERO GDP growth is a major problem politically.
So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.
This game is played all the time via a metric called the GDP “deflator.” Technically what this is meant to do is remove the effects of inflation from the GDP growth numbers to show what realgrowth was.
However, what it actually ends up being is an accounting gimmick that allows the numbers tooverstate GDP growth.
For this reason, when I look at the US economy’s growth I prefer to use its nominal GDP numbers. These numbers do not include a deflator metric. As such they’re much closer to showing the actual growth as opposed to the gimmicked “real GDP” numbers.