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Peter Schiff: GDP Number Is an Aberration

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The second quarter GDP number released Friday came in at 4.1%. It represents the fastest rate of growth since 2014. President Trump called the number “amazing,” bragging that, “We’ve accomplished an economic turnaround of historic proportions.”

Peter Schiff wasn’t quite as impressed. In his latest podcast, he said this “peak GDP” is an aberration and it’s setting the stage for a major economic fail. 

Peter noted that there was some negative economic data that has come out over the last few weeks. The Atlanta Fed lowered its projection to 3.8%.

They revise these things constantly, so the first number is rarely the correct number. So, I mean, in theory, they could revise it up. But I think more likely the revision is going to be down and so the celebration is premature.”

But Peter said the real problem isn’t that the number might be revised down. The problem is that it’s such an aberration in the first place. Why? Because there were a number of factors that influenced the number, primarily a surge in exports – particularly soybeans.

That improved the net trade position for the US and that helped to boost the GDP quite significantly. Why did we suddenly sell all of these soybeans? Well, it’s because the importers of American soybeans realized that they’re going to be targeted for tariffs and so they’re trying to accelerate their orders. So, they’re trying to buy soybeans that they may have bought in the third quarter and they’re trying to hurry up and buy them in the second quarter to beat the tariffs. So, what does that mean? That means we’re just borrowing those sales from the future. So, whatever benefit we got in the second quarter, we’re just going to give it up in the third quarter.”

The messaging coming out of the Trump administration is that this GDP growth is sustainable. The government even went back seven or eight years, recalculated the previous numbers, and determined they were wrong. The economy is reportedly about $1 trillion bigger than previously thought and the savings rate is nearly double.

Peter isn’t buying it.

Who’s going to believe these numbers? First of all, the government is saying, ‘Look, we’ve been wrong for all these years, but now we’re right.’ Well, what if they were right for all those years and they’re wrong now? Or what if they were wrong in the past and they’re still wrong? I think it’s probably more likely that they were overestimating the size of the economy before and now they’re overestimating by an even larger number. Maybe the savings rate is even smaller than they originally reported. Because if they’re going to keep changing the numbers, then what confidence do we have that they’re ever accurate? If they can be so off in the past, then how do we know they’re not off now?”

And as Peter points out, the government has a vested interest in putting out BS economic numbers. The larger it can claim the economy is, the more sustainable the debt numbers look because debt is usually expressed as a percentage of GDP.

Another reason the Q2 GDP jumped was a 4% increase in consumer spending. But as we pointed out in a recent article, data shows that the rise in median expenditures has outpaced before-tax income for the lower 40% of earners in the five years to mid-2017. In other words, poor and middle-class Americans are driving the US economy by spending more than they earn.

And as Peter pointed out, the reason people are spending more money is because stuff is more expensive.

Prices are going up. It’s just not being reflected in the GDP because the deflator doesn’t capture it because the deflator is deliberately underreported. So, I think this is not more consumer spending. I think this is just consumers spending more, but not necessarily buying more.”

Peter pointed out some other BS claims the Trump administration has made relating to trade deficits and job growth. The Trump administration is touting this as an unprecedented period of economic prosperity.

Donald Trump got elected because he called out all the BS. He said, ‘Obama has been lying to you about the economy. Wall Street, the media, everybody is telling you the economy is great and you know and I know that it’s lousy. You’re being fed a bunch of lies from these career politicians. The economy is a disaster. It’s an economic wasteland. So, send me to Washington and I’m going to fix it.’ The economy is basically exactly the same as it was before he was elected and now he’s doing the same thing. ‘The economy is great. Everything is booming.'”

Peter said Trump is not only being a hypocrite, he is opening the door for the Democrats in 2020 because the economy is going to be worse.

The average voter is going to be in worse economic shape than he was the day he voted for Trump – if he voted for Trump. And they’re going to be able to say, ‘Trump has been lying to you. He’s not being honest. He’s feeding you a bunch of lies about the economy.’ Right? It worked to get Trump elected, so it will work to get his challenger elected.”

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