Joe Biden keeps touting the “booming” economic recovery. And of course, he’s taking credit for it. But is the economy really booming?
If you look at GDP growth, it certainly appears the US economy is in the midst of a robust recovery. But economic growth is relative. And when your baseline is an economy that was shut down, any growth looks good. Of course, there is going to be growth from virtually zero.
But there is an even deeper problem with using GDP to gauge economic health. Like the government CPI formula, the GDP is calculated in a way that creates an illusion.
Americans are driving the US economy along with borrowed money. The question is how much longer can it last?
Consumer debt surged once again in December as Americans charged up their credit cards for the holidays. Total consumer credit grew by $22.1 billion in December, according to the latest data released by the Federal Reserve. That represents an annual growth rate of 6.3%. Total consumer debt now stands at a record $4.197 trillion.
Stock markets made new highs on Wednesday, but as Peter Schiff explained in his latest podcast, there are a lot of cracks under the surface. The markets are surging forward even as they overlook bad economic data and chilly political winds.
Last week, Keynesian extraordinaire Paul Krugman called for more fiscal stimulus in the form of a “government investment program.” Mike Maharrey poked fun of him in his Fun on Friday column. But while it might be amusing to crack jokes at the expense of Keynsians and their obsession with both fiscal and monetary stimulus, the policies they promote are actually quite pernicious.
In fact, the do the exact opposite of what they’re supposed to.
The Commerce Department released the first estimate of Q1 GDP growth on Friday. It came in higher than expected at 3.2%.
Somewhat surprisingly, the price of gold rose on the news and the dollar showed some weakness. The primary reason was presumably lower inflation. This means the Fed still has the excuse it needs to continue the Powell Pause.
There was also some data in the Commerce Department’s report that reveals shakiness in that growth number. In fact, Peter Schiff said he thinks this will likely be the strongest growth of the year.
Peter Schiff has been saying that despite the recent stock market rally and all of the optimism about an end to the trade war, a recession is a done deal. There is plenty of economic data to back up despite the recent economic growth. In his most recent podcast, Peter Schiff said that while the GDP number might look pretty good, the growth is unsustainable because it’s all built on debt.
As we reported last week, China is dumping US debt. China’s holdings of US Treasuries fell for the third consecutive month in August. The Chinese shed another $6 billion in US debt, dropping its total holdings to $1.165 trillion. Over the last year, China’s holdings of Treasury bonds fell by $37 billion year-on-year.
But China has debt problems of its own. Local Chinese governments have reportedly piled up about $5.8 billion in debt. An S&P analyst called Chinese debt “an iceberg with titanic credit risks.”
Peter Schiff recently appeared on RT to talk about the US and Chinese debt.
In fiscal 2018, the national debt expanded by more than $1 trillion. According to data released by the Treasury Department, it was the sixth-largest fiscal-year debt increase in the history of the United States. A combination of increased spending along with shrinking revenues continues to expand the federal deficit and balloon the national debt.
GOP apologists insist the revenue shortfalls caused by tax cuts are temporary and economic growth spurred by tax relief will eventually turn things around. Tax relief is great, but without substantive government relief in the form of spending cuts, the promised economic growth won’t likely materialize.
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.
We’ve done extensive reporting on the GOP tax reform bill as it’s moved through Congress. We’ve highlighted a number of concerns about the plan, specifically the significant expansion of the national debt it will cause. Yesterday, we explained how the impact on the deficit will likely be even bigger than expected because of the incentives found in the latest incarnation of the plan. Most significantly, we’ve echoed Peter Schiff’s view that the plan isn’t really tax reform. It’s tax cuts masquerading as reform.
But all of this leaves an important question unanswered. What would actual reform look like?
Mises Institute senior fellow Mark Thonrton offers some ideas in his latest piece at the Mises Wire. In a nutshell, shrinking the size of government is a key ingredient necessary for real reform.
