No, GDP Did *NOT* Advance
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2018-10-07 07:00 by Karl Denninger
in Monetary , 303 references Ignore this thread
No, GDP Did *NOT* Advance
[Comments enabled]

Oh Bill Still!  Oh former Libertarian candidate for President who proclaimed this on stage:

"Crashes are caused by just one thing, and that's bubbles.  Bubbles are caused by just one thing and that's banks being in complete and total control of the quantity of the american monetary system in complete and total contradiction of the American Constitution."

But now, Mr. Still has found his #MAGA hat and his wife is worse, shilling his videos all over the Internet supporting outright monetary fraud and, in addition, shilling for herself with MLM "dietary supplements"!

Principles?  What are those?  Gee, did you forget what you actually said Mr. Still?

Well, let me remind you what the facts are from the US Treasury's own web site:

DatePublic DebtSoc. Sec./MedicareTotal
9/28/201815,761,154,524,132.405,754,903,659,047.7821,516,058,183,180.20

9/29/2017

14,673,428,663,140.905,571,471,352,912.5720,244,900,016,053.50
Difference1,087,725,860,991.50183,432,306,135.211,271,158,167,126.70

Now the GDP of the nation stands, as of last read, at $20,411,900,000,000.

Four quarters ago it stood at $19,588,100,000,000, a difference over the last year of $823,800,000,000.

In other words GDP is actually negative because the expansion of federal debt is greater than the expansion in GDP in dollars.

This is a matter of arithmetic -- not politics.

The problem is that in real terms you need to earn at least 6.23% to break even on a government (or any other) bond.  At any rate of return under 6.23% you are losing money in real terms if you buy such a security.  Of course right now Treasuries are all earning less than this (a lot less!) yet the above is a mathematical fact.

That is, in actual monetary terms the real inflation rate is 6.23%, not 2%.  The Fed can lie and the BLS and BEA can lie with their CPI tables but arithmetic does not lie and each dollar of monetary expansion by the federal government is a dollar of inflation -- period.

This sort of misdirection can be gotten away with for a while.  It was in the 2000s, and in the 1990s.  But it cannot be gotten away with forever because the damage in purchasing power done to everyone by this behavior is both real and immediate and it is this very behavior by governments and private banks that cause both bubbles and the resulting crashes.

Trump knows this and does not care.  He believes he will be out of office before it all blows up in his face.  Bush believed that too, and he was wrong.  Obama ran the same crap after the 2008 crash and got away with it for the eight years he was in office.

Trump will not get away with it.  We are running a 6.23% fiscal deficit during an expansion in the economy.  That's outrageously large and in fact belies the truth -- there is no expansion at all; the economy is in fact contracting and yet the false signals being sent to employers and others leads them to do uneconomic things like borrow money to buy back stock.

It is this very uneconomic behavior that in fact leads to crashes because it causes the valuation of assets to be falsely priced far above their actual value due to the perception that this insanity can and will go on forever, and thus whenever you wish to sell you will be able to at a higher price.

When reality comes calling prices do not "correct" they crash because there is utterly no underpinning for the valuation metric that you have been using and due to the effects of compounding actual valuations are half or less of where prices are trending!

It is stupid to continue to prance around and call this sort of economic distortion "good", but that's what I expect from our lying, fake-news media and serial liars and bubble blowers such as Larry Kudlow.

But the true test of whether someone is actually nothing more than 2-bit ***** or believes what they say comes when someone who has made public speeches on the insanity of such behavior and in fact ran a campaign for the highest office in America on this very basis turns on a dime and supports the people doing it now.

**** you Mr. President and Congress both -- you're setting up the worst collapse and crash since the 1930s.  Double-**** you, however, to those who have claimed in the past to be supporters of monetary and fiscal truth but have discarded same due to a putrid and fraudulent infestation in Washington DC that happens to be buttering one's bread via Youslob horsecrap and MLM schemes.

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Gable
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When we have the crash combined with the civil unrest things are going to get nasty.


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Lobo
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Drinking the Kool-Aid must pay well.

Everyone in the system is counting on getting theirs before it collapses: banksters, cops, firefighters, teachers, local and national politicians and all the special interest groups from farmers to the Free **** Army ... None of them want the party to stop until they've gotten what is "owed" to them. After that everything can collapse as far as they are concerned. Of course, the latest crop of parasites want the same thing, so it just continues forever, until it can't.

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Mickey
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Technicaly it's far worse that Karl identifies.

To maintain the GDP of around 20 trillion (we should use current dollar GDP growth since we are comparing it to debt growth), we need to compare it to not only the 1.257 trillion US interest bearing debt growth but add in city and state debt growth and corporate and consumer/individual debt growth.

that would make the comparisons easy and simple to say that if our current dollar GDP growth is 7.4% (minus 3.2% inflation to get to 4.2% real growth for the 2nd qtr, remembering that inflation is higher than stated) that 7.4% is roughly 1.4 trillion of growth compared to US debt increase of roughly 1.3 trillion plus all the other debt increases.

most people cannot buy a new car without borrowing or also leasing; leasing used to be upper end cars for businesses getting cars for execs-now we see toyota corollas and Honda Civics and Hyundai Sonatas being leased as its the cheapest and fastest way to get into a car assuming you do not mind paying on a car for the rest of your life.

Anyway without all the debt we have a contracting economy, with using higher inflation we have a contracting economy but who cares? Not many of us.

BTW-healthcare insurance--the cpi reporting asseses inflation in healthcare for the last several years to be about 1% and depending where you are n the incime and money left for avaiable soending, if you have 80k to spend each year and you have to buy insurance costing 10k, thats 12.5% of your spending going up 1%, err, I have experienced more much more than that. Of course if I have 240k to spend each year, thats only 4.1%.



whats the real inflation rate? it depends.

The whole thing is a pile of crap.
Tickerguy
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@Mickey -
Quote:
Technicaly it's far worse that Karl identifies.

True, but there are clean arguments on many forms of debt (that they don't actually represent inflation.) Debt secured by an asset removes the asset from the pool of available "moneyness" during the time the debt is outstanding. This is why most economists ignore it; they consider them offsetting transactions.

But when it comes to the Federal Government history says that debt is NEVER retired and further there are no assets pledged that are removed from the marketplace and can be seized. Therefore such debt is a PURE monetary expansion -- always.

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Winding it down.
Goforbroke
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Time to feed the chickens.
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Quote:
you have to buy insurance costing 10k
Ummm ... try, in some cases, double that for a family.

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Mickey
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when you point out that the US never pays off the debt, a phrase was coined back in the 2008 crisis that covers that:

extend and pretend

between new debt and rollovers its one hell of a load.

Thankfully our creditors are more than happy to cover us, err, do they really?

when our debt increase just at federal level passes 2 trillion perhaps someone in the spotlight will pose the question of just who is capable, even if they wanted to, to fund our debt increases.

How would you like to be the auctioneer to sell the US property such as Grand Canyon?

Or the US can take over farmland and use that as collateral. The US does purportedly have 350 billion of gold at current prices.

Remember pre 1971 when trade deficits were settled in gold? Thts when Nixon stiffed France. With a $750 billion trade deficit we would need 16000 tons of gold at current price just to settle one annual trade deficit.

If I ran my household budget like the US runs its budget...rememebr the movie 'Dave" where "Murray the Accountant" was called in to help balance the budget. Now recall how McCabe formerly FBI bought at 70k conference room table.

We need a turnaround "artist".




Jal
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We cannot go back to the way it was.

A lot of smart people know how numbers work; economists, accountants, lawyers etc.


Are those people part of a "silent club"? What are they doing to prepare themselves for the changes that are coming?



Mickey
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My point on healthcare insurance is that teh govt is not reporting it correctly(no surprise) and if they did report it correctly the overall inflation rate would soar-think if 20% of what people spend goes up 10%, or more.
Then COL raises for Soc Sec would have to go up further puttign the USG debt growth in the hole.

Then COL increases of union and non union employees would come under pressure.

This is all far too complex to review in small bites we can discuss.

Tickerguy
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As I have long maintained there is only ONE way out of this that does not result in collapse, civil war or both.

Neuter the medical monopolists -- either imprison them or worse.

They HAVE violated the law, so this is not a call for extra-judicial actions. But either we do this, and do it soon, or it won't matter because the foldback that WILL come from this path is upon us.

Once it starts you won't be able to stop it.

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Doctor.d
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I've long thought Bill Still was completely full of crap. Glad you agree, KD!
Mangymutt
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Karl - Sadly the chances of this not ending in collapse, civil war and or.....I go with both, is almost zero.

As you and your readers know, most people will do maff right up to the point their paycheck matters. That means it is everyone for themselves, which will ensure economic and civil collapse.

The democrats with their scorch earth policy on all thing social only helps to solidify some form of civil unrest, which has already started: Without the usual signs of an economic collapse.

Because maff is related to Mother Nature, it too is a bitch. And maff will want it's pound of flesh when it is good and ready to take it. And because progressives refuse to except their current set of social engineering has run it's course at the same time maff is coming to balance it's books, it looks like there is a good chance we get both economic and civil difficulties at the same time.

But what is perhaps the most difficult thing for us humans (at least this one) to understand is Mother Nature has her own time line and that means even though we can see the writing on the wall, we have no clue what time it is.
Click
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Over the years I've seen almost everyone I know both change their mind and express a different view. It's not uncommon for somebody to get buried with a totally different belief system than the one he was weaned on. Take, for example, Robert Nozick. He founded the Libertarian Party back in the 70s. He started out as just a Brooklyn boy ( kinda, sorta like me) but he ended up so different. So, it doesn't surprise me that Bill Still is singing a different tune. As far as making money by riding the Trump Train, I understand that, too. During Mark Dice's live "confirmation party" yesterday on YouTube, Mark was raking in an absolutely blinding amount of "donations". So, yeah, I understand what's going on ---$$$$.

Just take a look at the gold bugs. How many of them are proclaiming the virtue of "crypto currency"? There is no better example of "thin-air money" than Bitcoin, yet look how many "hard money" men abandoned gold for 010101010....

Of course, over the years I've changed my mind, too, and I hope it's for the better. For example, I got my fingers badly burned back in the 1980s, because I thought that the economy was going to collapse. So I loaded up on gold --- gold,gold,gold... Ouch!

Years later I ran into Robert Ringer ( another big-time 1970s Libertarian who had since changed) and I asked him his view about how we were so wrong about the collapse. We talked about it and exchanged a few emails. My takeaway was a new way of looking at socioeconomics. This: Robert said, "corruption works".

And that's the bottom line: corruption works until it doesn't. So, in full disclosure I've profited from the FANGs, U.S. bonds, oil, real estate, old classic cars and, yes, even some cryptos...and more.

Corruption works. Trump works. The Fed works. The dollar works. Washington works. It all works. Until it doesn't. And, for what it's worth, I'll give you my advice: when the music stops don't be caught without a chair. Or better yet, when the music stops be like Elvis.

"Elvis has left the building"...
Mickey
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The CBO has a monthly Budget review which was released Friday

It shows the budget deficit and actually shows the cash flow deficit in the same report showing outlays and receipts.

One line of receipts is payroll taxes

As we know, payroll taxes is the employee and employer remitted amounts on actual earnings reported and paid.

For the fiscal year ended 9/30/18, the preliminary numbers show 0.7% of increase over FYE 9/30/17.

This dispells that people are making more money and it might say fewer people are working than thought, or--more people are working but earnings less.

Either way it does not support good jobs growth and does not supprt economic growth, err, real exconomic growth

we know apple is raising prices by going to newer models which do not add much but graviate to the above $1.000 price. Apple is also discontinuing hte lower cost models like the SE and 6 and now its least expensive model is a 2 year old technology IPhone 8 at a mere $599.

Apple is pushing inflation as its not groing unit sales of Iphones or Ipads.
My point is most of the growth if not all or more than all is due to pricing whether inflationary or "improvememnts".

I do not consider a 6.7 inch screen an improvement i have to pay for since I kind of liked putting a 4 inch smart phone in my pocket. Problem is nobody is making a 4 in anymore and it looks like th I8 is th eonly 4.7 inch being produced now.

My point is looking down from 50,000 feet we are not seeing real growth we are seeing price growth. If payroll taxes are flat--it is a huge problem in many ways including that the excess of soc sec and medicare spending in FY 18 over tax recipts is about $500 billion. And growing. The ponzi schele is dying on the vine

Simpson and bowles said 10 years ago we needed to cut spending and raise taxes.
That might be true but better said the cutting of spending could come from cutting waste, whether conference room tables for McCabe, health care basic costs ala Karls methodolgy, $600 wrenches, or anything.

My old medical practice was merged into one of hte big hospotal groups. They went from a small crowded office of 9 doctors and support staff, to a glamorous campus 5 story building and guess who pays for that??/

I started with the practice in 1976, on my 4th doctor all of who I appreciated. They were and are old school and cost conscious and looking to solve issues.

The good thing now is when I am in waiting room its so large I do not have to sit near anyone--probably 150 chairs and I have never seen more than 3-4 patients there.

I understand its important to have clean facilities with technology, but I do not understand walking 50 feet for everything, nor do I understand the reason to have a 50 acre vista from the waiting room.

but then again I am over 70 and there are a lot of things I do not understand.






Robodog
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Mickey,

Regarding replacing a smartphone that can fit in a pocket: that screen size issue, a reasonable price (< $ 200) and a removable battery & SD card are the features I've focused on for my future Z10 replacement. The Motorola Moto G5 (not the plus model) may be worth a look-see.

gsmarena.com has a tool that permits one to compare & contrast the specs of different phones.

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I believe in only one thing: liberty; but I do not believe in liberty enough to want to force it upon anyone. ~ H.L. Mencken
Smacktle
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Bill Still is a fraud. Stopped watching his videos a long time ago. Kicking myself for ever giving him money. Why is it so hard for some to hold onto their integrity? GREED!

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Tickerguy
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I just about threw up when he was asked during that debate who his favorite President was.

His answer?

Lincoln.

He and I had a VERY loud conversation after that.

If there's one President that DESERVED to be shot it was Lincoln. That man was a flat-out tyrant and may he burn in Hell forever. When I get there I'm going to make a point of ****ing every single orifice he has on an hourly basis for as long as the Devil will allow it.

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Lanny
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Quote:
If there's one President that DESERVED to be shot it was Lincoln. That man was a flat-out tyrant and may he burn in Hell forever. When I get there I'm going to make a point of ****ing every single orifice he has on an hourly basis for as long as the Devil will allow it.

In one sense I agree with you, yet in a much bigger sense I despise your attitude. Your comments are so childish and I'm not talking about the Lincoln part.
Why didn't you support the positive long-lasting message of Bill Still rather than arguing about the things that destroy (and that don't matter nearly as much)? Your comments about Lincoln are your own, there's no need to confront those.
But your comments about Still are evidence of a deeper lack of cooperation on your part. I too agree, I stopped watching/listening to him the moment his wife got on screen, because it was a line in the sand, it was when he stopped delivering the core message that he was famous for. But beyond that, you have destroyed the potential good that could have come from like minded folk.
In part I blame you Karl for the current state of America. You, unlike others, have an uncanny gift to bring the truth to light and that's a good thing and you begin well. But also unlike others, you have a tendency to not cooperate and to prevent mature dialogue. As I say, I agree Bill Still fell down, he's been off track more than ever for years now. You and others like you should have been there picking him up.
I would think the differences between two men such as yourself and Still are smaller than the (enormous) differences between Adams and Jefferson. But they built bridges. You seem to tear them apart, or at the very least stop them from being built.
Tickerguy
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@Lanny
Quote:
Why didn't you support the positive long-lasting message of Bill Still rather than arguing about the things that destroy (and that don't matter nearly as much)? Your comments about Lincoln are your own, there's no need to confront those.

What positive long-lasting message? Bill Still took literally a couple of decades of monetary reform advocacy and flushed them down the toilet the second Trump was on-path to be President.

**** him.

The difference between this situation and Adams/Jefferson is profound. You CANNOT build bridges with someone who has no principles and as soon as it's expedient to ***** themselves out that's exactly what they do. I suspected Still was in fact doing this early on, but now it's proved -- just like Ron Paul and his so-called "hard money" advocacy.

You can't build a bridge on shifting sand. I can and will work with someone who I have significant disagreements with, if there is common ground to be worked, provided they mean what they say and ACTUALLY have a set of principles to stand on.

But if not? Then **** them and **** anyone and everyone who wants to take a cheap shot at me for refusing to put up with that crap.

Get the **** off my lawn.

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Idiom
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So whats the best way of measuring economic growth? GDP minus govt debt expansion? Tax receipts?

Beyond the ever expanding govt debt what is the fed playing at these days throwing it out even more?
Mannfm11
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I don't believe anything will be done until we do something about the bureaucracy

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
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