Friday, October 30, 2009

U.S. economic growth claims are fabricated on more debt spending

(CounterThink) – While the White House is celebrating a 3.5% reported growth in GDP last quarter — the first economic growth in a year — they conveniently forget the simple fact that it’s easy to fake economic growth with debt spending.

This so-called “growth” was really just the result of the U.S. Treasury flooding the economy with more debt-ridden “stimulus dollars” that will drive the nation even deeper into irreversible debt. That’s not genuine economic growth, it’s just really bad economic planning.

For example, if a family is living on credit card debt to buy groceries, and they’re two years behind on credit card payments, and then they suddenly take out a huge cash advance against their credit cards so they can spend even more money, that’s not “economic growth.” That’s just more stupid spending.

The U.S. government has done precisely the same thing: It’s spending money it doesn’t have, then claiming “an end to the recession” because the nearly $1 trillion in stimulus dollars did, indeed, manage to spend a lot of money and create “economic activity.” But rather than being good news, it’s actually really bad news because it’s all borrowed money.

Speaking of stupid economic ideas, $3 billion of those stimulus dollars were used to buy new cars as part of the U.S. government’s “clunkers” program. An analysis of the program reveals that taxpayers ended up paying $24,000 for each additional car sold under the scheme (…). In effect, the “cash for clunkers” program was a giant government handout to Japanese car manufacturers. Sure, it counts as economic activity (and adds to the nation’s GDP), but is it really an intelligent way to spend taxpayer dollars?

Similarly, the tiny surge in home sales was spurred by yet another government handout: The $8,000 tax credit for first-time home buyers. Although such a stimulus appears to create economic activity, it really just throws more debt money at a nation that’s already buried under so much debt that foreign investors are increasingly selling the dollar and buying other currencies.

Real economic growth requires more people having real jobs that produce real goods or services. And that’s simply not happening in America. According to Labor Department statistics, 530,000 Americans file for unemployment claims last week alone. Tens of millions are out of work, and there’s been no growth whatsoever in terms of new job openings.

The White House can cheer its fabricated 3.5% growth in GDP, but real economists know the difference between genuine economic growth and a debt spending blip. Gee, if spending more debt money is the way to prosperity, then why not just throw $100 trillion and boost the GDP by 350%?

The answer is because debt costs you money, which means this 3.5% growth in GDP is going to cost the nation probably 4% in economic punishment somewhere down the road. When it comes to economics, there’s no such thing as a free lunch, and the laws of compounding interest eventually cause every debt spending spree to come to a crashing close.

The United States of America is not immune to the laws of economics any more than you or I.

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