Tag Archives: GDP

War Now “Inevitable”, To Restore U.S. GDP Growth

13 Sep

I recommend following the link to read this article in full. There are a number of charts and related information that are well worth studying, to properly understand the whole argument.

From Zero Hedge (bold and italics in original, red font mine):

In a moment of surprising clarity, Deutsche Bank’s Jim Reid pointed out what is largely taboo in the financial industry – the truth. “Looking back, real GDP growth in the US through the latter half of the 2000s and the 2010s has been at the lowest levels since the cyclically scarred decades of the Great Depression and the First World War.”

What is amusing, is the constant state of shock of supposedly serious people who are stunned that despite the Fed being constantly in the markets, and buying up trillions in securities, the US economy has not responded in a favorable manner. Of course, nobody has pointed out that if all it took to generate growth out of thin air without consequences was for the Fed to print, i.e., monetize debt, this would have started 100 years ago in 1913, and by now the US economy would be so advanced it would be colonizing Uranus. Logic, however, is not a Keynesian economist’s best friend.

That said, the reasons surrounding the lack of US growth are secondary for the time being. A bigger question is what happens from here, now that even respected banks, and even ivory tower economists have admitted that QE has been a complete failure for the broader economy, and the common American, benefiting only the uber-wealthy. Which leads us to a different topic. Syria.

In an uncanny historical analogue of the current economic predicament, we have to go back only 70 years or so back, to the time of the first Great Depression: that was the first and ostensibly last time, when the US economy was performing in a comparably subpar fashion to trendline.

Click to enlarge

Click to enlarge

So in an extreme (if logically forthcoming) scenario when the Fed’s final proposed fallback strategy of “forward guidance” which is destined to replace QE now that tapering is on the table, were to fail, as many already suggest it will (just look at the BOE), the final solution for the US central bank is one – Nominal GDP Targetting, which stripped of its fancy title is really a euphemism for “print until you drop”, or rather monetize securities and inject money without regard for inflation (paradropping bundles cash may well be allowed as Ben Bernanke would be happy to admit), with the only intention of promoting growth at any cost.

But will “Nominal GDP Targetting” work?

After quite a detailed analysis, including multiple charts, we get to the answer, and the crux of the article:

In other words, targeting GDP for the sake of GDP, concerns about inflation aside, when soaring inflation would also lead to surging interest rates, has become impossible.

So what is the only possible way out left for a country in which monetary policy has failed on all fronts except to inflate asset prices to stratospheric levels, and yet the economy still refuses to budge? For the answer we go to Deutsche Bank one last time:

During the US Great Depression the huge declines in consumer and businesses confidence in the face of mass unemployment can be seen in the extremely and persistently low level of velocity…. As it turned out, the US economy managed to grow at an average of 13.5% a year over the next 10 years and was back on ‘target’ by 1944….  Velocity also moved during the recovery from the Great Depression as the US war machine swung into action in the early 1940s.

In other words, at a time when the US was in almost an identical predicament and GDP catch up would have been impossible by any other means, what happened? World War. Luckily, for the US it generated unprecedented growth and cemented its status as the world’s super power, and the USD as the reserve currency. Others were not so lucky.

Are we the only ones who suggest that the only outcome is a military one? No. Recall from Kyle Bass:

 Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation.


Which also means preconceived from the start. So despite a recent sense of detente in Syria, pay close attention: never since the cold war has the world been so close to the edge of a full-blown global military conflict. Whether or not the Syria “trigger” has been produced as the catalyst that will spark growth, or is merely a precursor to such an event is still unclear. However with every passing day, the US economy lags ever more behind its “trendline” and the common man gets left ever further behind the superclass of financial asset oligarchs, a state which the president opined recently was unacceptable. The question is whether millions of war casualties for the sake of yet another economic “golden age” aren’t.

One RBA Chart Debunks Wayne’s Entire Budget

14 May

I am so glad that Wayne Swan is such an imbecile.

It means that, despite being sick, I can debunk his entire budget with about as much ease as taking candy from a baby.

Or a Baby Bonus from a “working family”.

All of the “estimates” and “projections” in Wayne’s 2013-14 budget are based on a critical assumption – 5% annual growth in GDP in the next two years:

Screen shot 2013-05-14 at 8.21.19 PM

Budget 2013-14 Overview, Appendix H

Really Wayne?

5% a year?

Let’s see what the RBA’s Chart Pack has to say about actual, not “forecast” GDP –



Anyone else get a sense of deja vu about this?

With good reason. In last year’s budget, Wayne forecast 5% GDP growth for the current year…

Screen shot 2013-05-14 at 8.33.33 PM

Budget 2012-13 Overview, Appendix H

… and since then, has been forced by that little thing called “REALITY” to revise it down, to 3.25% (see 1st chart).

Remember, this 35% downward revision for “GDP” growth in the current year has come during a period when, according to none other than Wayne himself, we have been enjoying the benefits of a “strong economy, low unemployment, low interest rates, and a huge (mining) investment pipeline.”

Not to mention record-high Terms of Trade.

That “huge” mining investment pipeline is rapidly closing down.

And the record-high Terms of Trade are collapsing too:

Source: macrobusiness.com.au

Source: macrobusiness.com.au

5% GDP growth next year, and the year after?


I don’t buy it.

Neither should you.

And since all of Wayne’s latest revenue estimates, and spending estimates, and budget deficit/surplus estimates, are based on that critical GDP growth ass-umption, I think it only fair to say that we can write off this entire budget as a(nother) very, very bad joke.

Problem is, the joke’s on all of us.


A number of my Twitter followers have kindly informed me that I have made an error. Apparently, the RBA chart for GDP that I’ve referred to above is “Real” (ie, inflation adjusted) GDP, and the budget forecast I’ve referred to is “nominal” GDP.

No matter.

Given the falling Terms of Trade, the closing of that “huge” mining investment pipeline, and a likely incoming Coalition government purportedly looking to slash spending and public service jobs, I reckon even a forecast 2.75 (2013-14) and 3% (2014-15) “Real” GDP is highly unlikely:

Screen shot 2013-05-14 at 9.26.32 PM



Thanks to Twitter follower @gregfranksimmo (EDIT: who got it from Greg Jericho, aka @GrogsGamut), the following chart of both “nominal” and “real” GDP clearly shows that nominal GDP has been declining since December 2010, and has actually been below “real” GDP for the past two quarters, while “real” GDP growth is presently barely managing 3% … despite all those wonderful (and temporary) economic “strengths” Wayne has been boasting about –



Business Spectator and unabashed ALP apologist Stephen Koukoulas – he of the recent 8 – 12% house price rise prediction – tells us why the nominal GDP forecast is so important for the budget figures:

The forecasts that matter more for revenue, nominal GDP growth, are similarly understated at 3.25 per cent and 5 per cent growth respectively.


“Nominal” GDP in the Sep ’12 and Dec ’12 quarters was running below “Real” GDP, at less than 2% per annum.

5% “nominal” GDP in each of the next two years?

Chances of that are, I reckon, somewhere roughly between Buckley’s and none.

Meaning, the government’s revenue forecasts have roughly the same chances of coming to pass.

Everything You Need To Know About “GDP”

22 Apr

Bankster Economics 101.

More people = more debt slaves = more debt = more “money” = more transactions = more “activity” = more “income” = more GDP.


Source: Econbrowser


Earth at night (Source: NASA Astronomy picture of the day)


Mystery Asset Transfer Behind Positive GDP

6 Mar


It’s an election year. More important than ever to maintain public con-fidence in the economy and its overlords.

From MacroBusiness:

At the Australian:

At the AFR:

At BS:

Now, look at this chart from the ABS of the direct inputs into the GDP figure:

Notice the largest contributor by far is GFCF-Pub. That is, Gross Fixed Capital Formation – Public sector.

This was achieved in part by an unspecified transfer of assets to the public sector for as the ABS put it (h/t Bearish):

“The public non-financial corporations sector took ownership of some large capital projects that were completed during the December quarter 2012.”

Without this contribution the economy shrank yet not one story in the above papers mentioned the surge in public GFCF.

Anyone know what that mystery asset transfer actually is?

“Some large capital projects”, eh?

Time for some government officials to do some explaining.

As Mark Twain said – “Lies, damned lies, and statistics.”

Wayne’s “Per Cent Of GDP” Lies Debunked

3 Apr

“As a percentage of GDP”.

Possibly the most common phrase of deception in the average Treasurer’s armoury.

In the case of the average economist, the most common phrase of self-deception.

Let us take a look at how The World’s Greatest Treasurer Wayne Swan the Treasury department’s economists have used the “as a percentage of GDP” lie as the foundation of steaming bovine faeces for an entire speech delivered to the Australian Business Economists’ Breakfast on 29 March 2012 by the Treasury’s muppet.

Here’s Wayne:

The GFC hit all our revenue heads, as production, consumption, profits and employment all tumbled. The tax-to-GDP ratio fell 4.2 percentage points to 20.0 per cent. Compare this with the Howard Government’s peak of 24.2 per cent, and we’re looking at a massive write-down in tax receipts across the board.

Wayne Treasury had prepared some charts showing GDP and Tax Receipt estimates for the period 2007-08, through 2011-12 (MYEFO). Expressed “as a percentage of GDP”.

But let us set aside the “per cent of GDP” measure, and dig deeper.

What about the raw figures?

2007-08 Final Budget Outcome Taxation Revenue (actual) – $286.22 billion

2010-11 Final Budget Outcome Taxation Revenue (actual) – $309.89 billion

2011-12 Mid-Year Economic and Fiscal Outlook Taxation Revenue (estimate) – $323.63 billion

An increase in Taxation Revenue from 2007-08 (actual) to 2011-12 (estimated) of $37.41 billion.

Back to Wayne:

Collections, particularly relating to company profits, have been lower than expected. In part, our lower tax take reflects reduced tax receipts following the GFC…

We have already seen that the second part of this statement is a lie. Actual tax receipts are higher now, than they were in the 2007-08 (pre-GFC) Final Budget Outcome.

It is only when one uses the misleading and deceptive “as a percentage of GDP” measure, that black can become white. Or in the case of a government budget, black can become red. Or red can become black, depending on the political lie of the moment.

For the sake of thoroughness, let us break down “Tax Receipts” to just look at “Company Tax”. Perhaps Wayne Treasury is right, and Company Tax receipts have fallen since the GFC?

2007-08 Final Budget Outcome Company Tax revenue (actual) – $66.48 billion

2010-11 Final Budget Outcome Company Tax revenue (actual) – $57.31 billion

2011-12 Mid-Year Economic and Fiscal Outlook Company Tax revenue (estimate) – $71.80 billion

Yes, there was a decrease of $9.17 billion in actual Company Tax revenue between 2007-08 and 2010-11.

But as at MYEFO Nov 2011, there is an “estimated” increase in Company Tax revenue (versus 2007-08) of $5.32 billion.

So, what is the problem, dear reader?

Quite clearly, the government IS pulling in more actual Total Revenue now, than they were in 2007-08.

Last year (2010-11) the government raked in $23.67 billion more in Total Revenue, than in 2007-08.

Their November MYEFO estimated that the government would rake in $37.41 billion more than in 2007-08.

With all that extra income, why is it that this government cannot seem to achieve a balanced (much less a surplus) budget for a year?

Indeed, their annual budget deficits just keep getting bigger.

Could this government’s spending have anything to do with it?

Wayne Treasury barely even mentioned the government’s actual record of expenditure in the speech to the Australian Business Economists’ Breakfast. A long, tiresome rant, complaining about lower revenue “than expected” … “as a percentage of GDP”. And a mere handful of paragraphs about “Savings” at the end of the speech. Saying absolutely nothing.

Well, except for this doozy:

The savings we find in this Budget will be consistent with the discipline that has been the hallmark of the Budgets we’ve delivered. Remember that in the four Budgets since 2008-09, we have identified over $100 billion of savings.


2007-08 Final Budget Outcome Total Expenses (actual) – $280.1 billion

2010-11 Final Budget Outcome Total Expenses (actual) – $356.1 billion

2011-12 Mid-Year Economic and Fiscal Outlook Total Expenses (estimate) – $371.74 billion

An actual increase in Total Expenses of $76 billion in 2010-11, versus 2007-08.

An “estimated” increase in Total Expenses of $91.64 billion in 2011-12, versus 2007-08

But that’s ok.

All is forgiven … because they “identified over $100 billion in savings” over those four years too.

And all is forgiven with respect to our economic commentariat, who faithfully repeat Wayne’s Treasury’s misleading and deceptive statements without scrutiny. As illustrated by Alan Kohler in Business Spectator:

In fact, as Wayne Swan pointed on Thursday, Labor has already cut $100 billion from spending and this year’s budget will cut even more…

No, Alan. That is not “in fact” at all. It is what he wanted you to hear, and report. But it is not what he actually said. “We have identified over $100 billion in savings” is not the same thing as “we have already cut $100 billion from spending”.

Let us recap.

According to Wayne’s Treasury’s most recent published figures, in 2011-12 this government will rake in $37.41 billion more revenue than in 2007-08, pre-GFC.

But they will spend $91.64 billion more than in 2007-08, pre-GFC.

All the “as a percentage of GDP” nonsense, is a smokescreen.

The simple reality is, this government is getting tens of billions more annual revenue than the Howard Government did in its last year.

But they are spending a SHIPLOAD of borrowed-from-foreigners money more every year, than they are receiving in increased annual revenues.

Back to Wayne one last time:

It was Stephen Koukoulas who reminded us that … we never exceeded the tax-to-GDP ratio that we inherited…


How is that possible?

We have already seen clearly, that this government is getting more total tax revenues than in 2007-08.

So given that their tax take is up, then the only way this claim is possible is if there has also been a truly remarkable increase in the GDP figure.

Oh look!

There has!

How very, very convenient that the new System of National Accounts introduced in the GFC year of 2008-09, just happened to result in a “substantial increase” in the GDP figure. One that you would not be aware of unless you had carefully read all the fine print in the 2009-10 MYEFO. Or if you’d carefully read the Treasurer’s press release sent out on … the opening day of the Copenhagen Climate Change Conference. One month after the MYEFO.

Now that’s creative accounting (see “Hide The Recession: Labor’s Grand Deceit On GDP Figures Exposed” )

Hide The Recession: Labor’s Grand Deceit On GDP Figures Exposed

7 Mar

Picture this.

You are a new government, following nearly 12 long years in opposition.

You campaigned with the catchcry, “This reckless spending must stop”.

A global financial crisis has struck within 12 months of your taking office.

Your party’s last term in office presided over a “recession we had to have”, so your economic credentials are poor.

You desperately wish to avoid being seen to preside over a “technical recession”, especially in your first term.

You have embarked on a massive “stimulus” spending spree, drawing criticism from many.

You have blown the $20-odd billion surplus left to you by the previous government, and plunged the nation’s finances deep into the red.

Your government’s financial numbers are terrible.

You are obsessed with “managing” the media cycle, public perceptions, and the popularity polls.

What do you do?

In his post-career book Sideshow: Dumbing Down Democracy, key member of the “kitchen cabinet” or “Gang of Four”, former Finance Minister Lindsay Tanner, informed us that what he did was to become adept in the “dark arts”He employed the “standard tricks” – such as switching between different methods of accounting – in order to “maximise political appearances”.

But how do you cook the books to disguise your massive spendathon – and bury the truth of a technical recession – without the media catching you out?

And how do you cover your tracks, so that noone can ever say you lied?


What you do is tell everyone about your change in accounting methods.

But you do it in such a way that no one hears you.

What you do is bury the notice of your change in accounting methods in the fine print of the Mid-Year Economic and Fiscal Outlook (MYEFO) budget update, released 2 November 2009. You do not mention any numbers that might reveal the actual impact of the change. And you include a reference to an obscure Appendix of “revised” historical data*, that you know journalists don’t ever bother to read, much less take the time to cross-reference against previously published budget figures.

In your Treasurer’s press release announcing the MYEFO, you do not mention the changed accounting method at all. Nor do you mention it in Parliament, or in interviews with the media.

Instead, you issue another Treasurer’s press release that, while still opaque and misleading, does admit (in one sentence) to just how much your changed accounting method has impacted on the critical budget number – the GDP figure.

But … you delay issuing that press release until 8 December 2009. Over a month after the MYEFO. Two weeks after Parliament has closed for the year. And, the same day (UTC) as the opening of the 2009 UN Climate Change Conference in Copenhagen, where the eyes of the world are focussed, where your party’s Prime Minister is playing a headline role … and where you have brought a massive Australian media delegation.


You did not lie.

No one heard you publicly admit that you cooked the books to hide a recession. And you spend the rest of your days in office loudly and incessantly referring to your brilliant economic management … using figures always expressed in terms of “per cent of GDP”.

A GDP number that you made a “substantial increase” to, just by changing the method of accounting.

Hard to believe that our government is that crooked?

It is true.

They have admitted it.

You just have to follow the carefully hidden trail of evidence, to discover that admission. And the deceit used to hide it.

Two years ago on 3 March 2010, your humble blogger revealed that Labor’s much-heralded low debt-to-GDP ratio figure was a fraud (emphasis in original):

In the 2009-10 Mid-Year Economic and Fiscal Outlook (MYEFO), the government refers to a change in the methodology used to calculate GDP for the previous 2008-09 year, and for the historical data series.  This change results in a “substantial increase” in the published level of GDP.

The flow-on result from this change is obvious. The government’s spending, as a percentage of that artificially increased GDP figure, will appear lower than if the change had not been made.

And because all of its spending is being done using borrowed money, the debt-to-GDP figure will also appear lower too. Perfect cover for a government that needs to defend itself from Opposition attacks, and smooth over public fears, about rising government debt.

Two weeks later, I calculated the actual amount by which Labor had artificially increased the reported level of GDP (see Labor Fakes GDP By 4.5%):

In the fine print on the Rudd Government’s Budget 2009-10 MYEFO website, we learned that Rudd Labor made a change in the accounting method that was previously used to calculate Gross Domestic Product (GDP).  This change resulted in a “substantial increase” to the official GDP figures:

* The 2008-09 Annual National Accounts show a substantial increase in the level of GDP over history due to the ABS adopting the new System of National Accounts 2008. Given the degree of increase in the level of nominal GDP, the Government has released updated tables of fiscal aggregates contained within Appendix D of the 2009-10 MYEFO.

So just how much is that “substantial increase”?

4.5%. Or $47bn. In just one year.

Of course, we can easily perceive just why Rudd Labor would wish to do this.

By making “revisions” to the historical data – revisions that all very conveniently result in a “substantial increase” in reported GDP – their spending (as a percentage of GDP) looks lower.

Their annual spending growth (as a percentage of GDP) looks lower.

Their debt as a percentage of GDP looks lower.

And their Interest-on-debt as a percentage of GDP looks lower too.

Fast forward another two years, to this week.

In response to my mentioning the fudged GDP figure, fellow Macro Business reader Steven Shaw kindly drew my attention to Treasurer Wayne Swan’s press release No. 122.

While it is gratifying to see confirmation that my March 2010 reverse calculation of the “substantial increase” to the GDP figures was accurate, it is far more interesting to observe the date of the press release – 8 December 2009.

A press release date (in Australia) that happily coincided with the opening day of the Copenhagen Climate Change Conference:

The Annual National Accounts also show a substantial increase in the level of GDP over history due to the ABS adopting the new System of National Accounts 2008 standards.

The ABS has taken the decision to adopt these new standards to better capture new economic developments and to reflect revised international standards issued by the UN Statistical Commission.

The level of nominal GDP is now 4.4 per cent higher in 2007‑08 than published in the 2007-08 Annual National Accounts, bringing the size of the Australian economy to $1.25 trillion in 2008-09.

Given the degree of increase in the level of nominal GDP, the Government has released updated tables of fiscal aggregates contained within Appendix D of the 2009-10 MYEFO. These tables include receipts, revenue, net debt, payments and expenses as a proportion of nominal GDP and are available at: www.budget.gov.au. The adoption of the new standards only affects those Budget aggregates which are expressed as proportion of GDP.

Quelle surprise!

Have you ever noticed, dear reader, that this government always … always … boasts of its economic record by quoting figures expressed as a proportion of GDP?

How very, very convenient that “substantial increase” in nominal GDP has turned out to be.

No need to worry about two consecutive quarters of negative GDP (a “technical recession”) making your new government look like it has blown tens of billions of borrowed dollars on “rushed and bungled” “stimulus” for nothing.

Simply change accounting methods. Tack on an extra 4.4% of GDP “growth” out of thin air to the year’s “official” figures. And revise all the historical data as well.

And make sure you tell everyone … in such a way that no one hears you.

Mind you, dear reader, the reason for the change in accounting method was solely to “improve the accuracy and comparability of the data through time” (MYEFO excuse). And/or “to better capture new economic developments and to reflect revised international standards” (Treasurer’s belated-and-buried press release excuse).

Of course it was.

Nothing to see here. Move along now.

If a corporate executive engaged in these kinds of “dark arts”, these “standard tricks”, they would be prosecuted and jailed for fraud.

Our government is a pack of crooks.

If you accept any claimed government statistic at face value, you are a fool.

It is that simple.

* On Labor’s revising of historical budget data, reader “vk” summed it up best two years ago: “Any similarity with the book 1984 – where the Ministry of Truth kept revising old encyclopedias and newspapers in the libraries – is purely coincidental.”

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