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Canada In Recession? GDP Unexpectedly Drops For 2nd Month In A Row

Canada In Recession? GDP Unexpectedly Drops For 2nd Month In A Row

Canadian GDP just contracted for the second month in a row, leaving the headline Canada GDP up just 0.4% SAAR in 4Q, according to Statistics Canada (dramatically below the estimate of +1.0%). The headline quarterly change misses even lowest of economist estimates.

And on a YoY basis…

Under the hood it was just as ugly, with household consumption growth slowing further to 0.7% QoQ (weakest since 2015), investment and housing declining sharply, and helped only by an inventories accumulation (inventories added 1.53 percentage points to growth in 4Q).

Business gross fixed capital formation dropped 9.6% in 4Q, from -8.4% in previous quarter:

  • Non-residential investment falls 10.9%, largest decline since 2016
  • Residential structures fall 14.7%, biggest decline since 2009

Final domestic demand tumbled 1.5% in 4Q, from -0.5% in previous quarter

Worse still, first half of 2018 growth revised down to 2.0% from 2.3%. 

But apart from that – everything is awesome and you should be buying Canadian stocks!!

The result – as Poloz et al. are about to reverse all hawkishness even further – a tumble in the loonie…

Debt and Deficits: They’re Unsustainable

Debt and Deficits: They’re Unsustainable

Economic growth won’t save us, not without serious cuts in government spending.

The most important issue facing America today is the national debt and increasing federal deficits. Our national debt now exceeds yearly gross domestic product (GDP).

The U.S is the wealthiest country in the world, but our government has the largest spending deficits and national debt in recorded history.

The budget deficit in FY 2018 was $800 billion, but the debt increased by $1,300 trillion, and is now $21,500 trillion dollars. Government accounting (oxymoron) allows for spending and loans outside of the budget. The practice of underreporting deficits is fraud and is not legal in the private market.

Note the US Debt Clock (here).

In simple terms, the national debt consistently increases more than the federal deficit, which will cause a devaluation of the dollar and eventually, a major financial crisis.

In FY 2019, the federal budget projects the following:

  1. Total revenue $3,422 trillion or 17% of GDP
  2. Total spending $4,407 trillion or 21% of GDP

In the best of times, regardless of tax rates, the federal revenue rarely exceeds 18% of GDP. This means based on projected spending, we cannot grow or tax our way out of the deficit because spending is projected at 22% of GDP.

To balance the federal budget in FY 2019, it would be necessary to cut all spending by 22%. 

Yes, this means Social Security, Medicare, defense, food stamps and college loans. A cut of 22% would be devastating to our economy, which means we must begin now to reduce federal spending and debt as a national priority.

During the last major recession in 2008, we had a national debt of $10 trillion. Now, in 2018 we have a debt of $21,500 trillion. On average the debt is increasing at 1 trillion per year, but last year it increased by $1,300 trillion.

 …click on the above link to read the rest of the article…

Global GDP Still Propped Up By A Massive Amount Of Debt

Global GDP Still Propped Up By A Massive Amount Of Debt

While the government agencies and economists continue to publish strong GDP figures, they seem to overlook how much debt it took to produce that growth.  Or should I say, the “supposed growth.”  The days of adding one dollar of debt to get one dollar of GDP growth have been long gone for more than 40 years.  And, as global debt has increased, it has forced governments to lower interest rates.

Yes, it’s really that simple.  I get a good chuckle when I hear analysts talk about rising interest rates to 10-15%.  If the U.S. Government interest rate on the Treasury Bonds increased to just 5%, Uncle Sam would be paying over a trillion dollars a year just to service the debt.  So, no… we aren’t going to see 10-15% rates again.

Well, we could… but, most of the global debt would have to collapse or be forgiven.  Unfortunately, if global debt vaporizes or is forgiven, then the entire economy collapses as well.  We must remember, GDP growth is also driven by oil production growth.  There is no way in HADES that the oil industry can fund future production with 10-15% interest rates.  IT JUST AIN’T GONNA HAPPEN.

Why?  If it weren’t for the Fed dropping rates down to nearly zero, the Great U.S. Shale Oil Ponzi Scheme and the six million barrels per day of unprofitable shale oil production would have been a pipe dream.  I can assure you that the shale oil industry could not fund operations or service their debt with 10-15% interest rates.

Most shale oil companies are paying on average between 4-5% interest to service their debt.  If the companies’ interest rates double or triple, then it would make it extremely difficult to service the shale industry debt that is estimated to be $280-$300 billion.

…click on the above link to read the rest of the article…

Here’s a Simple Solution to the Growth/De-Growth Debate

HERE’S A SIMPLE SOLUTION TO THE GROWTH/DE-GROWTH DEBATE

A number of high-profile economists – people like Carlota Perez and Michael Liebreich – have recently come out swinging in favor of “green growth” theory, trying to assuage mounting public concerns about the fact that climate change and ecological breakdown are being driven by capitalist growth.

What’s interesting about these interventions is that they explicitly pit themselves against their opposite – the idea of de-growth.  Even just a year or two ago, de-growth wouldn’t have been part of the conversation.  Once the province of ecological economists, it’s now gaining more mainstream attention as the evidence against growth mounts – and orthodox economists have no choice but to reckon with it.

But as they try to edge their way around certain prickly facts, their arguments get stranger and stranger.

Green growth theory relies on the assumption that GDP growth can be permanently and absolutely decoupled from resource use and emissions, and at a pace that’s fast enough to reverse ecological breakdown and keep us under 1.5 degrees, so that GDP can continue growing forever while environmental impacts decline.

There’s just one problem.  There’s no evidence that this is feasible.

Let’s start with emissions.  Fortunately, we know that GDP can be absolutely decoupled from emissions.  The real question is whether we can decarbonize fast enough to stay under 1.5 degrees, without relying on fanciful negative emissions technologies.  The answer, sadly, is no.  If we carry on with growth as usual, we need to decarbonize at a rate of 11% per year. That’s more than five times faster than the historic rate of decarbonization and about three times faster than what scientists project is possible, even under highly optimistic conditions.

…click on the above link to read the rest of the article…

We Should Ditch GDP as a Measure of Economic Activity

This article exposes the false economic concepts behind GDP, which is only the visible tip of a large iceberg of economic deceit. Describing an increase in GDP as economic growth owes its meagre validity to imprecise definition. An economy does not grow, only the quantity of fiat currency deployed grows. A successful economy progresses our condition, our wealth, our standards of living. The evolution of misleading statistics such as GDP to their current condition is only governed by their usefulness to governments, not as an objective development of sound theory by seekers of truth.

There are perhaps two plausible reasons for producing the GDP statistic, other than employing statisticians, and both have nothing to do with economics. By compiling the figures, a government keeps track of its tax base, and it can enter into the game of my-country-is-bigger-than-yours.

In international comparisons of economic performance, gross domestic product adjusted for price inflation is the most common metric used. Countries are ranked by size, and success is measured by the rate of growth in GDP. This is important to the political class.

About two years ago, I was told that the Indonesian central bank had a plan to do away with cash entirely, because it would bring unrecorded transactions into Indonesia’s GDP, promoting it from sixteenth to perhaps the thirteenth largest nation measured by GDP. I have no idea if this was true, but allegedly, this was important to the Indonesian government.

We should not be surprised if going cashless is partly motivated to give the illusion of GDP growth, in the same way that in 2014 the EU decided to add in estimated contributions from prostitution and drug dealing. These are examples of why and how GDP is manipulated to produce a goal-sought answer.

…click on the above link to read the rest of the article…

Is Capitalism Killing Us?

Is Capitalism Killing Us?

Ecological economists, such as Herman E. Daly, stress that as the external costs of pollution and resource exhaustion are not included in Gross Domestic Product, we do not know whether an increase in GDP is a gain or a loss.

External costs are huge and growing larger. Historically, manufacturing and industrial corporations, corporate farming, city sewer systems, and other culprits have passed the costs of their activities onto the environment and third parties. Recently, there has been a spate of reports with many centering on Monsanto’s Roundup, whose principle ingredient, glyphosate, is believed to be a carcinogen.

A public health organization, the Environmental Working Group, recently reported that its tests found glyphosate in all but 2 of 45 children’s breakfast foods including granola, oats and snack bars made by Quaker, Kellogg and General Mills. https://www.theguardian.com/environment/2018/aug/16/weedkiller-cereal-monsanto-roundup-childrens-food

In Brazil tests have discovered that 83% of mothers’ breast milk contains glyphosate. https://www.telesurtv.net/english/news/Brazil-Poisonous-Agrotoxin-Found-Over-80-of-Breast-Milk-Samples-in-Urucui-20180809-0008.html

The Munich Environmental Institute reported that 14 of the most widely selling German beers contain glyphosate. https://sustainablepulse.com/2016/02/25/german-beer-industry-in-shock-over-probable-carcinogen-glyphosate-contamination/#.W3XKtC-ZOGQ

Glyphosate has been found in Mexican farmers’ urine and in Mexican ground water. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5486281/

Scientific American has reported that even Roundup’s “inert ingredients can kill human cells, particularly embryonic, placental and umbilical cord cells.”
https://www.scientificamerican.com/article/weed-whacking-herbicide-p/

A German toxicologist has accused the German Federal Institute for Risk Assessment and the European Food Safety Authority of scientific fraud for accepting a Monsanto-led glyphosate Task Force conclusion that glyphosate is not a carcinogen. https://gmwatch.org/en/news/latest-news/17307-german-toxicologist-accuses-eu-authorities-of-scientific-fraud-over-glyphosate-link-with-cancer

Controversy about these findings comes from the fact that industry-funded scientists report no link between glyphosate and cancer, whereas independent scientists do. This is hardly surprising as an industry-funded scientist has no independence and is unlikely to conclude the opposite of what he is hired to conclude.

…click on the above link to read the rest of the article…

If the Economy is So Good, Why are Wages Flat?

If the Economy is So Good, Why are Wages Flat?

Photo by Nathaniel St. Clair

We are supposedly seven years into a “recovery” from the global economic collapse that commenced in 2008. The latest evidence offered to promote this oft-peddled mantra is that U.S. gross domestic product showed a strong uptick for the second quarter of 2018, an annualized rate of 4.1 percent, nearly double that of the first quarter.

Coupled with the ongoing decline in unemployment (although standard unemployment rates greatly underestimate the true rate of employment), orthodox economists, conservative propagandists and apologists for the Trump administration would have use believe happy days are here again.

So why aren’t our wages increasing?

In part, it is because the true unemployment rate is not nearly so low as the “official” unemployment rate used by governments around the world, and thus the ranks of unemployed and underemployed are sufficiently large that there is no upward pressure on wages. Orthodox economists, dedicated as they are to ignoring any evidence that doesn’t match their models designed to “prove” that all manners of capitalist excess are as natural as the tides of the ocean — and thus in practice the professional wing of conservative propagandists — have various excuses for stagnant wages and ever increasing inequality. A favorite among these is an alleged “skills mismatch” — too many unskilled workers and a shortage of skilled workers for the high-tech jobs of today.

The data tells a different story, however. A 2014 report by the National Employment Law Project found that low-wage jobs were created at a faster pace than higher-paid jobs were lost in the first years to that point. The Project reported this breakdown:

* Lower-wage industries ($9.48 per hour to $13.33) constituted 22 percent of the 2008-2010 losses, but 44 percent of jobs gained since then.

…click on the above link to read the rest of the article…

Why GDP Is Fake

Why GDP Is Fake

Why GDP Is Fake

Gross Domestic Product, or GDP, is the most commonly used measure and ranking of a nation’s economy. According to the OECD and Wikipedia, its definition is: “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” No subtractions are included in it for debts that were undertaken in order to generate the given “gross values added.” A trillion dollars of increased assets (additional “gross values” of “production”) adds a trillion dollars to GDP, even if all of it was produced by increasing the debts by a trillion dollars: only the assets-side of the balance-sheet is relevant to GDP.

However, wealth is assets minus liabilities; it is assets minus debts; it is not assets alone. Therefore, a nation’s wealth has no necessary relationship at all to a nation’s GDP, because the nation’s wealth is its assets minus its liabilities, not its assets regardless of its liabilities (such as GDP is).

Britannica provides this definition of “GDP”: “Gross domestic product (GDP), total market value of the goods and services produced by a country’s economy during a specified period of time. It includes all final goods and services — that is, those that are produced by the economic agents located in that country regardless of their ownership and that are not resold in any form. It is used throughout the world as the main measure of output and economic activity.” In this definition, too, no subtractions are included in it for the debts. Britannica then goes on to state:

GDP = Consumption + Investment + Government Spending + Net Exports

or more succinctly

GDP = C + I + G + NX

…click on the above link to read the rest of the article…

GDP Is Bogus: Here’s Why

GDP Is Bogus: Here’s Why

Here’s a chart of our fabulous always-higher GDP, adjusted for another bogus metric, official inflation.
The theme this week is The Rot Within.

The rot eating away at our society and economy is typically papered over with bogus statistics that “prove” everything’s getting better every day in every way. The prime “proof” of rising prosperity is the Gross Domestic Product (GDP), which never fails to loft higher, with the rare excepts being Spots of Bother (recessions) that never last more than a quarter or two.

Longtime correspondent Dave P. of Market Daily Briefing recently summarized the key flaw in GDP: GDP doesn’t reflect changes in the balance sheet, i.e. debt.

So if we borrow money to pay people to dig holes and then fill them with the excavated dirt, GDP rises to general applause. The debt we took on to fund the make-work isn’t accounted for at all.

Here’s Dave’s explanation:

Once I learned about accounting, I figured out why the GDP metric wasn’t sufficient. What is missing?

The balance sheet.

Hurricanes are a direct hit to your nation’s balance sheet. The national income statement goes up because of increased spending to replace lost assets, but the “equity” part of the national balance sheet ends up taking a hit in direct proportion to the damage that occurred. Even if you rebuild everything just the way it was, your assets remain the same, while your liabilities have increased.

We know this because we use the balance sheet equation: equity = assets – liabilities. Equity is another word for wealth.

Before hurricane:

wealth = (house + car) – (home debt + car debt)

After hurricane, you rebuild your house, and buy a new car, using borrowed money:

wealth = (house + car) – (2 x home debt + 2 x car debt)

Wealth (equity) has declined by the sum (home debt + car debt)

…click on the above link to read the rest of the article…

World GDP in current US dollars seems to have peaked; this is a problem

World GDP in current US dollars seems to have peaked; this is a problem

World GDP in current US dollars is in some sense the simplest world GDP calculation that a person might make. It is calculated by taking the GDP for each year for each country in the local currency (for example, yen) and converting these GDP amounts to US dollars using the then-current relativity between the local currency and the US dollar.

To get a world total, all a person needs to do is add together the GDP amounts for all of the individual countries. There is no inflation adjustment, so comparing GDP growth amounts calculated on this basis gives an indication regarding how the world economy is growing, inclusive of inflation. Calculation of GDP on this basis is also inclusive of changes in relativities to the US dollar.

What has been concerning for the last couple of years is that World GDP on this basis is no longer growing robustly. In fact, it may even have started shrinking, with 2014 being the peak year. Figure 1 shows world GDP on a current US dollar basis, in a chart produced by the World Bank.

Figure 1. World GDP in “Current US Dollars,” in chart from World Bank website.

Since the concept of GDP in current US dollars is not a topic that most of us are very familiar with, this post, in part, is an exploration of how GDP and inflation calculations on this basis fit in with other concepts we are more familiar with.

As I look at the data, it becomes clear that the reason for the downturn in Current US$ GDP is very much related to topics that I have been writing about. In particular, it is related to the fall in oil prices since mid-2014 and to the problems that oil producers have been having since that time, earning too little profit on the oil they sell.

…click on the above link to read the rest of the article…

This Is The Real Reason For The War On Cash

This Is The Real Reason For The War On Cash

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

…click on the above link to read the rest of the article…

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

“Time To Panic”? Nigeria Begs World Bank For Massive Loan As Dollar Reserves Dry Up

Having urged “don’t panic” just 4 short months ago, it appears Nigeria just did just that as the global dollar short squeeze forces the eight-month-old government of President Muhammadu Buhari to beg The World Bank and African Development Bank for $3.5bn in emergency loans to help fund a $15bn deficit in a budget heavy on public spending amid collapsing oil revenuesJust as we warned in December, the dollar shortage has arrived, perhaps now is time to panic after all.

In September, Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a “Treasury Single Account” (TSA) at the central bank.

The policy is part of new President Muhammadu Buhari’s drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa’s biggest economy – playing havoc with banks’ liquidity ratios.

With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria’s energy revenues that has hit the naira currency and triggered flows of capital out of the country.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Since taking office in May, Buhari has vowed to rein in Nigeria’s dependency on oil exports which account for 90 percent of foreign currency earnings.

…click on the above link to read the rest of the article…

My Journey toward degrowth

Growth means a process of increasing in physical size. When we think of economic growth, it is difficult to fathom what exactly grows, since ‘the economy’ is an invented concept that describes billions of human interactions as if they were one giant entity.

But gross domestic product is a rate — the total money value of economic activity per year — and thus growth really means acceleration. Degrowth, according to this understanding, is slowing down. 

In 2015, I slowed down a lot. I moved from Seattle to London to Barcelona predominantly by bicycle and entirely upon the surface of the earth. This physical journey was the culmination of an intellectual journey from my undergraduate education in market-focused environmental economics to a newfound passion for what my supervisor Giorgos Kallis calls political ecological economics.

Setting aside some of my big ambitions — studying, writing, trying to amass twitter followers — to simply move slowly evolved my understanding of how to degrow. Maybe degrowth doesn’t mean constantly, insistently pressing to spread and advance our small movement. And maybe that’s okay.

The bicycle is a tool for degrowth

Critical philosopher Ivan Illich writes that bicycles enable people to “become masters of their own movements without blocking those of their fellows.” Of all modes of transport, the bicycle consumes the least energy carrying humans a given distance.

Choosing to travel by bicycle disobeys the growth economy’s unwritten mandate to continually speed up the pace of life. Political scientist-anthropologist James C. Scott might call it an act of everyday resistance — especially if we ride bikes every day.

Cycling to our jobs, schools, errands, and gatherings demands that we reorganize our lives to accommodate longer travel times and the occasional soaking rain, while cycling to destinations on the other side of the world requires letting go of other aspirations for months at a time.

…click on the above link to read the rest of the article…

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Late last week, Brazil officially entered a recession as the economy contracted 1.9% in Q2, a quarter in which Brazilians suffered through the worst stagflation in over ten years.

What was perhaps worse than the GDP print however, was budget data for July which was meaningfully worse than expected. “On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target,” Goldman noted.

We summed the situation up as follows: “No primary surplus for you!” 

And while analyzing LatAm fiscal policy doesn’t make for the most exciting reading in the universe, this particular budget battle is critical for a number of reasons, the most important of which is that Brazil’s investment grade credit rating might just depend on it and to the extent the country is forced to concede that it will not, after all, hit its primary surplus target this year, junk status could be just around the corner. Needless to say, if Brazil is cut to junk, that will do exactly nothing to help the country combat a bout of extremely negative market sentiment tied to Brazil’s rather prominent role in the great emerging market unwind.

Sure enough, government sources have now confirmed that embattled President Dilma Rousseff – whose political woes are making it nearly impossible to pass legislation designed to plug gaps – will now submit a 2016 budget proposal that projects a deficit. Here’s Bloomberg:

 

The Brazilian government will send to Congress Monday a budget proposal for 2016 that projects a primary deficit instead of the previously expected surplus, according to two government sources familiar with the matter.

…click on the above link to read the rest of the article…

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”

Earlier today, Eurostat released the two most important data points for Europe: inflation and unemployment. On the former,  there was no surprise at the headline level which remained at 0.2% for the another month, in line with expectations, but core CPI excluding energy, food, alcohol and tobacco, rose to 1.0%, the highest print in 2015 and one which pushed Bund prices well lower.

But it was the unemployment number which showed something unexpected. While the overall unemployment rate for the Eurozone also stayed unchanged at 11.1%, fractionally worse then the consensus estimate of a decline to 11.0%…

… it was renewed concern about what is going on in Italy, where unemployment rose from 12.5% to 12.7%, proving consensus expectations about a strong improvement to 12.3% dead wrong…

… and posing a question just what is going on in the country with the biggest debt load in Europe, and more importantly how is it that Rome is still unable to benefit from the ECB’s QE which has pushed Italian yields far below those of the US despite an economy which is suddenly taking on water.

And nowhere was this more visible than in Italy’s youth unemployment rate, which surprisingly jumped by nearly 2% to 44.2%, a record level, and one which is starting to rival some of Europe’s most troubled nations, such as Spain and of course Greece.

As Bloomberg put it, “Italy’s jobless rate unexpectedly rose in June as businesses continue to dismiss workers amid concerns that the country’s exit from recession may not be sustainable. Youth unemployment jumped to a record-high 44.2 percent.

Unemployment increased to 12.7 percent from a revised 12.5 percent in May, statistics agency Istat said in a preliminary report in Rome on Friday. The median estimate in a survey of nine analysts called for a rate of 12.3 percent.

Youth unemployment in June rose to the highest rate since the series began in 2004, from 42.4 percent in May. Employment dropped for a second month in a row, with about 22,000 jobs lost in June alone, according to the report.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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