The Key Difference Between GDP and Prosperity

From Peter Reagan at Birch Gold Group

Biden relentlessly touts how great the American economy is.

But to support his case, he relies on his administration to carefully cherry-pick data to back up his case.

For example, Biden and his administration repeat the data on the following chart, which was recently reshared by National Economic Council Director Lael Brainard:

The problem is, the data above doesn’t tell the whole story. (Leaving aside any cherry-picking the administration did to make Biden’s economy “look good.”)

Just take the “real GDP growth” bar on the graph above as an example. At first glance, it looks like “America is back!” in terms of economic recovery.

But digging in just a little deeper than Brainard was willing reveals a more accurate picture than she accounted for in her “Bidenomics Puff Speech.”

“The economy” vs. the real world

The phrase “the economy” gets used all the time without really stopping to consider what it is. So what exactly is the economy?

Per Bylund explains in his imminently readable How to Think About the Economy:

The economy is a decentralized and distributed system where all people – farmers and city folk alike – make their own plans and decisions… Production is core to the economy: it is about providing as many means as possible to satisfy as many highly valued wants as possible.

The economy is an abstraction we use to talk about countless human interactions, from paying for groceries to corporate mergers. Obviously it’s impossible to measure all those interactions individually – so economists settle for broad measurements.

One of them, which you’ll hear about nearly as often as “the economy,” is gross domestic product or GDP. In simple terms, GDP is a measure of different types of economic activity, specifically:

• Consumption: Spending by households on goods and services.
• Investment: Business investments in equipment and structures, residential construction and inventory.
• Government spending: Government expenditures on goods and services (does not include transfer payments like Social Security or unemployment).
• Net exports: Exports minus imports, representing the value of goods and services sold abroad minus money sent overseas for imported goods and services.

That’s right, GDP captures spending. It doesn’t account for prosperity. It doesn’t distinguish value, either – the $3 you spent in 2020 for a dozen eggs costs $5 today. That’s a 66% increase for an identical product!

In GDP terms, that’s a 66% increase in economic activity.

Here’s the thing the administration isn’t saying out loud:

When prices go up, so does GDP.

The chart above references “Real GDP,” which is supposed to mean “adjusted for inflation.” The technical note provided by the Bureau of Economic Analysis tells us that 3% inflation is incorporated into this GDP report. It doesn’t take a brain surgeon to tell you real inflation is significantly higher than 3%…

So far, American families have been burning through their pandemic-panic savings to make ends meet. But that’s a finite resource, which will run out soon:

The growing list of complicating – and potentially culminating – factors are more than mere stumbling blocks to the average American household that has minimal wiggle room in that monthly budget.

“The economic data has been better than a lot of us expected,” Rossman said. “But I think there are starting to be more and more cracks in the foundation, and that tends to be the most evident among people with lower incomes and lower credit scores.”

He added: “They’re kind of the canaries in the coal mine.”

As always, those who had the most trouble making ends meet before the pandemic panic and the subsequent record-breaking inflation are suffering the most today.

An awful lot of those blessed with higher incomes are struggling, too…

All spending is not created equal

As we’ve seen, GDP treats all spending the same. It’s all “economic activity.”

Furthermore, GDP counts cash payments and credit similarly – even though they’re very different for the buyer.

One easy way to juice GDP? Run a multi-trillion-dollar federal budget deficit. After all, government spending on goods and services counts as “economic activity,” right?

We all know that not all spending is equally wise.

Over $1 trillion in record credit card debt counts as economic activity too! A mind-boggling 15% of that total was racked up in only three years. That means consumers could be spending only because they have to, for necessities. The historically-inflated prices everyone has paid over the last 3 years are all “economic activity.” All a part of the Bidenomics blowout GDP report.

Even the New York Times realizes that shouting “GDP!” over and over isn’t the same as creating prosperity:

The West Wing may believe Bidenomics is working because the macroeconomic gurus at the Federal Reserve are telling the White House it’s working. But Bidenomics has failed to create sufficient tangible improvement in the lives of most voters in a world in which groceries still cost more than they did a year ago, average rent and mortgage rates have spiked and health and child care grow ever more unaffordable.

The most recent U.S. data shows that the top 5 percent of households by income received 23.5 percent of aggregate household income in 2022 and the top 20 percent got over half. In sharp contrast, the bottom 40 percent received 11.2 percent, a scant return for all their hard work.

G.D.P. may look robust, but 64 percent of households live paycheck to paycheck from time to time, according to a March consumer survey. [emphasis added]

That’s right – nearly two-thirds of American households are currently living paycheck-to-paycheck.

That’s not a coincidence! When the cost of living rises, those who can least afford to pay it get hurt the worst.

A chart from that same Times article reveals more of the picture, showing how wage growth under Bidenomics hasn’t even come close to keeping up with inflation:

(You know the situation is truly dire when the New York Times is admitting the average American household was better off during the Trump years.)

In addition, a CNN article and official data combine to reveal an even darker reality to consider, one that most Americans are suffering through right now:

• Highest housing costs in 40 years (to the point the average family can no longer afford the average home)
• Since January 2020: groceries and electricity are up 25%, used car prices have climbed 35%, auto insurance is up 33%, and rent has skyrocketed 20%
• Gasoline prices are still 43% higher than they were in May 2020

It’s no wonder credit card debt is smashing records! The problem is, it can’t last… with credit cards charging an eye-watering 21% interest rate, putting gas or groceries on a Visa or MasterCard is not a winning proposition.

Oh, and another thing: Credit card accounts entering serious delinquency (90+ days without payment) exploded 90% since the first quarter of 2022.

At a certain point, this debt becomes unsustainable, and there’s no more savings left. In fact, CNN confirms that fact:

Americans saved $2.1 trillion more between March 2020 and August 2021 than they would have before the pandemic. Then, as restrictions eased, they spent it. Less than $190 billion was left in June 2023.

It looks like the stimulus-fueled GDP spike is over. How will Biden explain that?

Spend smart on real assets with lasting value

Not all “economic activity” is created equal. As my colleague Phillip Patrick put it:

If we spend that money on things of value, like a good education or remodeling a 1970s era kitchen, we’re likely better off. We’ve increased the likelihood that we’ll earn more money in the future, or that the house will be worth more when we sell it.

If we spend that money on consumption items, like a well-deserved vacation or an 85” QLED 4K UHD smart TV, our quality of life may increase. But we aren’t financially better off.

GDP growth boils down to one thing: more spending. That’s simply not sustainable, and it’s unreasonable to imagine America’s $1 trillion in credit card debt was all spent on things of value. The spending party seems to be wrapping up very soon. That means the economy will lurch into a recession sooner rather than later.

And we all know what happens in a recession – economically-sensitive assets plummet, unemployment surges and the Federal Reserve gives up the fight against inflation (again)…

That means today, right now, is a good time to consider spending some of your hard-earned money on a real asset that has lasting value. Physical precious metals are just about the only financial asset (other than cash) that you can hold in your hand. Even better, gold and silver can’t be inflated away by the Federal Reserve’s money-printers. Just take a look at gold’s price vs. inflation and one thing becomes immediately clear: Diversifying your savings with precious metals like gold and silver may give you the safe haven you need.

The people in Washington are destroying your retirement account! Slowly but surely, the value of your 401(k) or IRA is being eaten away thanks to out-of-control inflation. And our elected officials in D.C. don’t care! In fact, they seem to be accelerating this trend with new legislation to print trillions of new dollars. And this is why I recommend Gold IRAs. To see how they work, Get this FREE info kit from Birch Gold Group about Gold IRAs. (Comes with NO obligation or strings attached.)