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Wednesday, April 16, 2008

A Sinking Tide Wrecks All Boats

The US economy isn't growing. It's shrinking! When the government reports GDP growth, it uses the corrupt CPI. I calculated GDP growth and real household income growth using M2 and M3 as the inflation index instead of the CPI.

Summarizing my conclusions, if you use M2 as your inflation index, real GDP growth is negligible and real household income is decreasing. If you use M3 as your inflation index, real GDP is crashing and real household income is *REALLY* crashing. If you use gold as your inflation index, the US economy is in a severe recession/depression.

The Federal Reserve is concerned about "excessive growth in the economy is inflationary". That always seemed like nonsense to me, until I figured it out. Here's the real reason. Economic growth is calculated using the CPI, which is a BIASED inflation measure. It causes inflation to be understated and growth to be overstated.

Since the Federal Reserve isn't measuring inflation properly, "high inflation" gets confused with "high economic growth"!

Suppose inflation is 10%, the CPI is 3%, and the GDP in absolute dollars grows by 6%. The Federal Reserve will report a "healthy" GDP growth rate of 3%.

Suppose inflation is 15%, the CPI is 4%, and the GDP in absolute dollars grows by 10%. The Federal Reserve will report an "excessive" GDP growth rate of 6%!

It's not growth in the economy that's inflationary. The problem is that the Federal Reserve is using the biased CPI as its inflation index. The Federal Reserve is confusing inflation with economic growth!

*REAL* growth in the economy is actually DEFLATIONARY. It means there are more goods and services. If the money supply remained unchanged, prices would DECREASE as the economy grows. The same supply of dollars would be chasing more goods and services, causing deflation.

The situation in the USA is advertised as "a rising tide lifts all boats". The reality is that the economy in the USA is shrinking, not growing! Instead of a rising tide, we have a sinking tide!

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This Blog Has Moved!

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