Feb 27 2006
It’s a Cold and Empty Economy Absent Home Equity Loans
Blue is GDP as reported.
Red is GDP left after you remove the economic growth generated from home-equity withdrawals.
Note the Difference for 2005. While you’re at it, look at the last five years. [ckick image for full sized version]
That difference, readers, is what the super-low interest rate policy of the past few years has done to bail out the economy. Plus, it shows how dependent the U.S. economy is on policies that not only encourage credit expansion (and by inference, bloating the money supply), but also how crucial indebting the U.S. consumer further and further has been to creating just a little economic growth (if you can call it that — perhaps the better word is activity). Do we really believe this sort of thing can continue indefinately?
Your concerns should only increase when you consider that the inflation numbers used to calculate economic growth in the U.S. (Core CPI) is substantially and purposefully underestimating real inflation, which makes GDP seem much better than it really is. How much red would you have left in the post-2000 portions of the graph if GDP was using a CPI figure 2-3% higher than Core CPI?
As for a discussion on the integrity of government CPI figures, we suggest giving a quick gander at ShadowStats‘ graph of CPI, calculated using the old methodology before the most recent adjustment to Core CPI (during Clinton’s first few years).
You should be thinking one thing right now: How to be vigilant as this inevitably shakes out.
