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Pentonomics - The GDP Joke

Friday, January 28, 2011
Michael Pento

The MSM is running around today applauding our 4th quarter GDP report, which increased at a 3.2% annual rate. However, the current dollar or nominal GDP growth rate was 3.4%. That’s correct; the BEA is suggesting that inflation grew at just over a .2% annual growth rate in Q4 2010! Does anybody that’s not a politician or central banker really believe that the rate of inflation for goods produced domestically was growing at a .2% annual rate?


To make matters worse, personal consumption expenditures were up 4.4% and final sales surged 7.1%. I say worse because the savings rate is dropping as consumers and business ramp back up their borrowing. Household purchases, which account for about 70 % of the economy, rose at a 4.4% pace last quarter, the most since the first three months of 2006. The increase added 3 percentage points to GDP.


To be able to consume one must first have produced. If you consume without having produced, you are spending either borrowed or printed money. And the money that is being spent isn’t used to purchase capital goods, which can expand the productive output of the economy. Consumer credit is up two months in a row and we are spending borrowed and printed money, not money earned from growing real incomes.


 The Fed’s preferred inflation metric, which is tied to consumer spending and strips out food and energy costs, climbed at a 0.4% annual pace, the smallest gain in data going back to 1959. So we should expect more borrowing and more Fed printing, as Mr. Bernanke feels inflation is perilously low.

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