Thursday, January 7, 2010

Some of that Chinese black magic

As stated many times before, GDP numbers cannot be trusted, not in any form or way. You see snowstorms or the colder weather we have now will most likely increase GDP because it demands actions taken, snow shoveled, more energy input and lots of more funnies to keep the streets clean and people warmer.

The Chinese have figured this out, probably to attract investments, keep companies and the spin-doctors within media happy. Maybe they also, in true socialist fashion, believes that digging holes in the ground and filling them up again, over and over, actually creates value. Whatever the reason, you seriously need to take a look at this article from Von Mises institute. In it they refer to this little thingy from Al-Jazeera:

And to quote myself, below is what GDP really is. As long as you believe that GDP measures wealth and economic growth, they will continue to fool you, trick you in believing in their scams.

This is how GDP normally is calculated.

GDP = private consumption + gross investment + government spending + (exports − imports), or,
GDP = C + I + G + (X − M)

What the equation tells us, among other things, is that if Government spends more, GDP goes up. You probably get this, but what you need to know is that it doesn’t matter what they spend money on. It can be daycare, roads or flowers, it does not matter. According to GDP-calculation it is beneficiary to have people dig holes in ground, fill them up again, and do this over and over. In fact, this is what government often does, not directly, that would be too obvious, but through other schemes like “investigations” or useless government programs to hide unemployment. An investigation takes manpower, costs money and often leads to conclusions a monkey could tell us beforehand. Anything being done to cover up people’s lack of jobs also cost money. Actually it may cost more, in essence contribute more to GDP, then if people in fact had productive jobs.

The same goes for private consumption. The more we shop ‘till we drop, the higher GDP. In the eyes of Keynesians and our enemies it means that the more stuff you buy, the better. If you borrow, use your credit-card or work to get that money to spend is irrelevant, what matters is GDP. Sometimes you can hear one or two voices claiming that savings are too low or that there is a difference in what we actually consume, but those are very few and not nearly as interesting for the media to quote.

How much of the Chinese GDP-growth is factual do you think? It is true that their economy is going better than most, but how much better? And do you think that really matters when the dollar collapses (China owns close to 2 trillion USD) and the Chinese no longer can dump their goods in the hands of overspending Americans?

Better shape up people, the crash is coming, “when” is the only question needed to be asked.

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