A Permanent Recession

The government and mainstream media use the term recession very carefully, defining it in a macroeconomics-sense as “a recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.” This means that a country is shrinking in economic productivity for around 180 days in a row (or longer).

While financial experts can generally agree that the United States is feeling some sort of recessionary pressures today, they are ignoring one of the most important facts of the economy: the United States has been in a recession for years, possibly decades, based on their definition of recession.

One has to look closer at how the GDP is calculated to understand why a recession isn’t something that is rearing its ugly head starting in 2008, but going back to 1998 or even 1988. GDP is calculated by adding the totals spent on consumer goods (consumption), investments (in total), government spending, and exports, while subtracting imports. This is an acceptable calculation, but it has two major flaws:

1. GDP includes government spending, which does not include government taxing. The more government churns through tax-and-spend loops, the harsher the effect on the economy is, and
2. GDP ignores true inflationary figures.

Picture an economy that is stagnant, with high unemployment coupled with high prices. Now double the size of the currency supply, either through physical printing of the currency or by cutting the reserve ratio of the banks. By producing inflationary pressures on money supply, consumer prices will increase. If consumer prices increase 20%, but raw production and consumption falls by 15% (in quantity of actual production/consumption numbers, not in dollars spent), many financial experts would say that GDP grew by 5%, when in fact it likely fell by 15% or more. With a growing money supply causing price (and sometimes wage) increases, government may end up with more taxes raise due to more money spent (buying less products), so that may also have a “positive” effect on GDP while true GDP actually fell.

The United States has been in a near-endless run of growing the money supply since 1913. When that money is saved in a bank or in an investment, it is used through the money multiplier effect to create more debt, which creates more virtual money in the economy. This causes prices to rise, which causes tax collections to rise, which causes the GDP to rise, even if actual production slows.

The United States, as well as any fiat-currency based economy, is in a permanent recession. This won’t change regardless of what the economic experts show in their GDP charts. Factor in inflation and factor in taxation and the chart goes negative almost every year for as long as the data is readily available.