On October 28, I wrote that “GDP Stands for One “GROSS Domestic Pig During Election Season.” I claimed the report for GDP was an outright lie. There is no other way to see it. Since then, I have hoped to see others call the Bureau of Economic Analysis out for its lie, but they have not — not even in the alternative press. Yet, the lie is so gross as to be obvious.
Now, I’m going to dissect the pig to fully reveal the lie. I stated in that last article that the lie was the inflation number used to back inflation out of Gross Domestic Product (GDP) because the intent of GDP is to measure actual production levels, not the impact of price changes. The inflation rate used, I said was hogwash:
a deflator of 4.1% is clearly not enough to take the price effect out of GDP, given that all we are supposed to be measuring is actual production in steady dollars, not the effect of price changes.
The BEA reported that GDP for each quarter this year looked like this:
You can readily see the two quarters of recession followed by the quarter of monster-pig lies. The sudden leap in third quarter GDP was due reportedly to a major reduction in inflation, glossed over, of course. (We all know that didn’t happen, but I’ll lay it out.) The BEA claims it uses the Personal Consumption Expenditures Index (PCE) for its inflation rate. It lied.
Period.
It grossly manipulated the number. It doesn’t say how it adjusted it, but it did … a lot! Perhaps that is why they call it “gross domestic product.”
In their latest revised numbers (over those I used in the article quoted,) the BEA stated,
The PCE price index increased 4.3 percent…. Excluding food and energy prices, the PCE price index increased 4.6 percent….
Balderdash!
First, let me note that even mentioning the exclusion of food and energy is wrong. Food and energy are both fully included in GDP as major contributors to domestic production. So, you CANNOT exclude the inflation on food and energy if you are trying to factor the impact of inflation out “Real Gross Domestic Production” in order to measure the actual change in production and not simply the changes in the prices of things produced. There is no reason to even mention excluding those items from the “deflator” UNLESS you are also excluding them from the GDP you are “deflating.” It’s ludicrous.
They shouldn’t be using PCE anyway, but they like to use it because it routinely underestimates actual inflation even more than CPI (Consumer Price Index) underestimates it (as I’ll show at the end of this article). Even CPI grossly underestimates inflation due to how it calculates housing prices by the best guesses made by owners on what these largely uninformed people think their houses would rent for, not what they know their house is actually costing them. (And I’ll show that at the end, too.) PCE is a more manipulated and massaged number than CPI, which the BEA prefers because the extra massaging typically manages to get inflation lower.
Regardless, the PCE number they used was a blatant lie!
Let’s prove the lie
Here is the actual PCE number used in the second quarter, according to the BEA’s own data:
In their notes for the second quarter (to compare to exactly the same line of info quoted above for the third quarter) the BEA reports using the following PCE rate as their deflator (by which they mean how much they deflate GDP to get inflation back out):
The personal consumption expenditures (PCE) price index increased 7.1 percent
Same line of the report. That is the number they used in the second quarter. So, they grossly adjusted their own claimed gross-domestic-product PCE number for the third quarter down from the number they used in the second quarter with no explanation as to why. Based on their own methodology for manipulating the numbers — whatever that may be — they cut the applied rate of 7.1% inflation for the second quarter over the same quarter a year prior down to 4.3% for the third quarter over the same quarter a year prior. That is a 40% drop in the inflation rate being applied! Is there anyone willing to believe we had 40% less inflation year-over-year in the third quarter than we did in the second?
This change should have screamed “fraud” to anyone based on personal experience and any level of reading about the economy. We all know there is no way annualized inflation stepped down 40% from the second quarter to the third! It is ludicrous at face value alone. My point is not that we should go by personal experience or face value, but that the discrepancy should have immediately caught any financial writer’s attention to say, “Whoa, that can’t be right!” and to dig into it.
