The Fed has a very serious problem on its hands.
That problem concerns the fact that for seven years the Fed has spread the myth of a “recovery.”
I say “myth” because the reality is that when you remove accounting gimmicks, the US has been a “hair’s breadth” away from a recession since 2010.
The most obvious gimmick being employed is the phony “deflator” used to understate inflation and overstate growth.
Everyone knows that the official CPI measure for inflation is bogus. But the Fed routinely uses a deflator that is even lower that CPI when calculating GDP.
This sounds rather technical, so let’s run through this one step at a time.
Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO.
However, announcing ZERO GDP growth is a major problem politically. So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.
This is one of the biggest games being played by the Fed post-2008. By using a deflator metric that is way below even the bogus CPI measure, the Fed is dramatically understating inflation and overstating GDP growth.
By using nominal GDP measures, you remove the Feds’ phony deflator metric. With that in mind, consider the year over year change in nominal GDP that has occurred in the US since 2011.
As you can see, since 2011, the nominal GDP has at levels that have signaled RECESSIONS at any other point in the last 30 years.
Now… what happens when even this feeble recovery actually rolls into a REAL-recession? What happens when the cycle turns… as it always does… and the Fed has already spent over $3.5 TRILLION pushing the markets into believing that economically the US is sound?
The market knows… but virtually no one is listening…
Another Crisis is brewing… the time to prepare is now.
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Graham Summers
Chief Market Strategist
Phoenix Capital Research
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