This week’s Report from Monetary Metals continues the dissection of precisely why using GDP as the measure of the health of the economy is dangerous. Useful to the central banks, but far from showing the real picture as to what is happening in the economy.
“Today, let’s look at another problem with GDP. To understand it, let’s walk through a plausible scenario. It begins with Johnny Fastlane. Johnny borrows $10,000 on his credit card to (yes, our favorite example) go on a gambling vacation in Las Vegas. An airline carries away some of his cash. A hotel lodges some. A few restaurants eat it. And of course, the casinos roll in his dough.
“These businesses make their money (well, irredeemable currency), in exchange for provided services to Mr. Fastlane. They do not know that Fastlane borrowed it. They do not have any way to know it, and they do not care. Cash is cash. They book it as revenues. Fastlane may be leveraged, but they are not—yet.
“These businesses pay employees to provide their services. And the employees go home and spend it on food, entertainment, health care, etc. And for their own shelter and transportation, they borrow to pay for houses and cars. Fastlane’s leverage makes possible the leverage of several others. And of course the automaker, realtor, and building contractor have employees whose paychecks come from the revenues generated by the employees of the businesses that serve Johnny Fastlane.”
Read it all here