Read this on ZeroHedge this morning ... makes sense to me
The modern concept of GDP was first developed by the Department of Commerce in 1934. Commerce commissioned Nobel Laureate Simon Kuznets of the National Bureau of Economic Research to develop a set of national economic accounts.
While each component of this basic formula for GDP breaks down into hundreds or thousands of sub-components, the final calculation is:
GDP= PI + BT + GS
Where PI is private income (measured as consumption or investment)
Where BT is balance of trade
Where GS is government spending
So the final formula for GDP includes Government Spending. Notice that the government spending component does not take into account whether or not the government spent money taken out of private income (taxes) or borrowed it. When measuring National Income, we are giving equal weight to spending taxes on actual Private Income and money the Treasury borrows.
I suggest that government debt is not part of “ National Income” because it is not income. It is borrowed (often from sovereigns that are not our friends) and must be paid back eventually. We do not consider borrowed money as income anywhere else and it shouldn’t be considered as National Income. Debt is artificial stimulus not National Income! Governments must pay back debt either through higher taxes, inflation/depreciated currency, reduced services or some combination thereof. If we want an accurate picture of whether or not the economy is self sustaining, then we need to consider a measure I would like to introduce as “Actual National Income”which does not count artificial stimulus. Therefore to accurately measure the health of the economy, government debt must be subtracted from the formula. Please consider the GDP formula with the following modification.
Actual GDP = PI + BT + (GS – GB)
Where GB is government borrowing
So, if you acknowledge for the sake of argument that government debt is not actual national income, the following graph is how the U.S. economy looks like excluding stimulus. This is Actual GDP excluding artificial stimulus.
View attachment 750078
The government has always borrowed and spent money but actual GDP has grown as far back as the Fed has data. That is until 2008. Then something in our economy broke. Since then it appears the economy has been in what would be considered a depression but masked by huge Federal Government stimulus borrowing. Have we reached a level of economic activity that could sustain itself without this artificial stimulus? What would happen if the Government was forced to balance the budget? You decide for yourself, but remember that would remove 5-7% of our GDP. An economic depression is generally defined as a severe downturn that lasts several years. Does this look like a severe downturn that is still lasting several years? This is what our GDP minus artificial stimulus looks like.
Does that chart look like the data on a self sustaining recovery? If it were self sustaining the slope would be rising as it was prior to 2008. It continues to decline and is therefore anything but self-sustaining. In economics, deficit spending has long been called “Fiscal Stimulus.” Since 2008, this artificial stimulus has averaged 7.45% of GDP. The arithmetic (GDP-GB) is quite simple; without the artificial stimulus created by spending the proceeds of newly issued Treasury bonds, our GDP has declined an average of 7.45% each year since 2007!
Full article at this link:-
http://www.zerohedge.com/news/2017-09-28/we-are-already-depression-if-borrowing-money-not-income
(20min delay)