This Is How It’s Done!

The Fed has been desperately trying to goose the US economy for years with various forms of quantitative easing, largely without success. As we have argued, there is no way of separating the effect of QE on recovery from the last recession from normal economic forces that have lead to economic recovery from every recession in history. Now, we have a new and measurable way of creating economic growth independent of QE.

Courtesy of the Commerce Department, we find that simply by revising the way GDP is calculated – cooking the numbers – we can achieve instant economic growth. The following chart from MarketWatch illustrates this achievement:

This result is even more remarkable than at first appears. Looking carefully at the two bars covering the period 1959 to 2007, we find there is essentially no revision to the growth numbers. It all occurs since 2007. Keeping in mind that the last recession started in 2007 and recessions are normally marked by negative GDP numbers, the significant difference in growth between the two methodologies for the recent period shown is actually compressed into the recession recovery since 2009.

As we said, if you can’t create economic growth by dumping tons of liquidity onto the market, simply cook the numbers to get the growth you want.

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