By John Rubino
The latest piece of deep thought from iTulip’s Eric Janszen explains why, if the recession is over, so many people remain in such bad shape. More specifically, how can U.S. GDP be up by a robust 5% when oil imports and rail traffic are down and unemployment is still rising? The answer, in a nutshell, is that once again we’re being conned. Get this: Washington defines interest on credit card debt as “consumer spending” and adds it to GDP. So as debt soars, the gap between what we spend and what we actually receive grows, but the economy appears to improve. Eliminate that accounting trick and the numbers look like most people feel, very bad and getting worse.
Here’s a small but crucial part of Jansen’s argument. A couple of acronyms that might require explaining are FIRE, which stands for “finance, insurance, and real estate”, the industries that come to dominate an economy during the late stages of a credit bubble, and PCE, which stands for “personal consumption expenditures”.