The GDP Misconception - Chicago Gold and Silver Investing Fan Blog

The United States had a GDP of over $15 trillion last year. That is more than the sum of the next 3 largest countries in terms of GDP combined. China (6 trillion), Japan(6 trillion), and Germany( 3 trillion) had a combined GDP of about $15 trillion.

Looking at terms of GDP strictly. the US seems to be the strongest country. However, looking depper reveals a different much more sinister story.

GDP = private consumption + gross investment + government spending + (exports ? imports)

GDP consists of many components. China, Japan, and Germany are relatively strong on the gross investment, and (exports-imports) parts of GDP. Whereas in America, it is the oppossite. Government spending and private consumption makes up the bulk of GDP spending. In fact, private consumption consists of 73% of US GDP.

Unfortunately much of the private consumption is debt financed. Total credit in the US has balloned from about $1 trillion 43 years ago to about $50 trillion today. Household and corporate income and wealth has not risen at the same pace. We are paying consumption trhough debt. Income is not rising as the same pace. So, at some point we will not be able to make the payments on the debt we have incurred.

When that day comes, the party is over.

Source: http://neilski.typepad.com/chicago_gold_and_silver_i/2012/08/the-gdp-misconception.html

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