By - tigeryi
To be clear to anyone checking this out, this is REAL GDP increasing by 5.7% in 2021. The nominal GDP growth rate very, very much in excess of inflation.
This is an enormous result. If sovereign spending can sustain such real growth, why would we ever want to stop?
A lot of people will claim that the real inflation numbers are higher than the ones being reported for political purposes. For instance housing and stock costs should be counted on inflation would be the argument some would make.
I will argue that the spending is having diminishing returns. America spent almost six to eight trillion dollars because of covid. We only got two trillion dollar GDP boost because of it maybe avoided three trillion dollar loss in 2020. So the impact is getting less and less with each stimulus. The 2009 stimulus was only 1 trillion dollars and it boosted the economy so much...
Anyway the real damage of all the spending will be when Asian countries start dumping dollar they have been holding since great recession to drive up their exports...
Why would more demand cause real damage? My whole observation here is that we added a ton of extra demand in excess of market incomes and the result was a LOT more real output. More foreign demand would just push real GDP even higher. The price level is merely a derived figure, but it tells us we are crushing rn. We are running closer to real capacity.
I said foreign countries dumping the dollar, the reason Americans have not felt pain is because dollar has not depreciated. This is because since 2009, a lot of the world's exporters have started a currency war to keep their currencies weak (Switzerland, Singapore, China, Japan). They do this by buying excess dollars. For instance last year, China raised the reserve requirement for banks of foreign currencies, because yuan had started to appreciate.
If they ever choose to reverse the policy we could see a resuming of dollar depreciation, which will cause actual chaos in the US, as now the inflation is driven by imports which cannot be replaced by local substitutes in a short amount of time.
As for why countries are doing this, it is to keep their exports up till the consumption of the developing world increases by a lot (India, China, Africa).
Trade to GDP ratio for the US is only ~25%, the lowest of any major nation.
Japan is higher (~31%) than US and has over twice the debt to GDP, a declining population, import most of their food and energy, and limited military, yet nobody talks about Japan suffering actual chaos
70% of Japan's debt is owned by Japan Central Bank.. Japan's total debt is going down (private + corporate + public).
However the biggest difference is Japan owns a lot of international assets. It uses those assets as an alternative source of income much like colonialism but without the military and political exertion. The US is a net debtor meaning it doesn't own foreign assets that much but foreigners own a lot of American assets. -16tn in fact. Japan is close to +4tn.
Are you serious? You think we can just keep printing money with no adverse effects
you can't have real output growth without demand growth first
That's not the question - you think there's no impact to printing unlimited amounts of money?
*This is an enormous result. If sovereign spending can sustain such real growth, why would we ever want to stop?*
YOU CAN'T HAVE REAL OUTPUT GROWTH WITHOUT DEMAND GROWTH FIRST
So, yes? The only way to have growth is by printing money you don't own, and you can do that in unlimited quantities with no negative consequences?
No net negative consequences.
Venezuela and the Weimer Republic would beg to differ.
Amazing to see this comment in a sub dedicated to economics. In r/politics MMT might be real, but I don't think that would be the consensus view here.
amazing to see anyone compare the US to Venezuela or Weimar in a sub dedicated to economics
Sorry, I'm not the one saying governments can print unlimited amounts of money with no consequences.
>you think there's no impact to printing ~~unlimited~~ **adequate** amounts of money?
>>real output growth
Found the impact.
So I understand, you're saying economic growth is driven solely by printing money, and there are no negative consequences to printing too much money?
>So I understand, you're saying economic growth is driven solely by printing money
No. I'm not saying that. I'm saying that there is a *dependency*. Every transaction in the economy has money on at least one side of it. Consumption is money for goods and services. Investment is money for physical capital. Employment is money for labor.
A growing amount of Consumption, Investment, and employment requires a growing amount of money in accommodation of it.
Absent such an accommodation, the transactions don't happen and growth is constrained.
>and there are no negative consequences to printing too much money?
Note that in my prior comment I said: ~~unlimited~~ **adequate**. Sure you can produce negative consequences with unlimited, arbitrarily large fiscal injection but *why would you do that?* If I said fill your cup, would you flood your house?
I can never tell if these numbers are good or not. Is this high rate due to base effects because we still had lockdowns in 2020?
It's pretty good. Some of it is due to base effects, but of all G7 countries, the US was the first to return to pre-pandemic real GDP.
Nominal GDP is 10%. I’m a bit surprised it’s not more given inflation has been reported more than 4.3% all year long
If wages fall behind. Which uhh… yeah.
“Real average hourly earnings decreased 2.4 percent, seasonally adjusted, from December 2020 to
December 2021. The change in real average hourly earnings combined with no change in the average
workweek resulted in a 2.3-percent decrease in real average weekly earnings over this period.” Yeah. This isn’t sustainable.
We also have a declining productivity, which I think is connected to the supply issues, idk I’m not an expert on this.
inequality masks what is actually happening
high earners got raises below inflation
low earners got raises above inflation
higher earners represent most earnings, but lower earners are the majority of people, so the real average can go down even as most people see real increases.
and consider that high earners are more likely to already have a fixed mortgage, so they don't see an entire third of the inflation index
I need to see data.
[homeownership by income(table 8)](https://www.census.gov/housing/hvs/files/currenthvspress.pdf)
a major thought I'm having is that if market basket IRL actually varies with income, then I don't see how we can use a single inflation rate in a way that doesn't mislead us
I wanted to see data that lower earners got raises above inflation. Not housing data table 8 doesn’t show much tbh. And the cpi includes breakdowns of certain goods and services.
I appreciate that.
Ok, so to compare the last 2 years GDP growth for China and US:
US 2020 = -3.4%, 2021 = +5.7% -> 2% growth over 2 years, average 1.0%/year
China 2020 = +2.2%, 2021 = +8.1% -> 10.5% growth over 2 years, average 5.2%/year
Is this correct?
The geometric mean is more appropriate than the arithmetic mean because this is a multiplicative situation.
I did multiply them into each other, you can check the math.
Yeah there are some rounding up and down. China 2y avg is 5.1% from its official report but yeah this is the right idea.
Correct, although US is still expected to have a high growth rate next year as the recovery hadn't completely finished whereas China's growth may decrease slightly due to issues in the property market and the export book slowing down.
Because of that I think they are expected to have similar growth rates next year.