Two days before the stock market set its most recent record highs on August 2nd, the Department of Commerce provided the necessary rocket fuel when it reported a much better than expected first-reading of economic growth in the second quarter. This 1.7% preliminary estimate not only topped estimates, but was sufficiently strong enough to allow traders to overlook the dismal final reading of first quarter GDP, which was unceremoniously slashed to just 1.1% from an original guesstimate of 2.5% in April.
While the Bureau of Economic Analysis (BEA) defends the integrity of its work and the periodic revisions it makes to its methodology, for some, this aim-high-then-mark-down trend is nothing short of a conspiracy.
"I think we have been getting overly optimistic [GDP] assessments from the government," says Peter Schiff, CEO of Euro Pacific Capital, in the attached video. "They want to make GDP appear bigger than it normally would be, and growth to appear bigger. So this is government propaganda."
To back up his claim, Schiff points to the fact that ever since the Great Recession in 2008, two-thirds of the BEA's preliminary estimates of GDP have been revised downward, while noting that "the size of the downward revisions has also been 50% greater than the upward revisions. I don't think this is an accident."
What really irks him is that no one is complaining about it and that "there's not a word of protest" decrying this practice or about the recent revision that were unveiled, which he says changed the very definition of GDP.
"They weren't trying to be more accurate, they were trying to get a bigger number," he says, noting that similar manipulation occurs in the reporting of unemployment and inflation data too, only there it is to make those numbers look smaller. You may recall former GE CEO Jack Welch was outwardly skeptical of the gains being reported in the job market in the lead-up to last year's election.
To be sure, pinning a number on the size and scope and growth of a $16 trillion economy is more art than science but Schiff believes the latest efforts just go too far. One area in particular that he thinks is bogus concerns the new methodology which now equates film and music production to research and development investment.
"That's not investment, that's spending," he says. "If you pay Tom Cruise $20 million to star in a movie, that isn't the same as using $20 million to build a factory, but now it is."
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