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Monday, June 13, 2011

Real GDP Is Crashing, 2000-2010

GDP statistics for 2010 are out. It's time for an updated version of my Real GDP Is Shrinking post. This is a regular annual feature.

Contrary to official government statistics, the US economy is shrinking at an alarming rate.

In the following graph, I measure GDP in ounces of gold. Instead of using the CPI as my deflator, I used the price of gold. The results are pretty surprising!

Here is US GDP, measured in ounces of gold.

As if the above chart wasn't depressing enough, here's the same information on a log-scale Y-axis. That makes the accelerating decline even more obvious! (When viewing financial information, you care about % gain and not absolute gain. Therefore, a log-scale Y-axis is more appropriate.)

According to the above chart, the US economy is crashing at an alarming rate. That was per capita GDP measured in ounces of gold. By that measure, the US economy has shrunk by more than 73% since 2000! That's an annualized shrinkage rate of more than 10%!

In the rest of this article, I give the details of the above calculation.

The official inflation-adjusted GDP numbers are calculated using the CPI. The CPI is biased and understates the true inflation rate. If you adjust GDP using an unbiased inflation measure, the US economy is shrinking rapidly.

State communists/economists/comedians use the CPI as their deflator rather than true inflation. This causes inflation to be misreported as economic growth.

A common myth is "The US economy is dependent on continuous growth to survive!" This is false. Due to the Compound Interest Paradox, the US economy is dependent on continuous money supply growth. Due to biased inflation measures, money supply growth is misreported as economic growth.

Source Data

Here is the raw data that I use as a source for my calculations.


I use this page as my source for GDP data.

This isn't the "official" final number, but it's good enough. If there are revisions, it won't substantially affect my conclusions.

I use per capita GDP not adjusted for inflation. Later, I'm going to adjust for inflation correctly, instead of using the CPI.

This is a very important point. By using biased inflation measures, inflation is misreported as economic growth. The CPI severely understates true inflation.

The GDP value is in billions of dollars. The population is in thousands. "Per cap GDP" is GDP divided by Population.

YearGDP ($B)Pop (k)Per Cap GDP

M2 and M3

In previous versions of this post, I also used M2 as my inflation index. I decided to stop doing that when I noticed that the Federal Reserve retroactively changed M2 data.

According to the Federal Reserve, M2 growth in 2010 was only 4.2%. That seems wrong.

The Federal Reserve ceased publishing M3 in 2006, so I can't use M3. Superficially, the Federal Reserve says it stopped publishing M3 because the data was too hard to collect. That reason is invalid. Instead of publishing M3 weekly, the Federal Reserve could have published M3 quarterly or annually.

The Federal Reserve stopped publishing M3 because they wanted to cover up how bad inflation really is.

When the Federal Reserve stopped publishing M3, it was growing at a rate of 15%/year. Some people have reconstructed M3 from other available statistics.

Even though M3 is no longer available, there's another unbiased measure of inflation.


The increase in the price of gold should track true inflation pretty closely.

If you believe "Gold is money!", then the FRN-denominated price of gold is a fair and unbiased measure of inflation. There are short-term fluctuations, but the over a 5-10+ year period, gold should track true inflation pretty closely. Over the past 5-10 years, the price of gold has risen substantially faster than M2.

Unlike Federal Reserve Points, gold is real money. The purchasing power of an ounce of gold has remained mostly constant for 100+ years. Some people say the purchasing power of gold has been constant for thousands of years. I don't know any reliable source for the price of a loaf of bread 1000 years ago. I saw one article where salaries in the Roman Empire were converted to gold, and compared to present-day salaries. The salaries, in ounces of gold, were pretty close.

For example, the price of a Model T car, quoted in gold, is approximately the same as the price of a car in the present. A modern car has more features than a Model T, but the total price is the same. When comparing goods available now to goods available 100 years ago, the price quoted in gold is usually similar. Of course, no amount of gold would have bought you a computer or cellular phone 100 years ago.

Over a period of several years, the gold price is the least biased measure of inflation.

I used these two sources for the price of gold.

The price is the price on January 1 of that year.

January YrPrice ($)% chg

Gold's price has risen substantially so far in 2011. Gold is currently over $1500/ounce.

There's still plenty of room for the FRN-denominated price of gold to increase. There continues to be massive inflation to bail out the financial industry and other insiders. Eventually, this will show up as an increase in the price of gold.

There has been extensive manipulation of the gold price. Central banks have nearly exhausted their gold reserves. They are losing their ability to suppress the gold price.

State thugs really want gold to be discredited as an investment. Physical gold probably is a better investment than stocks! Even though corporations receive massive government subsidies, there also is a massive amount of fraud and waste. Corporate management is more concerned with lining their pockets than creating value for shareholders. It is possible that gold are silver are the only investments that yield a 0% inflation-adjusted return (minus transaction costs)!

Some people are saying "gold is experiencing an asset bubble". The price of gold/$ is skyrocketing. Compared to other commodities, the price of gold is relatively constant. The price of gold/silver or gold/oil or gold/corn is mostly unchanged. It is inaccurate to say "the price of gold is skyrocketing". It is more accurate to say "the value of the dollar is crashing".

Pro-State trolls say "Gold ran up in 1980 and then crashed. Gold is going to crash again." I don't see a bubble forming in gold. There was a run-up and then crash in silver. Still, if you bought silver more than a year ago and held to the present, you have a very nice return.

If you believe "gold is money", then the price of gold is the least biased measure of inflation. For me, this is a definition.


Here, I share the result of my calculations.

Inflation Adjusted GDP

I calculate inflation adjusted GDP. I adjust for inflation correctly, instead of using the CPI. I use gold as my inflation index.

Per capita GDP and gold are copied from my previous tables. "GDP/gold" is GDP measured in ounces of gold. That's my index for how much the US economy is growing or shrinking. "% gain" is the % gain relative to the previous year. "Cum % gain" is the cumulative percentage gain from that year to 2011. For example, in the row for the year 2000, the "Cum % gain" is -71.62%. This means that the US economy shrunk by 71.62% from January 1, 2000 to January 1, 2011. "Ann %" is the "Cum % gain" converted to an annualized percentage. The US economy has been shrinking at an annualized rate of 10.82% from January 1, 2000 to January 1, 2011.

YearPer Cap GDPGoldGDP/Gold% GainCum % GainAnn % Gain


The data in this table is really disturbing. From 2000-2010, the US economy was shrinking at an annualized rate of 10.82%. Notice how the rate of shrinkage is accelerating!

If you use gold as the index of inflation, the US economy has been in a severe recession/depression every year since 2000.

A depression is defined as "20% shrinkage in the economy". However, this is calculated relative to the CPI rather than true inflation. This allows State comedians to claim "There's no depression!", when things are really bad. Inflationary bailouts provide the illusion of economic growth, because inflation is severely underestimated by the CPI.

Gold has risen substantially so far in 2011, and that trend should continue all year. In 2011 so far, we're on pace for another 10%+ shrinkage in GDP, when measured in ounces of gold.

If you go back to the 1990s, the results aren't as bad. In the 1990s, the world's central banks were selling off their gold supplies to manipulate the price of gold downward. Recently, they have nearly exhausted their gold reserves. They are no longer able to manipulate the gold price as much. Even with that manipulation, the gold-denominated GDP has been decreasing by more than 3% per year since 1990.

There are price variations in any given year. My analysis covers several years. Over that time, any short-term fluctuations should be smoothed out.


Contrary to official government reports, the US economy is in really bad shape. All my data comes from official sources. With a little independent thinking, you can manipulate government data to tell the true story.

Government policymakers/terrorists use the CPI as their measure of inflation. The CPI is biased and severely understates inflation. Relying on this corrupt statistic, they see an unfairly optimistic picture of the US economy. If you use the CPI as your index of inflation, then money supply inflation is misreported as economic growth.

State comedians use the CPI instead of true inflation measures. This allows them to claim "The economy is getting better!" By objective standards, the economy is still crashing.

I only performed this calculation for the US economy. Many of my readers are located outside the USA. I suspect a similar calculation in other countries would show a similar result. The economy in Canada, the UK, the EU, and Australia is probably just as bad.

If you use the price of gold as your index of inflation, then the US economy is in a severe prolonged depression. If you use gold as the index of inflation, then the US economy has shrunk by more than 71% since 2000!

Criticism of Using GDP

One valid criticism of this post is "GDP is a meaningless statistic." However, GDP is the best broad measure of the US economy that's widely discussed. There's also GNP, which is highly correlated with GDP.

Parasitic economic activity is included as part of the GDP. The salaries of lawyers, bankers, accountants, etc., is 100% directly backed by State violence, yet their work has no economic value. It is inaccurate to include this as part of GDP. Psychiatrists perform negative work, murdering millions of people, but their labor counts towards GDP. State violence causes doctors to earn above-market salaries. It is wrong to include all of their salary in GDP. If the "rate of parasitism" is constant over time, then using GDP would still be reasonable. The "rate of parasitism" appears to be increasing rather than decreasing.

There's no easy way to measure "GDP minus parasitic activity", so I just use GDP.

GDP doesn't accurately measure true economic activity that occurs in the USA. Suppose a lead-painted toy is imported from China for sale in the USA. If the toy has a value of $3 when it comes off the boat, and a retail value of $20, then this counts as $17 towards US GDP. All the US corporation did was import, market, transport, and sell the product. The US corporation didn't really add any tangible value, but most of the value of the sale counts towards GDP. Such a practice is only sustainable because China and other countries are willing to export tangible goods in exchange for a piece of paper.

Counter-economic activity does not count towards GDP. The economy is really bad. Some people may be working off-the-books, just so they can survive.

The size of real GDP pretty tightly correlates with the evil power of the State. The "grey market" and "black market" economy is not included in official GDP. That is fine with me, because that wealth isn't being used against me!

As the State economy collapses, State parasites will lose their ability to enforce illegitimate laws. It's a type of positive feedback.

My information comes 100% from mainstream sources. By doing a correct analysis with the numbers, I get a true picture of economic growth in the USA. The CPI is a biased measure of inflation. This causes money supply inflation to be misreported as economic growth.

I use gold as the index of inflation rather than the CPI. By this standard, the US economy is in *REALLY* bad shape.

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