The investment world is banking on real growth being just around the corner.
However, the data does not confirm this view.
Let’s talk about China first. Half of all global growth is expected to come from China, which is forecast to grow by 6.5%-7% next year.
Now, China’s economic numbers are for the most part fictitious. However, there is one metric that cannot be fudged and that is electricity consumption. Either electricity is being used or it is not.
With that in mind, we must consider that China’s electricity demand is collapsing, having fallen to a year over year rate of 3.5% in August 2014.
Source: Zerohedge
Indeed, given that Chinese electricity consumption cannot be faked and is growing at just 3.5% year over year, we can safely assume that China’s economy is likely growing at a pace more like HALF of the official forecast of 6.5%-7%.
So China will not be driving global growth.
What about the US?
As is the case in China, official GDP growth numbers in the US are massaged to the point of being fictitious. The reason for this is that all “adjusted” GDP data involves a “deflator” metric that is meant to adjust for inflation.
The Feds often use an inflation adjustment that is even lower than their official Consumer Price Index metric (which is already massaged to downplay inflation) in order to make GDP growth look greater.
Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO. However, announcing ZERO GDP growth is a major problem politically. So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.
By using nominal GDP measures, you remove the Feds’ phony deflator metric. With that in mind, consider the year over year change in nominal GDP that has occurred.
As you can see, we’ve broken below four, the reading that has been triggered at every recession in the last 30 years. At best, we’re flat-lining. At worst we’re already in recession again.
Don’t believe the hype both China and the US are making up their GDP growth numbers for political reasons. Neither will be a major engine for growth next year…
Which means that the markets are completely mispricing what’s coming… and the stage is set for another Crash.
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