Have you ever wondered why, despite all the headlines screaming about “strong GDP growth,” your grocery bill keeps climbing and your paycheck doesn’t feel any heavier?
I’ve been fascinated by this disconnect for years. Politicians boast about the economy expanding, central bankers pat themselves on the back, yet most regular people feel like they’re running just to stand still. After digging deep into the numbers, I’m convinced the problem isn’t with the economy itself; it’s with the yardstick we use to measure it.
The One Metric That Runs the World (And Why It’s Broken)
Gross Domestic Product, or GDP, is treated like the holy grail of economic health. When it rises, champagne corks pop in Washington and on Wall Street. When it dips, panic sets in. But here’s the uncomfortable truth nobody in power wants to admit: GDP does not measure progress. It measures spending. More precisely, it measures the total amount of credit flowing through the economy in a given year.
Think about that for a second. Every dollar borrowed to buy a new car, every government bond issued to fund another infrastructure project, every credit-card swipe at the mall; all of it gets counted as “growth.” It doesn’t matter if that spending creates something useful or simply keeps the lights on a little longer. As long as money changes hands, GDP smiles.
Production Has Flatlined While the Headline Number Doubles
Let’s look at the United States, the poster child for GDP worship. Since the depths of the 2008 crisis, nominal GDP has more than doubled, from roughly $14.5 trillion to over $30 trillion today. That sounds fantastic, right? Except when you check actual industrial production, the picture changes dramatically.
Real output of physical goods; factories, mines, utilities; is essentially the same as it was seventeen years ago. The Federal Reserve’s own industrial production index sits almost exactly where it was before the Great Financial Crisis. In other words, we’re not making meaningfully more stuff. We’re just spending dramatically more money to get roughly the same amount of stuff.
How is that possible? Simple. The extra “growth” comes from two places: consumers borrowing hand over fist and governments spending money they don’t have. Both are recorded as positive in the GDP ledger, even though neither actually increases the economy’s ability to produce real wealth.
The Three Ways Money Enters GDP (Only One Is Healthy)
Credit can flow into the economy in three broad ways:
- Productive investment (building factories, R&D, tools that make us more efficient)
- Consumption (buying groceries, cars, vacations)
- Government spending (everything from defense contracts to welfare programs)
Only the first category actually grows the pie over time. The other two mostly redistribute existing wealth or borrow from the future. When productive investment stagnates, as it has for nearly two decades, rising GDP simply signals we’re eating our seed corn and calling it a feast.
The Savings Rate Tells the Real Story
A healthy economy needs genuine savings. People and businesses set aside resources today so they can invest in better tools tomorrow. But the U.S. personal savings rate has been on a relentless downward trajectory for decades, outside of the forced saving during lockdown periods.
At the same time, consumer debt has exploded. Household borrowing has roughly doubled since 2008. People aren’t saving; they’re spending tomorrow’s income today. Every new credit-card balance or auto loan adds to GDP right now, but it also adds a claim on future production. It’s a shell game that only works until the claims can’t be met.
Government Spending: The Easiest (and Most Dangerous) GDP Booster
If you want to juice GDP numbers quickly, there’s no faster way than ramping up government expenditure. Washington currently accounts for roughly 23% of total GDP, and total public spending (including state and local) approaches 40%. Almost every dollar spent; whether on a useful highway or a pointless bureaucratic program; gets counted the same.
In my view, this creates a perverse incentive. The fastest way to make the headline number look good is to borrow and spend with abandon. Politicians love it because voters see activity. Economists love it because their models say “demand” is rising. Bond markets play along because central banks stand ready to buy whatever debt is issued. Everyone’s happy, until they’re not.
The Deflator Scam: Making Inflation Disappear on Paper
Even the “real” GDP figure; the one adjusted for inflation; is built on sand. Governments take nominal GDP and subtract an inflation measure (the deflator) to give us the growth we’re supposed to celebrate.
But the official consumer price index has been repeatedly “improved” over the decades through substitution, hedonic adjustments, and owners’ equivalent rent wizardry. Independent calculations using the pre-1990 methodology show inflation running 7-10% higher than the official number. That alone turns modest “real” GDP growth into sharp contraction.
When the government can choose both the scale and the weights on the scale, the reported weight of the economy will always look healthy until the day the scale breaks entirely.
The Debt Trap No One Wants to Talk About
Here’s where it gets scary. GDP is the main metric credit markets use to judge a country’s ability to service debt. As long as nominal GDP grows faster than total debt, investors stay calm. But when most of that GDP growth is borrowed money, you’ve entered a classic debt trap.
Eventually interest rates rise or confidence cracks, and the cost of servicing the debt begins to outrun even the phony growth numbers. At that point the only choices are default, inflate, or impose austerity. History shows governments always choose inflation until the currency collapses. We’re much closer to that moment than most people realize.
What Central Banks Already Know
Interestingly, the smartest players in the room are already voting with their feet. Over the past decade, central banks collectively have been aggressive net buyers of gold, adding thousands of tonnes to reserves while selling government bonds.
They understand something retail investors are still slow to grasp: when your currency is backed only by faith in endless credit creation, and the main metric justifying that credit creation is itself a product of credit creation, the endgame is always the same. The currency loses purchasing power until it becomes worthless.
So What Should You Actually Do?
I’m not here to just complain. The question is: how do you protect yourself when the primary economic scoreboard is rigged?
- Stop treating GDP headlines as meaningful. Focus instead on real production, savings rates, and debt-to-income ratios.
- Reduce personal reliance on credit. The less you owe when the system resets, the stronger your position you’ll be in.
- Own assets that cannot be inflated away. Physical gold and silver have no counterparty risk and have preserved purchasing power through every fiat collapse in history.
- Build skills and networks that produce real value independent of financial markets.
The coming years are likely to be turbulent. But turbulence also creates opportunity for those who see the game for what it is. GDP growth has become a dangerous illusion, one that is setting the stage for the largest wealth transfer in a generation from those who trust government statistics to those who trust mathematics and history.
Choose carefully which side you want to be on when the illusion finally shatters.
