PHANTOM GDP

All eyes were on the U.S. , while the U.S. House, Senate and President Obama
jockeyed for position on raising the U.S. Debt Ceiling. The Dollars position, as the principal world trading currency, was at stake while those in Washington [D.C.], and in academic circles, squabbled over they way, means and impact of raising he debt ceiling. Drama aside, it was a forgone conclusion that a "deal" would be done and the
debt ceiling would be increased to accommodate U.S. deficit spending.

The side-bar to Washington's theatrics, economic growth [ measured in GDP ], was hinted at in the House passed [H.B. #2560] Cut, Cap and Balance bill, but never brought to the floor by Senator Harry Reid, for Senate vote. Gross Domestic Product, GDP,is the benchmark measure used internationally to snapshot a nations economic growth. The U.S. snapshots GDP on a quarterly, basis; and, during the quarter, when the debt ceiling drama was playing in Washington, the U.S. GDP had stalled at around 1%. Without growth, government revenue, remains stagnant, absent an increase in taxes, often masked as fees, to offset government spending.

The way GDP has traditionally been calculated [ all goods and services ] essentially is a miss-measure that overstates real economic growth by a factor equal to the amount of government costs and services included in the GDP computation. Since the miss-measure GDP computation has universal appeal, true economic growth remains phantom to the delight of Wall Street, London and world financial markets. The GDP miss-measure is a harbinger for future financial melt-downs.

Among the minority of others, China, appears recognize the GDP anomaly, by its recent downgrade of U.S. debt obligations. Others will likely realize the U.S. has been and will continue, for the foreseeable future, to experience negative GDP. This has ominous consequences for todays inter-connected world, and is one factor in the flight to gold and other precious metals. Absent an accurate measure of a nations economic growth, and a stable benchmark currency, the surplus capital necessary for economic growth, will be locked in gold and precious metals, and world economies will unravel.

This U.S. and U.S. dollar, can no longer serve as a benchmark currency. The failure of the U.S. to balance its budget, per the U.S. Balanced Budget Act of 1985, yes 1985, was the first signal to the world that new measures and new benchmarks would be necessary if sustainable, shared, economic growth were to be achieved on a world basis. The latest U.S. budget antics [yr. 2011, 26 years later ] are a signal that the U.S. is in a downward economic spiral and can no longer be viewed as a stabilizing force, and the U.S. dollar, a reliable currency.

The U.S., as a system of governance, has displayed it's inherent flaws; arrogance, fashion, feelings, and ego, trump reason. New measures and a new type of benchmark currency will be needed before financial stability can be achieved on a world basis; otherwise,one country will fail, followed by the next, and by the next; signs of which are appearing in Europe and with the Euro.

WORLD ON A PRECIPICE - THE GREEK ECONOMIC DEBACLE

Greece has become the "poster child" for a looming problem that faces every nation with debt. The root of Greece's problem, is the root problem for all nations: interest and it's relation to value. The concept of "interest" has long plagued the economic scholars, and debate on the issue continues to this day. "Interest", the price paid for capital, adds nothing to the true value of goods and services generated by society. Interest, as an economic function, is an enabler; it enables one access to and the use capital one does not have. The common form for "interest" is the "time payment" plan most consumers and citizens are familiar with. For reasons that are more academic then practical "interest", the cost of capital, has been added to, rather then deducted from "value" resulting in artificial values that exceed real value, and higher GDP rates. Such anomalous accounting has political import, but distorts a nations true ability to meet sovereign debt obligations. One begins to realize both the scope and magnitude of the problem when the Greek circumstance is considered. The problem is a world problem that all debtor nations face, the U.S. included. Financial markets are based on a contrived house of cards; credit extensions only aggravate fundamental structural problems. Immediate national financial problems, i.e., Greece, cannot be resolved without making fundamental structural changes to real world economic beliefs and policy.

All central banks including that of China, should enter into a binding compact
mandating and limiting "cost of funds" to a range between 4% to 6% ; this range would be fixed for ten (10) years; and, thereafter fixed, subject to range adjustment, for incremental periods of ten (10) years. Cost of funds would be deducted from adjusted GDP, with credit being limited to 25% of adjusted annual, calendar year based, GDP. Participating bank and institution accounting would be based on the calendar year. Extensions of credit would only be available to corporations and entities based on the calendar year, January 1 to December 31. The word economy must be in sync before national issues like Greece can be effectively addressed. The Greek problem is solvable but not by going in current directions. The world problem of mounting sovereign debt cannot be resolved by "theory" nor by extensions of existing credit by whatever semantic label that becomes the flavor of the day. The real challenge is for the nations of the world, is to abandon traditional alliances, ideological differences and thinking when it comes to economic order. The Greek situation is a test. If it fails, all will fail, and the world will enter a period of economic chaos and decline.