America's GDP is Growing, Really?

I have not studied Economics. However, I did pick up some broad understanding of Economics from general reading and talks with or by people who are knowledgeable about Economics. Lately, I have been reading that many western economists are quite excited about the prospects of the GDP growth in America despite the ravages caused by the Covid-19 pandemic. I am not convinced at all; I thought it was all false optimism.

These are some of the bits and pieces I picked up about the US economy:

As of March 2021, MO (physical money and bank reserves at the Fed) in America is said to amount to USD5.8 trillion; of which USD2 trillion was in circulation. In 2020 alone. At the biggening of 2020, M2, which includes physical notes and coins, bank reserves held at the Fed, accounts at banks and money market mutual funds, is said to be USD15.3 trillion and by September, it was USD18.7 trillion, an increase of more than USD3 trillion!

And came Joe Biden. His USD1.9 trillion stimulus package, amongst other things, gave direct payment of up to USD1,400 for middle and lower-income Americans. On top of that he is proposing a USD1.2 trillion infrastructure framework. Where does all this money come from? The Fed’s “printing press”, of course.

Let us look at how GDP (Gross Domestic Product) is measured.

GDP = C + I + G + NX

Where:

C             - Private=consumption expenditures by households and nonprofit organisations

I              - Business expenditures by businesses and home purchases by households

G            - Expenditures on goods and services by the government

NX          - Nation’s exports minus its imports

Does it have to do with Money Supply? Or the well-being of a country’s finances? I just cannot see much in terms of co-relation, except that in America, much of C which contributes to about 70% of the US’s GDP must have come from all this new money.

But is all this new money generated by increased economic activities or productivity? The question is no.

As long as the world is happy to let America have a free ride, there is no danger to the US economy. But countries like China, which is America’s biggest trading partner, is wising up. No sooner, the US has to fork out more USD for same amount of goods. You do not need an economist to tell you this is called Inflation.

And if discount the growth rate against inflation and population growth, the truth emerges. There is hardly any growth, if any!

Americans must realise that money does not grow on trees!