We got the first Q2 GDP estimate on Friday. Economic growth slowed to 2.1%, but the number came in slightly better than economists had projected.

In his most recent podcast, Peter Schiff broke down the GDP report. As he put it, when you actually look beneath the numbers, the quarter was a disaster.

“This was a horrible quarter for GDP.”

The most important part of GDP – gross private domestic investment – was actually down 5.5%. That represents the weakest quarter since Q4 2015. Non-residential business investment was also down 0.6%. Residential investment was down 1.5%. That category has been down six straight quarters, the longest span since 2009 during the Great Recession. Net exports saw the biggest drop in a decade.

“So, we have business investment falling. Exports collapsing. The economy is weak. But why did we have the big print in GDP?”

There were two main reasons.

  1. Government spending
  2. Consumer spending

And both of these were driven by borrowing. Simply put, this GDP number was built on debt.

Government spending was up 5%. That added 0.85% to the overall GDP. Non-defense spending was up a whopping 15.9% in Q2. The last time government spending grew that much in a single quarter was 21 years ago. As Peter pointed out, we had two recessions in that timespan – including the Great Recession.

“Non-defense spending – domestic spending – rose last quarter by more than it did in any quarter during either of those recessions. Think about that. Trump keeps complaining that we’re not getting as much monetary stimulus as Obama got. But look at all the fiscal stimulus we’re getting that Obama didn’t get.”

Generally, you see this kind of spending when the economy is weak.

“Yet the fiscal stimulus that we’re getting now is larger than what we’ve gotten in the prior two recessions. Yet we’re getting this stimulus when the economy isn’t even in recession. I mean, if the economy is so good, why does it need so much fiscal stimulus? And if it’s getting so much fiscal stimulus, and if you believe fiscal stimulus works, why isn’t GDP even stronger?”

Peter also pointed out that despite all of the rhetoric coming from Trump’s Twitter account, the GDP numbers in the Trump era are about the same as they were during the Obama administration. Obama got 2.9% GDP in 2015 and 2.5% in 2014.

“So, if you look at Obama’s two consecutive years, 2014 and 2015, the economy grew slightly faster than it did during Trump’s two years of 2017 and 2018. Where is the difference? You know, we borrowed all this money, right? We borrowed much more money in 2017 and 2018 than we did in 2015 and 2016. Granted, interest rates are a little bit higher now so we have a little less monetary stimulus now than we had then, but we have a whole lot more fiscal stimulus now than we had then, but we have nothing to show for it. We’ve had less growth. All of this talk about this booming economy under Trump is a bunch of fake news and the data that we’re getting proves that.”

The economy supposedly grew by 2.2%, despite a decline in business investment, decreasing imports and falling corporate profits.

“The only reason GDP went up is because government spent a lot of money.”


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And of course consumer spending. It increased by 4.3% and contributed nearly all of the GDP growth. In fact, many of the headlines credited the American consumer with “rescuing the economy.”

“The problem is if the consumer rescued the economy, who is going to rescue the consumer? Because if you look at where the consumer is getting that money, it’s from credit. Year-over-year, consumer debt has increased by 5%. So, what is driving consumer spending is debt.”

We’ve been reporting on the record-setting levels of consumer debt over the last several months. Americans currently owe nearly $4.9 trillion. That does not include mortgages.

“So, the entire GDP is a function of debt, whether it’s the consumer borrowing money and spending it or the government borrowing money and spending it.”

When you uncover the truth about the supposed success of the Trump economy — it has nothing to do with industry or business. The secret is we’ve spent more borrowed money. That’s it.

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