Great article on GDP but lacks any conclusion.

Here is a very easy read from Mish (Mike Shedlock - one of the brightest non mainstream economists out there) regarding GDP.  It basically says that consensus growth numbers are unreliable and then ends up explaining how government games the GDP number to the upside.  All of this "conspiratorial sounding" talk, but without giving the reasons why it is done.  Is it really just random?  If so, why is GDP always fudged to the high side and never, ever to the low side?  Mish knows the answer, he just doesn't want to say it because, again, someone running a popular blog like his makes money from ads and so he has to be careful not to turn people off.  Since I don't have ads on my blog despite exceeding 70K hits since inception...

 
 
... I really don't care what people think or how it might affect my ad revenue.  And so I will name the elephant in the living room that others turn a blind eye to: GDP numbers are all about the ability to take on more debt in the future.

The US is currently at about 100% debt to GDP, at least by the official, lying numbers.  While this used to be viewed as near the point of collapse - where a 3rd world despotic country would no longer be able to sell any debt at cheap levels - it's really not bad in a relative sense these days  There are uglier horses in the glue factory than the US.  For example, Japan's debt to GDP is 240%.   We're all Greece now but the game is to avoid admitting it as long as possible.  The game is to kick the can down the road.

Since the ratio of debt:GDP is a commonly used measure of a country's ability to afford a given debt level, you can justify the ability to take on more debt and keep telling the creditors that the amount will someday be paid off if your GDP is rising.  It's the old scam of saying that debt can be used to drive long term growth.  In the short term, for those who first begin doing it, this is absolutely true.  It is the nature of a Ponzi or a pyramid scheme that those who get in first and who get out before the collapse will do very, very well for themselves.  The problems come when there is no exit strategy; when you begin to rely on the Ponzi as a matter of day to day survival as opposed to being a quick hit and then run away with your profits.

This is why the government games the GDP numbers with things like hedonics and Keynesian thinking such as digging a ditch and then filling it in adds to GDP.   Once people stop believing that our GDP is rising it will dramatically oppose our ability to sell government bonds and when that happens, the game is over.

At some point something will happen such that fake GDP reporting is overwhelmed by actual fact.  When that happens, today's situation will reverse.  Whereas today most people believe what the government tells them, during the collapse phase nobody will believe anything that the government says.  That loss of confidence is already underway which is why I know this con game cannot last very much longer.  Once the patsies get wise there is no amount of con man babble that will appease and quiet them.  You can fool all of the people some of the time and some of the people all of the time but during the collapse phase of the debt Ponzi you suddenly find that you can't fool anyone at all.  In fact, the con man will end up getting blamed for things he didn't even do.