How Much US Economic "Growth" Is Due Exclusively To The Federal Reserve

Tyler Durden's picture

For all the rigging of the definition of GDP, which over the past year has artificially been boosted by over half a trillion dollars courtesy of various adjustments adding intangibles, goodwill, and underfunded pensions to headline economic output (and soon, courtesy of European financial innocation, the "benefits" of hookers and cocaine too), all GDP really is - in a Keynesian world - is a measure of how financial credit flows through the economy. One can look at it at a consolidated monetary basis (M1, M2, etc), and then apply various (broken) money velocity factors, but the simplest and most accurate means of capturing the US "economy" is simply by looking at the consolidated amount of liabilities within the US traditional banking system.

Visually this means that US GDP and the total amount of traditional bank liabilities should match up. Sure enough, as the chart below shows, they do.


If one were to use this (far more accurate) definition of gross domestic product, one can then do something which is impossible when looking at the conventional mechnistic C+I+G+(X-M) formula: namely calculate to the penny what is the economic "growth" contribution as a result exclusively of the Fed's interventions in the past 6 years.

To do that, one simply has to account for, and exclude, the benefit of the key financial system asset that has been boosted since Lehman courtesy of QE, namely Reserves at the Federal Reserve, which while manifesting themselves in record S&P highs (as we have shown repeatedly over the years), translate into an actual benefit for the economy. Alternatively, if it were not for the Fed, one can calculate how much growth is explicitly artificial, and the result solely of the monetary mandarins of the Marriner Eccles building.

Which brings us to Exhibit A: a chart showing US GDP as well as financial liabilities excluding the benefit of Fed reserve expansion.

Of course, if one takes the track of excluding GDP benefits as a result of Fed intervention, one would have to go back all the way to 1913 and systematically eliminate all those banking product lines which would never have existed had the Fed not blown serial bubbles, with every successive one greater than the previous simply to keep the Ponzi scheme going.

But for simplistic purposes, the chart above will do: the red shaded area shows the direct benefit of the Fed's QE on the consolidated financial system, and by implication, on US GDP.

The net result: while GDP as presented for public consumption has risen to a record nominal high of $17.1 trillion (humiliating Q1 GDP collapse notwithstanding), if one were to exclude Fed reserves on bank balance sheets, and adjusted the resulting GDP impact, it means the US economy has grown by a paltry $900 billion since the third quarter of 2008, and it also means that realistically, instead of $17.1 trillion, US growth output is somewhere in the ~$14.5 trillion neighborhood. Said otherwise, snow may have "crushed" the world's biggest economy by 1% in Q1, but in the last 6 years, the Fed has goosed its 20% higher than it otherwise would be.

Which, incidentally, also explains why while it took the US economy 6 years to recover all the job losses since Lehman, this took place at the expense of 13 million Americans leaving the labor force for good even as US population rose by 15 million. It also means that using a historical average participation rate, US unemployment is over 11%, while underemployment is currently well in the 20% range: a far more realistic assessment of where the US economy really is.

For those wishing to recreate the data set, simply add up all the reported liabilities on Flow of Funds sheets L.110 through L.113

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Colonel Klink's picture

So in other words without the continued Fed intervention, we're in a deep depression?  That could never be! /s

PartysOver's picture

The Ponzi will continue until until it all comes crashing down.  Until then just BUY!.

Colonel Klink's picture

The problem is knowing when "the until then" part is. ;)

wallstreetaposteriori's picture

Today looks like another hindenburg omen day.....

PartysOver's picture

Or maybe, just maybe a Buying Opportunity in a day or two.

Just saying.

wallstreetaposteriori's picture

I'm selling some S&P futures... you buying?

quintago's picture

Don't worry...won't stop until Nasdaq blows through 5K. Rock on until then

economics9698's picture

Monkeys printing money and 300 million people watching them. fuck up.

Anusocracy's picture

The real question is how much growth is due to the petrodollar.

ParkAveFlasher's picture

IMHO the real question is why are we even discussing self-referential feedback loops and graphically explaining the correlation of inherently linked statistics.  It's like a stoner explaining with great amazement that his fingers are attached his arm via the hand. 

All values in the equation are denominated in dollars.  You are charting the physical law of conservation of energy. Each time you inject more currency into the system in any way that impacts any price informing any transaction, it can not ever escape again.  There is only one way. 

To be clear, my shock here is not so much Tyler having to repeat himself for the casual googler / potential ZHer (I know that he must cycle and recycle the narrative continually) but that the narrative is so shockingly true and simple.  As Keanu Reeves said in his very nuanced portrayal of California teen Bill (or was it Ted?): "Whoa."

tonyw's picture

and if you take off infaltion (or are the figures in today#s dollars??) we would certainly be in depression.

GDP per head would be a useful indicator.

ZerOhead's picture

The accumulated (on budget) deficits of around $7 trillion since 2009 are probably the better numbers to remove from official GDP since that was money that was actually spent/wasted/malinvested in the real economy.

So just knock off about $1T or about 6% per year of reported GDP growth and the numbers should be good to go... to HELL apparently...

mt paul's picture

buy a cow

learn to moooo

bingobob's picture

That is easy. If the American public specifically Texans still have guns, you buy :-)

Whootie_who's picture

Yoou just have to listen for the "market top" Bell.... then you sell

asking4it2k's picture

Thats exactly what the FED wants. They want savers into the stock market so their "primary dealers" on Wall street get even more middle class wealth.

Dre4dwolf's picture

I mean, you really cant call nominal increases "growth".


Growth = How many cars were manufactured here, how many forks, spoons, knives, plates, motorcycles, washing machines, lighbulbs, how much energy did we produce/extract, how much stuff did we make....?

Nominal Increases = "we printed a bunch of money, and the prices of stuff went up"


If all you looked at was nominal increases in dollar terms . . . Zimbabwe should be the dominant economic super power of the planet.


You could have an economic depression and still have record stocks

huggy_in_london's picture

"You could have an economic depression and still have record stocks"


Dre4dwolf's picture

Well I guess, you CAN, and we probably DO. . . a bit early still to call it.


Not for nothing . . . . looks a lot like the American markets.

JRobby's picture

"You could have an economic depression and still have record stocks"


When the grand illusion is working according to plan. Seems to be. Other than these pockets of resistance here and there.

Panafrican Funktron Robot's picture

This speaks a bit to the idea that if the public piggy bank is going to continue to be broken, a direct distribution to the public via, say, an EBT card, would be much more economically supportive than the propping of zombie banks.  This is an inconvenient fact.

Pyrrhus's picture

The truly amazing thing to me is how much it cost for this "recovery". 

huggy_in_london's picture

Yeah well just wait till you have to pay that bill !


bingobob's picture

No shit, without the deficits and ZIRP/QE it would be civil war.

general ambivalent's picture

>Was the price worth it?

>We think the price was worth it.

RaceToTheBottom's picture

Each dollar printed is buying less stimulus value

TeethVillage88s's picture

Yeah, you look at record breaking spend since like 2002 in the federal budget... and double digit spending by congress's continuing resolution.

We should have like 5-7% GDP Growth from just federal spending... but it doesn't circulate very well. I probably stagnates in bank accounts, trust funds off-shore, pension plans, deferred earnings for executives in special trust accounts, off shore profits, off shore incorporated shell companies.

That is what we have is "Looting" of Federal Budgets & Federal Reserve QE & ZIRP.

disabledvet's picture

The biggest mistake these clowns on both sides of the aisle have made is the ability of the American people to simply stop spending.

I laugh at the clowns saying "short the retailers." Sure...the look like a sitting duck here...but nothing compared to the Goebernment trillions backed purely by their five and dime "bullshit."

Price of gold...and possibly silver...can very easily collapse here folks.

The ONLY thing that can be called "recovery" is the stock market.

That supports about a hundred thousand full time employees AND THAT'S IT.

We've already had the debt reset so if you're larding up on Michael Milken shit paper here...prepare for your burn notice.

A "financial nuke" being detonated on downtown Manhattan itself will have consequences.

HamRove's picture
How Much US Economic "Growth" Is Due Exclusively To The Federal Reserve

Zero. Point. Zero 

Oracle 911's picture

You forgot put there some more Obamas after that point.

yogibear's picture

"without the continued Fed intervention, we're in a deep depression? "

Of course. The Fed knows this. They will continue printing to provide stimulus. Giving the dead horse shock treatments to try and make it walk again. The muscles respond but the rest of the horse is dead.

They should have cleared the bad entities into receivership, instead their on to new scams. More and more debt to try and cure a debt problem. Just make the bubble bigger this time.

Japan first, then the US go down the debt black hole.

Panafrican Funktron Robot's picture

Just to further an earlier point:

"they will continue printing to provide stimulus"

Key point being, they are not providing stimulus to consumer spending, which we commonly think of as being the "real economy".  The stimulus is entirely being applied to financial assets.  "We" (ie., those vast majority of us not in the club) have not only received no benefit, we have actually been severely penalized.  We have essentially experienced stealth austerity via monetary devaluation.  

rubearish10's picture

......and so no incentive to reduce the balance sheet because it would unleash the great hyper inflation beast to bust creature! Ride the wave to serfdom.

Peter Pan's picture

The government's aggregate measure of GDP is as useless as a torch in broad daylight and anybody that relies or believes in that GDP figure is a victim to government propaganda.

The understated inflation adjustment caused by many tricks including hedonic adjustments, means that any resultant figures are just an exercise in sentiment control and minimizing government expenditures in social security.

Frank N. Beans's picture

redo the charts after accounting for dollar debasement (i.e., in 1960 dollars)


Stuck on Zero's picture

If hooker services are added in to the GDP what will they have to improve so that the government can hedonically adjust the value of their services?


Jack Burton's picture

This makes perfect sense. As long as the world accepts the dollar as a world reserve currency, and accepts printed billions as if it refelected a store of real wealth created by business and industrial production, the USA can produce GDP at home by printing. It is really the rest of the fools in the world who accept dollars who are getting pissed on after all. This game of print paper and get in return energy and manufactured good from the rest of the world is a perfect scam. The best scam in history. To keep this scam going, the US has the world's largest and best equipped armed forces that can and will destroy any threats to dollar hegemony. That is WHY, war on Russia is looking likely. For now it is a proxy invasion via Ukraine's western puppet forces. But if this fails, and it will, then an excuse will be found to engage the Russian directly with US air power to start and then see where that leads the Pentagon planners. Behind the Pentagon is the financial elite of America, they must destroy the Russian Federation or compel Russia to step back into the world of dollar hegmony. I can't overestimate how important dollar hegemony is. It is by far the absolute requirement for the USA to remain viable and the world's super power. Lose that, and the entire game is up. We only need to consider that the Federal Government spends twice it's tax revenue income. A trillion dollar military/spy budget, without dollar hegemony becomes instantly a 500 billion dollar budget. Work the numbers, you see what happens then??

asking4it2k's picture

Your post basically confirms my theory that the world is mooching off the prosperity and wealth of the USA. Just look at the trade deficits. The USA is that rich kid down the street and everyone else is trying to sell him toys. The kid has a limitless credit card.

USA is the ONLY country on earth that could be 100% self sufficient if another world war broke out. We have a democratic political system, with federal courts, we have tons of natutal resources, intelligent people, huge military, lots of land, etc. In an absolute worst case war scenario the US could survive without help from any other country. Thats why the rest of the world allows us to keep printing money.

OC Sure's picture

"namely calculate to the penny what is the economic "growth" contribution as a result exclusively of the Fed's interventions in the past 6 years."

This is a great chart showing the end result of the interventions.  

For anyone interested in all the mystical carvings on the Fed's totem pole, here are all the crazy rituals they perform to make themselves appear busy. Sixteen pages of chicanery. Are there enough acronyms and capital letters after anyone's name to make any sense of this:     


H.4.1 Factors Affecting Reserve Balances 



csmith's picture

"Are there enough acronyms and capital letters..."


I had to laugh...recalling the blizzard of goofy acronyms we got in the fall of 2008.


Everything but MILF!!!

They were all the same and basically stood for ONE THING:

The Fed would give JUST ABOUT ANYONE $ bilions in cash for any reason, along as it went to "support the system".

Support the system meaning BUY ANYTHING AND EVERYTHING IN SIGHT!

Remnant_Army's picture

Wednesday, July 10th, 2013 

"The lies you are being fed about your economy are designed to fool you  and strip you of what you own. Pray, pray, pray that I will stop those  who control your currencies from taking everything you own away from  you. Know that while My Right Hand casts down chastisements against the wicked, My Left Hand will lift and take you under My Protection and I will provide for you."

The Econ Ideal's picture

Plenty of growth in debt, plenty of growth in AMB...Ponzi finance resounds. 

JR's picture

Lie about inflation and unemployment while driving government spending with QE to the moon and shazam: RECOVERY!!!

“Government spending at the start of the 20th century was less than 7 percent of GDP… but in the aftermath of the Crash of 2008 spending has jogged up to 40 percent of GDP.” –

In short, we’re going right through socialism straight into fascism.

GDP is a bogus measurement with inflation way understated which overstates growth.  Also, the manipulators count the creation of debt, including our government’s deficit spending, as ‘productivity.

That, of course, explains any “consumer” confidence in the face of dire economic conditions often spikes; the “consumers” – the rich and poor sans middle- and upper-middle class —are spending other people’s money, i.e., government stimulus, using their QE and EBT cards.

As for the Fed’s claims that it is using “unconventional policies…” and you are wondering why your economic models for predicting revenue are not working, in light of the Fed’s methods…review this (again):

A Big Middle Finger to Changes in the U.S. GDP – Lance Jepsen | Guerilla Stock Trading: Live free or die trying (8/25/2013)

The changes in how U.S. economic reports are calculated over the last 4 years brings government propaganda to a level not seen in generations. The huge amount of fraud by way of “cooking the books” has undermined the credibility of the current Administration as well as the Bureau of Labor Statistics (BLS) and the Federal Reserve System.

First it was manipulating the CPI which is used to calculate inflation. Not only does the CPI not include the biggest inflationary items in the economy like healthcare and education, but they even substituted items from the 7,000 families survey done back in 2009. The idea is to substitute higher priced items with lower priced ones so that inflation is non-existent. Such substitutions include things like chicken for steak. (Source: Response to BLS Article on CPI Misconceptions)

Next came the unemployment manipulation where the loss of one full-time job and the creation of 2 part-time jobs to take its place was counted as +1 job. Then we had the usual manipulation where if someone gives up looking for work because they can’t find a job, that makes the unemployment rate go down.

Now we have the grand-daddy of them all: GDP manipulation. By making the economy larger and counting more things towards GDP than at any time in the history of the country, it serves two purposes. First and most obvious, if you count things like expenses towards GDP, you can claim that the economy is continuing to grow because of positive GDP. Second and what a lot of people have overlooked in the mainstream financial media, by making GDP larger, you make debt a smaller portion of that GDP so that the debt to GDP ratio goes down…

At no time in the history of this country has the GDP calculation been changed to this extent. The GDP calculation changes that happened this year are so dramatic, they change the very definition of what GDP is.

If you take the manipulation of the rate of inflation (CPI), unemployment rate, and GDP as isolated events, you lose sight of the forest for the trees. Looking at these changes as a whole, we see the shocking and horrifying truth. The CPI was manipulated to make inflation lower. The unemployment rate is manipulated to make the unemployment rate appear lower. The GDP was manipulated to make the economy seem like it has more growth and less debt relative to GDP. In other words, some numbers are manipulated up, others are manipulated down, with the larger goal of making the economy look bigger and stronger than it really is. This directly impacts the decisions that we make as traders. How many times have you been blindsided by a big move down in the market that you never saw coming because you believed these economic reports? This is why you should join me in giving the Obama Administration and its Bureau of Labor Statistics (BLS), and the Bureau of Economic Analysis (BEA), a big middle finger (BMF)…

Folks, if the economy was slowly improving, there would not be a need to manipulate these economic reports to the extent that we are seeing.

“[T]he quality of government reporting has deteriorated sharply in the last couple of decades. Reporting problems have included methodological changes to economic reporting that have pushed headline economic and inflation results out of the realm of real-world or common experience..” – John Williams, ShadowStats

I Write Code's picture

"Growth", LOL.

If you mean Dow, a lot - maybe 50% higher than about 10,000 where it almost maybe belongs. 

overexposed's picture

If one were to use this (far more accurate) definition of gross domestic product, one can then do something which is impossible when looking at the conventional mechnistic C+I+G+(X-M) formula

Scoff.  The only formula that matters in the New Normal economy is "CTRL+P".

Silly Tyler!

moneybots's picture

"in the last 6 years, the Fed has goosed its 20% higher than it otherwise would be."


The bigger the boom, the bigger the bust.

RaceToTheBottom's picture

Looks good for gold/silver.  

With all that "zero bang for buck" printing, bound to be a price to pay down the line.

homiegot's picture

Seems like it's always good for gold/silver. I don't see it.