Submitted by Simon Black via Sovereign Man blog [6],
Over the weekend, Nigeria’s government made an accounting adjustment in how it calculates its GDP statistics.
By changing the base-year in GDP calculations from 1990 to 2010, Nigeria increased the reported size of its economy by 89% over the weekend.
So with a stroke of a pen, the West African nation leapfrogged South Africa to become the continent’s largest economy.
And in doing so the country’s debt-to-GDP ratio fell below 20%. The ratio of bad loans in the banking system when compared to the overall size of the economy also dramatically declined in proportion.
The same thing happened in Poland last year when the government there made a grab for private pensions, then counted those new assets against government debt.
It was just another accounting scam. But it dramatically lowered Poland’s debt-to-GDP ratio on paper, even though the government had not actually gotten any ‘richer’.
Just hours ago, the European Central Bank released its 2013 annual report [7], showing a massive 44% surge in profits.
Diving into the numbers, though, it turns out that most of the ECB’s profits come from funny accounting tricks—revaluing a permanent swap line they have with the Federal Reserve, and moving funds from the “risk provision” column into the profit column.
I’m also reminded of the Federal Reserve’s own admission that they had $50+ billion in ‘unrealized losses’ due to the erosion of their portfolio of US Treasuries.
This is almost as much as their entire capital reserve… meaning that the Fed is practically insolvent by its own admission.
Not to worry, though. The Fed gets to employ its own accounting tricks to make these losses disappear, marking the assets on the balance sheet at their much higher ‘book value’, rather than the much lower ‘market value’.
Of course, the US government does exactly the same thing… often conveniently leaving out huge portions of its total debt such as the non-marketable securities it owes to the Social Security trust funds.
All of this really just goes to show how absurd it is to rely on these numbers conjured by politicians and central bankers.
Sure, the statistics are computed to multiple decimal places and wrapped up in lengthy reports.
But there’s not a shred of truth to any of this false precision.
It’s all about maintaining a false sense of confidence at all costs, no matter what lies they have to fabricate, no matter what fraud they have to commit.
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As an aside, here is The FT just today explaining the UK's latest accounting scam [8]...
A radical overhaul of the national accounts this autumn will double the official measure of household savings, presenting Britons as a nation of unexpected prudence and undercutting their widely held reputation for profligacy.
For the first time in 15 years, the Office for National Statistics is preparing to rip up the way it measures Britain’s economy, with the new techniques showing a huge increase in the size of the economy, a higher level of public debt and a much increased savings ratio. There is also a good chance that the statisticians will significantly revise up growth recorded in the economy in 2012 and last year.
...
Under the new system of accounts, research and development spending will count towards GDP rather than being seen as a cost of production, and building aircraft carriers and other weapons of war will also add to the size of the economy. The ONS said the change would add between 2.5 per cent and 5 per cent to the level of GDP, adding £40bn to £75bn to the total.
One of the largest changes, announced by ONS officials on Monday, arises from how savings are measured. From now on, the official figures will count future pension rights as if they were present income.
So a small fudge here and a small fudge there and hey presto, UK is savings nation and everything is good in the world...