# What is GDP?



## young-gun (6 October 2011)

Can someone please give me a detailed run-down of exactly what gross domestic product is, how the value is obtained, what relation it has to an economy, why it is so important, and exactly what it's an indicator of. Also if someone could give me examples of good and bad gdp and maybe some current levels. I read about it everywhere and understand its  very important but i just dont have a good understanding of the ins and outs of it.

Thanks in advance.


----------



## Tysonboss1 (6 October 2011)

*Re: GDP???*



young-gun said:


> Can someone please give me a detailed run-down of exactly what gross domestic product is, how the value is obtained, what relation it has to an economy, why it is so important, and exactly what it's an indicator of. Also if someone could give me examples of good and bad gdp and maybe some current levels. I read about it everywhere and understand its  very important but i just dont have a good understanding of the ins and outs of it.
> 
> Thanks in advance.




Can't you just research it yourself, and then if you have an opinion on it or have an interesting discussion idea then start a thread.


----------



## McLovin (6 October 2011)

*Re: GDP???*



Tysonboss1 said:


> Can't you just research it yourself, and then if you are an opinion on it or have an interesting discussion idea then start a thread.




Agree, this isn't year 11 eco.

Maybe start here...


----------



## young-gun (6 October 2011)

*Re: GDP???*



Tysonboss1 said:


> Can't you just research it yourself, and then if you have an opinion on it or have an interesting discussion idea then start a thread.




Ohhhhh I'm sorry. And here I was thinking I was in the beginners section! My apologies. Perhaps in future you can make me aware that my question may not be the best, and direct me to a good website that I can research myself, as opposed to posting useless comments and trying to make others out to be stupid. Not all of us are as educated as yourself.

Thanks for your help champ


----------



## skc (6 October 2011)

*Re: GDP???*



young-gun said:


> Ohhhhh I'm sorry. And here I was thinking I was in the beginners section! My apologies. Perhaps in future you can make me aware that my question may not be the best, and direct me to a good website that I can research myself, as opposed to posting useless comments and trying to make others out to be stupid. Not all of us are as educated as yourself.
> 
> Thanks for your help champ




Lol. The way you questioned deserves the answers you received.

JFGI.


----------



## explod (6 October 2011)

*Re: GDP???*



> GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach.
> 
> The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers," colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes




The above from Wikipedia, but too simplistic so you do need to dig deeper.  There was a good article about a week back on the current elements of GDP caculations but for the life of me cannot back track it. Perhaps someone else saw it too.

The article in short points out that the GDP numbers being put out now, as with the inflation rates, are well out of whack with reality.  Will keep sifting and hopefully get you a reference.

I consider your question important in today climate so good on you for putting it up.


----------



## jaystar86 (6 October 2011)

*Re: GDP???*

Welcome to the real world, where things don't get handed to you on a platter and you need to work to achieve any sort of semblance of results.


----------



## young-gun (6 October 2011)

Thanks explod.. I know my question may not have been the clearest but your response was the sort I was after. And to jay..If your not interested in lending some obviously simple advice that you clearly have then why reply with what you did? Last time I helped someone im fairly sure it didn't hurt me.

I'll go and research now and hopefully I can bring something to the forum that meets your post-able requirements.


----------



## robusta (6 October 2011)

Maybe it stands for a 'Geriatric Distainful Post'


----------



## barney (6 October 2011)

young-gun said:


> Thanks explod.. I know my question may not have been the clearest but your response was the sort I was after. And to jay..If your not interested in lending some obviously simple advice that you clearly have then why reply with what you did? Last time I helped someone im fairly sure it didn't hurt me.
> 
> I'll go and research now and hopefully I can bring something to the forum that meets your post-able requirements.





Don't be too concerned YG ..... The pecking order on ASF becomes quite bearable once you work out which posters are bona fide Roosters .... and which ones are old Boilers:   .......... 

Occasionally *you will find a Rooster who can also lay eggs* .... few and far between, but definitely worth listening to

Cheers ... and welcome to ASF.

ps My post was not directed at any chickens in particular!!


----------



## skc (6 October 2011)

young-gun said:


> Thanks explod.. I know my question may not have been the clearest but your response was the sort I was after. *And to jay..If your not interested in lending some obviously simple advice *that you clearly have then why reply with what you did? Last time I helped someone im fairly sure it didn't hurt me.
> 
> I'll go and research now and hopefully I can bring something to the forum that meets your post-able requirements.




This is pretty good simple advice imo.



jaystar86 said:


> Welcome to the real world, where things don't get handed to you on a platter and you need to work to achieve any sort of semblance of results.


----------



## McLovin (6 October 2011)

skc said:


> This is pretty good simple advice imo.




+1

Everyone else has to learn these sort of things and you'll get a far better understanding by researching it yourself not just being spoon-fed.


----------



## young-gun (6 October 2011)

*Re: GDP???*



jaystar86 said:


> Welcome to the real world, where things don't get handed to you on a platter and you need to work to achieve any sort of semblance of results.




Sorry jay thought you were a different poster


----------



## young-gun (6 October 2011)

McLovin said:


> +1
> 
> Everyone else has to learn these sort of things and you'll get a far better understanding by researching it yourself not just being spoon-fed.




I didn't post with the intention of getting barraged with lectures. I read plenty and Im sorry everyone is interpreting my questions this way. The basis of my post was to either have someone give me their own description of it, or to perhaps point me in a direction where I can learn more about it.


----------



## McLovin (6 October 2011)

young-gun said:


> I didn't post with the intention of getting barraged with lectures. I read plenty and Im sorry everyone is interpreting my questions this way. The basis of my post was to either have someone give me their own description of it, or to perhaps point me in a direction where I can learn more about it.




OK, so what have you read about it that you don't understand? Or put another way, what do you understand it to be?


----------



## explod (6 October 2011)

*Re: GDP???*



jaystar86 said:


> Welcome to the real world, where things don't get handed to you on a platter and you need to work to achieve any sort of semblance of results.




The idea of a site like ASF is to help and to in fact hand the platter around otherwise what would be the point.

I have asked and proferred some rediculous things over the years on ASF and still do.  However with many others I have got to know we are all the richer in knowledge, spirit and our equity base.

So, and not just you in isolation jaystar86, but I think many of the newbies ought to be a bit more tolerant and flexible towards each other.

A stupid answer to what is considered a stupid question is *also stupid  *


----------



## Billyb (6 October 2011)

*Re: GDP???*

Yep. Someone offers you the opportunity to open your heart and help them and instead you attack like a shark. Hate to live in the same house as some of these grumps.


----------



## young-gun (6 October 2011)

McLovin said:


> OK, so what have you read about it that you don't understand? Or put another way, what do you understand it to be?




I'm struggling to post off my phone, but in a nutshell my understanding of GDP is that it's a general gauge of economic growth. I understand that it's obtained several different ways which should all arrive at the same figure.. But I don't understand how they calculate it? As in do they keep a record of everyone's spending? Or do businesses have an obligation to hand over figures to whoever it is in charge of working it out? I just like to know in depth about what I'm reading but most sites only give a brief GDP description. I may be wanting to know more than I need to about this topic.


----------



## McLovin (6 October 2011)

young-gun said:


> I'm struggling to post off my phone, but in a nutshell my understanding of GDP is that it's a general gauge of economic growth. I understand that it's obtained several different ways which should all arrive at the same figure.. But I don't understand how they calculate it? As in do they keep a record of everyone's spending? Or do businesses have an obligation to hand over figures to whoever it is in charge of working it out? I just like to know in depth about what I'm reading but most sites only give a brief GDP description. I may be wanting to know more than I need to about this topic.




Ahh OK, that's much better.

GDP is the value of everything a country produces and the change in that number being "economic growth". As you said there are three different methods (production, income, expenditure) of measuring and they should all arrive at the same number, but because of the estimation involved they usually won't. You don't really need to know how the three arrive at a GDP number.

Essentially the ABS estimates the number by surveying thousands of large businesses, which is why it's prone to revision. They might also use things like BAS reciepts.

There's a bit here about how they do it:
http://www.abs.gov.au/Ausstats/abs@...Notes&prodno=5206.0&issue=Jun 2011&num=&view=


----------



## effraye (6 October 2011)

young-gun said:


> Can someone please give me a detailed run-down of exactly what gross domestic product is, how the value is obtained, what relation it has to an economy, why it is so important, and exactly what it's an indicator of. Also if someone could give me examples of good and bad gdp and maybe some current levels. I read about it everywhere and understand its  very important but i just dont have a good understanding of the ins and outs of it.
> 
> Thanks in advance.




GDP is the gross value (not volume) of production within an economy. Used to be called Gross National Product...


----------



## McLovin (6 October 2011)

effraye said:


> GDP is the gross value (not volume) of production within an economy. Used to be called Gross National Product...




GNP is a different measure (value of production by residents of a country) to GDP (value of production with the geographical bounds of a country).


----------



## GumbyLearner (6 October 2011)

McLovin said:


> GNP is a different measure (value of production by residents of a country) to GDP (value of production with the geographical bounds of a country).




I question that McLovin. 

It is not just the value of production of residents of a country but more importantly ownership of a company domiciled within the same country where the goods are "actually" produced. That is GNP.

Disclosure: I'm a Product of Australia :


----------



## Tysonboss1 (6 October 2011)

*Re: GDP???*



young-gun said:


> Ohhhhh I'm sorry. And here I was thinking I was in the beginners section! My apologies. Perhaps in future you can make me aware that my question may not be the best, and direct me to a good website that I can research myself, as opposed to posting useless comments and trying to make others out to be stupid. Not all of us are as educated as yourself.
> 
> Thanks for your help champ




As Henry Ford said - "You should chop your own wood, It will warm you twice"

Heres the thing, the questions you asked are very easy to reserach yourself, Not only thst it would be faster to research it yourself than ask the question here and have an asf type for 20mins giving you a complete answer.

As Explod showed, he simply cut and pasted from wiki, you could have easily searched for it yourself, and as you search for the info you will find many other pieces to complete your puzzel along the way.


----------



## Julia (6 October 2011)

*Re: GDP???*



Tysonboss1 said:


> As Henry Ford said - "You should chop your own wood, It will warm you twice"
> 
> Heres the thing, the questions you asked are very easy to reserach yourself, Not only thst it would be faster to research it yourself than ask the question here and have an asf type for 20mins giving you a complete answer.
> 
> As Explod showed, he simply cut and pasted from wiki, you could have easily searched for it yourself, and as you search for the info you will find many other pieces to complete your puzzel along the way.



Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.

It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.


----------



## Tysonboss1 (6 October 2011)

*Re: GDP???*



Julia said:


> Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.
> 
> It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.




Julia, I always try and be helpful. I have spent hours replying to peoples questions and trying to add layers to different discussions and even sending PMS.

However, On the face face of it, to me. the original post that started this thread asked multiple questions that any one with the ability to log on and post a thread should be able to google and spend some time reading about.

Then once they have done some reading start a thread where they can offer opinions, ideas and grey areas where the need clarification. Not simply ask us to collect facts for them.


----------



## Julia (6 October 2011)

Tyson, I wasn't directing criticism at you or anyone else, and yes, you are indeed usually very helpful.
I was just trying to offer an alternative basis for Young Gun asking the question, i.e. more of a 'getting to know you' thing.
I might be totally wrong and just having a rare moment of feeling indulgent or something.


----------



## McLovin (6 October 2011)

GumbyLearner said:


> I question that McLovin.
> 
> It is not just the value of production of residents of a country but more importantly ownership of a company domiciled within the same country where the goods are "actually" produced. That is GNP.
> 
> Disclosure: I'm a Product of Australia :




Yes, my mistake, it should be the value of goods and services produced by the labour and property of the residents of a country.


----------



## McLovin (6 October 2011)

*Re: GDP???*



Julia said:


> Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.
> 
> It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.




In retrospect, I think you are probably right and I might have jumped the gun a bit. With the follow up posts, it seems more like young-gun kind of had a brain dump in the OP but the clarified in subsequent posts.


----------



## GumbyLearner (6 October 2011)

Julia said:


> Tyson, I wasn't directing criticism at you or anyone else, and yes, you are indeed usually very helpful.
> I was just trying to offer an alternative basis for Young Gun asking the question, i.e. more of a 'getting to know you' thing.
> I might be totally wrong and just having a rare moment of feeling indulgent or something.




Well done Julia.


----------



## young-gun (7 October 2011)

McLovin said:


> Ahh OK, that's much better.
> 
> GDP is the value of everything a country produces and the change in that number being "economic growth". As you said there are three different methods (production, income, expenditure) of measuring and they should all arrive at the same number, but because of the estimation involved they usually won't. You don't really need to know how the three arrive at a GDP number.
> 
> ...




haha ok thanks, glad we are finally getting somewhere! once again apologies to all for the lack of clarity in my question. 

So am i correct in thinking that the figure they arrive at for GDP(even after being revised) could still be quite inaccurate? taking into account wrong boxes ticked, wrong buttons pushed, things missed or left out by businesses? or do things like this have minimal impact to the end figure?

finally this is probably a very simple and almost useless example:
 first quarter expenditure comes in at 10 bill...second quarter expenditure comes in at 11 bill..growth is 10% on previous quarter? once again i know this isnt a good example but is this the general principal behind gdp calc?


----------



## young-gun (7 October 2011)

*Re: GDP???*



Tysonboss1 said:


> Julia, I always try and be helpful. I have spent hours replying to peoples questions and trying to add layers to different discussions and even sending PMS.
> 
> However, On the face face of it, to me. the original post that started this thread asked multiple questions that any one with the ability to log on and post a thread should be able to google and spend some time reading about.
> 
> Then once they have done some reading start a thread where they can offer opinions, ideas and grey areas where the need clarification. Not simply ask us to collect facts for them.




a few things - isnt wikipedia able to be edited and changed by anyone? which brings into question the validity of the info you get off there? secondly, ive apologised for the original post, i was just firing the first things that came to my mind and clarified further down, thirdly i have read about gdp, i just wanted more in depth answers that i thought users might be able to help with, and finally i hardly think you would have had to go off and "collect facts" to answer my questions given your knowledge on economics? i find it frustrating ive had to spend most of this post defending myself...and in the beginners section?

and julia you're absolutely right...when starting out it is very much a "getting to know people thing" from my point of view anyway


----------



## bellenuit (7 October 2011)

young-gun said:


> Also if someone could give me examples of good and bad gdp and maybe some current levels.




Since GDP is a measure of things produced and includes services rendered, bad GDP would include things that don't add to the general well being, particularly the product and services needed to repair damage, either accidental or intentional. 

So, for instance, is a kid sprays graffiti on a city wall and the council employs the services of a contractor to clean it up, then that service is part of GDP. However, it is obvious that it is wasted labour as it would not have been necessary if the vandal hadn't sprayed the wall to begin with. Another example might be the Queensland floods. The services and products used to clean up the mess adds to Australia's GDP, but if we didn't have the floods to begin with, we wouldn't have needed to expend those resources. Bad GDP is not just accidents and damage, but would include much of the costs associated with the legal system, bad workmanship needing repair (e.g fixing the pinks batts problem) - really anything that requires expenditure on a product or service that doesn't add to the well being of the nation. Good GDP would be everything else.


----------



## Tysonboss1 (7 October 2011)

*Re: GDP???*



young-gun said:


> 1, isnt wikipedia able to be edited and changed by anyone? which brings into question the validity of the info you get off there?
> 
> 2, secondly, ive apologised for the original post, i was just firing the first things that came to my mind and clarified further down,
> 
> 3, i find it frustrating ive had to spend most of this post defending myself...and in the beginners section?




1, Yes, to an extent. But much less than a post on a thread in a forum.

2, I understand that now, My responce to you was not meant to be mean spirited in anyway.

3,No need to defend yourself any further, clarifying what it was you wanted is enough, We are a forgiving bunch and move on very quickly.


----------



## young-gun (7 October 2011)

bellenuit said:


> Since GDP is a measure of things produced and includes services rendered, bad GDP would include things that don't add to the general well being, particularly the product and services needed to repair damage, either accidental or intentional.
> 
> So, for instance, is a kid sprays graffiti on a city wall and the council employs the services of a contractor to clean it up, then that service is part of GDP. However, it is obvious that it is wasted labour as it would not have been necessary if the vandal hadn't sprayed the wall to begin with. Another example might be the Queensland floods. The services and products used to clean up the mess adds to Australia's GDP, but if we didn't have the floods to begin with, we wouldn't have needed to expend those resources. Bad GDP is not just accidents and damage, but would include much of the costs associated with the legal system, bad workmanship needing repair (e.g fixing the pinks batts problem) - really anything that requires expenditure on a product or service that doesn't add to the well being of the nation. Good GDP would be everything else.




ahh right, so does the reserve bank take things like this into account when adjusting interest rates? or do they just care about whether the figure is too high or too low? surely if there is things falsely or temporarily inflating the economy they would tend to sit on there hands and wait and see? and obviously australias mining sector would have a substantial impact on our growth?

i've always known of inflation and how it is good or bad but was just never aware of how it was determined and how it was linked to gdp so i appreciate the help guys!


----------



## McLovin (7 October 2011)

young-gun said:


> So am i correct in thinking that the figure they arrive at for GDP(even after being revised) could still be quite inaccurate? taking into account wrong boxes ticked, wrong buttons pushed, things missed or left out by businesses? or do things like this have minimal impact to the end figure?




They do a pretty good job of getting it *more or less* correct. Considering the time in which they get the figure out and the size of the revisions, they appear to have a pretty good handle on what can go wrong.



young-gun said:


> finally this is probably a very simple and almost useless example:
> first quarter expenditure comes in at 10 bill...second quarter expenditure comes in at 11 bill..growth is 10% on previous quarter? once again i know this isnt a good example but is this the general principal behind gdp calc?




Yeah that's right.


----------



## McLovin (7 October 2011)

young-gun said:


> i've always known of inflation and how it is good or bad but was just never aware of how it was determined and how it was linked to gdp so i appreciate the help guys!




Just to clarify, inflation isn't GDP growth.


----------



## young-gun (7 October 2011)

McLovin said:


> Just to clarify, inflation isn't GDP growth.




....so im confused, the two arent linked? is inflation purely calculated on supply and demand, and the reserve is fighting against rising prices of general goods and services, as opposed to an increasing gdp? 

does this mean that an increase in GNP that you spoke of would have an affect on inflation? and that gdp is just an indication as to whether an economy is growing or contracting, which is still an important indicator on its own?


----------



## Tysonboss1 (7 October 2011)

Inflation is measured by rising prices on a basket of goods and services, So it is seperate to GDP.

You can have increased GDP without having Inflation. Inflation is measured by the prices of a basket of goods over time.

I find it easier to understand inflation by thinking about it as the money supply it's self inflating, More money floating around compared to actual goods and services offered for sale = rising prices, Less money floating around compared to goods and services available = lower prices.

Generally a money supply with either be inflating or deflating, Inflation is generally seen as the lessor of the two evils, So most central banks choose to be leaning towards a steady slow rate of inflation say 3%, rather than slip into deflation.


----------



## McLovin (7 October 2011)

young-gun said:


> ....so im confused, the two arent linked? is inflation purely calculated on supply and demand, and the reserve is fighting against rising prices of general goods and services, as opposed to an increasing gdp?




Well they are linked but not directly. Remember GDP measures output, inflation measures price changes. Obviously GDP growth higher than inflation is necessary to actually grow in real terms. Ideally what you want are productivity increases that lead to GDP growth without increasing prices, ie if a worker can go from producing 100 widgets in a 40 hour work week to 200 widgets in the same period then they have doubled productivity while being paid the same amount (of course they would likely demand higher wages because of their productivity increase, but we're keeping it simple). On the flipside you can have stagflation which is the opposite, no growth and high inflation, as a lot of Western nations experienced in the 1970s.



young-gun said:


> does this mean that an increase in GNP that you spoke of would have an affect on inflation? and that gdp is just an indication as to whether an economy is growing or contracting, which is still an important indicator on its own?




It depends on what drives the growth in output. As in the example above if someone reinvents a widget machine so it can now create twice as many widgets/man hour then inflation should remain flat (or even fall if the theoretical economy produced only widgets).

Just remember that one measures growth in output and the other measures change in prices. They are linked, but not in a straight line.


----------



## young-gun (7 October 2011)

ok sweet, seems as though it is a tad more in depth than i originally thought, thanks for all the help!


----------



## Smurf1976 (7 October 2011)

Just remember that GDP is a measure of economic activity but is NOT a measure of wealth creation.

A natural disaster results in considerable economic activity but clearly does not create wealth, indeed it does the reverse.


----------



## young-gun (8 October 2011)

Tysonboss1 said:


> Inflation is measured by rising prices on a basket of goods and services, So it is seperate to GDP.
> 
> You can have increased GDP without having Inflation. Inflation is measured by the prices of a basket of goods over time.
> 
> ...




i've been doing a bit more reading, and just read an article that stated with europe and the US printing so much more money, this devalues the currency and drives inflation (more money than services or products offered), which in turn would further choke spending having the opposite effect to what the central banks desire when offering QE packages? i understand that QE packages are more aimed at fixing major banks balance sheets, most likely in hope that people will borrow again(further their debt) but surely the idea is that somewhere along the line the money ends up in the hands of those that have the potential to stimulate the economy?

anyway my question is when the fed's pull this money out of thin air, does it increase gdp? and is the above statement about inflating prices and choking spending correct at all?


----------



## Tysonboss1 (8 October 2011)

young-gun said:


> 1, i've been doing a bit more reading, and just read an article that stated with europe and the US printing so much more money, this devalues the currency and drives inflation (more money than services or products offered), which in turn would further choke spending having the opposite effect to what the central banks desire when offering QE packages?
> 
> 2, i understand that QE packages are more aimed at fixing major banks balance sheets, most likely in hope that people will borrow again(further their debt) but surely the idea is that somewhere along the line the money ends up in the hands of those that have the potential to stimulate the economy?
> 
> 3, anyway my question is when the fed's pull this money out of thin air, does it increase gdp? and is the above statement about inflating prices and choking spending correct at all?




1, The central Banks don't actually have to print cash to create money, most of the money out there is not in the form of cash. The have a few tools in their belt to free up the money supply, But their Brake works better than their accelerator.

2, Yes, the have done alot of work to fix the banks balance sheets and increase the banks to lend, the more money that is lent the more money is created. If banks don't lend and the whole world starts deleveraging it would cause massive deflation and lead us into a long hard depression. Deflation is the nasty big brother of inflation, Hence why the central banks always lean towards a little inflation.

3, The Fed have Billions of reserves at it's disposal, and most of the work it does is just shuffleing how these reserves are held, For example during the GFC it swapped tresury bills it held for toxic assets at cents on the dollar, It ended up making about $150B profit on those toxic assets. It is also in the process of buying longer dated government bonds.


----------



## Tysonboss1 (8 October 2011)

Here is a video series that may be of interest to you, It gives a very simplistic idea of what goes on and is a bit alarmist but it may fill in some of the gaps for you.

Here is video 1 of 5 the rest can be veiwed on youtube.


----------



## Starcraftmazter (10 October 2011)

young-gun said:


> Can someone please give me a detailed run-down of exactly what gross domestic product is, how the value is obtained, what relation it has to an economy, why it is so important, and exactly what it's an indicator of. Also if someone could give me examples of good and bad gdp and maybe some current levels. I read about it everywhere and understand its  very important but i just dont have a good understanding of the ins and outs of it.
> 
> Thanks in advance.




It is whatever the government of the country which calculates it want it to be.
It is estimated based on the information they have available.
It has little relation to the economy.
It is not very important.
It is an indicator of nothing.


This is helpful to understand:
http://www.youtube.com/watch?v=-xCy6sDxnhs
http://www.youtube.com/watch?v=FzEDkFDeJ_A


----------



## young-gun (10 October 2011)

Starcraftmazter said:


> It is whatever the government of the country which calculates it want it to be.
> It is estimated based on the information they have available.
> It has little relation to the economy.
> It is not very important.
> ...




great links...really quite amazing


----------



## young-gun (10 October 2011)

Starcraftmazter said:


> It is whatever the government of the country which calculates it want it to be.
> It is estimated based on the information they have available.
> It has little relation to the economy.
> It is not very important.
> ...




HAHA what a joke! im upto chapter 16 so far, do you know if these same types of practises are carried out in australia by the gov.? including the altering of true inflation rates to make them appear substantially lower, through these weird and wonderful ways of calculating it?

or are we slightly more realistic?


----------



## McLovin (10 October 2011)

young-gun said:


> i understand that QE packages are more aimed at fixing major banks balance sheets, most likely in hope that people will borrow again(further their debt) but surely the idea is that somewhere along the line the money ends up in the hands of those that have the potential to stimulate the economy?




QE is aimed at stimulating the economy, not at fixing bank balance sheets. 



young-gun said:


> anyway my question is when the fed's pull this money out of thin air, does it increase gdp? and is the above statement about inflating prices and choking spending correct at all?




In theory it should, but if the banks aren't lending that money out (and companies are also hoarding it) then the velocity of money will continue to fall, which will mean that the increase in money supply isn't actually going to work. This is what happened in Japan.


----------



## young-gun (10 October 2011)

McLovin said:


> QE is aimed at stimulating the economy, not at fixing bank balance sheets.




But isnt buying up the banks toxic debts essentially what they are doing to stimulate the economy? to free up the banks cashflow to allow them to lend?

which is a different approach compared to k rudds $900+ handouts(which i thought would have more of a positive impact on an economy - albeit a temporary one - than buying bad debt?) I guess different problems require different actions.


----------



## McLovin (10 October 2011)

young-gun said:


> But isnt buying up the banks toxic debts essentially what they are doing to stimulate the economy? to free up the banks cashflow to allow them to lend?




They are not buying up toxic debt as part of QE. They did as part of TARP starting in late '08. There was of course some cross-over.

Bernanke is a student of the Depression and believed that it's severity and duration was because money wasn't pumped into the system, hence when he sees things looking like they're starting to go bad he floods the system with more cash.



young-gun said:


> which is a different approach compared to k rudds $900+ handouts(which i thought would have more of a positive impact on an economy - albeit a temporary one - than buying bad debt?) I guess different problems require different actions.




Correct, different circumstances, different decisions. The banking system here isn't screwed.


----------



## tothemax6 (10 October 2011)

McLovin said:


> QE is aimed at stimulating the economy, not at fixing bank balance sheets.
> 
> In theory it should, but if the banks aren't lending that money out (and companies are also hoarding it) then the velocity of money will continue to fall, which will mean that the increase in money supply isn't actually going to work. This is what happened in Japan.



QE is more aimed at: attempting to prevent deflation that should naturally occur, taking pressure of debt-laden governments by monetizing their debt, increasing bank reserves against their callable liabilities (bank deposits) to prevent them blowing up in 'runs', and temporarily depressing interest rates. Any 'stimulation' is a short-term illusion that actually damages the economy.
And yes, if banks are stuffed (like in Japan, with its 'zombie banks'), you get continuous credit contraction, causing deflation, regardless of money printing - until the credit contraction finally clears, and you probably then get an explosion of inflation.


----------



## Starcraftmazter (10 October 2011)

young-gun said:


> HAHA what a joke! im upto chapter 16 so far, do you know if these same types of practises are carried out in australia by the gov.? including the altering of true inflation rates to make them appear substantially lower, through these weird and wonderful ways of calculating it?
> 
> or are we slightly more realistic?




Hey mate. Terribly sorry, I meant to link you to chapter 16, but I haven't seen that in a little while and got it mixed up a bit, since both of those talk about inflation.

Yes, the Australian government does this as well, the way inflation (actually the CPI) is calculated was changed along with the US, and since then it has calculated the cost of survival rather than the cost of living. Similar to GDP, Australia has the biggest housing bubble in the developed world, so you can imagine where a lot of the GDP growth comes from.

The Chinese government is particularly bad at giving it's GDP statistics, which should always be dismissed. However you can still choose to pay attention to trends. Even given how flawed all these statistics are, we still have trends to follow.

Another problem is the way CPI is calculated changes very frequently (every few years), although no change has been as significant as the one outlined in the Crash Course video.



McLovin said:


> The banking system here isn't screwed.




Yet. Just a matter of time mate.


----------



## McLovin (11 October 2011)

tothemax6 said:


> QE is more aimed at: attempting to prevent deflation that should naturally occur, taking pressure of debt-laden governments by monetizing their debt, increasing bank reserves against their callable liabilities (bank deposits) to prevent them blowing up in 'runs', and temporarily depressing interest rates. Any 'stimulation' is a short-term illusion that actually damages the economy.
> And yes, if banks are stuffed (like in Japan, with its 'zombie banks'), you get continuous credit contraction, causing deflation, regardless of money printing - until the credit contraction finally clears, and you probably then get an explosion of inflation.




1) Assuming you're correct and, it has been done as a preventative measure, why should deflation be allowed to occur? It will hardly fix the problem. 

2) How has QE by the Fed "taken pressure of [sic] debt-laden governments"? Inflation is hardly out of hand.



			
				Starcraftmazter said:
			
		

> Yet. Just a matter of time mate.




Sure, why not.


----------



## young-gun (11 October 2011)

Starcraftmazter said:


> Hey mate. Terribly sorry, I meant to link you to chapter 16, but I haven't seen that in a little while and got it mixed up a bit, since both of those talk about inflation.
> 
> Yes, the Australian government does this as well, the way inflation (actually the CPI) is calculated was changed along with the US, and since then it has calculated the cost of survival rather than the cost of living. Similar to GDP, Australia has the biggest housing bubble in the developed world, so you can imagine where a lot of the GDP growth comes from.
> 
> ...




all good i ended up watching from your links to the end of the series anyway.

it seems ludacris?! how are they allowed to do that? and their justification appears to simply be 'we falsify figures to make them look more appealing'?

they even use the same method(hedonics) to both lower inflation and increase gdp!

No one change is significant, but i guess you eventually end up with a compounding affect which is evident in the video.

just a touch off topic but i recently read a book that outlined how absurd the US unemployment figures are calculated(as discussed in the video briefly). They did a bit of research and i cant recall exactly, but they came in at around 3 percent higher unemployment than they currently claim(approx 9% i believe).

sorry what trends are you referring to exactly?


----------



## Starcraftmazter (11 October 2011)

young-gun said:


> it seems ludacris?! how are they allowed to do that? and their justification appears to simply be 'we falsify figures to make them look more appealing'?




Who is there to stop them? They are the government, and the vast majority of the population don't know enough about economics to understand how screwed they are being.

This is especially bad when you consider that in Australia too, the re-indexing of welfare payments (and government salaries) is done based on CPI. Funny that, when electricity goes up by 15-20% pa, or water at 30%pa,  I can't really substitute it for a pedal powered electricity generator and ocean water, and yet if you believe the government that is precisely what we must do 

When houses have risen by 9% pa during the last credit bubble, people were not able to substitutde them for cardboard box shelters, and yet inflation was apparently at historical lows 



young-gun said:


> just a touch off topic but i recently read a book that outlined how absurd the US unemployment figures are calculated(as discussed in the video briefly). They did a bit of research and i cant recall exactly, but they came in at around 3 percent higher unemployment than they currently claim(approx 9% i believe).




I believe they keep underemployment figures which are more accurate in relation to how employment used to be calculated, and are currently running at 14 and something percent.



young-gun said:


> sorry what trends are you referring to exactly?




GDP trends, or the trends of any other statistic. Even if the way it's measured is flawed, if you can take that into account, you the trends of that statistic might still be of some (limited) use.


----------



## young-gun (11 October 2011)

Starcraftmazter said:


> Who is there to stop them? They are the government, and the vast majority of the population don't know enough about economics to understand how screwed they are being.
> 
> This is especially bad when you consider that in Australia too, the re-indexing of welfare payments (and government salaries) is done based on CPI. Funny that, when electricity goes up by 15-20% pa, or water at 30%pa,  I can't really substitute it for a pedal powered electricity generator and ocean water, and yet if you believe the government that is precisely what we must do
> 
> ...




ahh got ya. i guess trendlines also become redundant with every new whacky inflation calculation though. as the quoted rate of inflation gets further and further away from the 'actual' rate of inflation (can only imagine what it might be :S) the trend line would become more and more pointless and less of an indicator?


----------



## Smurf1976 (11 October 2011)

Starcraftmazter said:


> Funny that, when electricity goes up by 15-20% pa, or water at 30%pa,  I can't really substitute it for a pedal powered electricity



Haven't you seen the Momentum Energy ad on TV? Seems to be working fine for that bloke... :


----------

