TARP Covers GDP
We now know not to pay attention to any government numbers when it comes to the economy — not when they can use their own programs to skew the results:
What else was buried in the GDP report besides inventory and falling prices that was artificially goosing the data?
The answer? TARP. It turns out that the TARP money given to banks as recapitalization was a major factor in the total GDP number.
How? Uncle Sam buying a financial asset does not contribute to GDP under normal circumstances. But the Treasury purchased these assets at prices discounted to market prices. (Not as cheap as Buffett’s purchases, but still at somewhat of a discount).
The Bureau of Economic Analysis, my hedgie friend informs me, records this purchase as a Capital Transfer — its the difference between the price paid and the fair market value. Capital transfers are based on Congressional Budget Office estimates, by reducing net government borrowing or lending.
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And there you have it: Pour billions of dollars into insolvent banks, goose the GDP for your troubles.
Ain’t DC grand?
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