What is GDP? You hear these terms floated around every time the statistics come through on a monthly basis. So why should you pay attention to it? Stay tuned.
From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell.
Welcome everybody to FinancialFreedomRadio.com. Want to thank you all for coming and hopefully downloading, sharing with others, please like, share, and ring the bell if you’re looking at it through YouTube. Subscribe if you’re not. When you ring the bell, you get notified every time we put a show-up. It’s a good advanced warning that we’re doing one of these. So let’s talk to our illustrious producer and make sure that he’s alive and well. Good morning, Steve. Good afternoon, I’m sorry.
That’s okay. It depends on where people are listening. Good morning, Dr. Ray. How are you?
It’s 5:00 somewhere.
That’s a Jimmy Buffett reference.
That’s right. So we’re going to talk about something that’s going to make your head spin. I’m going to try and keep this fairly simple. It’s about GDP. Do you know what that means?
Gross domestic product. But I have no idea what that means beyond the actual name. One of the things I learned in my business is I’m very good at making up words that fit acronyms. I just happen to know that acronym. What it means, I have no idea.
Most people don’t. When they see the statistics show up or whenever they’re watching the news or something and they hear about a gross domestic product, a little switch in their brain turns off.
Is that the same as the gross national product?
Totally different. See I know nothing.
Let’s not confuse the listenership.
I’ll just go away and do my producing thing.
No-no-no. I always like to have you stay here and listen.
I’ll listen, but I’m going to get off the screen. It’s your show.
So let’s talk about the definition of gross domestic product. The definition is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time. Normally a year. GDP growth rate is an important indicator of the economic performance of a country. When you’ve got a country that’s doing really well, your GDP is going to be up. When it’s not doing well, it’s going to be down. When our country does really well, our GDP is up. When it doesn’t do well, we’re reporting losses. So that’s important to understand. It’s the final value of goods and services. That’s products and services produced within the geographic boundaries of the United States.
During a specified period of time, normally it’s a year. It’s an important indicator as I said to measure the performance of the country, but also it will give you an idea of how people feel. When people spend, they’re feeling good. When they don’t, they’re not. Let’s look at how it’s calculated. The GDP calculation accounts for spending on both exports and imports. That means stuff that’s being shipped out of the country and being shipped in. They’re measuring the numbers in this country. A countries GDP is the total of consumer spending plus business investment and government spending plus net exports and imports. What does that mean? You don’t have to worry about it. It’s not that important because you’re looking at the rate for the whole U.S.
Did you literally spend 3 minutes explaining something to us we don’t even know?
Yes, I did.
That’s what this show has become now?
A show about nothing?
It’s the hey Ray is super smart so let him explain things to you that you don’t need to know.
We’re going to touch upon it at some point in time, but not now. Is a high GDP good or bad? Well, it is traditionally used to measure economic progress, as I said earlier. If it’s good, it’s gonna be up. If it’s not, it’s gonna be down. If the GDP is rising, the economy is in solid shape. The nation is moving forward. On the other hand, if the gross domestic product is falling, the economy might be in trouble and the nation is losing ground. We saw a perfect example of this in 2020 when COVID hit. We saw a lockdown of the country. Businesses shut down, everything shut down, and they had a 30% reduction in GDP, negative. Everybody’s going oh my God we’re panicking. The GDP’s down. What they’ve failed to tell the public is that when you’ve got manufacturing and goods and services working and you shut it down, it’s already working. It’s just temporarily halted. When you measure that order, you’re going to see it’s down. When you start it back up again, it’s going to go back to its original position. When the country shut down and everything stopped, it didn’t stop the infrastructure of what drives the GDP. It’s manufacturing, services, and all of the businesses that are out there. It just halted them temporarily. Everybody said “Oh my God, we’re going into a tailspin. The economy is going to be a mess.” People don’t understand that all that infrastructure is in place so when the lockdown was taken away, partially taken away, it started going back up to where it was before. That’s why the next quarter we saw a 33% increase in GDP.
So because you saw the negative, it had to go back to the positive. Our president knew that. He kept saying we’re going to have a V. That’s going to be a very sharp direction. He knew it needed to get back to equilibrium. That’s a tongue twister. It had to get back to where it normally was.
Production is already ramped up and running and giving off the GDP numbers. If anything is done in our country to cause production to slow down, goods and services, and consumer spending is slowed down, GDP’s going to come down. It’s not going to be a rapid decline. It’s gonna decline over time. When you see people say we could have a transition, political alert, I don’t believe it, the government’s going to come in. So if somebody else gets in and they don’t focus on the economy, they don’t focus on manufacturing, they don’t focus on service in the industry, they outsource it, and they pride themselves on outsourcing into other countries and our internal GDP is going to go down. Other GDP’s are going to go up because they’re benefiting from our purchases, but we’re not. So when you shift it to outside the country, GDP’s going to go down because we’re not manufacturers, we’re not seeing the value of goods and services produced within our geographic boundaries. Make sense, Steve?
A little bit.
Where have I lost you?
Basically what you’re saying is when the GDP goes down, it’s because we’re not consuming the product, right?
No. GDP is the final value of goods and services produced within the geographic boundaries of our country. We’re consuming because we’re buying it from other countries.
I see. That’s where you lost me.
So, when you’re not producing it, and other countries are producing it for you then our GDP goes down. Now, why is that important? Because what drives this country is the manufacturing industry, the service industry, it’s not manufacturing overseas and consuming in our country. We have to manufacture to consume for us to have a viable economy. We’ve not run a viable economy for many many years because we were manufacturing overseas where other countries’ GDP is high and ours is just a consumption society. This happened years ago. There were books written about this. They talked about this shift from manufacturing to the service industry. If you’re not manufacturing, you don’t have a strong economy. You have to manufacture. Are we okay now?
It all comes down to the fact that we’re not manufacturing during the lockdown.
The infrastructure is there. We were manufacturing before lockdowns.
We didn’t break down the infrastructure. We just put it on pause.
That’s a perfect way of saying it.
We didn’t break down the infrastructure.
In other words, we had the ability. We had the infrastructure, we have the machinery to produce a million widgets. During the lockdown, we produced zero widgets. So we go down to nothing and then when the lockdown’s over, we turn those machines back on. We’re back to making one million widgets.
In the meantime, the GDP goes down because the value of that was not being made. It was paused. So it went down. It automatically went back up real fast. That was the super V. When we manufacture it overseas, in other countries, because we think we’re so smart and that we can manufacture it for less and sell it for more and all these manufacturing companies like Apple and Dell and all these companies went to foreign countries to get a cheaper price. They’re selling it to us. They’re making money, but we’re not making anything in this country. We’re just consuming. You can’t be a consumption society, totally.
I think I saw that on the news today. They were talking about, I’ll avoid the politics, but it was a case of we were outsourcing the manufacturing to China because the labor was cheaper. Then we were buying the product back at the same price as if they were manufactured here in the U.S., which basically meant big corporations were making all the difference as profit, right?
Yep. Follow this train of thought. We make widgets or we want widgets made so we put an order into another country to make our widgets. We may ship them raw materials or they may have it over there in the other country. They make their widgets, we’ve spent no money, they made the widgets, and they sell it to us. All we’re doing is consuming.
If we pay American workers $10 for that widget, if we buy the widget for $100 and we pay American workers $20 to make that widget, that’s an $80 profit. If we outsource that to another country and they only charge $10, they only pay their workers $10, we’re still going to pay the $100, but the corporations are making $10 more profit because they were able to buy their product from the overseas company and sell it back for the same price. So money is leaving the country, but money is not coming into the country.
Right. Look at the labor pool. You make the widget here, you’re paying people to work. Then people are buying the products. When it’s manufactured somewhere else, you’re paying others, other people are being paid to work outside of our country. Wanna know who the highest GDP economy is?
Who is it, Ray?
China. Why? Because we were shipping everything to them to manufacture. Then they were selling it to us. Remember, I said that the imports and exports. China gets a really good GDP and ours goes down. When our President came in and said no longer I’m going to charge you a tariff and we’re going to have America first. America first is the only way our economy is going to survive and be lasting and not depend on other countries. We saw exactly what happened when we depending on another country and we got caught with our pants down with this COVID thing. Our GDP needs to rely on America first. When you outsource to other countries, you’re not putting the people first. That’s why such a big mess is going on in Washington and this voting thing. People want to be first. They want to make money. They want to work. They want to build. It’s in our nature, it’s in our DNA.
We’re running out of time here folks. I’ve got a lot to do. We can probably go over part of this again next week.
How does this affect people’s financial freedom? Bring it back to the topic.
When America is considered first, you have manufacturing here. People can work, they can make money, and they can invest money, they can buy goods and services, they can feel good about themselves. When they rely on somewhere else, then the GDP of a country will start to go backward or struggle. For years, we struggled to get our GDP up. For years, it was a struggle because we weren’t manufacturing. So what does it do for the little guy? The little guy better wants to have America first because that makes their pocketbook get fatter. Without it, somebody else is controlling the manufacturing of goods and services and the value that is derived from that manufacturing part of it. Did I bring it home?
That was good. Without a strong GDP, you don’t have a shot at financial freedom.
We tend to not pay any attention to that. It’s very important in the big picture of investing. Look at the stock market right now. It’s amazingly high. The stock market is 30,000 and the DOW is up 30,000. The other indicators are up because we have a strong GDP. When you have a lesser GDP, when it starts to go down, the markets become skittish unless you can trick them. That’s a whole other discussion.
Anyway, I want to thank you all for coming and downloading. I wrote a book called Why the Rich are Rich. You may want to read that because that’ll give you an insight into financial freedom and how you can build wealth regardless of what goes on in the world. You really want this country to be focusing on America first. If I get any message out there, America first means that the indicators within this country are measuring strong instead of weak. In the past, they’ve been very very weak. It’s been a struggle to keep them up. You’ve seen how easy it is just by putting America first.
Again, I want to thank you all for coming and downloading. At the end of this, you’ll be able to get a free copy of my book Why the Rich are Rich. Hope to see you back here next week. FinancialFreedomRadio.com. Take care. God bless.
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