Orwellian Economics

When the Government Tells You You're Rich (But You're Not)

“The party told you to reject the evidence of your eyes and ears. It was their final, most essential command.”

~ George Orwell - 1984

You might not have noticed, but according to the government, you're now much richer than you were just a month ago.

A few weeks ago, the Bureau of Economic Analysis (BEA) released its annual revisions for inflation-adjusted consumer income, spending, and the savings rate. These revisions go back five years, but the most significant changes hit the 2022-2024 period—and they’re all major upward adjustments.

Apparently, everyday Americans like you have been earning and saving way more than anyone thought.

And just like that, with a few pen strokes, Fed Chair Powell's and President Biden's claims about the strength of our economy suddenly seem credible.

Just kidding. Let’s dig deeper into this charade.

Faux Prosperity on Demand

So, here’s the core of the BEA revisions, and they’re honestly pretty stunning.

Personal income without transfer receipts (think wages, interest, rental income, small business profits, etc.) had its growth revised up from 3.6% to 6% for the period between 2022 and 2024.

Disposable income—what’s left after taxes—also got a boost, from 5.5% to 8.5%. And the savings rate, which seemed almost nonexistent at a low 2.9%, was revised to a much more optimistic 4.9%.

Note: The savings rate is the percentage of disposable income that households save rather than spend.

Suddenly, Americans aren’t just making more—they’re saving more, too.

Now, it’s not unusual for government agencies like the BEA to issue revisions, but for them to be this dramatic is pretty rare.

But the BEA didn’t stop there. Even GDP got a similar makeover. In Q2 2024, real gross domestic product, adjusted for inflation, was revised $305 billion higher than previously reported. That’s a growth rate of 5.8% since the end of 2021, compared to the earlier figure of 4.9%.

This is a textbook case of "cooking the books."

Truth be told, we probably should’ve seen this coming from a mile away. It’s an election year, and whether it’s Biden or Harris, the Democrats need all the help they can get. These revisions give them the perfect chance to brag about how the economy’s supposedly stronger than anyone thought. And they wasted no time in doing so...

Source: White House

The Fed's Paradox

Now, any thinking person would probably look at this and wonder: if the economy is as strong as they claim, why the urgency to cut rates?

That’s a very reasonable question!

As you well know, the Fed has recently pivoted. And they didn't just pivot - they dove headfirst with a fat 0.5% rate cut.

Now, I don’t know about you, but I didn’t expect the Fed to kick off its easing cycle with such a massive cut, much less follow it up with signals of two more cuts before the year’s end.

At the time of writing, the market is pricing in a 97.4% chance of a 0.25% cut in November, with only a slim 2.6% chance that rates remain unchanged.

So, the next cut is pretty much baked into the cake. But even after another likely cut in December, they won't be done, with more cuts expected in 2025 and 2026.

Honestly, it makes zero sense for the Fed to be slashing rates so aggressively if everything is supposedly hunky-dory. At the very least, these rate cuts fly in the face of the establishment's rosy "robust economy" storyline.

But hasn’t the Fed’s Chair recently reiterated that the central bank’s decisions will be guided by "incoming data"?

Jerome Powell: Ultimately, we will be guided by the incoming data. If the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower, and that's really what’s going to decide it.

Sure, Powell's insistence on letting the data guide them sounds reasonable—until you realize that the data they rely on is probably being tailored to fit the establishment's agenda as I write this.

The books are cooked; it's just a question of how charred they are.

1984 in 2024

The truth is, the government and the elites have no intention of letting the American public understand the precarious state we’re in.

As I mentioned in a recent essay, American consumers are drowning in debt, with total credit card balances hitting record highs since 1947. Credit card delinquencies have more than doubled since 2021.

Student loan debt, auto loan debt, and mortgage debt are all at or near historic highs.

These are symptoms of a sick economy, not a robust one.

Prices remain stubbornly high, and while some have benefitted from inflated stock and real estate values, most people are barely scraping by.

The government may have massaged the economic numbers, but I bet your grocery bill, rent, and energy costs are telling a whole different story.

This brings me back to the George Orwell quote I highlighted at the beginning, from his masterpiece “1984”:

The party told you to reject the evidence of your eyes and ears. It was their final, most essential command.

As a kid growing up in the last days of the Soviet Union, I got to see firsthand how governments could twist information to stay in control. The gap between what we were told and what we actually experienced was shocking. They talked about abundance, but I remember the long lines snaking around city blocks, with people waiting hours just to get basic things. Empty shelves were everywhere, completely at odds with the state's propaganda. Lately, that same disconnect between what we're told and what we see feels all too familiar again.

Regards,

Lau Vegys