GDP growth is an illusion, governments are spending irresponsibly

The numbers may look positive, but behind the statistics, Western economies are already in recession, warns Trust Economics in its analysis, emphasizing that “growth” is nothing more than a fiscal illusion, based on a surge in government deficits and not on a real increase in economic activity in the private sector. Subtract government deficits from GDP and you will see that the private sector is shrinking. The tax base is being reduced, while debt is swelling – and this is a combination with disastrous consequences for the future of economies. Some financial houses, seeing a decrease in private lending, claim that the risks are overestimated. Indicatively, BlackRock, Fidelity and Schroders agree with an article by Ambrose Evans-Pritchard in the British Telegraph who argued that “UK bonds are a buying opportunity”. But the reality is rather the opposite. There is indeed a financing crisis and governments are trying to buy time. Are such articles and support from large financial houses “set up” in collaboration with the governments themselves, to attract capital and keep interest rates down? The US “mirror”

• The fiscal deficit for 2024 was 6.4% of nominal GDP, while GDP itself grew by just 5%. This means that the private sector shrank by 1.4%.
• In the first quarter of 2025, nominal GDP grew at an annual rate of just 3.25%, while the deficit has exceeded 6% and continues to rise. In other words:

1. The private sector is sinking even further.
2. Real GDP fell by 0.5% after adjustments, despite the official growth picture.

GDP is “holding up” only because the federal government is spending more than it collects. But because GDP is simply an accounting record of the flow of credit, private credit is actually falling. Banks have significantly reduced lending to non-financial businesses, a trend that began with the Lehman crisis and accelerated in 2021. At the same time:

• The US savings rate has fallen below 1% of consumption
• Debt write-offs are on the rise
• Banks are turning to government bonds, abandoning the private sector
• The same pattern is repeated in the UK, and in the rest of the G7 countries, which support the illusion of economic growth with new debt and deficits.

Donald Trump and his tariffs bring more uncertainty. The economic effects of these policies are not hypothetical – they are historically proven. The Smoot-Hawley Tariff Act of 1930, combined with a collapse in private sector credit, plunged the US and the world into the Great Depression. Today, the scenario is repeated:

• Stock markets are fueled by borrowed money
• Lending ratios, according to FINRA, are reminiscent of 1929
• The private economy is already in recession and is being driven deeper into recession
• Government revenues will collapse
• Debt-to-GDP ratios will soar in all G7 countries

Which brings us back to the original question: Do you buy or sell government debt? Based on the analysis by Trust Economics:

• Government issuance of new debt will skyrocket
• Government revenues are falling, while debt service costs are rising
• The system has entered a classic debt trap
• That is why government bond yields are rising, breaking a trend that has been going on since the 1980s.

Neo-Keynesians and monetarists believe that in a recession, prices fall and therefore interest rates. But they ignore the supply side, which is also falling. Inflationary pressures remain – and governments cannot control them through central banks as they used to. The most dangerous point is the US debt.

• The Fed plans to loosen bank capital requirements so they can buy more government bonds.
• This shows panic, not strategy.

The truth is:

• Investors no longer trust government currencies
• Demand for dollars is collapsing
• Asian central banks are abandoning currencies and turning to gold

This is the end game for fiat currencies. Gold is not rising – confidence in the dollar and the system as a whole is collapsing. As for the phrase “bonds are a screaming buy,” all one can say is: Either they are deliberately misleading us… or they are simply victims of the same economic illusions that have built the crisis…