What Is GDP?
Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period (usually one fiscal year). As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.
GDP in 2019 (source: Investopedia)
U.S. Nominal GDP: $21.44 trillion – U.S. GDP (PPP): $21.44 trillion
China Nominal GDP: $14.14 trillion – China GDP (PPP): $27.31 trillion
We are the only country whose GDP PPP (GDP in Purchasing Power Parity) is measured in our own currency and therefore it is always the same. Does that make any sense?
It is important to note that China is a Communist system where the Government owns Most Businesses and therefor controls them as well. In recent years, China’s growth was due to government purchases and not business growth. As a large percentage of businesses are owned by the government, we have lack of Transparency and One source only, the ruling party, provides data which is inaccurate in most cases as we discover years after when we uncover discrepancies.
Now that we have a better perspective of reality, we will talk about GDP & PPP.
China’s GDP in 2019 was $ 14.14 Trillion- This is actual GDP Not GDP PPP.
What is PPP? Purchasing Power Parity which is the Politically Correct way Imposed on us to compare economies, it is actually a joke as I tell my students.
Producing and Purchasing are very different concepts in Business & Economy but not when mixed with politics.
The PPP (Purchasing Power Parity) definition is an economic theory that allows the comparison of the purchasing power of various world currencies to one another. It is a theoretical exchange rate that allows you to buy the same amount of goods and services in every country.
GDP in PPP is what you can Buy in that country with that amount Produced in equivalent of Dollars in that country (converted from their currency into Dollars). Meaning if actual GDP in China is $ 14.14 Trillion, what can you purchase with that amount (in Dollars) in China compared to the what you can buy in the U.S. Basically, the actual Production in China was $ 14.14 Trillion, and you can buy with theses Dollars the equivalent of $ 27.31 Trillion (GDP PPP) in China if that makes any sense.
To clarify matters more, the interesting part is that when measuring the GDP in China it is first provided in their currency the Yan (or Renminbi), then converted to Dollars, and after that they look at the PPP and figure out how much you can buy with these Dollars in China. Basically, the conversion is done twice and very shady results.
Government agencies use the PPP to compare the output of countries that use different exchange rates. You could use it to find out where to get the cheapest hamburger in the world, Yes, this analysis is based on the cost of McDonald’s Big Mac in different countries as they had No Other Way of measuring. I leave it up to your imagination to figure out the holes in this approach.
PPP Calculation/ Definition
The purchasing power parity calculation tells you how much things would cost if all countries used the U.S. Dollar. In other words, it compares anything bought throughout the world and how much it would cost if it were sold in the United States. The total of all those goods and services equals the country’s economic output. Add the number produced in a year and you get the country’s gross domestic product (GDP) as measured by PPP.
The Big Mac index is a survey created by The Economist magazine in 1986 to measure purchasing power parity (PPP) between nations, using the price of a McDonald’s Big Mac as the benchmark.
Purchasing power parity is an economic theory which states that exchange rates over time should move in the direction of equality across national borders in the price charged for an identical basket of goods. In this case, the basket of goods is the Big Mac.
The Fascinating part is that these Economists threw the book out the window when it came to comparing Economies. The Cost of a Big Mac become the deciding factor and Cost of Doing Business, Interest Rates, Regulations, Taxes and the list goes on, have been excluded completely from the comparison.
The Facts are simple: The Experts are using inadequate tools in their approach.
A GDP of $ 14.14 Trillion in China is the equivalent of $ 27.31 Trillion or 93% Higher in value. This is what happens when Producing is the equivalent of Purchasing, in other words concepts and meaning of words are irrelevant.
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