Economic Articles

I couldn’t decide which one of these I was going to post, so I’m putting up both of them. Why not, he he, it’s my blog, and I can do what I want.  But on a more serious note, I can’t stress to you how badly I feel the situation presently is. Not just for what it is now, but for what it portends in the future. I really believe that in two years the economic situation of most of the world, never mind America, will be so dreadful that we will collectively look back at 2010, and wish to god we could have it that good again. That would be something wouldn’t it? 2010; The Good Ole Days………..

Paul Craig Roberts
August 17, 2010

On August 17, Bloomberg reported a US government release that industrial production rose twice as much as forecast, climbing 1 percent. Bloomberg interpreted this to mean that “increased business investment is propelling the gains in manufacturing, which accounts for 11 percent of the world’s largest economy.”

The stock market rose.

Let’s look at this through the lens of statistician John Williams of Williams reports that “the primary driver of a 1.0% monthly gain in seasonally-adjusted July industrial production” was “warped seasonal factors” caused by “the irregular patterns in U.S. auto production in the last two years.” Industrial production “shrank by 1.0% before seasonal adjustments.”

If the government and Bloomberg had announced that industrial production fell by 1.0% in July, would the stock market have risen 104 points on August 17?

Notice that Bloomberg reports that manufacturing accounts for 11 percent of the US economy. I remember when manufacturing accounted for 18% of the US economy. The decline of 39% is due to jobs offshoring.

Think about that. Wall Street and shareholders and executives of transnational corporations have made billions by moving 39% of US manufacturing offshore to boost the GDP and employment of foreign countries, such as China, while impoverishing their former American work force. Congress and the economics profession have cheered this on as “the New Economy.”

Bought-and-paid-for-economists told us that “the new economy” would make us all rich, and so did the financial press. We were well rid, they claimed, of the “old” industries and manufactures, the departure of which destroyed the tax base of so many American cities and states and the livelihood of millions of Americans.

The bought-and-paid-for-economists got all the media forums for a decade. While they lied, the US economy died.

Now, back to statistical deception. On August 17, the census Bureau reported a small gain in July 2010 residential construction housing starts. More hope orchestrated. In fact, the “gain,” as John Williams reports, was due to a large downward revision” in June’s reporting. The reported July “gain” would “have been a contraction” without the downward revision in June’s “gain.”

So, the overestimate of June housing not only made June look good, but also the downward correction of the June number makes July look good, because starts rose above the corrected June number. The same manipulation is likely to happen again next month.

If the government will lie to you about Iraqi weapons of mass production, Iranian nukes, and 9/11, why won’t they lie to you about the economy?

We now have an all-time high of Americans on food stamps, 40.8 million people, about 14% of the population. By next year the government estimates that food stamp dependency will rise to 43 million Americans. So last week Congress cut food stamp benefits. Let them eat cake.

Wherever one looks — food stamps, home foreclosures, bankrupted states, mounting joblessness — the message to long-suffering Americans from “their government” is the same: go eat cake, while we fight wars for Israel that enrich the military/security complex, and while we bail out banksters whose annual incomes are in the tens of millions of dollars and up.

It is impossible to get any truth out of the US government about anything. If private companies used US government accounting, the executives would be prosecuted, convicted, and incarcerated.

“Our government” is committed to fighting wars to enrich the military/security complex and Israel’s territorial expansion at the expense of cuts in Social Security and Medicare. All most members of Congress, especially Republicans, want to do is to pay for the pointless wars by cutting Social Security and Medicare.

When they worry about the deficit, it is usually Social Security and Medicare — so-called “entitlements” that are in the crosshairs.

You don’t have to be smart to see that Wall Street’s and the government’s response to the amazing US budget deficit is not to stop the senseless wars and bailouts of mega-millionaires, but to cut “entitlements.”

I will end this column on unemployment. “Our government” tells us that the unemployment rate is just under 10 percent, a figure that would have wrecked any post-Great Depression administration. But, again, “our government” is lying. The reported unemployment rate is just below 10% because the US government no longer, since the corrupt Clinton administration, counts Americans who have been unemployed for longer than one year. Once the unemployed hit one year and one day, they are dropped from the unemployment roles and no longer counted as unemployed.

Compare this fact with the number you read from the financial press. Right now, if measured according to the methodology of 1980, the US unemployment rate is about 22%. Thus, the reported rate of unemployment hides more than half of the unemployed.

And, in the August 2 New York Times, Secretary Treasury Tim Geithner welcomed us to “the recovery.”

Utterly amazing.

Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously an editor for the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.


Are You Ready For How Bad It Will Get?

Written by Graham Summers

For months now I have averred that the US economy was not in recovery and that in point of fact all talk of “recovery” was a load of BS.

I realize this view is far from the consensus. Even those who are in the bear camp aver that the Stimulus did in fact bring us out of recession at least temporarily.

However, I would strongly contend that the recovery was in fact non-existent for the following reasons:

  1. The Government data used to validate the recovery (GPD, unemployment, etc) is clearly massaged if not bordering on outright propaganda
  2. We are in fact in a depression and the “recovery” was simply a bounce in economic activity taking place within the context of a larger economy contraction

Regarding #1, every Government data point used in promoting the “recovery” had some degree of fudging in it. Let’s consider GDP for instance.

There are numerous devious tactics used to overstate GDP growth, however, the most obvious gimmick the BLS uses is overstating GPD growth in the present and then revising it lower in the subsequent quarters.

A perfect example of this is the latest GDP numbers which featured large revisions of the first two quarters of the alleged “recovery”: 3Q09’s GDP growth was revised down from 2.2% to 1.6% and 4Q09’s GDP growth was revised down from 5.6% to 5%.

In my opinion, these revisions occur because the Feds greatly overstate GDP growth via numerous gimmicks and then revise the numbers to be more in-line with reality after the fact.

For an example of how the Feds overstate GDP in the present, consider the recent 2Q10 GDP growth numbers. According to last Friday’s announcement, second quarter GDP growth came in at 2.4%. However, several portions of this growth are questionable to say the least.

For starters, the report claimed there was a 21.9% increase in equipment and software purchases. How on earth the Feds can claim this kind of growth in those sectors when durable goods orders decreased 1% across the board in June is beyond me? Were April and May both blockbuster months? No both were already showing signs of a downturn.

So how do we get a 21% increase in equipment and software purchases? There is no explanation for this. We’re meant to simply assume it happened because the Feds say so.

Another glaring issue is the BLS’s claims that real residential fixed investment jumped an astounding 27.9% in 2Q10. This would mean that we just put in the fastest Quarter over Quarter growth in the residential fixed income market in over 20 years.

And this is at a time when housing prices are rolling over along with home sales?

My primary point is that there are numerous components in the latest GDP number that are extremely suspect. For this reason I am confident in stating that the second quarter’s GDP growth, like all GDP growth in this great “recovery,” is in fact greatly overstated and will be revised downward later this year.

One can apply this same analysis to the unemployment numbers, CPI numbers, and virtually every other major statistic put out by the BLS and Federal Reserve and find similar, large glaring holes in the data.

Thus, right from the get go, the data used to justify all claims of “recovery” are suspect if not clearly fudged. Moreover, by revising the data lower after the fact, it’s clear that whatever economic upturn actually occurred was overstated.

If you want to split hairs, yes you could claim we had an economic recovery in the sense that things got less bad for a while, however this recovery took place within the context of a larger economic contraction or Depression.

A decent analogy would be to throw a rubber ball off the edge of the Grand Canyon. If the ball hit a ledge on the way down, it might bounce upwards temporarily, but unless it somehow cleared the edge from which you threw it, the ball’s trajectory remains “down.”

Put another way, this contraction is a DE-Bounce/ Recovery- PRESSION.

You can see this clearly in the context of some larger numbers. Indeed, when you account for inflation you can clearly see that this “recovery” was in fact a bounce that only brought us back to early 2007 GPD levels, not the former GDP peak (bear in mind that I am using the Feds’ own data which, as stated previously, overstates GDP growth dramatically).

In plain terms, this latest economic contraction is a different beast than anything we’ve seen before. Placing it in the context of a normal recession, particularly a “double dip” recession, is ridiculous as it is clearly a full-scale Depression broken up by a brief bounce (which was brought about by Global stimulus spending greater than that of WWI, WWII, and the New Deal combined).

Indeed, take out Government Spending, and it is clear that all talk of recovery is gibberish. If not for Uncle Sam’s spending the US economy would be in a near virtual free-fall.

Now, with Uncle Sam’s spend wearing off, we’re going back over the cliff. And stocks, which are pricing in a flawless recovery without the slightest hiccup (not the FIRST recession in US history to occur with unemployment already at 9.5% and GDP levels BELOW the former peak preceding the recession), are set for a horrific collapse.

The vast majority of investors have no clue what they’re in for. And they’re going to be taken to the cleaners. As I’ve mentioned countless times on these pages, every Crash follows the same pattern:

1) the initial drop
2) the corrective rally or bounce
3) the REAL fireworks

The collapse from April through July was #1. The rally from July to today was #2… and judging by yesterday’s action (the Fed announced $340 billion in additional monetization and the market STILL closed in the red)…#3 is likely around the corner.

Indeed, if $340 billion in additional funding can’t even kick start a market rally that closes in the green for the day then we are fast heading into very dark times for the markets.

If you have not already taken steps to prepare your portfolio for another round of serious deflation (this includes what to do about your gold holdings), you absolutely need to do so now.

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