The Never Ending Recession–What’s In Your GDP

“The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity. The popularly followed number in each release is the seasonally adjusted, annualized quarterly growth rate of real (inflation-adjusted) GDP, where the current-dollar number is deflated by the BEA’s estimates of appropriate price changes. It is important to keep in mind that the lower the inflation rate used in the deflation process, the higher will be the resulting inflation-adjusted GDP growth.”John Williams – Shadowstats

GDP is the economic statistic bankers, politicians and media pundits use to convince the masses the economy is growing and their lives are improving. Therefore, it is the statistic most likely to be manipulated, twisted and engineered in order to portray the storyline required by the elite. Two consecutive quarters of negative GDP growth usually marks a recession. Those in power do not like to report recessions, so data “massaging” has been required over the last few decades to generate the required result. Prior to 1991 the government reported the broader GNP, which includes the GDP plus the balance of international flows of interest and dividend payments. Once we became a debtor nation, with massive interest payments to foreigners, reporting GNP became inconvenient. It is not reported because it is approximately $900 billion lower than GDP. The creativity of our leaders knows no bounds. In July of 2013 the government decided they had found a more “accurate” method for measuring GDP and simply retroactively increased GDP by $500 billion – essentially out of thin air. It’s amazing how every “more accurate” accounting adjustment improves the reported data. Economic growth didn’t change, but GDP was boosted by 3 percent. However, this upward adjustment pales in comparison to the decades long under-reporting of inflation baked into the GDP calculation.

GDP is adjusted for inflation. The higher inflation factored into the calculation, the lower reported GDP. The inflation deflator used by the BEA in their GDP calculation is even lower than the already bastardized CPI. According to the BEA, there has only been 32 percent inflation since the year 2000. They have only found 1.4 percent inflation in the last year and only 7.1 percent in the last five years. You’d have to be a zombie from the Walking Deador an Ivy League economist to believe those lies. Anyone living in the real world knows their cost of living has risen at a far greater 70 rate. According to the government, and unquestioningly reported by the compliant co-conspirators in the the corporate media, GDP has grown from $10 trillion in 2000 to $17 trillion today. That  percent growth over the last fourteen years is dramatically overstated, as revealed in the graph below. Using a true rate of inflation exposes the fraud being committed by those in power. The country has been in a never ending recession since 2000.

sgs-gdp

Your normalcy bias is telling you this is impossible. Your government tells you we have only experienced a recession from the third quarter of 2008 through the third quarter of 2009. So despite experiencing two stock market crashes, the greatest housing crash in history, and a worldwide financial system implosion the authorities insist  we’ve had a growing economy 93 percent of the time over the last fourteen years. That mental anguish you are feeling is the dissonance of wanting to believe your government, but knowing they are lying. It is a known fact the government, in conspiracy with Greenspan, Congress and academia, have systematically reduced the reported CPI based on:

  • hedonistic quality adjustments,
  • geometric weighting alterations,
  • substitution modifications,
  • and the creation of incomprehensible owner’s equivalent rent calculations.

Since the 1700s consumer inflation had been estimated by measuring price changes in a fixed-weight basket of goods, effectively measuring the cost of maintaining a constant standard of living. This began to change in the early 1980s with the Greenspan Commission to “save” Social Security and came to a head with the Boskin Commission in 1995.

Simply stated, the Greenspan/Boskin Commissions’ task was to reduce future Social Security payments to senior citizens by reducing the CPI and thereby reducing cost of living adjustments to social security recipients. The tactic provided an “easy way out” for politicians. Politicians would lose votes if they ever had to directly address the unsustainability of Social Security. As a result, they allowed academics to work their magic by understating the CPI and stealing $700 billion from retirees in the ten years ending in 2006. With 10,000 baby boomers per day turning 65 for the next eighteen years, understating CPI will rob them of trillions in payments. This is a cowardly dishonest method of extending the life of Social Security.

If CPI was calculated exactly as it was computed prior to 1983, it would have averaged between 5 percent and 10 percent over the last fourteen years. Even computing it based on the 1990 calculation prior to the Boskin Commission adjustments, would have produced annual inflation of 4 percent to 7 percent. A glance at an inflation chart from 1872 through today reveals the complete and utter failure of the Federal Reserve in achieving their stated mandate of price stability. They have managed to reduce the purchasing power of your dollar by 95 percent over the last 100 years. You may also notice the net deflation from 1872 until 1913, when the American economy was growing rapidly. It is almost as if the Federal Reserve’s true mandate has been to create:

  • inflation,
  • finance wars,
  • perpetuate the proliferation of debt,
  • artificially create booms and busts,
  • enrich their Wall Street owners,
  • and impoverish the masses. Happy Birthday Federal Reserve!

inflation-1872-present-alt-cpi

When you connect the dots you realize the under-reporting of inflation benefits not only the government but corporations as well. If the government was reporting the true rate of inflation, corporations would be forced to pay their workers higher wages, reducing profits, reducing corporate bonuses, and reducing profits.  Reporting a true rate of inflation would force long-term interest rates higher. These higher rates, along with higher COLA increases to government entitlements, would blow a hole in the deficit and force politicians to address our unsustainable economic system.

Lies, Damned Lies and Government Statistics

Railcar-Loads-of-Waste.jpg

My grandfather grew up in small town Wisconsin.  He worked long hours at a community drug store to support his wife and nine kids. Their family never had much money. He never had access to the opportunities of today, and yet he was one of the wisest people I have ever known. 

He taught me many life lessons, one of which went like this: “Joe, most folks will lie even when the truth works better.”

Not an especially positive view of humanity, but it is accurate.

Nowhere is the truth of his admonition better seen than when man is collectivized and given authority.  Whether in government, corporation or union, the fact is that most people are liars. Liars lie. Good liars rise to the top. And when good liars are collectivized they lie more frequently and more effectively.  When they have control of the numbers, it makes their deceit more difficult to discover.  When they can make up the numbers, it can make unwinding them a near impossibility.

Take the recent unemployment numbers that took the U.S. stock market to fresh three month highs.  According to the U.S. Department of Labor, 163,000 new jobs were created in July, 2012.

Sounds good enough, but like most numbers, even if it is accurate, which it is not, it creates an intended deceit. 

Looking at the Bureau of Labor Statistics own tables reveals the following startling fact: The U.S. actually lost 1,204,000 jobs in the month of July, 2012.  Don’t believe it?  Take a look at the actual unadjusted data from the Bureau of Labor Statistics

During July, 2012, the private sector added a net 27,000 jobs which represented an added 76,000 goods-producing jobs less 49,000 jobs lost in the service sector.  The other million plus were lost in the public sector.  The 163,000 represents a number that has nothing to do with reality, but rather represents a model that supposedly takes into account the seasonality of certain jobs. 

In short, the BLS report showing 163,000 added jobs is statistical wizardry by bureaucrats with calculators following the demands of liars who want the numbers spun.    

If you give it some thought, it makes no sense that employment is expanding.

GDP is falling, in part because fewer people are working, which might also explain why tax receipts per employee are also falling.  A contracting, not expanding, workforce might also explain these numbers from the ISM’s July Manufacturing Purchasing Manager’s Index (PMI) report.  The PMI registered 49.8 percent, which was a contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion.  And, the New Orders Index registered 48 percent, indicating contraction in new orders for the second consecutive month.

A rising number of unemployed might also be consistent with:

  • ISM’s New Orders Index of 48 percent in July, represented a contraction in new orders for the second time since April, 2009.
  • The Inventories Index registered 49 percent in July, 5 percentage points higher than the 44 percent reported in June. ISM’s Employment Index registered 52 percent in July, 4.6 percentage points lower than the 56.6 percent reported in June.
  • ISM’s New Export Orders Index registered 46.5 percent in July, 1 percentage point lower than the 47.5 percent reported in June, and represents the second month of contraction in the index since June, 2009.
  • ISM’s Imports Index registered 50.5 percent in July, 3 percentage points lower than the 53.5 percent reported in June.

The employment numbers are even belied by garbage, not just the government’s garbage, but real garbage.  Recently Bloomberg interpreted the number of carloads of trash being hauled by U.S. railroads.  “As Bloomberg explains: 

One closely watched economic indicator is the rail car loads of waste and scrap materials.” Logically: “The more we demand, the more waste is generated by that production.” In other words, if one is seeking validation that numbers reported by the BEA are even remotely credible, the best place to turn to is railcar loads of garbage. However, not surprisingly, such validation will not be found in the actual data. As the chart of the day, courtesy of Bloomberg Brief, demonstrates, if garbage is the benchmark, the US economy is now contracting faster than it has at any one point in the past 3 years and is on pace to recreate the economic collapse last seen after the Lehman bankruptcy. Perhaps another reason why central planners have latched on to stock markets and will just not let go.

As the following chart, courtesy of Bloomberg Brief, demonstrates, if garbage is the benchmark, the US economy is now contracting faster than it has at any one point in the past 3 years and is on pace to recreate the economic collapse last seen after the Lehman bankruptcy.

Railcar Loads of Waste

Perhaps another reason why central planners have latched on to stock markets and will just not let go.

In the big picture, the numbers still don’t add up.  The “civilian labor force participation rate” is now at 63.7 percent of the total workforce. The total employment to population rate is 58.4 percent.   This puts these rates back to about 1982 (see where blue and red lines intersect the black line).

If participation keeps falling precipitously, does it make sense that jobs are being added and filled? 

Civilian Employment Population Ratio

From employment to GDP, government skews the numbers to the favor of, well, government.  Obama does it, Bush did it, and the next up in the liar’s list of America’s “leaders,” will do it and for the same reasons:  to keep the people calm and compliant. 

And, while it appears government is lying to its advantage, in fact it is lying when the truth would work better.  Why?  The lies upon lies will soon become incredible.  The people will look around and see that more, not less, of the people they know – their neighbors and their friends – are unemployed, and one day the published numbers will mean nothing anymore.  No doubt the truth would be taken hard today, but the truth would provide a foundation for solutions that make sense.  Relentless denial is rarely, if ever, the answer to any problem.

A good starting point for anyone interested in analyzing government numbers is to assume that any number publicized by government is a lie.  The first question to be asked is, “to whose advantage?”  The second question, “Where is the raw data?”  Then, combining common sense with a little research you may still not get to the real number, but you will get closer than the lies being fed to the willing by the liars who lie even when the truth would work better.

The Disconnect Between Household Wealth and GDP Growth

Twenty years of going nowhere! Where are we?

If you have been paying attention… you know there is something wrong. The world’s leading economy, in the most dynamic, inventive period in human history, has failed to make people a penny richer.

GDP went up. But real wages did not. In fact, people got nowhere financially – if they were lucky. And many families got caught in the credit/housing bubble. When it blew up they got knocked back… losing wealth.

I will give you the conclusion before I give you the facts: the “growth” in the last 20 years has been largely phony. The wheels on the economy spun around faster and faster. The shopping malls were full. Houses were built on nearly every vacant lot. Wall Street cashed big checks. But, overall, it was an illusion. Compared to a real boom, it was a counterfeit. Nobody got anywhere.

Here’s the story from The New York Times:

Family Net Worth Drops to Level of Early ’90s, Fed Says

WASHINGTON — The recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, the Federal Reserve said Monday.

A hypothetical family richer than half the nation’s families and poorer than the other half had a net worth of $77,300 in 2010, compared with $126,400 in 2007, the Fed said. The crash of housing prices directly accounted for three-quarters of the loss.

Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007. All figures were adjusted for inflation.

The new data comes from the Fed’s much-anticipated release on Monday of its Survey of Consumer Finances, a report issued every three years that is one of the broadest and deepest sources of information about the financial health of American families.

While the numbers are already more than 18 months old, the survey illuminates problems that continue to slow the pace of the economic recovery. The Fed found that middle-class families had sustained the largest percentage losses in both wealth and income during the crisis, limiting their ability and willingness to spend.

The share of families saving anything over the previous year fell to 52 percent in 2010 from 56.4 percent in 2007. Other government statistics show that total savings have increased since 2007, suggesting that a smaller group of families is saving more money, while a growing number manage to save nothing.

You might be tempted think that this is just a temporary setback…that when things return to normal the typical household will recover two decades of financial progress too.

Don’t count on it. Household wealth in the US rests on housing and wages. Housing prices might stop dropping; they are unlikely to enter a new bull market. Instead, they will probably track GDP growth, just like they always did. Nor can you expect to see wages rise substantially. Why? Because there are 15 million people who don’t have jobs. It will be a long time — practically forever at the current rate — before they are absorbed into the labor force again. Until this huge inventory of willing and able labor is put to use, don’t expect wages to go up.

In other words, when things return to normal they will be what they are now… The bubble was an illusion. The current, dismal situation is real.

The New York Times continues, pointing out that if the feds had let Mr. Market do his work in ’08/’09 the rich wouldn’t be so rich…

The data does provide the latest indication, however, that the recession reduced income inequality in the United States, at least temporarily. The average income of the wealthiest families fell much more sharply than the median, indicating that some of those at the very top of the ladder slipped down at least a few rungs.

First, the feds made the rich richer by creating a phony, credit-fueled economy, where the amount of credit grew 50 times over the last 50 years. Then, when the credit bubble blew up, the feds stepped in to prevent the rich from losing money. And now the feds moan about the ‘inequality’ in our society…and how they have to do something about it. Haven’t they done enough already?

 

What If We Have Never Left the Recession?

Q1-2012-Prelim-GDP.jpg

It has been nearly four years since the Great Recession began in 2008 with the near collapse of our financial system caused by the Wall Street banks and their cronies in Washington D.C.

Reported GDP Is Overstated and Inflation Unstated

The mainstream media has been telling the American people that we have been out of recession and in recovery since the 4th quarter of 2009. It has been a recovery for the Wall Street bankers and the mega-corporations that have laid off millions and opened new factories in Asia. The stock market has doubled from its 2009 lows. All is well on Wall Street – not so much on Main Street.

The main stream media reported recently that 2nd quarter GDP rose 1.3 percent – barely above “stall” speed. After accounting for government massaging and real inflation this meager growth confirms that we are back in recession (if we ever left). Also, keep in mind that this figure will almost certainly be revised downward. This is all we get? Take a look at this chart.

Q1 2012 Prelim GDP

According to the BEA, REAL GDP was $13.3 trillion in the 2nd quarter of 2008 before the economic crisis. As of today, the BEA says real GDP is $13.5 trillion. Even this modest increase in GDP is based on the assumption that the Consumer Price Index (CPI) is only up 6 percent during that period. However, in that same period, gasoline prices are up 20 percent. Even the BLS manipulated inflation figures show that Food has gone up 11 percent since the 2nd quarter of 2008.

The truth is that inflation is under reported by the Federal government by up to 5 percent. If GDP was properly adjusted for real inflation, we would have negative GDP growth – significant negative growth. We have never left the recession.

Even Using BEA Numbers The Picture Is Awful

Even if we use the real GDP figures provided by the BEA, the result is absolutely horrific when analyzed in comparison to what our leaders have done:

    • Real GDP has gone up by $200 billion since the 2nd quarter of 2008, a 1.4 percent increase.
    • The National Debt has gone from $9.5 trillion in the 2nd quarter of 2008 to $15.6 trillion today, a 64 percent increase. Not much bang for our buck.
    • There were 146 million Americans employed in the 2nd quarter of 2008. Today there are 142 million employed Americans. The working age population has risen by 10.5 million over this same time frame. According to the BLS, almost 8 million Americans willingly decided to leave the workforce during this time and do not count as unemployed.
    • Profits of the mega-corporations making up the S&P 500 are at all-time highs.
    • Wall Street Too Big To Fail banks have paid out average bonuses of $130,000 per employee from 2009 through 2011. The average compensation is $350,000.
    • Wall Street banks reaped $102 billion of profits between 2009 and 2011, as Ben Bernanke bought their toxic debt and continues to loan them trillions at 0 percent interest.
    • Five million Americans lost their homes to foreclosure since 2008.
    • There will be at least 6 million more foreclosures in the next three years.
    • Consumer expenditures accounted for 69.7 percent of GDP in the 2nd quarter of 2008. After three years of supposed austerity consumer expenditures account for 70.7 percent of GDP.
    • Senior citizen savers are earning $400 billion less of interest income today than they were in the 2nd quarter of 2008.
    • Real GDP went up by $73 billion in the 1st quarter. A full 70 percent of this increase was due to durable goods purchases by consumers. This increase was solely due to ALLY FINANCIAL (85 percent owned by the Federal Government) and the rest of the Wall Street banks peddling auto loans to subprime (aka deadbeats) borrowers.

The reality is that we have never left recession and are sliding deeper into depression.

This article originally appeared on the Burning Platform.

GDP: A Theater of the Absurd

PCE-GDP-2012-05.png

How do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA’s deflator for Personal Consumption Expenditures (PCE) and quite a bit different from the better-known Bureau of Labor Statistics’ inflation gauge, the Consumer Price Index (CPI).

The Lower the Deflator, the Higher GDP

At the bottom of this post is a note showing the real GDP calculation method. Suffice to say that the higher the increase in compounded annual percentage change in the deflator, the lower the real GDP. Conversely the lower the increase (or if there is a decrease), the higher the real GDP.

GDP Four Ways
There are four ways used to calculate GDP using four different deflators.

  1. GDP deflator (the official number) : GDP +1.86, 10-Year Moving Average +1.7
  2. PCE deflator (personal consumption expenditures) : GDP +1.13, 10-Year Moving Average +1.6
  3. CPI deflator (consumer price index) : GDP +1.05, 10-Year Moving Average +1.4
  4. John Williams’ Shadowstat measure of inflation  : GDP -10.50, 10-Year Moving Average -5.1

  5. The first three charts are all similar looking but charts 2 or 3 seems more reasonable than the official numbers. Here are two of the charts.

    Real GDP Using PCE
    PCE GDP 2012-05

    Shadowstats GDP

    Williams GDP 2012-05

Alternate Nonsense

In reality, Shawdowstats GDP calculation is nonsense. For Williams to be correct one would have to believe the economy was in a recession the vast majority of the time for the last 25 years.

Williams has a huge following, mainly by the hyperinflationist crowd. Williams himself has been predicting hyperinflation for some time.His hyperinflation calls missed by a mile. The dollar is strengthening, consumer credit is  sinking, and treasury yields recently made 60-year lows.

This is what happens when you fail to take into consideration:

  • Credit conditions
  • Global economic conditions 
  • Printing by other central banks especially China 
  • Currency instability in Europe 
  • Untenable situation in Japan

  • Williams makes all of those mistakes, being far too US-centric in his analysis, and compounds the errors by using a methodology that produces the absurd results shown above and also by confusing unfunded liabilities with debt.

    $1.06 Trillion of Consumer Debt is Currently Delinquent

    Note that according to the May
    HOUSEHOLD DEBT AND CREDIT report by the Fed, consumer credit other than student debt is contracting. Also note that $1.06 trillion of consumer debt is currently delinquent, with $796 billion seriously delinquent.

    Think that will be paid back? I don’t. And hyperinflationists fail to understand the deflationary ramifications.

    I agree that the US has a day-of-reckoning coming, but the entire fiat global financial system fueled by insane levels of fractional reserve lending will come crashing down at the same time.

    That is why I am a deflationist.