Posted on 11/01/2007 7:01:20 PM PDT by Travis McGee
Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.
To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!
Just in case there is some confusion, the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation.
The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession.
Similar illusions are created in other numbers, such as retail sales, corporate earnings, and stock prices, which are all rising merely as a result of actual inflation being higher than the official reports. For example, higher retail sales reflect consumers paying higher prices for the products that they buy. They may in fact be buying less stuff, but are paying more for it. Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.
Corporate earnings, particularly those of multi-nationals, are padded as their foreign currency denominated earnings translate into more dollars when those earnings are repatriated. However, such gains are illusions, as companies merely earn more dollars of diminished value for the goods they sell. The actual volume of exports does not necessarily improve much, as evidenced by weak industrial production and manufacturing employment. When those additional debased dollars are paid out as dividends, they confer no real increase in global purchasing power to shareholders.
Similarly, just as inflation causes prices to rise for goods and services it causes stock prices to rise as well. Though such gains may be less than the actual increase in the cost of living, as long as the government gets away with using bogus CPI numbers which fail to fully reflect inflation, Wall Street takes credit for nominal gains as if they were real.
However, as ridiculous as the phony GDP number was, yesterday’s biggest joke was a report on global competitiveness put out by the World Economic Forum in Davos, Switzerland, which ranked the U.S. economy as the world’s most competitive. To arrive at this conclusion, the forum has obliterated the obvious under a mountain of theory. In determining country rankings, the WEF weighed strengths in their "12 Pillars of Competitiveness", including: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. Completely ignored however are the measurable results of competitiveness, notably a trade surplus and a strong currency.
It is as if the WEF decided to judge a weight loss contest without using a scale, by instead focusing only on mental attitude, dedication, perseverance, and nutritional education! As a result the prize is awarded to the fattest contestant. Based on the empirical evidence of a gargantuan trade deficit, staggering global indebtedness, and a declining currency, the United States is clearly not the most competitive economy in the world.
Amusing, but the reverse of the facts.
Actually per capita, Nevada, Georgia and Michigan rank the states with most or highest number of foreclosures.
You’re not sure are you? At one time their was no doubt about the standing of our economy. That certainity no longer exists.
You will change your mind about oil when it gets to 150/barrel. There is no other product that touches EVERY part of our economy like oil, nothing. Not just your Ferrari, but its tires, paint, plastic, vinyl, leather processing, aluminum, grease, steel, copper, glass, and yes, even the asphalt or concrete it rolls on. Oops, forgot about the gas.
And how about at home? Lumber, electricity, paint, water, heating, washer & dryer, clothing, dishes, trash hauling, pool heater, lawn mower, tools, etc.
Oh, and the store? Packaging, transportation, flooring, refrigeration, freezers, lighting, ALL types of food processing, etc.
There is nothing, nothing in anyones life that is not touched by petroleum products, whether in manufacturing, distribution or use.
And as to the governments calculation of core inflation? They obviously don’t have to drive to work and feed a family, especially when it comes to the seasonally adjusted bull crap and their swapping of the “basket items”.
You are correct. The cost of energy effects the cost of everything, and it aint pretty
For starters I work at the corporate office for a grocery chain in 18 states and have access to all of our costs & sales of data that we have. Second, you can read the sales reports for all of the big ones for same store sales fairly easily for pretty much any public company. Same store sales for most are 1-5% growth.
For the average worker, the increase in medical insurance and gasoline prices, by themselves, more than wipes out any wage increase. That's why most people don't think the economy is doing as great as those who watch the stock market or corporate profits to determine how well they think the economy is doing. Workers are offsetting this reduction in real income with huge increases in debt, especially credit card debt. The only way this can be sustained is for inflation to increase enough to force wage increases that will allow previous debt to be paid off with devalued dollars. Of course, this cannot be sustained forever and the sine wave will not be denied.
Welcome to my world
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There was a Chemistry professor in a large college that had some foreign exchange students in the class.
One day while the class was in the lab the professor noticed one of the exchange students kept rubbing his back and stretching as if his back hurt.
The professor asked the young man what was the matter. The student told him he had a bullet lodged in his back. He had been shot while fighting communists in his native country who were trying to overthrow his country’s government and install a new communist government.
In the midst of his story he looked at the professor and asked a strange question. He asked, “Do you know how to catch wild pigs?”
The professor thought it was a joke and asked for the punch line. The young man said this was no joke. You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come everyday to eat the free corn.
When they are used to coming every day, you put a fence down one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again and you put up another side of the fence.
They get used to that and start to eat again. You continue until you have all four sides of the fence up with a gate in the last side.
When the pigs, who are used to (and by now dependent on) the free corn start to come through the gate to eat, you slam the gate on them and catch the whole herd. Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it that they have forgotten how to forage in the woods for themselves, so they accept their captivity.
The young man then told the professor that is exactly what he sees happening to America. The federal government keeps pushing us toward Communism/Socialism and keeps spreading the free corn out in the form of programs such as supplemental income, tax credit for unearned income, tobacco subsidies, dairy subsidies, payments not to plant crops (CRP), welfare, medicine, drugs, etc. while we continually lose our freedoms - just a little at a time.
One should always remember ‘There is no such thing as a free Lunch!’
The reality, which is not being mentioned by the libs’, is that the spending on the war on terror is added into the GDP, and makes the economy look good, even though our standard of living has not substantially increased. But that is a choice that the American public (including the Dems) has made. They would rather be safe than have another chicken in the pot. And I can’t disagree with that choice. If you want to blame someone for the stagnating standard of living, blame the Islamacists who made this necessary.
I blame the “greenies”. We need energy to run this place and there IS a shortage due to China and India and the rest of the evolving world. We have plenty of the stuff but cant get at it because of the “greenies” and we have tied ourselves to the Middle East for fuel.
Then we went and tied our agricultural market to the energy market with ethanol.
Its madness
Looked at ammo prices lately?
Does it cost a dollar to print a dollar? Why does the fed need to make so much money again?
You could have seen higher prices on food and fuel in some places. You could have also seen lower prices on other things. (The former probably stand out in your mind more than the latter.) What I doubt is that you've seen actual evidence that inflation was definitely greater than 0.8%. Above all else, any anecdotal evidence you could have possibly seen in one single quarter, is too small a sample to be of statistical significance. But there are also the problems of confirmation bias and how representative the goods are that you tend to buy.
"Milk was $3.79 and later I saw it for $3.99, therefore inflation couldn't have been only 0.8%." Essentially that's what you're saying, and that is wrong. It is an incorrect argument. Even if you told me in full detail what goods you think you saw get more expensive (in 2007Q3), and by how much, there is nothing you could realistically say that would necessarily contradict the claim that inflation in that quarter was 0.8%.
Are you just whistling past the graveyard?
What "graveyard"?
Or maybe it’s wishful thinking on your part since you want to believe those growth numbers.
I don't "want to believe" those growth numbers. I don't care about those growth numbers. What I care about is shoddy argumentation.
I also grow weary of chicken-littles. We are a nation that can afford to spend $600 on "iPhones", supply each of our teenagers with an "iPod", buy water in bottles because we prefer the taste to tap, spend over $4 for a "latte" (coffee with milk) at Starbuck's, and make Alex Rodriguez a billionaire for hitting a ball with a stick in front of us. Yet for some reason we nevertheless feel this odd compulsion to tell ourselves (using our computers and internet connections, which we all have of course) how bad off we are and that economic disaster and depression is just around the corner. What whiners we are. I think anyone who thinks it's interesting and informative to whine that the government marked inflation at 0.8% instead of 2.8% or 5.8% in 2007Q3, and tries to use that as a launching pad into a discussion of how we have a horrible economy, should be required to travel back in time 75 years and give that same oh so clever speech to a randomly-selected group of Americans. Well, randomly selected - from Oklahoma.
Even if you're right that wouldn't contradict the 0.8% number, which is for 2007Q3 only. Maybe inflation was 14% in the first two quarters and 0.8% last quarter. Bingo, that gets us to 15% on the year.
Fuel prices are not going to go down by any substantial amount when China is using more and more of the world supply every day.
We will continue to see gov’t shills trying to convince us everything is under control when they can’t control a damn thing.
We’ll talk about this in a year and see if you still believe the govt statistics. I don’t have to read about Okies in the depression. My Grandmother participated and I have Aunts still living in California who migrated from Ok. during the depression.
Oh boy. Now we're judging inflation based on tuna. These arguments are getting worse, not better.
While the price PER CAN has increased a relatively modest 25% in price over a two year period, the contents have dropped by at least 50%.
Source? (I don't necessarily doubt you but source would be nice)
There are many anecdotal examples like this
Oh, I'm sure there are. And therefore it's enough just to talk about a can of tuna. Yes, this is a good argument that inflation must be >0.8%. I'm convinced now.
At the end of the day, people, regardless of income levels have a sinking sense "something is not right" They are correct.
What you mean is, you have a "sinking sense that something is not right". I, meanwhile, don't know what you're talking about. If you wanted to convince someone for real, what you'd do is, you'd make an actual argument, backed up by actual data, and stuff like that. You have not done so. till then,
The only way to fix it is to come up with more energy OR drive China over the brink, to were they cant afford it and all they invested in collapses
Please try to follow what I'm actually saying. Please.
I never said I "believe" the 0.8% government statistic. Almost the opposite. Please read the first sentence of my first post this thread.
What I said was that the writer of this article has no argument whatsoever against that statistic. And incidentally, neither do you.
I don’t have to read about Okies in the depression. My Grandmother participated and I have Aunts still living in California who migrated from Ok. during the depression.
Good. Why don't you call your aunts up and whine to them about how horrible the U.S. economy is today, instead of posting here. Better yet, send them an email, on your computer, saying this. I think you deserve their sympathy for living through the roughest, poorest time in American history. Truly, we are all suffering in abject poverty. Poor us!
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