Q3 GDP: Obviously Fictional 43 comments
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There was no surprise with the announced third-quarter GDP for the U.S. economy (+3.5%), however, there was some personal disappointment for me. The disappointment relates to the fact that few, if any, commentators were willing to speak up and exclaim that “the emperor is wearing no clothes.”
The reason that this is such a big disappointment is that the “official” number for U.S. Q3 GDP cannot withstand the slightest analytical scrutiny. So, allow me to analytically dissect this obviously fraudulent number.
Let's start with the big picture. At the end of 2008, official GDP was -6.4%. This was also likely an understatement, but for the sake of argument let's treat it as “fact”. Move ahead to the Q3 2009 reading of +3.5% and we see a swing of 10% in U.S. GDP – in merely the span of nine months. The only factor in the U.S. economy pushing against this massive contraction (and debt implosion) is the “Obama stimulus package”. However, using the Obama regime's own numbers, less than $300 billion of true “stimulus” would reach the U.S. economy over the course of this entire year.
This means that as of the end of Q3, only about $200 billion of true stimulus has entered the U.S. economy. If anyone actually believes that this $200 billion could create a 10% shift in U.S. GDP, the following points will quickly dispel that fantasy.
Regular readers will recall that I have pointed out on a number of occasions that the U.S. economy has lost roughly $2 trillion in spending-power from the peak of the housing bubble. This is comprised of roughly ½ reduced credit, and ½ lost income. On the credit side, at the peak of the bubble, U.S. homeowners extracted $840 billion in (temporary) “equity” in 2006 alone. That source of credit has virtually disappeared – along with billions in other categories of “consumer credit”.
The following graph from the St. Louis Fed helps to illustrate this more clearly.
As you can see, for the first time in the more than 40 years for which this data has been kept, U.S. consumer credit is steadily contracting. This 40-year period also marks the era in which the U.S. economy has become totally dependent on ever expanding debt/credit. Clearly, a mere $200 billion in stimulus could do little more than slow down the U.S. economic collapse – and certainly not reverse it.
With the U.S. economy now burdened with $60 trillion in total public/private debt, it already spends trillions each year simply paying the interest on this debt. Thus, this Ponzi-scheme economy now requires a steady, significant rise in credit merely for this economy to “tread water” (i.e. zero growth). By itself, contracting credit is a powerful downward force on the U.S. economy. The following point will make this even more obvious.
As I have recently stated, the U.S. government can never afford to voluntarily raise interest rates again. A mere 1% increase in interest rates would result in $600 billion per year in added interest payments (on top of the existing trillions per year in interest payments). I observed that, by itself, this $600 billion extracted from the U.S. economy would be equal to roughly a 5% drop in GDP.
I also added that the total drop in U.S. GDP would be greater than 5% because of the spin-off (or “multiplier”) effect of that withdrawal of cash. This begs the question: how large a multiplier effect would be a reasonable estimate?
If we look at the Obama stimulus package, and the purported gain in U.S. GDP, we are supposed to believe that a mere $200 billion could cause a 10% shift in GDP. If that was true, then a 1% increase in U.S. interest rates, which would lead to a subtraction of $600 billion from the economy (three times the amount of Obama stimulus) implies a drop in U.S. GDP of 30%. If anything, a 1% increase in interest rates would cause an even larger collapse in the U.S. economy – since this additional push would be working with the existing downward momentum, not against it (like the Obama stimulus package).
If I wrote a piece claiming that a 1% increase in U.S. interest rates would cause a 30% drop in U.S. GDP, would anyone believe that? Yet, if you refuse to believe those numbers, then you can't possibly place any credence on the GDP number which the U.S. government fabricated for the third quarter.
However, denouncing this ridiculous farce isn't dependent on logic, alone – we also have our “smoking gun”. In order to fabricate a number as wildly inaccurate as Q3 GDP, the U.S. government had to also fabricate additional data – most notably the “GDP deflator”.
For those who haven't had this explained to them before, every GDP estimate must be “deflated” (by the prevailing inflation in the economy). If this wasn't done, then the “raw” GDP data is totally invalid – because there is no separation of how much of that “growth” was a genuine increase in economic activity, and how much was merely higher prices.
For the third quarter, the U.S. government used a “deflator” of less than 1%. Again, it is easy to demonstrate that this number has no connection to the real world. As we have all heard, the entire world is engaged in a game of “competitive devaluation” of their currencies. Obviously “devaluing currencies” is identical to “rising prices” (i.e. inflation) since by definition it requires more units of a devalued currency to purchase goods.
In a world of devaluing currencies, the U.S. dollar has managed to fall much farther than almost every other currency in the world. Again, as a matter of logical necessity, this means that the U.S. economy must experience more inflation than other economies – not less. Yet other governments are beginning to withdraw monetary stimulus from their economies, precisely because of growing inflationary pressures.
As a further rebuttal of the ridiculous inflation numbers of the U.S. government, we have the well-respected John Williams, and his own web-site: shadowstats.com – which calculates U.S. economic statistics using the same methodology which was used a generation (or two) ago, before the U.S. government added all of its “techniques” for manipulating those same statistics. Williams pegged Q3 U.S. inflation at roughly 7% - a huge gap from the less-than-1% the U.S. government used to “deflate” its raw GDP data.
In short, any commentator who removed his/her “blinders” to take a close look at the latest U.S.GDP number would have to reject it as being inaccurate to the point of total irrelevance – assuming one is capable of performing simple arithmetic. The fact that even critics of U.S. official “statistics” refuse to denounce this number as fraud is a regrettable demonstration of their own timidity.
“The emperor is wearing no clothes,” and I'm not afraid to explicitly state this. We will all be better off when other commentators who are not part of the corporate propaganda-machine will cease their own self-censorship and explicitly denounce the endless stream of fraudulent “statistics” of the U.S. government.
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Fortunately those dark days are over and here in the Soviet of America we have government of the Regime, by the Regime and for the Regime........ in name of the People.
The sole source and repository of truth, in these bright and shining times, are the Statistics of the Government. Reality is what the Statistics say it is. If the Statistics say there is a "V" recovery accelerating into a boom (Wall St be praised) then it is so. If the Statistics say that jobs without number have been" saved and created" then it is so(WashDc be praised). If the Statistics say that uncounted home foreclosures have been prevented by the wisdom, skill and ceaseless labors of the Regime then it must be so (MSM be praised)
The Statistics have been handcrafted with exquisite care and devoted attention to detail by Master Deceivers assembled with great effort and cost from across the land. They must only be viewed in the dim light of the MSM or the strobe lights of Wall St. When viewed thus, in the proper and approved manner, they appear remarkably lifelike.
It is forbidden to view them in daylight because they are simply too fine, too delicate, too magical to be seen by the destructive light of reason and logic.
The Regime be praised and may all Middle class doubters be exposed and hunted down....in the name of the Statistics.
All of the media "business" shows are at fault, with a few exceptions. But I believe CNBC to be the worst prostitute, as they have to stay the corporate course for GE, consort to obama.
We have Capitol Hill truth, Wall Street truth and finally Main Street truth, while CH & WS share similar goals and ambitions and have appeared to formed a strong alliance MS has been left to fend for itself, CH gets more powerful, WS gets wealthier and MS gets the shaft, it was the same during the GD, there is a method to this madness which favors the carpetbaggers once again
On Nov 08 07:30 AM chris coonan wrote:
> why isn't there a major questioning of statistics in the media?
> i know from looking at the BLS for the Architecture profession that
> the numbers are far from accurate. In a field which is suffering
> due to lack of billings, lack of future projects, and no credit....the
> unemployment rate is reported as 9 percent in the Q3 of 2009, below
> the national average. how can that be possible? IT ISN'T
On Nov 08 09:07 AM fwi wrote:
> chris coonan asks why the media doesn't question the numbers. They
> don't because they do not know what they are talking about. Bob Pisani?
> Erin Bernett? None of these teleprompter and cheerleading queens
> have any business experience or education. You don't major in Broadcasting
> and learn anything about gdp deflators or derivative structures.
>
>
> All of the media "business" shows are at fault, with a few exceptions.
> But I believe CNBC to be the worst prostitute, as they have to stay
> the corporate course for GE, consort to obama.
I am 85 years old and in all my life have never experienced the lies, half truths, coverups and scandals that I see our governement perpetuating on daily basis. Keep your passion for calling the US out on the biggest fraud we have seen in centruies from any govenrment.
GoldLovingTurtle
I knew there was some way to pay for the $10,0000 Obama dress.
So see yourself out the door and don't let it hit you in the keister on the way out!
We won't miss you.
GreatWhite
On Nov 08 11:44 AM Mad Hedge Fund Trader wrote:
> ngs Ouch! Another 190,000 jobs went down the crapper in October,
> taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged
> job seekers, and that puts the jobless rate at gut churning 17.5%,
> and over 20% in California. Along with yesterday’s stunning, gob
> smacking 9.5% increase in Q3 productivity, the figures point a giant
> arc spotlight on what is really happening in the economy. Companies
> are still firing workers en mass to boost profits. After getting
> blood from a stone, they are returning to the same rock for one more
> drop. I guess if I fire myself, the profitability of my business
> would go through the roof too, and maybe even my stock would rise.
> At least then, I would be rid of my oldest, most expensive, but least
> productive employee, who is the most difficult to get along with,
> maxes out his sick and vacation days, and wears the same clothes
> to work every day, even when there lipstick on the collar. But then
> who would write this daily letter? Maybe Cecelia, my cleaning lady
> would do it. She’s cheap. You don’t mind getting this letter in Spanish,
> do you? ¡Andale! This explains why when you go into Office Depot
> these days, there is only one minimum waged employee standing at
> the cash register, the hours on the phone I have to wait to get technical
> support from Dell, and the endless unmovable lines at Citibank. America’s
> service economy has become all about denying service to customers.
> The scary thing is, with companies firing their way to prosperity,
> what happens when we get another dip? My theory is that the US has
> entered an era of chronically high unemployment that is never going
> away, no matter what the government does. Goodbye USA, hello Germany!
-----
You seem to like facts and logic, so let's parse those statements you made.
(1) "At the end of 2008, official GDP was -6.4%." Wrong. The RATE OF GROWTH of the GDP was -6.4%, not the GDP itself. The GDP was contracting at a 6.4% annual rate. That's what happens in a recession, overall economic activity contracts. There is a difference between size and rate of change, just as there is a difference between, say, a car's location and its velocity of movement away from that location.
(2) "This means that as of the end of Q3, only about $200 billion of true stimulus has entered the U.S. economy. If anyone actually believes that this $200 billion could create a 10% shift in U.S. GDP, the following points will quickly dispel that fantasy." Wrong again, repeating the same mistake. The $200 B did not create, and is not claimed to have created, a 10% shift in GDP. It is one of many factors that led to a CHANGE IN THE RATE OF GROWTH in GDP from -6.4% annualized to +3.5% annualized. There have been many such shifts in history. Just look at any long-term chart of quarter-to-quarter changes in the rate of growth of GDP over the years. There is nothing remarkable about this. It is what typically happens towards the end of recessions.
(3) "The only factor in the U.S. economy pushing against this massive contraction (and debt implosion) is the 'Obama stimulus package'." Wrong again. There are lots of factors. Since we are talking about a rate of change, not absolute size, any economic measurement or activity that contracted at a slowing rate of speed, or flattened out instead of contracting, or turned upward from a downward trajectory, ALL contributed to the change in the rate of growth in GDP. There are literally thousands of such factors. Many of them are reported in a continuing stream of data and information almost daily.
Surely you must understand the difference between the size of something and the rate at which it is changing? If you do, I'm wondering why you write such misleading sentences as the ones quoted here? Perhaps the reason the MSM didn't look into things like the ones stated here is because they are false, illogical, and misleading, not because the journalists are part of a massive conspiracy or lazy. If you are going to present analysis to help the users of SA, you could use facts and sound logic. Efforts to dig behind government (or any kind) of information are welcomed, but such obviously flawed statements diminish any writer's credibility.
Foreign dollar holders currently have over 50% of the dollar supply; our policy wonks think that tax revenues will come in a tidal stream once these dollars are spent on American made goods, services and/or assets. These tax revenues will be used to pay down the government’s huge debt load. And once the debt load is paid off, the smoke screen numbers they gave will not even be a footnote in history books.
And once again our political leaders will be in control of events.
President Obama and Congress will revise the bankruptcy laws so that individuals can use legal means to get out from under their debt load.
And the above is the scenario that will supposedly play out in the coming months and years.
I think the better argument is simply to point out how simply injecting money into GDP doesn't an economic recovery make. Cash for clunkers cost far more than it saved yet it accounts for a big portion of the Q3 gdp blip.
It would make more sense to take the money they are borrowing, and just pay producers not to produce until natural demand drove the prices up. I hate supply side manipulation for some of its moral implications, but this whole approach of creating artificial demand is probably even more ineffective and will with all certainly lead to successive bubbles and crashes down this mega mountain slope we are on.
Artificial demand is not any less deceptive and destructive however, since its the economic equivalent of an infomercial for a product that doesn't live up to its promises and/or hardly gets any use.
Even better is they could stop borrowing money altogether, but that would take confident, strong leadership that could handle one really bad year.
They seem to have fully committed to this course, and it seems like at this point, much like businesses I have seen prior to their implosion or failure, are sticking with the program just to maintain face, to not have to admit they were wrong, very wrong, at the start, and that things are in fact worse now than they were. It is probably the biggest weakness any businessperson could have.
However in the land of politics, you can't be a waffler, so you have to stick to the same line until your ship sinks. Unfortunately, with government at the helm of the US economy we are now all on that ship!
First, actually at the end of 2008, or in Q4 of that year, the official annualized GDP contraction rate was 5.4%, not 6.4% as you stated.
Second, your claim of a 10% swing by merely subtracting annualized growth rates from each other, which are based on SEQUENTIAL growth estimates, is not correct. The 3.5% annualized growth rate basically means that compared with the prior quarter (Q2), the economy grew at a 3.5% annualized rate, or a monthly rate of around .292%. So its saying that if the economy grew at this rate for the next 12 months, then we could say that the economy expanded at a rate of 3.5%. Such rate is not directly related to the Q4 2008 GDP. Similarly, the annualized 5.4% contraction rate of Q4 2008 was based on the sequential estimated growth for that quarter.
Simply put, your assumption of a "10% shift in U.S. GDP" during the last 9 months doesn't appear to be correct.
The 3.5% growth rate figure is derived from BEA's estimated chained-dollar GDP, which I would say would be a better figure for you to use because then you can actually compare it with Q4 2008. If you do that, you will actually see that compared with Q4 of last year, the Q3 GDP contracted at a 1.3% annualized rate, indicating a less significant "shift".
I personally believe the second category to be MUCH more abundant than the first. Living in an era of unprecedented "group-think", it takes only a tiny amount of manipulative "shepherds" to heard all of the ignorant sheep.
You buy-off a few high-profile (and totally unprincipled) shills like Cramer, make sure they have a HUGE "platform" from which to spew their propaganda - and allow them to deceive our generation all of the "mental couch potatoes".
On Nov 08 07:19 AM socrateaz wrote:
The big dramatic swings in GDP are due to calculation methodology.
www.planbeconomics.com.../
One point I'd like to emphasize is the phoniness of the inflation numbers, among all the other government's fountain of mis-information - and that is how many people believe the fairy tale called deflation.
Look at all of the, as I call them, "deflation dummies" who are falling all over themselves to buy Treasuries at near 0% in the biggest financial bubble ever. And all because they believe the fairy tale concocted by Wall Street and Washington about deflation.
Don't they understand that the whole deflation fairy tale was cocncocted so the powers that be could find some investors dumb enough to buy US government debt.